Helen of Troy Limited, parent of Osprey Packs and Hydro Flask, reported fiscal first-quarter consolidated net sales revenue decreased 12.2 percent to $416.8 million, compared to $474.7 million in the prior-year comparative quarter. The decline was primarily driven by a decrease in sales of hair appliances, prestige hair care products and humidifiers in Beauty & Wellness and a decline in Home & Outdoor. The Home & Outdoor decline was said to be primarily due to lower replenishment orders from retail customers and the impact of the shipping disruption at the company’s Tennessee distribution facility due to automation startup issues affecting some of the segment’s small retail customer and direct-to-consumer orders. These factors were partially offset by International growth and higher sales of fans in Beauty & Wellness.

  • Home & Outdoor net sales revenue, which contains the Osprey Packs and Hydro Flask brands, decreased 8.6 percent to $198.5 million in the quarter, compared to $217.1 million in the prior-year quarter. The decrease was driven by lower replenishment orders from retail customers, softer consumer demand, shifts in consumer spending, a global outdoor slowdown in packs and accessories, increased competition in the insulated beverageware category, and the impact of the shipping disruption at the company’s Tennessee distribution facility due to automation startup issues affecting some of the segment’s small retail customer and direct-to-consumer orders. These factors were partially offset by new and expanded distribution, incremental sales from the launch of the travel tumbler, and an increase in international sales.

Consolidated gross profit margin increased 330 basis points to 48.7 percent of net sales, compared to 45.4 percent in the prior-year comp quarter. The increase in consolidated gross profit margin was said to be primarily due to a favorable segment mix with a higher percentage of Home & Outdoor sales at a higher margin, favorable inventory obsolescence expense year-over-year, and lower commodity and product costs driven by Project Pegasus initiatives. These factors were reportedly partially offset by a less favorable product mix within the segments, a less favorable customer mix within Home & Outdoor and higher sales dilution from trade discounts, allowances and promotional programs in Beauty & Wellness.

Consolidated selling, general and administrative expense (SG&A) ratio increased 560 basis points to 40.9 percent of net sales, compared to 35.3 percent in the prior-year comp quarter. The increase in the consolidated SG&A ratio was primarily due to planned higher marketing expense as the company reinvested back into its brands, additional costs and lost efficiency associated with automation startup issues at the company’s Tennessee distribution facility, higher depreciation expense, unfavorable health insurance and product liability expense, and the impact of unfavorable operating leverage due to the decrease in net sales. These factors were partially offset by the favorable comparative impact of a charge of $4.2 million related to the bankruptcy of Bed, Bath & Beyond incurred in the prior-year period and lower share-based compensation expense.

Consolidated operating income was $30.8 million, or 7.4 percent of net sales revenue, compared to $40.6 million, or 8.6 percent of net sales revenue, in the prior-year period. The 120 basis-point decrease in consolidated operating margin was primarily due to an increase in the consolidated SG&A ratio, partially offset by consolidated gross profit margin expansion and a decrease in restructuring charges of $5.5 million.

  • Adjusted consolidated operating income decreased $23.2 million, or 35.1 percent, to $43.0 million, or 10.3 percent of net sales revenue, compared to $66.2 million, or 13.9 percent of net sales revenue. The decrease in adjusted operating margin was primarily driven by planned higher marketing expense as the company reinvested back into its brands, additional costs associated with automation startup issues at the company’s Tennessee distribution facility, higher sales dilution from trade discounts, allowances and promotional programs, an increase in depreciation expense, unfavorable health insurance and product liability expense, a less favorable product mix within the segments and a less favorable customer mix within Home & Outdoor, and the impact of unfavorable operating leverage due to the decrease in net sales. These factors were partially offset by a favorable segment mix with a higher percentage of Home & Outdoor sales at a higher margin, favorable inventory obsolescence expense year-over-year, and lower commodity and product costs partly driven by Project Pegasus initiatives.

Home & Outdoor segment operating income was $15.9 million, or 8.0 percent of segment net sales revenue, compared to $22.1 million, or 10.2 percent of segment net sales revenue, in the year-ago quarter. The decrease in segment operating margin was said to be primarily due to planned higher marketing expense as the company reinvested back into its brands, additional costs associated with automation startup issues at the company’s Tennessee distribution facility, an increase in depreciation expense, the impact of unfavorable operating leverage due to the decrease in net sales, and a less favorable customer and product mix. These factors were partially offset by favorable inventory obsolescence expense year-over-year, lower commodity and product costs, and the favorable comparative impact of a charge of $3.1 million related to the bankruptcy of Bed, Bath & Beyond incurred in the prior-year period.

  • Home & Outdoor segment adjusted operating income decreased 38.5 percent to $21.1 million, or 10.6 percent of segment net sales revenue, compared to $34.3 million, or 15.8 percent of segment net sales revenue, in the prior-year period.

Consolidated net income was $6.2 million, or 26 cents per diluted share, for the fiscal first quarter ended ended May 31, 2024, compared to $22.6 million, or 94 cents per diluted share, in the prior-year comparative quarter. Diluted EPS reportedly decreased primarily due to lower operating income and an increase in the effective income tax rate, partially offset by a decrease in interest expense.

  • Adjusted net income decreased $23.4 million, or 50.0 percent, to $23.3 million, compared to $46.7 million. Adjusted diluted EPS decreased 49.0 percent to 99 cents per share, compared to $1.94 per share in the prior-year quarter. The decrease in adjusted diluted EPS was said to be primarily due to lower adjusted operating income and an increase in the adjusted effective income tax rate, partially offset by a decrease in interest expense.

Non-GAAP adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $52.4 million, compared to $72.4 million. Non-GAAP adjusted EBITDA margin was 12.6 percent compared to 15.2 percent.

NOTE: The adjusted basis (non-GAAP) for the first quarters of fiscal 2025 and 2024 excludes the discrete impact of Barbados tax reform, Bed, Bath & Beyond bankruptcy, restructuring charges, amortization of intangible assets, and non-cash share-based compensation.

Company CEO Noel M. Geoffroy stated: “We are disappointed with the start to our fiscal year. We battled an unusual number of internal and external challenges in the quarter, which resulted in net sales and adjusted EPS below our outlook. Many of these challenges became more pronounced toward the end of the first quarter and some continue to evolve. We now see this fiscal year as a time to take action to reset and revitalize our business. As a result, we are lowering our annual outlook, which delays the delivery of the long-term financial algorithm in our strategic plan.”

“Despite the challenges we currently face, I remain confident the strategies we are implementing are the right ones to improve the long-term health of our brands, return our Company to positive sales and earnings growth, and deliver sustained shareholder value creation. Project Pegasus continues to provide us with fuel to fund our initiatives and organizational focus to capture opportunities and leverage our scale. We also invested in new talent and next-level data, analytics and capabilities to improve our effectiveness and productivity across the enterprise. As always, we believe that our success will be driven by the passion and dedication of our exceptional people who remain committed to our purpose, vision, values, and the actions we are taking.”

Balance Sheet and Cash Flow – First Quarter Fiscal 2025 Compared to First Quarter Fiscal 2024

  • Cash and cash equivalents totaled $16.1 million, compared to $38.9 million.
  • Accounts receivable turnover was 67.4 days, compared to 67.5 days.
  • Inventory was $444.7 million, compared to $433.9 million.
  • Total short- and long-term debt was $748.4 million, compared to $837.2 million.
  • Net cash provided by operating activities for the first three months of the fiscal year was $25.3 million, compared to $121.1 million for the same period last year.
  • Free cash flow for the first three months of the fiscal year was $16.2 million, compared to $109.2 million for the comparative period last year.

Pegasus Restructuring Plan
As previously disclosed, the company continues to have the following expectations regarding Project Pegasus charges:

  • Total one-time pre-tax restructuring charges of approximately $50 million to $55 million over the duration of the plan, expected to be completed during fiscal 2025.
  • Pre-tax restructuring charges to be comprised of approximately $15 million to $19 million of severance and employee related costs, $28 million of professional fees, $3 million to $4 million of contract termination costs, and $4 million of other exit and disposal costs.
  • All of the company’s operating segments and shared services will be impacted by the plan and pre-tax restructuring charges include approximately $16 million to $17 million in Home & Outdoor and $34 million to $38 million in Beauty & Wellness.
  • Pre-tax restructuring charges represent primarily cash expenditures, which are expected to be substantially paid by the end of fiscal 2025.

The company also continues to have the following expectations regarding Project Pegasus savings:

  • Targeted annualized pre-tax operating profit improvements of approximately $75 million to $85 million, which began in fiscal 2024 and are expected to be substantially achieved by the end of fiscal 2027.
  • Estimated cadence of the recognition of the savings will be approximately 25 percent in fiscal 2024, which was achieved, approximately 35 percent in fiscal 2025, approximately 25 percent in fiscal 2026 and approximately 15 percent in fiscal 2027.
  • Total profit improvements to be realized approximately 60 percent through reduced cost of goods sold and 40 percent through lower SG&A.

Fiscal 2025 Annual Outlook
Helen of Troy Limited now expects consolidated net sales revenue in the range of $1.885 billion to $1.935 billion for Fiscal 2025, which implies a decline of 6.0 percent to 3.5 percent, compared to the previous range of a decline of 2.0 percent to growth of 1.0 percent. The sales outlook continues to reflect the company’s view of lingering inflation and further consumer spending softness, especially in certain discretionary categories. The sales outlook now reflects the expected impact of executional challenges in the company’s Tennessee distribution facility, as well as its view of increased macro uncertainty, an increasingly stretched consumer, a more promotional environment, and retailers even more closely managing their inventory levels.

  • Home & Outdoor segment net sales are forecast to decline 3.0 percent to 1.0 percent, which includes the expectation of continued shipping disruption in the company’s Tennessee distribution facility through the second quarter of fiscal 2025, compared to the prior expectation of growth of 1.0 percent to 4.0 percent.

The company now expects GAAP diluted EPS of $4.69 to $5.45, compared to the previous range of $6.68 to $7.45, and non-GAAP adjusted diluted EPS in the range of $7.00 to $7.50, which implies an adjusted diluted EPS decline of 21.4 percent to 15.8 percent, compared to the previous range of $8.70 to $9.20 per share.

The company now expects adjusted EBITDA of $287 million to $297 million, compared to the previous range of $324 million to $331 million, which implies a decline of 14.6 percent to 11.8 percent, as benefits from Project Pegasus are reinvested for growth.

The company’s outlook continues to reflect a year-over-year increase in growth investment spending of approximately 100 basis points and a year-over-year headwind of approximately 50 basis points from the expiration of an out-license relationship in Wellness.

The company’s outlook now includes expected margin compression of approximately 60 basis points from incremental operating expense and lost efficiency related to automation startup issues at its Tennessee distribution facility, and margin compression from its view of a more promotional environment, a less favorable mix, and lower operating leverage due to the decline in revenue. The Company expects these factors to be partially offset by profit improvement actions implemented in the second quarter.

The company now expects free cash flow in the range of $220 million to $240 million, compared to the previous range of $255 million to $275 million, and now expects its net leverage ratio, as defined in its credit agreement, to end fiscal 2025 at 1.60x to 1.50x, compared to the previous range of 1.25x to 1.00x.

In terms of the quarterly cadence of sales, the company now expects a decline in net sales of approximately 7 percent to 4 percent in the second quarter of fiscal 2025 and a decline of 2.5 percent to growth of 1 percent in the second half of fiscal 2025. The company sees a decline in adjusted diluted EPS of approximately 45 percent to 35 percent in the second quarter of fiscal 2025 and a decline of approximately 3 percent to growth of 3 percent in the second half of fiscal 2025.

  • The company’s consolidated net sales and EPS outlook also reflects the following assumptions:
  • The severity of the cough/cold/flu season will be in line with pre-COVID historical averages;
  • June 2024 foreign currency exchange rates will remain constant for the remainder of the fiscal year;
  • Expected interest expense in the range of $44.0 million to $46.0 million;
  • A reported GAAP effective tax rate range of 27.3 percent to 29.5 percent for the full fiscal year 2025 and an adjusted effective tax rate range of 20.7 percent to 21.3 percent; and
  • An estimated weighted average diluted shares outstanding of 23.1 million for the full year.

The likelihood, timing and potential impact of a significant or prolonged recession, any fiscal 2025 acquisitions and divestitures, future asset impairment charges, future foreign currency fluctuations, additional interest rate increases, or share repurchases are unknown and cannot be reasonably estimated; therefore, they are not included in the company’s outlook.

Image courtesy Saucony