HELE 8-K
Helen Of Troy Ltd (HELE)
8-K
2022-01-11
For: 2022-01-06
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Added on
April 06, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) January 6, 2022
(Exact name of registrant as specified in its charter)
Commission File Number: 001-14669
| (State or other jurisdiction | (IRS Employer | |||||||
| of incorporation) | Identification No.) | |||||||
(Address of principal executive offices)
(Registrant's United States mailing address)
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operation and Financial Condition.
On January 6, 2022, Helen of Troy Limited (the “Company”, “our”, “we” or “us”) issued a press release announcing the results for its third quarter of fiscal 2022. With this Form 8-K, we are furnishing a copy of the press release (attached hereto as Exhibit 99.1). The press release is also provided on the Investor Relations Page of our website at: http://www.helenoftroy.com. The information contained on this website is not included as a part of, or incorporated by reference into, this report.
Certain written and oral statements made by the Company and subsidiaries of the Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made in this Form 8-K and the exhibits attached hereto. Generally, the words “anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “would”, “should”, “seeks”, “estimates”, “project”, “predict”, “potential”, “currently”, “continue”, “intends”, “outlook”, “could” and other similar words identify forward-looking statements. All statements that address operating results, events or developments that the Company expects or anticipates will occur in the future, including statements related to sales, earnings per share results, and statements expressing general expectations about future operating results, are forward-looking statements and are based upon its current expectations and various assumptions. The Company believes there is a reasonable basis for these expectations and assumptions, but there can be no assurance that the Company will realize these expectations or that these assumptions will prove correct. Forward-looking statements are subject to risks that could cause them to differ materially from actual results. Accordingly, the Company cautions readers not to place undue reliance on forward-looking statements. The forward-looking statements contained in this Form 8-K and the exhibits attached hereto should be read in conjunction with, and are subject to and qualified by, the risks described in the Company’s Form 10-Q for the fiscal quarter ended November 30, 2021, and in the Company’s other filings with the SEC. Investors are urged to refer to the risk factors referred to above for a description of these risks. Such risks include, among others, the Company's ability to successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of COVID-19 and any similar future public health crisis, pandemic or epidemic, the Company's ability to deliver products to its customers in a timely manner and according to their fulfillment standards, actions taken by large customers that may adversely affect the Company's gross profit and operating results, the Company's dependence on the strength of retail economies and vulnerabilities to any prolonged economic downturn, including from the effects of COVID-19, the Company's dependence on sales to several large customers and the risks associated with any loss of, or substantial decline in, sales to top customers, expectations regarding recent acquisitions (including Osprey) and any future acquisitions or divestitures, including the Company's ability to realize related synergies along with its ability to effectively integrate acquired businesses or disaggregate divested businesses, the Company's reliance on its Chief Executive Officer and a limited number of other key senior officers to operate its business, obsolescence or interruptions in the operation of the Company's central global Enterprise Resource Planning systems and other peripheral information systems, occurrence of cyber incidents or failure by the Company or its third-party service providers to maintain cybersecurity and the integrity of confidential internal or customer data, the Company's dependence on third-party manufacturers, most of which are located in the Asia Pacific market, and any inability to obtain products from such manufacturers, risks associated with weather conditions, the duration and severity of the cold and flu season and other related factors, the geographic concentration and peak season capacity of certain U.S. distribution facilities which increase its risk to disruptions that could affect the Company's ability to deliver products in a timely manner, risks associated with the use of licensed trademarks from or to third parties, the Company's ability to develop and introduce a continuing stream of innovative new products to meet changing consumer preferences, the risks associated with trade barriers, exchange controls, expropriations, and other risks associated with domestic and foreign operations, the risks associated with significant changes in or the Company's compliance with regulations, interpretations or product certification requirements, the risks associated with the Company's discussions with the EPA on the implementation of compliance plans related to certain of its products within the Health & Home segment, the risks associated with global legal developments regarding privacy and data security that could result
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in changes to its business practices, penalties, increased cost of operations, or otherwise harm the business, the risks associated with accounting for tax positions and the resolution of tax disputes, the risks of potential changes in laws and regulations, including environmental, health and safety and tax laws, and the costs and complexities of compliance with such laws, the Company's ability to continue to avoid classification as a Controlled Foreign Corporation, the risks associated with legislation enacted in Bermuda and Barbados in response to the European Union’s review of harmful tax competition, the risks of significant tariffs or other restrictions being placed on imports from China or Mexico or any retaliatory trade measures taken by China or Mexico, the risks associated with product recalls, product liability and other claims against the Company, and associated financial risks including but not limited to, significant impairment of the Company's goodwill, indefinite-lived and definite-lived intangible assets or other long-lived assets, risks associated with foreign currency exchange rate fluctuations, increased costs of raw materials, energy and transportation, projections of product demand, sales and net income, which are highly subjective in nature, and from which future sales and net income could vary in a material amount, the risks to the Company's liquidity or cost of capital which may be materially adversely affected by constraints or changes in the capital and credit markets and limitations under its financing arrangements.
The press release includes or refers to certain information that the Company believes is non-GAAP Financial Information as contemplated by SEC Regulation G, Rule 100. The press release contains tables that reconcile these measures to their corresponding GAAP based measures presented in the Company’s Condensed Consolidated Statements of Income and Cash Flows. The material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures do not reflect the full economic impact of the Company’s activities. These non-GAAP measures are not prepared in accordance with GAAP, are not an alternative to GAAP financial information, and may be calculated differently than non-GAAP financial information disclosed by other companies. Accordingly, undue reliance should not be placed on non-GAAP information.
The information in this Item 2.02 of this Form 8-K and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or any proxy statement or report or other document we may file with the SEC, regardless of any general incorporation language in any such filing, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit Number | Description | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HELEN OF TROY LIMITED | |||||
| Date: January 11, 2022 | /s/ Matthew J. Osberg | ||||
| Matthew J. Osberg | |||||
| Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer | |||||
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Exhibit 99.1
Helen of Troy Limited Reports Third Quarter Fiscal 2022 Results
Consolidated Net Sales Decline of 2.0%; Growth of 0.4% from Core Business
GAAP Diluted Earnings Per Share (“EPS”) of $3.10
Core Adjusted Diluted EPS Growth of 3.0% to $3.72
Adjusted Diluted EPS Decline of 1.1% to $3.72
Raises Fiscal 2022 Diluted EPS and Net Sales Outlook:
Consolidated Diluted EPS to $8.25-$8.59; Core Diluted EPS to $8.08-$8.42
Consolidated Adjusted Diluted EPS to $11.73-$11.93; Core Adjusted Diluted EPS to $11.55-$11.75
Consolidated Net Sales to $2.095-$2.115 Billion; Core Net Sales to $2.060-$2.080 Billion
El Paso, Texas, January 6, 2022 — Helen of Troy Limited (NASDAQ: HELE), designer, developer and worldwide marketer of consumer brand-name housewares, health and home, and beauty products, today reported results for the three-month period ended November 30, 2021.
Executive Summary – Third Quarter of Fiscal 2022 Compared to Fiscal 2021 and Fiscal 2020
•Consolidated net sales revenue was $624.9 million, a decrease of 2.0% from fiscal 2021 and an increase of 31.6% from fiscal 2020
◦Core business net sales increase of 0.4% from fiscal 2021 and an increase of 37.7% from fiscal 2020
◦Leadership Brand net sales decrease of 0.2% from fiscal 2021 and an increase of 33.6% from fiscal 2020
◦Online channel net sales decrease of 7.4% from fiscal 2021 and an increase of 23.7% from fiscal 2020
•GAAP consolidated operating income of $90.0 million, or 14.4% of net sales, compared to $100.7 million, or 15.8% of net sales, for the same period last year
•Non-GAAP consolidated adjusted operating income decrease of 5.2% to $106.1 million, or 17.0% of net sales, compared to $111.9 million, or 17.6% of net sales, for the same period last year
•GAAP diluted EPS of $3.10, which includes EPA compliance costs of $0.20 per share, compared to $3.34 for the same period last year and $2.71 for fiscal 2020
•Non-GAAP Core adjusted diluted EPS of $3.72, an increase of 3.0% from fiscal 2021 and an increase of 24.8% from fiscal 2020
•Non-GAAP adjusted diluted EPS of $3.72, a decrease of 1.1% from fiscal 2021 and an increase of 19.2% from fiscal 2020
•In July 2021, the Company disclosed that it was in discussions with the U.S. Environmental Protection Agency (the “EPA”) regarding the compliance of packaging claims on certain of its products in the air and water filtration categories and a limited subset of humidifier products within the Health & Home segment that are sold in the United States. As previously disclosed in August 2021, the Company largely resolved the EPA matter with modest changes to product labeling and began executing repackaging plans for the bulk of the affected products. As of the end of the third fiscal quarter, the Company has returned to more normalized levels of shipping activity for the vast majority of affected products.
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Julien R. Mininberg, Chief Executive Officer, stated: “We are pleased with our results for the third quarter, delivering Core net sales growth and Core adjusted diluted EPS growth on top of 37.1% and 21.1%, respectively, in the prior year period. All three business segments exceeded our expectations. These results are the primary driver allowing us to raise our top and bottom-line outlook for the full fiscal year. Strong consumer and retailer demand drove sales for Housewares and Beauty, with both segments growing double digits on a Core basis over major double-digit sales increases in the third quarter of last fiscal year. Health & Home declined in the quarter, but performed above our expectations due to stronger than expected demand and faster-than-expected progress reworking certain products impacted by the EPA matter. Despite the impact of inflation and the EPA matter, our Core adjusted diluted EPS grew 3.0%.”
Mr. Mininberg continued: “We are also very pleased to be able to raise our outlook for the fiscal year, reflecting the strength of our third quarter and the positive trends we see in our business during the fourth quarter. For the full fiscal year, we now expect to grow Core net sales 2% to 3% over last year’s 25.1% increase, grow Core adjusted diluted EPS 4.7% to 6.5% over last year’s 26.5% increase, and expand margins. I am proud of the hard work across our organization that puts us in a position to deliver fiscal year 2022 in line with our Phase II average annual targets on top of an elevated base despite significant headwinds from widespread inflation and the EPA matter.
As we have demonstrated this fiscal year and in the past, Helen of Troy has a track record of delivering results in the face of obstacles. Looking ahead, we plan to use the proven combination of our inflation playbook, investing in our Leadership Brands, creating efficiencies through our global shared services platform, and harnessing the excellence of our organization and culture to address obstacles such as continued inflationary cost pressures expected next fiscal year. We also expect value creation from the recently-closed Osprey acquisition, which is expected to be immediately accretive to nearly all our consolidated financial measures. We believe our balance sheet and cash flow can be put to work on further capital allocation opportunities that could help create additional value in both the short and long-term.”
| Three Months Ended November 30, | |||||||||||||||||||||||
| (in thousands) (unaudited) | Housewares | Health & Home | Beauty | Total | |||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 222,400 | $ | 250,158 | $ | 165,179 | $ | 637,737 | |||||||||||||||
| Organic business (1) | 23,601 | (46,595) | 8,943 | (14,051) | |||||||||||||||||||
| Impact of foreign currency | 134 | 337 | 727 | 1,198 | |||||||||||||||||||
| Change in sales revenue, net | 23,735 | (46,258) | 9,670 | (12,853) | |||||||||||||||||||
| Fiscal 2022 sales revenue, net | $ | 246,135 | $ | 203,900 | $ | 174,849 | $ | 624,884 | |||||||||||||||
| Total net sales revenue growth (decline) | 10.7 | % | (18.5) | % | 5.9 | % | (2.0) | % | |||||||||||||||
| Organic business | 10.6 | % | (18.6) | % | 5.4 | % | (2.2) | % | |||||||||||||||
| Impact of foreign currency | 0.1 | % | 0.1 | % | 0.4 | % | 0.2 | % | |||||||||||||||
| Operating margin (GAAP) | |||||||||||||||||||||||
| Fiscal 2022 | 17.6 | % | 6.7 | % | 19.0 | % | 14.4 | % | |||||||||||||||
| Fiscal 2021 | 16.9 | % | 12.2 | % | 19.7 | % | 15.8 | % | |||||||||||||||
| Adjusted operating margin (non-GAAP) | |||||||||||||||||||||||
| Fiscal 2022 | 19.4 | % | 10.7 | % | 20.9 | % | 17.0 | % | |||||||||||||||
| Fiscal 2021 | 18.4 | % | 14.1 | % | 21.7 | % | 17.6 | % | |||||||||||||||
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| Three Months Ended November 30, | % Change | ||||||||||||||||||||||||||||
| (in thousands, except per share data) (unaudited) | 2021 | 2020 | 2019 | FY22/FY21 | FY22/FY20 | ||||||||||||||||||||||||
| Consolidated net sales revenue | $ | 624,884 | $ | 637,737 | $ | 474,737 | (2.0) | % | 31.6 | % | |||||||||||||||||||
| Core business net sales revenue (2) | 620,509 | 617,766 | 450,742 | 0.4 | % | 37.7 | % | ||||||||||||||||||||||
| Leadership Brand net sales revenue (3) | 506,982 | 508,210 | 379,604 | (0.2) | % | 33.6 | % | ||||||||||||||||||||||
| Online channel net sales revenue (4) | 141,233 | 152,562 | 114,193 | (7.4) | % | 23.7 | % | ||||||||||||||||||||||
| Consolidated Diluted EPS | $ | 3.10 | $ | 3.34 | $ | 2.71 | (7.2) | % | 14.4 | % | |||||||||||||||||||
| Consolidated Adjusted Diluted EPS (non-GAAP) (5) | 3.72 | 3.76 | 3.12 | (1.1) | % | 19.2 | % | ||||||||||||||||||||||
| Core Adjusted Diluted EPS (non-GAAP) (2) (5) | 3.72 | 3.61 | 2.98 | 3.0 | % | 24.8 | % | ||||||||||||||||||||||
| Nine Months Ended November 30, | % Change | ||||||||||||||||||||||||||||
| (in thousands, except per share data) (unaudited) | 2021 | 2020 | 2019 | FY22/FY21 | FY22/FY20 | ||||||||||||||||||||||||
| Consolidated net sales revenue | $ | 1,641,335 | $ | 1,589,424 | $ | 1,265,067 | 3.3 | % | 29.7 | % | |||||||||||||||||||
| Core business net sales revenue (2) | 1,611,098 | 1,526,995 | 1,193,454 | 5.5 | % | 35.0 | % | ||||||||||||||||||||||
| Leadership Brand net sales revenue (3) | 1,329,858 | 1,288,614 | 1,012,346 | 3.2 | % | 31.4 | % | ||||||||||||||||||||||
| Online channel net sales revenue (4) | 369,007 | 398,175 | 299,901 | (7.3) | % | 23.0 | % | ||||||||||||||||||||||
| Consolidated Diluted EPS | $ | 7.52 | $ | 9.14 | $ | 6.15 | (17.7) | % | 22.3 | % | |||||||||||||||||||
| Consolidated Adjusted Diluted EPS (non-GAAP) (5) | 9.85 | 10.05 | 7.42 | (2.0) | % | 32.7 | % | ||||||||||||||||||||||
| Core Adjusted Diluted EPS (non-GAAP) (2) (5) | 9.67 | 9.58 | 6.98 | 0.9 | % | 38.5 | % | ||||||||||||||||||||||
Consistent with its strategy of focusing resources on its Leadership Brands, during the fourth quarter of fiscal 2020, the Company committed to a plan to divest certain assets within its Beauty segment's mass channel personal care business (“Personal Care”). During the second quarter of fiscal 2022, the Company completed the sale of its Personal Care business, not including the Latin America and Caribbean regions, to HRB Brands LLC, for $44.7 million in cash and recognized a gain on the sale of $0.5 million in SG&A. The Company is continuing to negotiate the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands LLC, which it expects to close no later than the end of fiscal 2022. Accordingly, the Company has continued to classify the identified net assets of the Latin America and Caribbean Personal Care businesses as held for sale. The Company defines Core business as strategic business that it expects to be an ongoing part of its operations, and Non-Core business as business or net assets (including net assets held for sale) that it expects to divest within a year of its designation as Non-Core. Sales from the Latin America and Caribbean Personal Care businesses continue to be included in Non-Core business for all periods presented.
| Three Months Ended November 30, | |||||||||||||||||||||||
| (in thousands) (unaudited) | Housewares | Health & Home | Beauty | Total | |||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 222,400 | $ | 250,158 | $ | 165,179 | $ | 637,737 | |||||||||||||||
| Core business (2) | 23,735 | (46,258) | 25,266 | 2,743 | |||||||||||||||||||
| Non-Core business (Personal Care) (2) | — | — | (15,596) | (15,596) | |||||||||||||||||||
| Change in sales revenue, net | 23,735 | (46,258) | 9,670 | (12,853) | |||||||||||||||||||
| Fiscal 2022 sales revenue, net | $ | 246,135 | $ | 203,900 | $ | 174,849 | $ | 624,884 | |||||||||||||||
| Total net sales revenue growth (decline) | 10.7 | % | (18.5) | % | 5.9 | % | (2.0) | % | |||||||||||||||
| Core business | 10.7 | % | (18.5) | % | 15.3 | % | 0.4 | % | |||||||||||||||
| Non-Core business (Personal Care) | — | % | — | % | (9.4) | % | (2.4) | % | |||||||||||||||
Consolidated Results - Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021
•Consolidated net sales revenue decreased $12.9 million, or 2.0%, to $624.9 million compared to $637.7 million. The decline was driven by a decrease from Organic business of $14.1 million, or
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2.2%, primarily due to a decrease in sales in the Health & Home segment as a result of the EPA packaging compliance matter and related stop shipment actions, stronger COVID-19 driven demand for healthcare and healthy living products, primarily in thermometry and air filtration, in the comparative prior year period, and a net sales revenue decline in Non-Core business primarily due to the sale of the North America Personal Care business during the second quarter of fiscal 2022. These factors were partially offset by higher brick and mortar and online channel sales in the Beauty and Housewares segments due primarily to strong consumer demand, earlier than typical customer orders as retailers accelerated orders into the third quarter to try to avoid supply chain disruptions during the holiday season, the impact of customer price increases related to rising freight and product costs, higher sales in the club and closeout channels, and the favorable comparative impact of COVID-19 reduced store traffic and a soft back to school season in the prior year period.
•Consolidated gross profit margin decreased 1.3 percentage points to 43.8%, compared to 45.1%. The decrease in consolidated gross profit margin was primarily due to the net unfavorable impact of higher inbound freight expense and related customer price increases, EPA compliance costs recognized in cost of goods sold in the Health & Home segment of $0.3 million, and a less favorable channel mix within the Housewares segment. These factors were partially offset by a more favorable product mix within the Housewares and Beauty segments and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue.
•Consolidated SG&A ratio increased 0.1 percentage points to 29.4%, compared to 29.3%. The increase in the consolidated SG&A ratio was primarily due to higher personnel expense, unfavorable operating leverage, higher distribution expense, EPA compliance costs of $4.6 million in the Health & Home segment, and higher acquisition-related expense in connection with the acquisition of Osprey Packs, Inc. (“Osprey”). These factors were partially offset by lower royalty expense, reduced annual incentive compensation expense, lower marketing expense, lower amortization expense, a decrease in bad debt expense, and the favorable leverage impact of customer price increases related to rising freight and product costs.
•Consolidated operating income was $90.0 million, or 14.4% of net sales revenue, compared to $100.7 million, or 15.8% of net sales revenue. The 1.4 percentage point decrease in consolidated operating margin was primarily due to the net unfavorable impact of higher inbound freight expense and related customer price increases, increased personnel expense, higher distribution expense, unfavorable operating leverage, EPA compliance costs of $4.9 million in the Health & Home segment, a less favorable channel mix within the Housewares segment, and higher acquisition-related expense in connection with the Osprey transaction. These factors were partially offset by a favorable product mix within the Housewares and Beauty segments and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue, lower royalty expense, reduced annual incentive compensation expense, lower marketing expense, lower amortization expense, and a decrease in bad debt expense.
•Income tax expense as a percentage of income before tax was 12.9% compared to 14.0% for the same period last year, primarily due to increases in liabilities related to uncertain tax positions in the prior year period, partially offset by shifts in the mix of income in the Company's various tax jurisdictions.
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•Net income was $75.7 million, compared to $84.2 million. Diluted EPS was $3.10 compared to $3.34. Diluted EPS decreased primarily due to lower operating income in the Health & Home segment and higher interest expense, partially offset by higher operating income in the Housewares and Beauty segments, a decrease in the effective income tax rate, and lower weighted average diluted shares outstanding.
•Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 4.5% to $111.8 million compared to $117.0 million.
On an adjusted basis for the third quarters of fiscal 2022 and 2021, excluding acquisition-related expenses, EPA compliance costs, restructuring charges, amortization of intangible assets, and non-cash share-based compensation, as applicable:
•Adjusted operating income decreased $5.8 million, or 5.2%, to $106.1 million, or 17.0% of net sales revenue, compared to $111.9 million, or 17.6% of net sales revenue. The 0.6 percentage point decrease in adjusted operating margin is primarily driven by the net unfavorable impact of higher inbound freight expense and related customer price increases, increased personnel expense, higher distribution expense, unfavorable operating leverage, and a less favorable channel mix within the Housewares segment. These factors were partially offset by a favorable product mix within the Housewares and Beauty segments and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue, lower royalty expense, reduced annual incentive compensation expense, lower marketing expense, and a decrease in bad debt expense.
•Adjusted income decreased $4.1 million, or 4.4%, to $90.6 million, compared to $94.8 million for the same period last year. Adjusted diluted EPS decreased 1.1% to $3.72 compared to $3.76. The decrease in adjusted diluted EPS was primarily due to lower adjusted operating income in the Health & Home segment and higher interest expense, partially offset by higher adjusted operating income in the Housewares and Beauty segments, a decrease in the effective income tax rate, and lower weighted average diluted shares outstanding.
Segment Results - Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021
Housewares net sales revenue increased $23.7 million, or 10.7%, to $246.1 million, compared to $222.4 million. Growth was driven by an increase from Organic business of $23.6 million, or 10.6%, primarily due to an increase in brick and mortar and online channel sales driven by strong consumer demand, earlier than typical customer orders as retailers accelerated orders into the third quarter to try to avoid supply chain disruptions during the holiday season, the impact of customer price increases related to rising freight and product costs, higher sales in the club and closeout channels, growth in international sales, and the favorable comparative impact of COVID-19 reduced store traffic and a soft back to school season in the prior year period. Operating income was $43.2 million, or 17.6% of segment net sales revenue, compared to $37.7 million, or 16.9% of segment net sales revenue. The 0.7 percentage point increase in segment operating margin was primarily due to favorable operating leverage, favorable product mix, and reduced annual incentive compensation expense. These factors were partially offset by the net unfavorable impact of higher inbound freight expense and related customer price increases, a less favorable channel mix, an increase in marketing expense, and higher acquisition-related expense in connection with the Osprey transaction. Adjusted operating income increased 16.7% to $47.7 million, or 19.4% of segment net sales revenue compared to $40.9 million, or 18.4% of segment net sales revenue.
Health & Home net sales revenue decreased $46.3 million, or 18.5%, to $203.9 million, compared to $250.2 million. The decline was driven by a decrease from Organic business of $46.6 million, or 18.6%, primarily due to a decrease in sales due to stronger COVID-19 driven demand for healthcare and healthy living products, primarily in thermometry and air filtration, in the comparative prior year period and a
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decrease in sales of air filtration products as a result of the EPA packaging compliance matter. These factors were partially offset by an increase in sales of humidification products and new product introductions. Operating income was $13.6 million, or 6.7% of segment net sales revenue, compared to $30.5 million, or 12.2% of segment net sales revenue. The 5.5 percentage point decrease in segment operating margin was primarily due to unfavorable operating leverage, the net unfavorable impact of higher inbound ocean freight expense and related customer price increases, EPA compliance costs of $4.9 million, higher distribution expense, and increased inventory obsolescence expense. These factors were partially offset by a decrease in marketing expenses, lower inbound air freight expense, reduced amortization expense, and decreased annual incentive compensation expense. Adjusted operating income decreased 38.3% to $21.8 million, or 10.7% of segment net sales revenue, compared to $35.3 million, or 14.1% of segment net sales revenue.
Beauty Core business net sales revenue increased $25.3 million, or 15.3%, primarily reflecting growth in appliance sales due to higher brick and mortar and online channel sales driven by strong consumer demand, earlier than typical customer orders as retailers accelerated orders into the third quarter to try to avoid supply chain disruptions during the holiday season, new product introductions, higher international sales, expanded distribution primarily in the club channel, and the favorable comparative impact of COVID-19 reduced store traffic in the prior year period. Total Beauty segment net sales revenue increased $9.7 million, or 5.9%, to $174.8 million, compared to $165.2 million primarily due to Core business growth partially offset by the sale of the Non-Core North America Personal Care business during the second quarter of fiscal 2022. Net sales revenue was favorably impacted by net foreign currency fluctuations of approximately $0.7 million, or 0.4%. Operating income was $33.2 million, or 19.0% of segment net sales revenue, compared to $32.6 million, or 19.7% of segment net sales revenue. The 0.7 percentage point decrease in segment operating margin was primarily due to the net unfavorable impact of higher inbound freight expense and related customer price increases, higher marketing expense, an increase in personnel expense, and the unfavorable impact of foreign currency exchange fluctuations. These factors were partially offset by a more favorable product mix, reduced royalty expense as a result of the amended Revlon trademark license, a decrease in outbound freight costs, lower bad debt expense, lower inventory obsolescence expense, and favorable operating leverage. Adjusted operating income increased 2.4% to $36.6 million, or 20.9% of segment net sales revenue, compared to $35.8 million, or 21.7% of segment net sales revenue.
Balance Sheet and Cash Flow Highlights - Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021
•Cash and cash equivalents totaled $44.3 million, compared to $156.7 million.
•Accounts receivable turnover was 76.4 days, compared to 70.0 days.
•Inventory was $585.8 million, compared to $383.4 million. Trailing twelve-month inventory turnover was 2.3 times compared to 3.6 times.
•Total short- and long-term debt was $447.5 million, compared to $440.4 million.
•Net cash provided by operating activities for the third quarter fiscal of 2022 was $53.3 million. Net cash used by operating activities for the first nine months of the fiscal year was $5.1 million, compared to net cash provided of $249.7 million for the same period last year.
Subsequent Event
On December 29, 2021, the Company completed the acquisition of Osprey, a longtime U.S. leader in technical and everyday packs. The total purchase consideration was $414.7 million in cash, including the impact of a $5.3 million favorable customary closing net working capital adjustment. The acquisition was
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funded with cash on hand and borrowings from the Company's existing revolving credit facility. The Company incurred acquisition-related expenses of $1.6 million during the third quarter of fiscal 2022, which were recognized in SG&A within its condensed consolidated statements of income.
Updated Fiscal 2022 Annual Outlook
Due to the sale of the majority of the Personal Care business during the second quarter of fiscal 2022 and the expected continued classification of the remaining Latin America and Caribbean Personal Care business as Non-Core for fiscal 2022, the Company is providing its updated outlook on both a consolidated and Core business basis in order to provide comparability between historical and future periods.
The expected impact of the Osprey acquisition for the period from the date of closing to the end of fiscal year 2022 is estimated to provide approximately $20 million of net sales revenue and approximately $0.05 and $0.07 of diluted EPS and adjusted diluted EPS, respectively. The expected impact of the Osprey acquisition is included in both the updated consolidated and Core business outlook provided.
The Company's updated outlook includes the current estimated impact of the duration of time required to repackage the remaining inventory affected by the EPA compliance concerns and considers anticipated customer demand. The Company's updated outlook includes an improvement in the estimated unfavorable sales revenue impact to approximately $60 million and an improvement in the unfavorable adjusted diluted EPS impact to approximately $0.30 related to lost sales volume and earnings due to the EPA matter. The adjusted diluted EPS impact is net of the favorable impact of cost reduction actions being taken in the Health & Home segment, which include reductions in personnel, marketing and select new product development costs.
The Company incurred $13.1 million, $3.0 million and $4.9 million of EPA compliance costs during the first, second and third quarters of fiscal 2022, respectively. These costs were included in the Company's GAAP operating results but were excluded from non-GAAP adjusted operating results. The Company expects to incur additional EPA compliance costs in the fourth quarter of fiscal 2022, which may include incremental freight, warehouse storage costs, charges from vendors, and legal fees, among other things. The Company expects to continue to exclude these costs from non-GAAP adjusted operating results in fiscal 2022, and the costs have been excluded from the updated annual outlook for non-GAAP adjusted diluted EPS.
The Company expects consolidated net sales revenue in the range of $2.10 to $2.12 billion, which implies growth of flat to 1.0%. The Company expects Core net sales revenue in the range of $2.06 to $2.08 billion, which implies growth of 2.0% to 3.0%, and includes a 3.0% unfavorable impact related to the EPA matter. Excluding the EPA matter, the Company expects Core net sales revenue growth of 5.0% to 6.0%.
The Company’s updated fiscal year net sales outlook reflects the following expectations by segment:
•Housewares net sales growth of 15.0% to 16.0%;
•Health & Home net sales decline of 20.0% to 19.0%, including 6.7% of decline related to the EPA matter; and
•Beauty net sales growth of 13.0% to 14.0%; Beauty Core business net sales growth of 26.0% to 27.0%.
The Company expects consolidated GAAP diluted EPS of $8.25 to $8.59 and Core diluted EPS of $8.08 to $8.42. The Company expects consolidated non-GAAP adjusted diluted EPS in the range of $11.73 to $11.93 and Core adjusted diluted EPS in the range of $11.55 to $11.75, which excludes any acquisition-related expenses, EPA compliance costs, asset impairment charges, restructuring charges, tax reform, share-based compensation expense and intangible asset amortization expense. The Company's Core
7
adjusted diluted EPS expectation implies growth of 4.7% to 6.5%, which includes 2.7% of unfavorable impact due to the EPA matter, implying expected year-over-year growth of 7.4% to 9.2% not including the impact of the EPA matter.
The Company’s updated outlook also includes estimated year-over-year inflationary cost pressures of approximately $55 to $60 million, or approximately $2.25 to $2.45 of adjusted diluted EPS, much of which have been mitigated through improved product mix, price increases, forward buying of inventory to delay cost impacts, utilizing previously negotiated shipping contracts at rates below current market prices, and implementing other cost reduction initiatives.
The Company’s updated consolidated and Core net sales and EPS outlook reflects the following:
•the assumption that the severity of the cough/cold/flu season will be below pre-COVID historical averages;
•the assumption that December 2021 foreign currency exchange rates will remain constant for the remainder of the fiscal year; and
•an estimated weighted average diluted shares outstanding of 24.4 million.
Due primarily to the strong growth comparison and COVID-related events in the fourth quarter of fiscal 2021 and the accelerated orders by retailers in the third quarter of fiscal 2022 to avoid supply chain disruptions during the holiday season, the Company does not expect Core business net sales growth in the fourth quarter of fiscal 2022. However, the Company does expect Core adjusted diluted EPS growth for the fourth quarter due to the higher concentration of growth investments made in the prior year comparative period.
The Company expects a reported consolidated GAAP effective tax rate range of 13.0% to 14.0%, and a Core GAAP effective tax rate range of 12.8% to 13.8% for the full fiscal year 2022. The Company expects a consolidated adjusted effective tax rate range of 10.8% to 11.7% and a Core adjusted effective tax rate range of 10.6% to 11.5%.
The Company expects capital asset expenditures of $85 to $110 million for the full fiscal year 2022, which includes expected initial expenditures related to the previously announced new two million square foot distribution facility with state-of-the-art automation for the Housewares segment. The Company expects the total cost of the new distribution center and equipment to be in the range of $200 to $225 million spread over fiscal years 2022 and 2023.
The likelihood and potential impact of any fiscal 2022 acquisitions, other than the Osprey transaction, and divestitures, future asset impairment charges, future foreign currency fluctuations, material long-term distribution losses and/or customer returns that may arise related to the EPA matter, or further share repurchases are unknown and cannot be reasonably estimated; therefore, they are not included in the Company’s updated sales and earnings outlook.
Conference Call and Webcast
The Company will conduct a teleconference in conjunction with today’s earnings release. The teleconference begins at 9:00 a.m. Eastern Time today, Thursday, January 6, 2022. Institutional investors and analysts interested in participating in the call are invited to dial (877) 407-3982 approximately ten minutes prior to the start of the call. The conference call will also be webcast live on the Events & Presentations page at: http://investor.helenoftroy.com/. A telephone replay of this call will be available at 12:00 p.m. Eastern Time on January 6, 2022 until 11:59 p.m. Eastern Time on January 13, 2022 and can be accessed by dialing (844) 512-2921 and entering replay pin number 13725730. A replay of the webcast will remain available on the website for one year.
8
Non-GAAP Financial Measures
The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States of America (“GAAP”). To supplement its presentation, the Company discloses certain financial measures that may be considered non-GAAP such as Adjusted Operating Income, Adjusted Operating Margin, Adjusted Effective Tax Rate, Core and Non-Core Adjusted Effective Tax Rate, Adjusted Income, Adjusted Diluted Earnings per Share (“EPS”), Core and Non-Core Adjusted Diluted EPS, EBITDA, Adjusted EBITDA, Free Cash Flow and Outlook for Consolidated, Core and Non-Core Net Sales Revenue, Diluted EPS and Adjusted Diluted EPS Excluding Impact of the EPA Matter, which are presented in accompanying tables to this press release along with a reconciliation of these financial measures to their corresponding GAAP-based measures presented in the Company’s condensed consolidated statements of income and cash flows. For additional information see Note 5 to the accompanying tables to this press release.
About Helen of Troy Limited
Helen of Troy Limited (NASDAQ: HELE) is a leading global consumer products company offering creative solutions for its customers through a diversified portfolio of well-recognized and widely-trusted brands, including OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, Hot Tools and Drybar. We sometimes refer to these brands as our Leadership Brands. All trademarks herein belong to Helen of Troy Limited (or its subsidiaries) and/or are used under license from their respective licensors.
For more information about Helen of Troy, please visit http://investor.helenoftroy.com
Forward-Looking Statements
Certain written and oral statements made by the Company and subsidiaries of the Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made in this press release. Generally, the words “anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “would”, “should”, “seeks”, “estimates”, “project”, “predict”, “potential”, “currently”, “continue”, “intends”, “outlook”, “could”, and other similar words identify forward-looking statements. All statements that address operating results, events or developments that the Company expects or anticipates will occur in the future, including statements related to sales, earnings per share results, and statements expressing general expectations about future operating results, are forward-looking statements and are based upon its current expectations and various assumptions. The Company believes there is a reasonable basis for these expectations and assumptions, but there can be no assurance that the Company will realize these expectations or that these assumptions will prove correct. Forward-looking statements are subject to risks that could cause them to differ materially from actual results. Accordingly, the Company cautions readers not to place undue reliance on forward-looking statements. The forward-looking statements contained in this press release should be read in conjunction with, and are subject to and qualified by, the risks described in the Company’s Form 10-Q for the nine months ended November 30, 2021, and in the Company's other filings with the SEC. Investors are urged to refer to the risk factors referred to above for a description of these risks. Such risks include, among others, the Company's ability to successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of COVID-19 and any similar future public health crisis, pandemic or epidemic, the Company's ability to deliver products to its customers in a timely manner and according to their fulfillment standards, actions taken by large customers that may adversely affect the Company's gross profit and operating results, the Company's dependence on the strength of retail economies and vulnerabilities to any prolonged economic downturn, including from the effects of COVID-19, the Company's dependence on sales to several large customers and the risks associated with any loss of, or substantial decline in, sales to top customers, expectations regarding recent acquisitions (including Osprey) and any future acquisitions or divestitures, including the Company's ability to realize related synergies along with its ability to effectively integrate acquired businesses or disaggregate
9
divested businesses, the Company's reliance on its Chief Executive Officer and a limited number of other key senior officers to operate its business, obsolescence or interruptions in the operation of the Company's central global Enterprise Resource Planning systems and other peripheral information systems, occurrence of cyber incidents or failure by the Company or its third-party service providers to maintain cybersecurity and the integrity of confidential internal or customer data, the Company's dependence on third-party manufacturers, most of which are located in the Asia Pacific market, and any inability to obtain products from such manufacturers, risks associated with weather conditions, the duration and severity of the cold and flu season and other related factors, the geographic concentration and peak season capacity of certain U.S. distribution facilities which increase its risk to disruptions that could affect the Company's ability to deliver products in a timely manner, risks associated with the use of licensed trademarks from or to third parties, the Company's ability to develop and introduce a continuing stream of innovative new products to meet changing consumer preferences, the risks associated with trade barriers, exchange controls, expropriations, and other risks associated with domestic and foreign operations, the risks associated with significant changes in or the Company's compliance with regulations, interpretations or product certification requirements, the risks associated with the Company's discussions with the EPA on the implementation of compliance plans related to certain of its products within the Health & Home segment, the risks associated with global legal developments regarding privacy and data security that could result in changes to its business practices, penalties, increased cost of operations, or otherwise harm the business, the risks associated with accounting for tax positions and the resolution of tax disputes, the risks of potential changes in laws and regulations, including environmental, health and safety and tax laws, and the costs and complexities of compliance with such laws, the Company's ability to continue to avoid classification as a Controlled Foreign Corporation, the risks associated with legislation enacted in Bermuda and Barbados in response to the European Union’s review of harmful tax competition, the risks of significant tariffs or other restrictions being placed on imports from China or Mexico or any retaliatory trade measures taken by China or Mexico, the risks associated with product recalls, product liability and other claims against the Company, and associated financial risks including but not limited to, significant impairment of the Company's goodwill, indefinite-lived and definite-lived intangible assets or other long-lived assets, risks associated with foreign currency exchange rate fluctuations, increased costs of raw materials, energy and transportation, projections of product demand, sales and net income, which are highly subjective in nature, and from which future sales and net income could vary in a material amount, the risks to the Company's liquidity or cost of capital which may be materially adversely affected by constraints or changes in the capital and credit markets and limitations under its financing arrangements. The Company undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.
Investor Contact: | ||
| Helen of Troy Limited | ||
| Anne Rakunas, Director, External Communications | ||
| (915) 225-4841 | ||
| ICR, Inc. | ||
| Allison Malkin, Partner | ||
| (203) 682-8200 | ||
10
HELEN OF TROY LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited) (in thousands, except per share data)
| Three Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Sales revenue, net | $ | 624,884 | 100.0 | % | $ | 637,737 | 100.0 | % | |||||||||||||||
| Cost of goods sold | 351,051 | 56.2 | % | 350,410 | 54.9 | % | |||||||||||||||||
| Gross profit | 273,833 | 43.8 | % | 287,327 | 45.1 | % | |||||||||||||||||
Selling, general and administrative expense (“SG&A”) | 183,788 | 29.4 | % | 186,630 | 29.3 | % | |||||||||||||||||
| Restructuring charges | 5 | — | % | (12) | — | % | |||||||||||||||||
| Operating income | 90,040 | 14.4 | % | 100,709 | 15.8 | % | |||||||||||||||||
| Non-operating income, net | 52 | — | % | 93 | — | % | |||||||||||||||||
| Interest expense | 3,206 | 0.5 | % | 2,926 | 0.5 | % | |||||||||||||||||
| Income before income tax | 86,886 | 13.9 | % | 97,876 | 15.3 | % | |||||||||||||||||
| Income tax expense | 11,203 | 1.8 | % | 13,721 | 2.2 | % | |||||||||||||||||
| Net income | $ | 75,683 | 12.1 | % | $ | 84,155 | 13.2 | % | |||||||||||||||
Diluted earnings per share (“EPS”) | $ | 3.10 | $ | 3.34 | |||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 24,399 | 25,192 | |||||||||||||||||||||
| Nine Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Sales revenue, net | $ | 1,641,335 | 100.0 | % | $ | 1,589,424 | 100.0 | % | |||||||||||||||
| Cost of goods sold | 936,322 | 57.0 | % | 892,460 | 56.1 | % | |||||||||||||||||
| Gross profit | 705,013 | 43.0 | % | 696,964 | 43.9 | % | |||||||||||||||||
SG&A | 482,467 | 29.4 | % | 439,646 | 27.7 | % | |||||||||||||||||
| Restructuring charges | 380 | — | % | 355 | — | % | |||||||||||||||||
| Operating income | 222,166 | 13.5 | % | 256,963 | 16.2 | % | |||||||||||||||||
| Non-operating income, net | 185 | — | % | 440 | — | % | |||||||||||||||||
| Interest expense | 9,508 | 0.6 | % | 9,568 | 0.6 | % | |||||||||||||||||
| Income before income tax | 212,843 | 13.0 | % | 247,835 | 15.6 | % | |||||||||||||||||
| Income tax expense | 28,873 | 1.8 | % | 16,061 | 1.0 | % | |||||||||||||||||
| Net income | $ | 183,970 | 11.2 | % | $ | 231,774 | 14.6 | % | |||||||||||||||
Diluted EPS | $ | 7.52 | $ | 9.14 | |||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 24,461 | 25,350 | |||||||||||||||||||||
11
Condensed Consolidated Statements of Income and Reconciliation of Non-GAAP Financial Measures – Adjusted Operating Income, Adjusted Income and Adjusted Diluted EPS (5)
(Unaudited) (in thousands, except per share data)
| Three Months Ended November 30, 2021 | |||||||||||||||||||||||||||||
| As Reported (GAAP) | Adjustments | Adjusted (Non-GAAP) | |||||||||||||||||||||||||||
| Sales revenue, net | $ | 624,884 | 100.0 | % | $ | — | $ | 624,884 | 100.0 | % | |||||||||||||||||||
| Cost of goods sold | 351,051 | 56.2 | % | (306) | (6) | 350,745 | 56.1 | % | |||||||||||||||||||||
| Gross profit | 273,833 | 43.8 | % | 306 | 274,139 | 43.9 | % | ||||||||||||||||||||||
| SG&A | 183,788 | 29.4 | % | (4,620) | (6) | 168,020 | 26.9 | % | |||||||||||||||||||||
| (1,605) | (7) | ||||||||||||||||||||||||||||
| (2,994) | (8) | ||||||||||||||||||||||||||||
| (6,549) | (9) | ||||||||||||||||||||||||||||
| Restructuring charges | 5 | — | % | (5) | (10) | — | — | % | |||||||||||||||||||||
| Operating income | 90,040 | 14.4 | % | 16,079 | 106,119 | 17.0 | % | ||||||||||||||||||||||
| Non-operating income, net | 52 | — | % | — | 52 | — | % | ||||||||||||||||||||||
| Interest expense | 3,206 | 0.5 | % | — | 3,206 | 0.5 | % | ||||||||||||||||||||||
| Income before income tax | 86,886 | 13.9 | % | 16,079 | 102,965 | 16.5 | % | ||||||||||||||||||||||
| Income tax expense | 11,203 | 1.8 | % | 1,113 | 12,316 | 2.0 | % | ||||||||||||||||||||||
| Net income | $ | 75,683 | 12.1 | % | $ | 14,966 | $ | 90,649 | 14.5 | % | |||||||||||||||||||
| Diluted EPS | $ | 3.10 | $ | 0.61 | $ | 3.72 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 24,399 | 24,399 | |||||||||||||||||||||||||||
| Three Months Ended November 30, 2020 | |||||||||||||||||||||||||||||
| As Reported (GAAP) | Adjustments | Adjusted (Non-GAAP) | |||||||||||||||||||||||||||
| Sales revenue, net | $ | 637,737 | 100.0 | % | $ | — | $ | 637,737 | 100.0 | % | |||||||||||||||||||
| Cost of goods sold | 350,410 | 54.9 | % | — | 350,410 | 54.9 | % | ||||||||||||||||||||||
| Gross profit | 287,327 | 45.1 | % | — | 287,327 | 45.1 | % | ||||||||||||||||||||||
| SG&A | 186,630 | 29.3 | % | (4,501) | (8) | 175,390 | 27.5 | % | |||||||||||||||||||||
| (6,739) | (9) | ||||||||||||||||||||||||||||
| Restructuring charges | (12) | — | % | 12 | (10) | — | — | % | |||||||||||||||||||||
| Operating income | 100,709 | 15.8 | % | 11,228 | 111,937 | 17.6 | % | ||||||||||||||||||||||
| Non-operating income, net | 93 | — | % | — | 93 | — | % | ||||||||||||||||||||||
| Interest expense | 2,926 | 0.5 | % | — | 2,926 | 0.5 | % | ||||||||||||||||||||||
| Income before income tax | 97,876 | 15.3 | % | 11,228 | 109,104 | 17.1 | % | ||||||||||||||||||||||
| Income tax expense | 13,721 | 2.2 | % | 607 | 14,328 | 2.2 | % | ||||||||||||||||||||||
| Net income | $ | 84,155 | 13.2 | % | $ | 10,621 | $ | 94,776 | 14.9 | % | |||||||||||||||||||
| Diluted EPS | $ | 3.34 | $ | 0.42 | $ | 3.76 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,192 | 25,192 | |||||||||||||||||||||||||||
12
Condensed Consolidated Statements of Income and Reconciliation of Non-GAAP Financial Measures – Adjusted Operating Income, Adjusted Income and Adjusted Diluted EPS (5)
(Unaudited) (in thousands, except per share data)
| Nine Months Ended November 30, 2021 | |||||||||||||||||||||||||||||
| As Reported (GAAP) | Adjustments | Adjusted (Non-GAAP) | |||||||||||||||||||||||||||
| Sales revenue, net | $ | 1,641,335 | 100.0 | % | $ | — | $ | 1,641,335 | 100.0 | % | |||||||||||||||||||
| Cost of goods sold | 936,322 | 57.0 | % | (13,775) | (6) | 922,547 | 56.2 | % | |||||||||||||||||||||
| Gross profit | 705,013 | 43.0 | % | 13,775 | 718,788 | 43.8 | % | ||||||||||||||||||||||
| SG&A | 482,467 | 29.4 | % | (7,223) | (6) | 436,327 | 26.6 | % | |||||||||||||||||||||
| (1,605) | (7) | ||||||||||||||||||||||||||||
| (8,963) | (8) | ||||||||||||||||||||||||||||
| (28,349) | (9) | ||||||||||||||||||||||||||||
| Restructuring charges | 380 | — | % | (380) | (10) | — | — | % | |||||||||||||||||||||
| Operating income | 222,166 | 13.5 | % | 60,295 | 282,461 | 17.2 | % | ||||||||||||||||||||||
| Non-operating income, net | 185 | — | % | — | 185 | — | % | ||||||||||||||||||||||
| Interest expense | 9,508 | 0.6 | % | — | 9,508 | 0.6 | % | ||||||||||||||||||||||
| Income before income tax | 212,843 | 13.0 | % | 60,295 | 273,138 | 16.6 | % | ||||||||||||||||||||||
| Income tax expense | 28,873 | 1.8 | % | 3,337 | 32,210 | 2.0 | % | ||||||||||||||||||||||
| Net income | $ | 183,970 | 11.2 | % | $ | 56,958 | $ | 240,928 | 14.7 | % | |||||||||||||||||||
| Diluted EPS | $ | 7.52 | $ | 2.33 | $ | 9.85 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 24,461 | 24,461 | |||||||||||||||||||||||||||
| Nine Months Ended November 30, 2020 | |||||||||||||||||||||||||||||
| As Reported (GAAP) | Adjustments | Adjusted (Non-GAAP) | |||||||||||||||||||||||||||
| Sales revenue, net | $ | 1,589,424 | 100.0 | % | $ | — | $ | 1,589,424 | 100.0 | % | |||||||||||||||||||
| Cost of goods sold | 892,460 | 56.1 | % | — | 892,460 | 56.1 | % | ||||||||||||||||||||||
| Gross profit | 696,964 | 43.9 | % | — | 696,964 | 43.9 | % | ||||||||||||||||||||||
| SG&A | 439,646 | 27.7 | % | (13,527) | (8) | 405,465 | 25.5 | % | |||||||||||||||||||||
| (20,654) | (9) | ||||||||||||||||||||||||||||
| Restructuring charges | 355 | — | % | (355) | (10) | — | — | % | |||||||||||||||||||||
| Operating income | 256,963 | 16.2 | % | 34,536 | 291,499 | 18.3 | % | ||||||||||||||||||||||
| Non-operating income, net | 440 | — | % | — | 440 | — | % | ||||||||||||||||||||||
| Interest expense | 9,568 | 0.6 | % | — | 9,568 | 0.6 | % | ||||||||||||||||||||||
| Income before income tax | 247,835 | 15.6 | % | 34,536 | 282,371 | 17.8 | % | ||||||||||||||||||||||
| Income tax expense | 16,061 | 1.0 | % | 11,416 | 27,477 | 1.7 | % | ||||||||||||||||||||||
| Net income | $ | 231,774 | 14.6 | % | $ | 23,120 | $ | 254,894 | 16.0 | % | |||||||||||||||||||
| Diluted EPS | $ | 9.14 | $ | 0.91 | $ | 10.05 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,350 | 25,350 | |||||||||||||||||||||||||||
13
Consolidated and Segment Net Sales Revenue
(Unaudited) (in thousands)
| Three Months Ended November 30, | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 222,400 | $ | 250,158 | $ | 165,179 | $ | 637,737 | |||||||||||||||
| Organic business (1) | 23,601 | (46,595) | 8,943 | (14,051) | |||||||||||||||||||
| Impact of foreign currency | 134 | 337 | 727 | 1,198 | |||||||||||||||||||
| Change in sales revenue, net | 23,735 | (46,258) | 9,670 | (12,853) | |||||||||||||||||||
| Fiscal 2022 sales revenue, net | $ | 246,135 | $ | 203,900 | $ | 174,849 | $ | 624,884 | |||||||||||||||
| Total net sales revenue growth (decline) | 10.7 | % | (18.5) | % | 5.9 | % | (2.0) | % | |||||||||||||||
| Organic business | 10.6 | % | (18.6) | % | 5.4 | % | (2.2) | % | |||||||||||||||
| Impact of foreign currency | 0.1 | % | 0.1 | % | 0.4 | % | 0.2 | % | |||||||||||||||
| Nine Months Ended November 30, | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 564,891 | $ | 661,568 | $ | 362,965 | $ | 1,589,424 | |||||||||||||||
| Organic business (1) | 88,812 | (116,302) | 70,640 | 43,150 | |||||||||||||||||||
| Impact of foreign currency | 1,294 | 4,209 | 3,258 | 8,761 | |||||||||||||||||||
| Change in sales revenue, net | 90,106 | (112,093) | 73,898 | 51,911 | |||||||||||||||||||
| Fiscal 2022 sales revenue, net | $ | 654,997 | $ | 549,475 | $ | 436,863 | $ | 1,641,335 | |||||||||||||||
| Total net sales revenue growth (decline) | 16.0 | % | (16.9) | % | 20.4 | % | 3.3 | % | |||||||||||||||
| Organic business | 15.7 | % | (17.6) | % | 19.5 | % | 2.7 | % | |||||||||||||||
| Impact of foreign currency | 0.2 | % | 0.6 | % | 0.9 | % | 0.6 | % | |||||||||||||||
Leadership Brand and Other Net Sales Revenue
(Unaudited) (in thousands)
| Three Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Leadership Brand sales revenue, net (3) | $ | 506,982 | $ | 508,210 | $ | (1,228) | (0.2) | % | |||||||||||||||
| All other sales revenue, net | 117,902 | 129,527 | (11,625) | (9.0) | % | ||||||||||||||||||
| Total sales revenue, net | $ | 624,884 | $ | 637,737 | $ | (12,853) | (2.0) | % | |||||||||||||||
| Nine Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Leadership Brand sales revenue, net (3) | $ | 1,329,858 | $ | 1,288,614 | $ | 41,244 | 3.2 | % | |||||||||||||||
| All other sales revenue, net | 311,477 | 300,810 | 10,667 | 3.5 | % | ||||||||||||||||||
| Total sales revenue, net | $ | 1,641,335 | $ | 1,589,424 | $ | 51,911 | 3.3 | % | |||||||||||||||
14
Consolidated and Segment Net Sales from Core and Non-Core Business (2)
(Unaudited) (in thousands)
| Three Months Ended November 30, | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 222,400 | $ | 250,158 | $ | 165,179 | $ | 637,737 | |||||||||||||||
| Core business | 23,735 | (46,258) | 25,266 | 2,743 | |||||||||||||||||||
| Non-Core business (Personal Care) | — | — | (15,596) | (15,596) | |||||||||||||||||||
| Change in sales revenue, net | 23,735 | (46,258) | 9,670 | (12,853) | |||||||||||||||||||
| Fiscal 2022 sales revenue, net | $ | 246,135 | $ | 203,900 | $ | 174,849 | $ | 624,884 | |||||||||||||||
| Total net sales revenue growth (decline) | 10.7 | % | (18.5) | % | 5.9 | % | (2.0) | % | |||||||||||||||
| Core business | 10.7 | % | (18.5) | % | 15.3 | % | 0.4 | % | |||||||||||||||
| Non-Core business (Personal Care) | — | % | — | % | (9.4) | % | (2.4) | % | |||||||||||||||
| Nine Months Ended November 30, | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 564,891 | $ | 661,568 | $ | 362,965 | $ | 1,589,424 | |||||||||||||||
| Core business | 90,106 | (112,093) | 106,090 | 84,103 | |||||||||||||||||||
| Non-Core business (Personal Care) | — | — | (32,192) | (32,192) | |||||||||||||||||||
| Change in sales revenue, net | 90,106 | (112,093) | 73,898 | 51,911 | |||||||||||||||||||
| Fiscal 2022 sales revenue, net | $ | 654,997 | $ | 549,475 | $ | 436,863 | $ | 1,641,335 | |||||||||||||||
| Total net sales revenue growth (decline) | 16.0 | % | (16.9) | % | 20.4 | % | 3.3 | % | |||||||||||||||
| Core business | 16.0 | % | (16.9) | % | 29.2 | % | 5.3 | % | |||||||||||||||
| Non-Core business (Personal Care) | — | % | — | % | (8.9) | % | (2.0) | % | |||||||||||||||
15
SELECTED OTHER DATA
Reconciliation of Non-GAAP Financial Measures – GAAP Operating Income
to Adjusted Operating Income and Adjusted Operating Margin (Non-GAAP) (5)
(Unaudited) (in thousands)
| Three Months Ended November 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 43,239 | 17.6 | % | $ | 13,573 | 6.7 | % | $ | 33,228 | 19.0 | % | $ | 90,040 | 14.4 | % | |||||||||||||||||||||||||||||||
| Acquisition-related expenses | 1,605 | 0.7 | % | — | — | % | — | — | % | 1,605 | 0.3 | % | |||||||||||||||||||||||||||||||||||
| EPA compliance costs | — | — | % | 4,926 | 2.4 | % | — | — | % | 4,926 | 0.8 | % | |||||||||||||||||||||||||||||||||||
| Restructuring charges | — | — | % | — | — | % | 5 | — | % | 5 | — | % | |||||||||||||||||||||||||||||||||||
| Subtotal | 44,844 | 18.2 | % | 18,499 | 9.1 | % | 33,233 | 19.0 | % | 96,576 | 15.5 | % | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 525 | 0.2 | % | 572 | 0.3 | % | 1,897 | 1.1 | % | 2,994 | 0.5 | % | |||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 2,339 | 1.0 | % | 2,717 | 1.3 | % | 1,493 | 0.9 | % | 6,549 | 1.0 | % | |||||||||||||||||||||||||||||||||||
| Adjusted operating income (non-GAAP) | $ | 47,708 | 19.4 | % | $ | 21,788 | 10.7 | % | $ | 36,623 | 20.9 | % | $ | 106,119 | 17.0 | % | |||||||||||||||||||||||||||||||
| Three Months Ended November 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 37,658 | 16.9 | % | $ | 30,478 | 12.2 | % | $ | 32,573 | 19.7 | % | $ | 100,709 | 15.8 | % | |||||||||||||||||||||||||||||||
| Restructuring charges | (12) | — | % | — | — | % | — | — | % | (12) | — | % | |||||||||||||||||||||||||||||||||||
| Subtotal | 37,646 | 16.9 | % | 30,478 | 12.2 | % | 32,573 | 19.7 | % | 100,697 | 15.8 | % | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 523 | 0.2 | % | 2,454 | 1.0 | % | 1,524 | 1.0 | % | 4,501 | 0.7 | % | |||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 2,712 | 1.2 | % | 2,359 | 0.9 | % | 1,668 | 1.0 | % | 6,739 | 1.1 | % | |||||||||||||||||||||||||||||||||||
| Adjusted operating income (non-GAAP) | $ | 40,881 | 18.4 | % | $ | 35,291 | 14.1 | % | $ | 35,765 | 21.7 | % | $ | 111,937 | 17.6 | % | |||||||||||||||||||||||||||||||
| Nine Months Ended November 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 112,303 | 17.1 | % | $ | 29,616 | 5.4 | % | $ | 80,247 | 18.4 | % | $ | 222,166 | 13.5 | % | |||||||||||||||||||||||||||||||
| Acquisition-related expenses | 1,605 | 0.2 | % | — | — | % | — | — | % | 1,605 | 0.1 | % | |||||||||||||||||||||||||||||||||||
| EPA compliance costs | — | — | % | 20,998 | 3.8 | % | — | — | % | 20,998 | 1.3 | % | |||||||||||||||||||||||||||||||||||
| Restructuring charges | 369 | 0.1 | % | — | — | % | 11 | — | % | 380 | — | % | |||||||||||||||||||||||||||||||||||
| Subtotal | 114,277 | 17.4 | % | 50,614 | 9.2 | % | 80,258 | 18.4 | % | 245,149 | 14.9 | % | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 1,562 | 0.2 | % | 1,709 | 0.3 | % | 5,692 | 1.3 | % | 8,963 | 0.5 | % | |||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 11,047 | 1.7 | % | 10,229 | 1.9 | % | 7,073 | 1.6 | % | 28,349 | 1.7 | % | |||||||||||||||||||||||||||||||||||
| Adjusted operating income (non-GAAP) | $ | 126,886 | 19.4 | % | $ | 62,552 | 11.4 | % | $ | 93,023 | 21.3 | % | $ | 282,461 | 17.2 | % | |||||||||||||||||||||||||||||||
| Nine Months Ended November 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 106,294 | 18.8 | % | $ | 95,782 | 14.5 | % | $ | 54,887 | 15.1 | % | $ | 256,963 | 16.2 | % | |||||||||||||||||||||||||||||||
| Restructuring charges | 251 | — | % | — | — | % | 104 | — | % | 355 | — | % | |||||||||||||||||||||||||||||||||||
| Subtotal | 106,545 | 18.9 | % | 95,782 | 14.5 | % | 54,991 | 15.2 | % | 257,318 | 16.2 | % | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 1,541 | 0.3 | % | 7,415 | 1.1 | % | 4,571 | 1.3 | % | 13,527 | 0.9 | % | |||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 8,024 | 1.4 | % | 7,166 | 1.1 | % | 5,464 | 1.5 | % | 20,654 | 1.3 | % | |||||||||||||||||||||||||||||||||||
| Adjusted operating income (non-GAAP) | $ | 116,110 | 20.6 | % | $ | 110,363 | 16.7 | % | $ | 65,026 | 17.9 | % | $ | 291,499 | 18.3 | % | |||||||||||||||||||||||||||||||
16
SELECTED OTHER DATA
Reconciliation of Non-GAAP Financial Measures - EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) and Adjusted EBITDA (5)
(Unaudited) (in thousands)
| Three Months Ended November 30, 2021 | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 43,239 | $ | 13,573 | $ | 33,228 | $ | 90,040 | |||||||||||||||
| Depreciation and amortization | 2,894 | 2,529 | 3,218 | 8,641 | |||||||||||||||||||
| Non-operating income, net | — | — | 52 | 52 | |||||||||||||||||||
| EBITDA (non-GAAP) | 46,133 | 16,102 | 36,498 | 98,733 | |||||||||||||||||||
| Add: Acquisition-related expenses | 1,605 | — | — | 1,605 | |||||||||||||||||||
| EPA compliance costs | — | 4,926 | — | 4,926 | |||||||||||||||||||
| Restructuring charges | — | — | 5 | 5 | |||||||||||||||||||
| Non-cash share-based compensation | 2,339 | 2,717 | 1,493 | 6,549 | |||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 50,077 | $ | 23,745 | $ | 37,996 | $ | 111,818 | |||||||||||||||
| Three Months Ended November 30, 2020 | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 37,658 | $ | 30,478 | $ | 32,573 | $ | 100,709 | |||||||||||||||
| Depreciation and amortization | 2,371 | 4,106 | 3,042 | 9,519 | |||||||||||||||||||
| Non-operating income, net | — | — | 93 | 93 | |||||||||||||||||||
| EBITDA (non-GAAP) | 40,029 | 34,584 | 35,708 | 110,321 | |||||||||||||||||||
| Add: Restructuring charges | (12) | — | — | (12) | |||||||||||||||||||
| Non-cash share-based compensation | 2,712 | 2,359 | 1,668 | 6,739 | |||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 42,729 | $ | 36,943 | $ | 37,376 | $ | 117,048 | |||||||||||||||
| Nine Months Ended November 30, 2021 | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 112,303 | $ | 29,616 | $ | 80,247 | $ | 222,166 | |||||||||||||||
| Depreciation and amortization | 8,257 | 7,879 | 9,946 | 26,082 | |||||||||||||||||||
| Non-operating income, net | — | — | 185 | 185 | |||||||||||||||||||
| EBITDA (non-GAAP) | 120,560 | 37,495 | 90,378 | 248,433 | |||||||||||||||||||
| Add: Acquisition-related expenses | 1,605 | — | — | 1,605 | |||||||||||||||||||
| EPA compliance costs | — | 20,998 | — | 20,998 | |||||||||||||||||||
| Restructuring charges | 369 | — | 11 | 380 | |||||||||||||||||||
| Non-cash share-based compensation | 11,047 | 10,229 | 7,073 | 28,349 | |||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 133,581 | $ | 68,722 | $ | 97,462 | $ | 299,765 | |||||||||||||||
| Nine Months Ended November 30, 2020 | |||||||||||||||||||||||
| Housewares | Health & Home | Beauty | Total | ||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 106,294 | $ | 95,782 | $ | 54,887 | $ | 256,963 | |||||||||||||||
| Depreciation and amortization | 6,743 | 12,331 | 8,921 | 27,995 | |||||||||||||||||||
| Non-operating income, net | — | — | 440 | 440 | |||||||||||||||||||
| EBITDA (non-GAAP) | 113,037 | 108,113 | 64,248 | 285,398 | |||||||||||||||||||
| Add: Restructuring charges | 251 | — | 104 | 355 | |||||||||||||||||||
| Non-cash share-based compensation | 8,024 | 7,166 | 5,464 | 20,654 | |||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 121,312 | $ | 115,279 | $ | 69,816 | $ | 306,407 | |||||||||||||||
17
Reconciliation of GAAP Net Income and Diluted EPS to
Adjusted Income and Adjusted Diluted EPS (Non-GAAP) (5)
(Unaudited) (in thousands, except per share data)
| Three Months Ended November 30, 2021 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 86,886 | $ | 11,203 | $ | 75,683 | $ | 3.56 | $ | 0.46 | $ | 3.10 | |||||||||||||||||||||||
| Acquisition-related expenses | 1,605 | 58 | 1,547 | 0.07 | — | 0.06 | |||||||||||||||||||||||||||||
| EPA compliance costs | 4,926 | 74 | 4,852 | 0.20 | — | 0.20 | |||||||||||||||||||||||||||||
| Restructuring charges | 5 | — | 5 | — | — | — | |||||||||||||||||||||||||||||
| Subtotal | 93,422 | 11,335 | 82,087 | 3.83 | 0.46 | 3.36 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 2,994 | 197 | 2,797 | 0.12 | 0.01 | 0.11 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 6,549 | 784 | 5,765 | 0.27 | 0.03 | 0.24 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 102,965 | $ | 12,316 | $ | 90,649 | $ | 4.22 | $ | 0.50 | $ | 3.72 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 24,399 | ||||||||||||||||||||||||||||||||||
| Three Months Ended November 30, 2020 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 97,876 | $ | 13,721 | $ | 84,155 | $ | 3.89 | $ | 0.55 | $ | 3.34 | |||||||||||||||||||||||
| Restructuring charges | (12) | — | (12) | — | — | — | |||||||||||||||||||||||||||||
| Subtotal | 97,864 | 13,721 | 84,143 | 3.89 | 0.55 | 3.34 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 4,501 | 204 | 4,297 | 0.18 | 0.01 | 0.17 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 6,739 | 403 | 6,336 | 0.27 | 0.02 | 0.25 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 109,104 | $ | 14,328 | $ | 94,776 | $ | 4.33 | $ | 0.57 | $ | 3.76 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,192 | ||||||||||||||||||||||||||||||||||
| Three Months Ended November 30, 2019 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 76,594 | $ | 7,895 | $ | 68,699 | $ | 3.02 | $ | 0.31 | $ | 2.71 | |||||||||||||||||||||||
| Acquisition-related expenses | 1,475 | 22 | 1,453 | 0.06 | — | 0.06 | |||||||||||||||||||||||||||||
| Restructuring charges | 12 | — | 12 | — | — | — | |||||||||||||||||||||||||||||
| Subtotal | 78,081 | 7,917 | 70,164 | 3.07 | 0.31 | 2.76 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 4,790 | 252 | 4,538 | 0.19 | 0.01 | 0.18 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 4,758 | 343 | 4,415 | 0.19 | 0.01 | 0.17 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 87,629 | $ | 8,512 | $ | 79,117 | $ | 3.45 | $ | 0.34 | $ | 3.12 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,396 | ||||||||||||||||||||||||||||||||||
18
Reconciliation of GAAP Net Income and Diluted EPS to
Adjusted Income and Adjusted Diluted EPS (Non-GAAP) (5)
(Unaudited) (in thousands, except per share data)
| Nine Months Ended November 30, 2021 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 212,843 | $ | 28,873 | $ | 183,970 | $ | 8.70 | $ | 1.18 | $ | 7.52 | |||||||||||||||||||||||
| Acquisition-related expenses | 1,605 | 58 | 1,547 | 0.07 | — | 0.06 | |||||||||||||||||||||||||||||
| EPA compliance costs | 20,998 | 315 | 20,683 | 0.86 | 0.01 | 0.85 | |||||||||||||||||||||||||||||
| Restructuring charges | 380 | 6 | 374 | 0.02 | — | 0.02 | |||||||||||||||||||||||||||||
| Subtotal | 235,826 | 29,252 | 206,574 | 9.64 | 1.20 | 8.45 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 8,963 | 603 | 8,360 | 0.37 | 0.02 | 0.34 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 28,349 | 2,355 | 25,994 | 1.16 | 0.10 | 1.06 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 273,138 | $ | 32,210 | $ | 240,928 | $ | 11.17 | $ | 1.32 | $ | 9.85 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 24,461 | ||||||||||||||||||||||||||||||||||
| Nine Months Ended November 30, 2020 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 247,835 | $ | 16,061 | $ | 231,774 | $ | 9.78 | $ | 0.63 | $ | 9.14 | |||||||||||||||||||||||
| Restructuring charges | 355 | 2 | 353 | 0.01 | — | 0.01 | |||||||||||||||||||||||||||||
| Tax reform | — | 9,357 | (9,357) | — | 0.37 | (0.37) | |||||||||||||||||||||||||||||
| Subtotal | 248,190 | 25,420 | 222,770 | 9.79 | 1.00 | 8.79 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 13,527 | 651 | 12,876 | 0.53 | 0.03 | 0.51 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 20,654 | 1,406 | 19,248 | 0.82 | 0.06 | 0.76 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 282,371 | $ | 27,477 | $ | 254,894 | $ | 11.14 | $ | 1.08 | $ | 10.05 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,350 | ||||||||||||||||||||||||||||||||||
| Nine Months Ended November 30, 2019 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 172,018 | $ | 16,530 | $ | 155,488 | $ | 6.80 | $ | 0.65 | $ | 6.15 | |||||||||||||||||||||||
| Acquisition-related expenses | 1,475 | 22 | 1,453 | 0.06 | — | 0.06 | |||||||||||||||||||||||||||||
| Restructuring charges | 1,061 | 68 | 993 | 0.04 | — | 0.04 | |||||||||||||||||||||||||||||
| Subtotal | 174,554 | 16,620 | 157,934 | 6.90 | 0.66 | 6.24 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 13,129 | 621 | 12,508 | 0.52 | 0.02 | 0.49 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 18,743 | 1,434 | 17,309 | 0.74 | 0.06 | 0.68 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 206,426 | $ | 18,675 | $ | 187,751 | $ | 8.16 | $ | 0.74 | $ | 7.42 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,295 | ||||||||||||||||||||||||||||||||||
19
Consolidated Core and Non-Core Net Sales and Reconciliation of Core and Non-Core Diluted EPS to Core and Non-Core Adjusted Diluted EPS (Non-GAAP) (2) (5)
(Unaudited) (in thousands, except per share data)
| Three Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Sales revenue, net | |||||||||||||||||||||||
| Core | $ | 620,509 | $ | 617,766 | $ | 2,743 | 0.4 | % | |||||||||||||||
| Non-Core | 4,375 | 19,971 | (15,596) | (78.1) | % | ||||||||||||||||||
| Total | $ | 624,884 | $ | 637,737 | $ | (12,853) | (2.0) | % | |||||||||||||||
| Three Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Adjusted Diluted EPS (non-GAAP) | |||||||||||||||||||||||
| Core | $ | 3.72 | $ | 3.61 | $ | 0.11 | 3.0 | % | |||||||||||||||
| Non-Core | — | 0.15 | (0.15) | (100.0) | % | ||||||||||||||||||
| Total | $ | 3.72 | $ | 3.76 | $ | (0.04) | (1.1) | % | |||||||||||||||
| Three Months Ended November 30, | |||||||||||
| Core Business: | 2021 | 2020 | |||||||||
| Diluted EPS, as reported | $ | 3.10 | $ | 3.19 | |||||||
| Acquisition-related expenses, net of tax | 0.06 | — | |||||||||
| EPA compliance costs, net of tax | 0.20 | — | |||||||||
| Restructuring charges, net of tax | — | — | |||||||||
| Subtotal | 3.36 | 3.19 | |||||||||
| Amortization of intangible assets, net of tax | 0.11 | 0.17 | |||||||||
| Non-cash share-based compensation, net of tax | 0.24 | 0.25 | |||||||||
| Adjusted Diluted EPS (non-GAAP) | $ | 3.72 | $ | 3.61 | |||||||
| Three Months Ended November 30, | |||||||||||
| Non-Core Business: | 2021 | 2020 | |||||||||
| Diluted EPS, as reported | $ | — | $ | 0.15 | |||||||
| Non-cash share-based compensation, net of tax | — | — | |||||||||
| Adjusted Diluted EPS (non-GAAP) | $ | — | $ | 0.15 | |||||||
| Diluted EPS, as reported (GAAP) | $ | 3.10 | $ | 3.34 | |||||||
20
Consolidated Core and Non-Core Net Sales and Reconciliation of Core and Non-Core Diluted EPS to Core and Non-Core Adjusted Diluted EPS (Non-GAAP) (2) (5)
(Unaudited) (in thousands, except per share data)
| Nine Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Sales revenue, net | |||||||||||||||||||||||
| Core | $ | 1,611,098 | $ | 1,526,995 | $ | 84,103 | 5.5 | % | |||||||||||||||
| Non-Core | 30,237 | 62,429 | (32,192) | (51.6) | % | ||||||||||||||||||
| Total | $ | 1,641,335 | $ | 1,589,424 | $ | 51,911 | 3.3 | % | |||||||||||||||
| Nine Months Ended November 30, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Adjusted Diluted EPS (non-GAAP) | |||||||||||||||||||||||
| Core | $ | 9.67 | $ | 9.58 | $ | 0.09 | 0.9 | % | |||||||||||||||
| Non-Core | 0.18 | 0.47 | (0.29) | (61.7) | % | ||||||||||||||||||
| Total | $ | 9.85 | $ | 10.05 | $ | (0.20) | (2.0) | % | |||||||||||||||
| Nine Months Ended November 30, | |||||||||||
| Core Business: | 2021 | 2020 | |||||||||
| Diluted EPS, as reported | $ | 7.35 | $ | 8.67 | |||||||
| Acquisition-related expenses, net of tax | 0.06 | — | |||||||||
| EPA compliance costs, net of tax | 0.85 | — | |||||||||
| Restructuring charges, net of tax | 0.02 | 0.01 | |||||||||
| Tax reform | — | (0.37) | |||||||||
| Subtotal | 8.28 | 8.31 | |||||||||
| Amortization of intangible assets, net of tax | 0.34 | 0.51 | |||||||||
| Non-cash share-based compensation, net of tax | 1.05 | 0.76 | |||||||||
| Adjusted Diluted EPS (non-GAAP) | $ | 9.67 | $ | 9.58 | |||||||
| Nine Months Ended November 30, | |||||||||||
| Non-Core Business: | 2021 | 2020 | |||||||||
| Diluted EPS, as reported | $ | 0.17 | $ | 0.47 | |||||||
| Non-cash share-based compensation, net of tax | 0.01 | — | |||||||||
| Adjusted Diluted EPS (non-GAAP) | $ | 0.18 | $ | 0.47 | |||||||
| Diluted EPS, as reported (GAAP) | $ | 7.52 | $ | 9.14 | |||||||
21
Consolidated Core and Non-Core Net Sales and Reconciliation of Core and Non-Core Diluted EPS to Core and Non-Core Adjusted Diluted EPS (Non-GAAP) (2) (5)
(Unaudited) (in thousands, except per share data)
| Three Months Ended November 30, 2019 | Nine Months Ended November 30, 2019 | ||||||||||
| Sales revenue, net | |||||||||||
| Core | $ | 450,742 | $ | 1,193,454 | |||||||
| Non-Core | 23,995 | 71,613 | |||||||||
| Total | $ | 474,737 | $ | 1,265,067 | |||||||
| Three Months Ended November 30, 2019 | Nine Months Ended November 30, 2019 | ||||||||||
| Adjusted Diluted EPS (non-GAAP) | |||||||||||
| Core | $ | 2.98 | $ | 6.98 | |||||||
| Non-Core | 0.14 | 0.44 | |||||||||
| Total | $ | 3.12 | $ | 7.42 | |||||||
| Three Months Ended November 30, 2019 | Nine Months Ended November 30, 2019 | ||||||||||
| Core Business: | |||||||||||
| Diluted EPS, as reported | $ | 2.62 | $ | 5.85 | |||||||
| Acquisition-related expenses, net of tax | 0.06 | 0.06 | |||||||||
| Restructuring charges, net of tax | — | 0.02 | |||||||||
| Subtotal | 2.68 | 5.93 | |||||||||
| Amortization of intangible assets, net of tax | 0.13 | 0.38 | |||||||||
| Non-cash share-based compensation, net of tax | 0.17 | 0.67 | |||||||||
| Adjusted Diluted EPS (non-GAAP) | $ | 2.98 | $ | 6.98 | |||||||
| Three Months Ended November 30, 2019 | Nine Months Ended November 30, 2019 | ||||||||||
| Non-Core Business: | |||||||||||
| Diluted EPS, as reported | $ | 0.09 | $ | 0.30 | |||||||
| Restructuring charges, net of tax | — | 0.01 | |||||||||
| Subtotal | 0.09 | 0.31 | |||||||||
| Amortization of intangible assets, net of tax | 0.05 | 0.12 | |||||||||
| Non-cash share-based compensation, net of tax | — | 0.01 | |||||||||
| Adjusted Diluted EPS (non-GAAP) | $ | 0.14 | $ | 0.44 | |||||||
| Diluted EPS, as reported (GAAP) | $ | 2.71 | $ | 6.15 | |||||||
22
Selected Consolidated Balance Sheet, Cash Flow and Liquidity Information
(Unaudited) (in thousands)
| November 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Balance Sheet: | |||||||||||
| Cash and cash equivalents | $ | 44,344 | $ | 156,661 | |||||||
| Receivables, net | 505,933 | 500,070 | |||||||||
| Inventory, net | 585,811 | 383,440 | |||||||||
| Total assets, current | 1,164,989 | 1,090,068 | |||||||||
| Total assets | 2,487,405 | 2,311,744 | |||||||||
| Total liabilities, current | 625,308 | 598,505 | |||||||||
| Total long-term liabilities | 507,139 | 502,801 | |||||||||
| Total debt | 447,468 | 440,381 | |||||||||
| Stockholders' equity | 1,354,958 | 1,210,438 | |||||||||
| Liquidity: | |||||||||||
| Working capital | $ | 539,681 | $ | 491,563 | |||||||
| Nine Months Ended November 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash Flow: | |||||||||||
| Depreciation and amortization | $ | 26,082 | $ | 27,995 | |||||||
| Net cash (used) provided by operating activities | (5,054) | 249,746 | |||||||||
| Capital and intangible asset expenditures | 41,529 | 19,423 | |||||||||
| Net debt proceeds | 103,100 | 104,100 | |||||||||
| Payments for repurchases of common stock | 113,019 | 202,961 | |||||||||
Reconciliation of GAAP Net Cash (Used) Provided by Operating Activities
to Free Cash Flow (Non-GAAP) (5)
(Unaudited) (in thousands)
| Nine Months Ended November 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net cash (used) provided by operating activities (GAAP) | $ | (5,054) | $ | 249,746 | |||||||
| Less: Capital and intangible asset expenditures | (41,529) | (19,423) | |||||||||
| Free cash flow (non-GAAP) | $ | (46,583) | $ | 230,323 | |||||||
23
Updated Fiscal 2022 Outlook for Net Sales Revenue (2)
(Unaudited)
(in thousands)
| Consolidated: | Fiscal 2021 | Updated Outlook for Fiscal 2022 | |||||||||||||||||||||
| Net sales revenue | $ | 2,098,799 | $ | 2,095,000 | — | $ | 2,115,000 | ||||||||||||||||
| — | % | — | 1.0 | % | |||||||||||||||||||
| Core Business: | |||||||||||||||||||||||
| Net sales revenue | $ | 2,020,453 | $ | 2,060,000 | — | $ | 2,080,000 | ||||||||||||||||
| 2.0 | % | — | 3.0 | % | |||||||||||||||||||
| Non-Core Business: | |||||||||||||||||||||||
| Net sales revenue | $ | 78,346 | $ | 35,000 | — | $ | 35,000 | ||||||||||||||||
| (55.3) | % | — | (55.3) | % | |||||||||||||||||||
Reconciliation of Updated Fiscal 2022 Outlook for GAAP Diluted Earnings Per Share (“EPS”) to Adjusted Diluted EPS (Non-GAAP) (2) (5) (Unaudited)
| Consolidated: | Nine Months Ended November 30, 2021 | Outlook for the Balance of the Fiscal Year (Three Months) | Updated Outlook Fiscal 2022 | ||||||||||||||||||||||||||||||||||||||
| Diluted EPS, as reported (GAAP) | $ | 7.52 | $ | 0.73 | — | $ | 1.07 | $ | 8.25 | — | $ | 8.59 | |||||||||||||||||||||||||||||
| Acquisition-related expenses, net of tax | 0.06 | 0.04 | — | 0.02 | 0.10 | — | 0.08 | ||||||||||||||||||||||||||||||||||
| EPA compliance costs, net of tax | 0.85 | 0.70 | — | 0.60 | 1.55 | — | 1.45 | ||||||||||||||||||||||||||||||||||
| Restructuring charges, net of tax | 0.02 | — | — | — | 0.02 | — | 0.02 | ||||||||||||||||||||||||||||||||||
| Subtotal | 8.45 | 1.47 | — | 1.69 | 9.92 | — | 10.14 | ||||||||||||||||||||||||||||||||||
| Amortization of intangible assets, net of tax | 0.34 | 0.14 | — | 0.14 | 0.48 | — | 0.48 | ||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation, net of tax | 1.06 | 0.27 | — | 0.25 | 1.33 | — | 1.31 | ||||||||||||||||||||||||||||||||||
| Adjusted diluted EPS (non-GAAP) | $ | 9.85 | $ | 1.88 | — | $ | 2.08 | $ | 11.73 | — | $ | 11.93 | |||||||||||||||||||||||||||||
| Core Business: | Nine Months Ended November 30, 2021 | Outlook for the Balance of the Fiscal Year (Three Months) | Updated Outlook Fiscal 2022 | ||||||||||||||||||||||||||||||||||||||
| Diluted EPS, as reported (GAAP) | $ | 7.35 | $ | 0.73 | — | $ | 1.07 | $ | 8.08 | — | $ | 8.42 | |||||||||||||||||||||||||||||
| Acquisition-related expenses, net of tax | 0.06 | 0.04 | — | 0.02 | 0.10 | — | 0.08 | ||||||||||||||||||||||||||||||||||
| EPA compliance costs, net of tax | 0.85 | 0.70 | — | 0.60 | 1.55 | — | 1.45 | ||||||||||||||||||||||||||||||||||
| Restructuring charges, net of tax | 0.02 | — | — | — | 0.02 | — | 0.02 | ||||||||||||||||||||||||||||||||||
| Subtotal | 8.28 | 1.47 | — | 1.69 | 9.75 | — | 9.97 | ||||||||||||||||||||||||||||||||||
| Amortization of intangible assets, net of tax | 0.34 | 0.14 | — | 0.14 | 0.48 | — | 0.48 | ||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation, net of tax | 1.05 | 0.27 | — | 0.25 | 1.32 | — | 1.30 | ||||||||||||||||||||||||||||||||||
| Adjusted diluted EPS (non-GAAP) | $ | 9.67 | $ | 1.88 | — | $ | 2.08 | $ | 11.55 | — | $ | 11.75 | |||||||||||||||||||||||||||||
| Non-Core Business: | Nine Months Ended November 30, 2021 | Outlook for the Balance of the Fiscal Year (Three Months) | Updated Outlook Fiscal 2022 | ||||||||||||||||||||||||||||||||||||||
| Diluted EPS, as reported (GAAP) | $ | 0.17 | $ | — | — | $ | — | $ | 0.17 | — | $ | 0.17 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation, net of tax | 0.01 | — | — | — | 0.01 | — | 0.01 | ||||||||||||||||||||||||||||||||||
| Adjusted diluted EPS (non-GAAP) | $ | 0.18 | $ | — | — | $ | — | $ | 0.18 | — | $ | 0.18 | |||||||||||||||||||||||||||||
24
Reconciliation of Updated Fiscal 2022 Outlook for Effective Tax Rate (GAAP) to Adjusted Effective Tax Rate (Non-GAAP) (2) (5) (Unaudited)
| Consolidated: | Nine Months Ended November 30, 2021 | Outlook for the Balance of the Fiscal Year (Three Months) | Updated Outlook Fiscal 2022 | ||||||||||||||||||||||||||||||||||||||
| Effective tax rate, as reported (GAAP) | 13.6 | % | 6.7 | % | — | 16.9 | % | 13.0 | % | — | 14.0 | % | |||||||||||||||||||||||||||||
| Acquisition-related expenses | (0.1) | % | (0.1) | % | — | (0.1) | % | (0.1) | % | — | (0.1) | % | |||||||||||||||||||||||||||||
| EPA compliance costs | (1.1) | % | (2.4) | % | — | (4.9) | % | (1.6) | % | — | (1.6) | % | |||||||||||||||||||||||||||||
| Restructuring charges | — | % | — | % | — | — | % | — | % | — | — | % | |||||||||||||||||||||||||||||
| Subtotal | 12.4 % | 4.2 % | — | 11.9 % | 11.3 | % | — | 12.3 | % | ||||||||||||||||||||||||||||||||
| Amortization of intangible assets | (0.1) | % | 0.3 % | — | (0.3) | % | (0.1) | % | — | (0.2) | % | ||||||||||||||||||||||||||||||
| Non-cash share-based compensation | (0.5) | % | 0.5 % | — | (0.5) | % | (0.4) | % | — | (0.5) | % | ||||||||||||||||||||||||||||||
| Adjusted effective tax rate (non-GAAP) | 11.8 % | 5.0 | % | — | 11.1 | % | 10.8 | % | — | 11.7 | % | ||||||||||||||||||||||||||||||
| Core Business: | Nine Months Ended November 30, 2021 | Outlook for the Balance of the Fiscal Year (Three Months) | Updated Outlook Fiscal 2022 | ||||||||||||||||||||||||||||||||||||||
| Effective tax rate, as reported (GAAP) | 13.4 % | 5.5 % | — | 16.2 % | 12.8 | % | — | 13.8 | % | ||||||||||||||||||||||||||||||||
| Acquisition-related expenses | (0.1) | % | (0.1) | % | — | (0.1) | % | (0.1) | % | — | (0.1) | % | |||||||||||||||||||||||||||||
| EPA compliance costs | (1.1) | % | (1.8) | % | — | (4.7) | % | (1.6) | % | — | (1.6) | % | |||||||||||||||||||||||||||||
| Restructuring charges | — | % | — | % | — | — | % | — | % | — | — | % | |||||||||||||||||||||||||||||
| Subtotal | 12.2 % | 3.6 % | — | 11.3 % | 11.0 % | — | 12.1 % | ||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | (0.1) | % | 0.3 % | — | (0.2) | % | (0.1) | % | — | (0.2) | % | ||||||||||||||||||||||||||||||
| Non-cash share-based compensation | (0.5) | % | 0.6 % | — | (0.4) | % | (0.3) | % | — | (0.4) | % | ||||||||||||||||||||||||||||||
| Adjusted effective tax rate (non-GAAP) | 11.6 % | 4.5 % | — | 10.7 % | 10.6 | % | — | 11.5 | % | ||||||||||||||||||||||||||||||||
| Non-Core Business: | Nine Months Ended November 30, 2021 | Outlook for the Balance of the Fiscal Year (Three Months) | Updated Outlook Fiscal 2022 | ||||||||||||||||||||||||||||||||||||||
| Effective tax rate, as reported (GAAP) | 19.5 % | 109.4 % | — | 108.1 % | 23.3 % | — | 23.8 % | ||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | (0.4) | % | (18.7) | % | — | (16.4) | % | (0.7) | % | — | (0.7) | % | |||||||||||||||||||||||||||||
| Adjusted effective tax rate (non-GAAP) | 19.1 % | 90.7 % | — | 91.8 % | 22.6 % | — | 23.1 % | ||||||||||||||||||||||||||||||||||
25
Reconciliation of Updated Fiscal 2022 Outlook for Net Sales Revenue to Updated Fiscal 2022 Outlook for Net Sales Revenue Excluding Impact of the EPA Matter (Non-GAAP) (2) (5) (11)
(Unaudited) (in thousands)
| Consolidated: | Fiscal 2021 | Updated Outlook for Fiscal 2022 | |||||||||||||||||||||||||||
| Net sales revenue | $ | 2,098,799 | $ | 2,095,000 | — | $ | 2,115,000 | — | % | — | 1.0 | % | |||||||||||||||||
| Impact of the EPA matter | 60,000 | — | 60,000 | (2.9) | % | — | (2.9) | % | |||||||||||||||||||||
| Net sales revenue, excluding impact of EPA matter (non-GAAP) | $ | 2,155,000 | — | $ | 2,175,000 | 2.7 | % | — | 3.6 | % | |||||||||||||||||||
| Core Business: | |||||||||||||||||||||||||||||
| Net sales revenue | $ | 2,020,453 | $ | 2,060,000 | — | $ | 2,080,000 | 2.0 | % | — | 3.0 | % | |||||||||||||||||
| Impact of the EPA matter | 60,000 | — | 60,000 | (3.0) | % | — | (3.0) | % | |||||||||||||||||||||
| Net sales revenue, excluding impact of EPA matter (non-GAAP) | $ | 2,120,000 | — | $ | 2,140,000 | 5.0 | % | — | 6.0 | % | |||||||||||||||||||
| Non-Core Business: | |||||||||||||||||||||||||||||
| Net sales revenue | $ | 78,346 | $ | 35,000 | — | $ | 35,000 | (55.3) | % | — | (55.3) | % | |||||||||||||||||
| Impact of the EPA matter | — | — | — | — | % | — | — | % | |||||||||||||||||||||
| Net sales revenue, excluding impact of EPA matter (non-GAAP) | $ | 35,000 | — | $ | 35,000 | (55.3) | % | — | (55.3) | % | |||||||||||||||||||
Reconciliation of Updated Fiscal 2022 Outlook for GAAP Diluted EPS to Diluted EPS Excluding Impact of the EPA Matter (Non-GAAP) (2) (5) (11) (Unaudited)
| Consolidated: | Fiscal 2021 | Updated Outlook for Fiscal 2022 | |||||||||||||||||||||||||||
| Diluted EPS, as reported (GAAP) | $ | 10.08 | $ | 8.25 | — | $ | 8.59 | (18.2) | % | — | (14.8) | % | |||||||||||||||||
| Impact of the EPA matter | 0.30 | — | 0.30 | (3.0) | % | — | (3.0) | % | |||||||||||||||||||||
| Diluted EPS, excluding impact of the EPA matter (non-GAAP) | $ | 8.55 | — | $ | 8.89 | (15.2) | % | — | (11.8) | % | |||||||||||||||||||
| Core Business: | |||||||||||||||||||||||||||||
| Diluted EPS, as reported (GAAP) | $ | 9.76 | $ | 8.08 | — | $ | 8.42 | (17.2) | % | — | (13.7) | % | |||||||||||||||||
| Impact of the EPA matter | 0.30 | — | 0.30 | (3.1) | % | — | (3.1) | % | |||||||||||||||||||||
| Diluted EPS, excluding impact of the EPA matter (non-GAAP) | $ | 8.38 | — | $ | 8.72 | (14.1) | % | — | (10.7) | % | |||||||||||||||||||
| Non-Core Business: | |||||||||||||||||||||||||||||
| Diluted EPS, as reported (GAAP) | $ | 0.32 | $ | 0.17 | — | $ | 0.17 | (46.9) | % | — | (46.9) | % | |||||||||||||||||
| Impact of the EPA matter | — | — | — | — | % | — | — | % | |||||||||||||||||||||
| Diluted EPS, excluding impact of the EPA matter (non-GAAP) | $ | 0.17 | — | $ | 0.17 | (46.9) | % | — | (46.9) | % | |||||||||||||||||||
Reconciliation of Updated Fiscal 2022 Outlook for Adjusted Diluted EPS (Non-GAAP) to Adjusted Diluted EPS Excluding Impact of the EPA Matter (Non-GAAP) (2) (5) (11) (Unaudited)
| Consolidated: | Fiscal 2021 | Updated Outlook for Fiscal 2022 | |||||||||||||||||||||||||||
| Adjusted diluted EPS (non-GAAP) | $ | 11.65 | $ | 11.73 | — | $ | 11.93 | 0.7 | % | — | 2.4 | % | |||||||||||||||||
| Impact of the EPA matter | 0.30 | — | 0.30 | (2.6) | % | — | (2.6) | % | |||||||||||||||||||||
| Adjusted diluted EPS, excluding impact of the EPA matter (non-GAAP) | $ | 12.03 | — | $ | 12.23 | 3.3 | % | — | 5.0 | % | |||||||||||||||||||
| Core Business: | |||||||||||||||||||||||||||||
| Adjusted diluted EPS (non-GAAP) | $ | 11.03 | $ | 11.55 | — | $ | 11.75 | 4.7 | % | — | 6.5 | % | |||||||||||||||||
| Impact of the EPA matter | 0.30 | — | 0.30 | (2.7) | % | — | (2.7) | % | |||||||||||||||||||||
| Adjusted diluted EPS, excluding impact of the EPA matter (non-GAAP) | $ | 11.85 | — | $ | 12.05 | 7.4 | % | — | 9.2 | % | |||||||||||||||||||
| Non-Core Business: | |||||||||||||||||||||||||||||
| Adjusted diluted EPS (non-GAAP) | $ | 0.62 | $ | 0.18 | — | $ | 0.18 | (71.0) | % | — | (71.0) | % | |||||||||||||||||
| Impact of the EPA matter | — | — | — | — | % | — | — | % | |||||||||||||||||||||
| Adjusted diluted EPS, excluding impact of the EPA matter (non-GAAP) | $ | 0.18 | — | $ | 0.18 | (71.0) | % | — | (71.0) | % | |||||||||||||||||||
26
HELEN OF TROY LIMITED AND SUBSIDIARIES
Notes to Press Release
(1)Organic business refers to net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand is acquired, excluding the impact that foreign currency remeasurement had on reported net sales. Net sales revenue from internally developed brands or product lines is considered Organic business activity.
(2)The Company defines Core as strategic business that it expects to be an ongoing part of its operations, and Non-Core as business or assets (including net assets held for sale) that it expects to divest within a year of its designation as Non-Core.
(3)Leadership Brand net sales consists of revenue from the OXO, Honeywell, Braun, PUR, Hydro Flask, Vicks, Hot Tools and Drybar brands.
(4)Online channel net sales revenue includes direct to consumer online net sales, net sales to retail customers fulfilling end-consumer online orders and net sales to pure-play online retailers.
(5)This press release contains non-GAAP financial measures. Adjusted Operating Income, Adjusted Operating Margin, Adjusted Effective Tax Rate, Core and Non-Core Adjusted Effective Tax Rate, Adjusted Income, Adjusted Diluted EPS, Core and Non-Core Adjusted Diluted EPS, EBITDA, Adjusted EBITDA, Free Cash Flow and Outlook for Consolidated, Core and Non-Core Net Sales Revenue, Diluted EPS and Adjusted Diluted EPS Excluding Impact of the EPA Matter ("Non-GAAP Financial Measures") that are discussed in the accompanying press release or in the preceding tables may be considered non-GAAP financial information as contemplated by SEC Regulation G, Rule 100. Accordingly, the Company is providing the preceding tables that reconcile these measures to their corresponding GAAP-based measures. The Company believes that these non-GAAP measures provide useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations. The Company believes that these non-GAAP financial measures, in combination with the Company’s financial results calculated in accordance with GAAP, provide investors with additional perspective regarding the impact of certain charges and benefits on applicable income, margin and earnings per share measures. The Company also believes that these non-GAAP measures facilitate a more direct comparison of the Company’s performance with its competitors. The Company further believes that including the excluded charges and benefits would not accurately reflect the underlying performance of the Company’s operations for the period in which the charges and benefits are incurred, even though such charges and benefits may be incurred and reflected in the Company’s GAAP financial results in the near future. The material limitation associated with the use of the non-GAAP measures is that the non-GAAP measures do not reflect the full economic impact of the Company’s activities. These non-GAAP measures are not prepared in accordance with GAAP, are not an alternative to GAAP financial information, and may be calculated differently than non-GAAP financial information disclosed by other companies. Accordingly, undue reliance should not be placed on non-GAAP information.
(6)Charges incurred in conjunction with EPA packaging compliance for certain products in the air filtration, water filtration and humidification categories within the Health & Home segment.
(7)Acquisition-related expenses associated with the definitive agreement to acquire Osprey included in SG&A for the three- and nine-month periods ended November 30, 2021.
(8)Amortization of intangible assets.
(9)Non-cash share-based compensation.
(10)Charges incurred in connection with the Company’s restructuring plan (Project Refuel).
(11)Impact of the EPA matter represents the estimated unfavorable financial impact of lost sales volume and earnings resulting from the EPA packaging concerns and related stop shipment actions, net of the favorable impact of cost reduction actions. The estimated impact of the EPA matter does not include EPA compliance costs, which are included in the Company’s GAAP operating results but are excluded from non-GAAP adjusted operating income and non-GAAP adjusted diluted EPS results.
27
Exhibit 99.2
PARTICIPANTS
| Corporate Participants | ||
Jack Jancin – Senior Vice President - Corporate Business Development, Helen of Troy Ltd.
Julien R. Mininberg – Chief Executive Officer & Director, Helen of Troy Ltd.
Matthew J. Osberg – Chief Financial Officer, Helen of Troy Ltd.
| Other Participants | ||
Bob J. Labick – Analyst, CJS Securities, Inc.
Rupesh Parikh – Analyst, Oppenheimer & Co., Inc.
Linda Bolton Weiser – Analyst, D. A. Davidson & Co.
Steven L. Marotta – Analyst, C.L. King & Associates, Inc.
Anthony C. Lebiedzinski – Analyst, Sidoti & Co. LLC
MANAGEMENT DISCUSSION SECTION
Operator: Greetings and welcome to the Helen of Troy Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the call over to Jack Jancin, Senior Vice President of Corporate Business Development. Thank you. You may begin.
| Jack Jancin, Senior Vice President - Corporate Business Development, Helen of Troy Ltd. | ||
Thank you, operator. Good morning, everyone, and welcome to Helen of Troy’s third quarter fiscal 2022 earnings conference call. The agenda for the call this morning is as follows. I’ll begin with a brief discussion of forward-looking statements. Mr. Julien Mininberg, the company’s CEO, will comment on the financial performance of the quarter and specific progress on our strategic initiatives. Then, Mr. Matt Osberg, the company’s CFO, will review the financials in more detail and comment on the company’s outlook for fiscal 2022. Following this, we will take questions you have for us today.
This conference call may contain certain forward-looking statements that are based on management’s current expectation with respect to future events or financial performance. Generally, the words anticipates, believes, expects, and other words similar are words identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause the anticipated results to differ materially from the actual results.
This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.
Before I turn the call over to Mr. Mininberg, I would like to inform all interested parties that a copy of today’s earnings release has been posted to the Investor Relations section of the company’s website at www.helenoftroy.com. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. The release can be obtained by selecting the Investor Relations tab on the company’s homepage and then Press Releases tab.
I will now turn the conference call over to Mr. Mininberg.
| Julien R. Mininberg, Chief Executive Officer & Director, Helen of Troy Ltd. | ||
Thank you, Jack. Good morning, everyone, and thank you for joining us. I’d like to wish everyone a happy, healthy, and prosperous 2022. During today’s call, I will review our third quarter results, provide perspective on the higher revenue and EPS outlook we announced earlier this morning, and update you on how we plan to use our strengths, our strategy, and our operational playbook to continue creating value in the back half of Phase II.
On a core basis for both the quarter and the year-to-date, we are pleased to report that we grew our sales and adjusted diluted earnings per share compared to the prior year period despite the especially difficult comparisons versus last year and this year’s major headwinds from broad scale inflation, supply chain disruptions, and the EPA matter.
We see this result as a strong testament to the power of our transformation flywheel, the quality of our diversified portfolio of Leadership Brands, the effectiveness of our inflation mitigation tactics, and the strength of our organization, as well as the power of our culture.
Looking specifically at our third quarter, all three business segments exceeded our expectations. We delivered consolidated core net sales growth on top of last year’s 37.1% third quarter increase and delivered core adjusted earnings per share growth on top of last year’s 21.1% third quarter lift. These results and the positive trends we see for our business in the fourth quarter allow us to now raise our top and bottom line outlook for the full fiscal year.
Strong consumer and retailer demand have helped drive double-digit core sales growth in Housewares and in Beauty. And in the third quarter, this came on top of their double-digit sales increases in the same period last year. While Health & Home declined, it too performed above our expectations due primarily to stronger than expected demand and faster than expected completion of rework for certain products impacted by the EPA matter.
Online sales declined approximately 7% in the quarter, reflecting similar channel trends to those we saw in the second quarter. Key drivers were the impact of the EPA matter and rebalancing of brick-and-mortar and online shopping habits compared to a year ago. Even with more of our sales in the brick-and-mortar channel this quarter, online represented 23% of total sales in the third quarter. Looking at our online sales on a two-year stack, our sales in the channel have grown approximately 24% since the third quarter of fiscal 2020.
Now, looking at bottom line performance, core adjusted EPS grew 3% on top of last year’s 21% increase despite the headwinds I mentioned. I’m very pleased by the excellence of execution across our organization as we work to mitigate those headwinds and deliver growth over the particularly tough comparison period.
Key component of that work has been making the tactics in our operational playbook successful. As discussed in prior calls, those include a strategic increase in inventory, leveraging of pre-negotiated sea freight container rates, several efficiency and cost control initiatives, and price increases. Our inventory position has proven to be important, providing a competitive advantage in addressing inflation, supply chain disruption, and increased demand from consumers and retailers.
Looking at capital deployment, on December 29, 2021, we acquired Osprey Packs, a highly respected pillar in the outdoor industry and a global leader in technical and everyday packs. We continue to put our balance sheet to work on selective and strategic M&A, which is important as a part of our Phase II transformation strategy.
The Osprey deal marks yet another major capital transaction so far in Phase II following the Drybar acquisition at the beginning of 2020, the Revlon license transaction at the end of 2020, and various
opportunistic share repurchases. With these, and the previously announced new distribution center now under construction for Housewares, we have committed to deploy over $1.2 billion of capital during the first three years of Phase II. That’s more than what was deployed in all five years of Phase I combined.
Osprey will amplify our outdoor offerings. It will add an iconic ninth Leadership Brand that complements and diversifies our world-class portfolio, and it will add more critical mass to our flywheel. With more than half of its sales outside of the United States, the brand increases our international presence especially in EMEA and Asia Pacific, the two international regions where we are most focused.
We believe this acquisition is a classic story of two companies that are better together. Combining the talent, capabilities, authenticity and credibility of this proven outdoor pioneer with our global footprint and scalable global shared services creates opportunities for new efficiencies and new growth. We also believe there are attractive sales and marketing opportunities between Osprey, Hydro Flask, and the growing outdoors lineup for OXO, all of which serve like-minded consumers with premium products. On the financial side, we expect Osprey to be immediately accretive to nearly all of our key consolidated financial metrics.
I would now like to touch on the results of our business segments for the third quarter. Housewares had a very strong quarter posting net sales growth of 10.7% on top of 21.4% growth in the third quarter of last year. Both OXO and Hydro Flask delivered solid organic growth reflecting both domestic and international strength. Bath, storage, electrics and drinkware made healthy contributions to the quarterly growth. Hydro Flask’s especially strong growth in the quarter sweetened the mix, improving the margins for housewares.
Demand for OXO remains strong. As the coronavirus pandemic endures, consumers have settled into routines that continue to involve a lot more home cooking and a greater need to organize, clean and supply their households. We believe these habits are likely to remain sticky even after the pandemic. OXO continues to be a brand of choice for new and younger households who discovered the joys of cooking and nesting during the pandemic, as well as for more established households that have become familiar with even more of OXO’s exceptional products and the brand’s overall promise of “Better”.
Retailers responded to the strong POS strength by replenishing inventory and pulling forward buys in anticipation of supply chain delays. That strategic inventory position I mentioned earlier allowed us to meet that demand and contributed to OXO’s growth compared to some competitors who face delivery constraints and out of stocks. This appreciation of and the demand for the brand further improved OXO’s overall share performance as measured by third-party syndicated data in many of the US kitchen gadget categories that it competes in. Internationally, OXO also grew with particular strength in EMEA, in Latin America, and in Asia Pacific with new distribution in South Korea and in the Philippines.
Hydro Flask saw share growth and broad-based strength across brick-and-mortar as retailers increased orders after a much stronger back-to-school season to replenish POS momentum and to remain in stock ahead of the holiday season. Robust online sales also contributed to Hydro Flask’s growth particularly in the direct-to-consumer channel. We are pleased to report that the investments we have been making in DTC are paying off by allowing us to meet the much higher traffic and improved year-over-year conversion. Our improved online platform held up well to the pressure tests of record sales on Black Friday.
Internationally, Hydro Flask saw growth in all geographic regions, particularly in Canada. New product introductions beyond the bottle also contributed to growth, including Hydro Flask mugs in new sizes and insulated food jars in child and adult sizes. Concept of bringing the safety of home to offices and travel locations grow new demand for food storage and beverage bottles as some consumers went back to offices and schools and some increased their travel.
Turning to Beauty. On a core basis, sales grew 17.4% in the third quarter, a remarkable achievement considering core Beauty grew 77.7% in the third quarter of last year. Revlon, Drybar, and Hot Tools again led the growth in Beauty with demand increasing across all channels, driven by more activities such as social gatherings, back to office, and back to school. Our One-Step volumizers and our wavers continue to see exceptional demand, driven by increases in household penetration, further new product innovation, and expanded distribution.
As testament to the continued popularity of Revlon One-Step Volumizers, Amazon called them out along with Apple AirPods and Fire TV sticks as among the best-selling items driving their record sales during the critical period of Black Friday through Cyber Monday. Recent new product launches continue to extend the volumizer franchise and sweeten its mix, such as the recently launched Revlon PLUS, which brings new features at a higher price point.
Internationally, Beauty sales growth was even stronger, outpacing the overall segment with strength across Latin America, Canada and EMEA. As a result, international market shares for Beauty continue to grow in the markets where we have visibility to that shared name.
Drybar continued its momentum, driven by expanding product innovation, improvement in the brick-and-mortar channel, expanded distribution, and the reopening of salons and retail stores compared to the year-ago period. New product launches continue to generate incremental sales and new distribution of popular destinations like the new Ulta shops inside Target and the new Sephora shops inside Kohl’s are expanding the brand’s prestige position to a broader demographic. Third-party US syndicated data confirms the Drybar continues to gain share in both brick-and-mortar and online.
Hot Tools also continued its momentum, delighting consumers across the good, better, best spectrum and growing its market share with the expansion of Hot Tools from the professional channel to also include retail.
Turning to Health & Home, I want to start by providing a brief update on the EPA matter. As previously discussed, we have largely resolved the EPA’s concerns. Since returning to normalized shipping levels on PUR, we continue to reduce out of stocks and have seen major improvements in our US market share, which is now approaching pre-EPA levels.
I am pleased to report that as of the end of the third quarter, we returned to a more normalized level of shipping activity for key models and customers on our Honeywell air filtration products. The pace of rework has been faster than expected. We are on track to largely complete the rework on the remainder of the more than 4 million originally impacted items by the end of February. I would like to once again thank and acknowledge the hundreds of Helen of Troy associates, who are working tirelessly to help our business recover as quickly as possible.
Health & Home sales declined by 18.5% in the third quarter, again, ahead of our expectations. We faced a particularly tough comparison to the third quarter last year in which this segment grew approximately 35% behind COVID-driven demand for health-related products such as thermometers and air filtration products. As anticipated, we saw the adverse impact to air filtration products stemming from the impact of the EPA matter. Given the ups and downs of these categories over the past two years, it is helpful to look at Health & Home sales on a two-year stack.
The first nine months of fiscal 2022, which include the EPA impact, grew 10% compared to the first nine months of fiscal 2020. During the quarter, several areas of Health & Home grew, including humidification, water purification, fans, blood pressure monitors, pulse oximeters, and sinus products. As the traditional cough, cold and flu season started to ramp up, through the end of the third quarter, we saw incidence well ahead of last year’s record low and above historical averages.
Too early to tell when or at what level of incidence this year’s cough, cold and flu season will peak. The current trends indicate it is on track to be well above last year’s highly depressed outcome, yet likely below historical pre-COVID averages.
In thermometers, the overall market continues to normalize after the highly elevated COVID base of last year, but our US thermometer market share has grown as consumers continue to prefer our products. Importantly, our much stronger inventory position improved our ability to meet that preference. Given the gyrations of the overall thermometer market, thermometers are another area where it’s helpful to look at a two-year stack. That analysis shows our third quarter thermometer sales are up double-digit versus the same period two years ago.
Important to keep in mind that our Health & Home products are winning with consumers and recognized for their excellence. This shows up in our market shares, in the appeal of our new products, and in other measures such as design awards. Two of our Braun products were recently recognized by the influential 2022 German Design Award. One of our Braun No Touch + Forehead thermometers won an excellent product design gold award and our Braun Nasal Aspirator earned an excellent product design award in that same category.
I would like to move now to international. Doubling down on international is an important strategic choice in our Phase II strategy. We are on track for another strong year and remain ahead of the glide path we outlined in our 2019 Investor Day to create at least $100 million of incremental organic sales outside of the United States by the end of fiscal 2024.
Turning to our outlook, we are very pleased to be able to raise our top and bottom line expectations for the current fiscal year. We now expect to grow core net sales 2% to 3% over last year’s 25.1% increase, grow core adjusted diluted EPS 4.7% to 6.5% over last year’s 26.5% increase, and expand margins.
I am proud of the hard work across our organization to put us in a position to deliver fiscal year 2022 results in line with our Phase II average annual targets, a tremendous accomplishment. I’m also pleased that our playbook for managing inflation and supply chain disruption has helped us to mitigate more than $2.25 per share of headwinds from these factors this fiscal year.
Looking ahead, we see these same headwinds in fiscal 2023, so we are continuing to deploy that mitigation playbook. Our plans include carrying elevated inventory levels, new pre-negotiated sea freight container contracts, executing further efficiency improvements that we have identified, and some additional price increases beyond those we implemented on certain products during the third quarter.
The benefit from the price increases we already implemented are being realized in the second half of this fiscal year and into fiscal 2023. We expect to release our fiscal 2023 guidance in April as part of our fourth quarter increase (sic) [release].
Having concluded my remarks on the business, I would like to close with important news on progress towards our ESG objectives. As part of our efforts to minimize our impact on the environment, we finalized and submitted our company-wide emissions reduction targets to SBT, the Science Based Targets organization. This formalizes our commitment to work with other companies towards a net zero economy.
We have committed to reducing absolute Scope 1 and 2 greenhouse gas emissions by 46.2% and to reduce absolute Scope 3 greenhouse gas emissions by 42% by fiscal 2030. More than 90% of the greenhouse gas emissions occur through our suppliers and the consumer usage of our products. As such, our environmental efforts continue to be focused on designing products that are intended to be energy and resource efficient, including aligning with standards like ENERGY STAR where applicable, as well as continued collaboration with our suppliers to improve their energy and carbon efficiencies.
These targets have been approved by SBT. We will now be reporting our progress against them on an annual basis in our ESG reporting. This is important work and aligns with our purpose to Elevate Lives and Soar Together for all our stakeholders. I am also happy to report that our ESG scores from external evaluators continue to reflect our progress. As one example, ISS currently rates Helen of Troy in the third decile for environmental and in the top decile for both social and governance.
As we head into the final two months of fiscal 2022 and the back half of Phase II in fiscal 2023 and in fiscal 2024, we have a lot of positive momentum. Looking at our balance sheet, operational capability and the caliber of our organization, we are excited to continue driving our transformation.
For fiscal 2023 and the remainder of the back half of Phase II, we plan to combine that mitigation playbook with the rest of our proven strategy, which includes investing in our Leadership Brands, doubling down on international, creating efficiencies, and new capabilities through our global shared services platform, deploying capital accretively, and harnessing the excellence of our organization and culture.
As we have demonstrated this fiscal year and also in the past, Helen of Troy has a track record of delivering results in the face of obstacles. We have consistently performed in tough times like this fiscal year – like last year, when COVID first impacted every household and institution; and like the two years before that, when tariffs first emerged as a major cost challenge. Through all of these challenges and many more, we remain relentless in our focus on building our brands and executing our flywheel with excellence, and further elevating our high-performing organization and culture to deliver multiyear results that could lead to superior shareholder outcomes.
With that, I will now turn the call over to Matt.
| Matt Osberg, Chief Financial Officer, Helen of Troy Ltd. | ||
Thank you, Julien. Good morning, everyone, and Happy New Year. We are very pleased with our third quarter results, which exceeded our expectations on both the top and bottom line. During the third quarter, our Beauty and Housewares businesses saw a number of positive trends, including strong consumer demand, growth in international sales, and earlier than typical customer purchases as retailers accelerated orders into the third quarter to try to avoid supply chain disruptions during the holiday season.
The accelerated orders had a favorable impact on the third quarter of approximately $15 million in sales and $0.20 of adjusted diluted EPS. We also began to benefit from recent price increases, which are partially offsetting some of the inflationary cost impacts in the quarter.
Finally, as of the end of the third quarter, we have completed a significant amount of rework on the EPA-impacted inventory and have returned to more normalized levels of shipping activity for the vast majority of affected products. As a reminder, the Osprey acquisition closed after the end of the third quarter, therefore, there are no financial results related to that business included in our results.
Now, turning to our third quarter. Core business net sales increased 0.4%, driven by higher brick-and-mortar and online channel growth in our Beauty and Housewares segment. In addition to strong consumer demand, international growth, and earlier than typical customer holiday orders, we also benefited from higher sales in the club and closeout channels and the favorable comparative impact of COVID-19 reduced store traffic and a soft back-to-school season in the prior-year period.
Additionally, the pricing actions we implemented at the beginning of the quarter to mitigate rising freight and product costs also began to benefit us with further positive impact expected in the fourth quarter and into fiscal 2023. These factors were partially offset by a decrease in sales in Health & Home segment due to stronger COVID-19-driven demand for healthcare and healthy living products in the prior-year period,
primarily in thermometry and air filtration, and the unfavorable impact on air filtration product sales as a result of the EPA matter.
Looking at gross profit margin, even factoring in the benefit of customer price increases, we still felt the impact of higher inbound freight expense, which was the key driver of the 1.3 percentage point decrease for the quarter.
Our SG&A ratio was 29.4%, 0.1 percentage points higher than the prior-year period, reflecting a higher personnel expense, unfavorable operating leverage, higher distribution expense, additional EPA compliance costs, and acquisition-related expense in connection with the Osprey transaction.
These factors were partially offset by lower royalty expense, reduced annual incentive compensation expense, lower marketing expense, lower amortization expense, a decrease in bad debt expense, and the favorable leverage impact of customer price increases related to rising freight and product costs.
GAAP operating income was $90 million or 14.4% of net sales revenue. On an adjusted basis, operating margin declined 0.6 percentage points to 17.0%, primarily due to the lower gross profit margin in the current period.
Income tax expense as a percentage of income before income tax was 12.9% compared to 14.0% for the same period last year. The year-over-year decrease in the effective tax rate was primarily due to increases in liabilities related to uncertain tax positions in the prior-year period, partially offset by shifts in the mix of income in our various tax jurisdictions.
Net income was $75.7 million or $3.10 per diluted share. Non-GAAP core adjusted diluted EPS increased 3% to $3.72 primarily due to higher operating income in the Housewares and Beauty segments, a decrease in the effective income tax rate, and lower weighted average diluted shares outstanding.
Looking at the first nine months of our fiscal year, we are very pleased with our results. On a core basis, we have been able to grow our net sales 5.5%. This is on top of growth of 27.9% recorded in the first nine months of fiscal 2021 and includes the unfavorable impact related to the EPA matter. We have also been able to increase core adjusted diluted EPS by 0.9% compared to fiscal 2021, which grew 37.2% over fiscal 2020 and includes the unfavorable impacts of both higher inflationary costs and the EPA matter. We believe these are very healthy outcomes given the challenges we have faced in fiscal 2022.
Now, moving on to our financial position and liquidity. Net cash provided by operating activities for the third quarter of fiscal 2022 was $53.3 million. For the nine-month period of fiscal 2022, net cash used by operating activities was $5.1 million compared to net cash provided by operating activities of $249.7 million in the prior year. A portion of the cash used by operating activities in the nine-month period in fiscal 2022 was to increase inventory to help mitigate rising supply chain costs and purchase high demand products ahead of the holiday season. We expect to further reduce our inventory levels by the end of fiscal 2022, but with our current inventory projections and the incremental inventory from the acquisition of Osprey, we now expect year-end inventory to be higher than where we ended fiscal 2021.
As we continue to sell down inventory, we also expect to see sequential improvement in our operating cash flow in the fourth quarter. Cash provided by investing activities for the first nine months of the fiscal year was $8.5 million due to the proceeds received from the sale of the Personal Care business, partially offset by the capital investments in land and initial construction expenditures associated with our new distribution center for the Housewares segment.
Total short and long-term debt was $447.5 million, a sequential decrease from $472.2 million at the end of the second quarter. Our net leverage ratio as defined in our debt agreements, which nets our cash and
cash equivalents with our outstanding debt, was 1.3 times at the end of the third quarter, compared to 1.4 times at the end of the second quarter.
Now turning to our full-year outlook for fiscal 2022. Consistent with what we have done in previous quarters this fiscal year, my comments will focus on our operations on a core basis, which exclude the results of the entire personal care business in all periods in order to provide the best comparability between historical and future periods.
We are pleased to be able to increase our outlook for both sales and EPS for the fiscal year, reflecting the stronger than expected third quarter results. We are maintaining our expectations for the fourth quarter in line with our prior outlook, despite the impact of the retailer order pull forward into the third quarter and our current expectations of a lower than pre-COVID historical average cough, cold and flu season. We also saw a continued momentum of strong sales in December.
Our revised fiscal year outlook also includes approximately two months contribution from the Osprey acquisition, which is included in both our consolidated and core business results. We estimate the expected impact of the acquisition for the period from the December 29th, 2021 closing date to the end of fiscal 2022 to be approximately $20 million of net sales revenue and approximately $0.07 of adjusted diluted EPS, which reflects the typically lower seasonal sales and earnings for the business during this period.
Our revised outlook includes an improvement to the estimated unfavorable impact of the expected lost sales volume from the EPA matter. The sales revenue impact is now expected to be approximately $60 million and the adjusted diluted EPS impact is now expected to be approximately $0.30.
The improvement versus our previous outlook is primarily due to higher than expected shipping activity from water purification products in the third quarter. We do not expect a material impact from EPA matter on our fourth quarter results. We also continue to expect to be able to recover a portion of the fiscal 2022 lost sales and earnings in fiscal 2023.
We now expect consolidated net sales revenue in the range of $2.10 billion to $2.12 billion, which implies growth of flat to 1%. We also now expect core net sales revenue in the range of $2.06 billion to $2.08 billion, which implies growth of 2% to 3% and includes 3% of unfavorable impacts related to the EPA matter. Excluding the EPA matter, we expect core net sales revenue growth of 5% to 6%.
Our updated fiscal year net sales outlook reflects the following expectations by segment. Housewares’ net sales growth of 15% to 16%, Health & Home net sales decline of 20% to 19%, including 6.7% of decline related to the EPA matter. Beauty net sales growth of 13% to 14%, and Beauty Core net sales growth of 26% to 27%.
We expect consolidated GAAP diluted EPS of $8.25 to $8.59 and core diluted EPS of $8.08 to $8.42. We expect consolidated non-GAAP adjusted diluted EPS in the range of $11.73 to $11.93. And core adjusted diluted EPS in the range of $11.55 to $11.75, which excludes any acquisition-related expenses, EPA compliance costs, asset impairment charges, restructuring charges, tax reform, share-based compensation expense, and intangible asset amortization expense.
Our core adjusted diluted EPS expectation implies an increase of 4.7% to 6.5%, which includes 2.7% of unfavorable impact due to the EPA matter, implying expected year-over-year growth of 7.4% to 9.2% not including the impact of the EPA matter.
This updated EPS outlook includes the estimated unfavorable impact of year-over-year inflationary cost pressures of approximately $55 million to $60 million, or approximately $2.25 to $2.45 of adjusted diluted EPS. We believe we have mitigated much of these costs through a combination of improved product mix,
price increases, forward buying of inventory to delay cost impacts, utilizing previously negotiated shipping contracts at rates below current market prices, and implementing other cost reduction initiatives.
We expect a fiscal 2022 core GAAP effective tax rate range of 12.8% to 13.8%, and a core adjusted effective tax rate range of 10.6% to 11.5%. Consistent with prior expectations, we do not expect a meaningful impact from currently proposed tax legislation changes in fiscal 2022.
We now expect capital asset expenditures of $85 million to $110 million for fiscal 2022, which includes expected initial expenditures related to our new distribution facility for the Housewares segment. We continue to expect the total cost of the new distribution center and equipment to be in the range of $200 million to $225 million spread over fiscal years 2022 and 2023.
In summary, on a core basis, including the impact of the EPA matter, our revised full-year outlook implies net sales growth of 2% to 3% on top of the 25.1% growth in fiscal 2021. Our revised full-year outlook for the Housewares segment implies net sales growth of 15% to 16% on top of 13.5% growth in the prior year.
Our Beauty segment core sales outlook implies net sales growth of 26% to 27%, on top of 39.5% growth in the prior year. And although Health & Home segment is forecasted to have a net sales decline of 20% to 19%, including the impact of the EPA matter, it grew 29.9% in the prior year. For adjusted diluted EPS on a core basis, including the impact of the EPA matter, our revised full-year outlook implies growth of 4.7% to 6.5% on top of growth of 26.5% in fiscal 2021.
Including the expected contribution of Osprey, the implied growth at the high end of our outlook range on a core basis is 2% for net sales and 6% for adjusted diluted EPS, only slightly below our long-term growth targets. Additionally, we expect to be able to expand core adjusted operating margin for the fiscal year by 30 to 50 basis points, ahead of our long-term growth targets. These results are quite an accomplishment when we consider the high base in fiscal 2021 and the fact that we will absorb over $2.50 of earnings per share related to inflationary cost increases and the EPA matter in the current fiscal year.
In fiscal 2022, our team has done an amazing job of navigating the high cost environment by utilizing all the tactics in our playbook, including the forward buying of inventory, which helped us defer some of the higher input costs out of the first half of fiscal 2022.
As we close in on the end of the fiscal year and look ahead to fiscal 2023, we are prepared to face the inflationary cost challenges ahead. In fiscal 2023, we expect a full-year of incremental inflationary cost pressures in excess of what we have estimated will impact us in fiscal 2022. We are currently in the middle of our fiscal 2023 budget process and are working hard to mitigate as much of the expected fiscal 2023 inflation as possible and to deliver core earnings growth.
We will also benefit in fiscal 2023 from the impact of the Osprey acquisition and our strong balance sheet, cash flow, and low leverage provide further opportunities to strategically deploy capital for shareholder return as we head into fiscal 2023 and beyond.
And with that, I’d like to turn it back to the operator for questions.
QUESTION AND ANSWER SECTION
Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] One moment, please, while we poll for your questions. Our first question comes from the line of Bob Labick with CJS Securities. Please proceed with your questions.
<Q - Bob J. Labick - CJS Securities, Inc.>: Good morning and congratulations on strong results and outlook.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Thanks. Good morning, Bob. Great to hear from you. Nice to be out of our quiet period.
<Q - Bob J. Labick - CJS Securities, Inc.>: Yes, it’s always fun. So, you gave us a nice – tons of details, but some nice details on international. I was hoping to dig a little further as it relates to pockets of strength or maybe – and if there is any lagging in international versus your Phase II goals and expectations. And then also wrap that in with Osprey, how does the acquisition help your international growth in other brands? I know how it impacts the percent of sales internationally, but how will it help other brands grow internationally as well?
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Sure. Yeah, international is a big deal. We’ve called it out a bunch of times as strategic for us given the double down on international focus for Phase II, there’s two very large projects in the company: one in Europe, one in Asia to drive that. And I think, yeah, everyone knows that, structurally, we’ve put a president in place almost two years ago to oversee those regional markets on top of what we had before. That’s yielding some pretty significant results.
And to your question about a little bit more color, what’s happening is that Beauty has gone from a laggard internationally that, frankly, wasn’t making money and didn’t have much presence to now a business that is on fire. It’s making a big growth, big money, big market share gains. The volumizer was the beginning of it, but now it’s expanded in all the same ways as the US. So, think of it as a year or so behind the US in terms of its trending.
And in the case of Health & Home, it continues to demonstrate excellence in Europe, and it’s always been strong in Asia. That said, the thermometer ups and downs make it tough, and so that’s why we called out the two-year stack to show that in total, but not just international, Health & Home up 10%, even with all the EPA stuff, just to give people some perspective because of all the volatility. And then on the Housewares side, the resurgence of housewares in Europe, including in the UK, a big deal. And like we called out expanded distribution, this time in Asia, especially in the Philippines and in South Korea for Housewares, which is really helping.
If you step back and look at the whole thing, what you’re getting is a business that’s adding significant margin on top of where it was, meaning international compared to the beginning of Phase II, and the result of that is a big desire to further invest and kind of lean into the strong, feed the strong, as they say. So, this is driving us to do more, and we’re already planning that for fiscal 2023 on top of what we did this year. And remember, in Q4 of last year, we put a big investment into Europe to prime the pump so to speak to get the results that we’re now reporting.
Then, lastly, on international, I would say that the acquisition stuff makes a big deal to your question. And on the acquisition, everyone knows on the call already that half of Osprey is outside the United States, plenty of that in Europe. And so, what it will do is it will accelerate our footprint in outdoors and open the possibility of many more doors that Osprey is already in. Hydro Flask and Osprey, we believe are a natural together. It’s one of these better together stories. And we think that the impact on Hydro Flask and Osprey and frankly Hydro Flask also to Osprey outdoors outside of the United States is an untapped synergy of the acquisition.
We also think that OXO, as it makes its own advances outdoors, has the potential to join that party because it’s the same consumer and, in some cases, the same customer. So, this is good news, too. And we’ve seen that especially in REI in the United States, and we intend to reapply them all. And in the case of Osprey’s capabilities, there’s just a lot of great people that we’re now meeting in person. Steady as she
goes with the acquisition closed, and that gives us the chance to tap into their capabilities in Europe, in particular in Poole, England.
In Asia, based out of their Vietnam organization, and that Vietnam organization also has the capability to add soft goods know-how and a Southeast Asia beachhead for us faster across other parts of Helen of Troy. In Latin America, we haven’t turned the rock over quite as much yet, so I don’t have as much to say in that region. And in Canada, we manage more collectively as part of North America.
<Q - Bob J. Labick - CJS Securities, Inc.>: Okay. Great. That’s super helpful. Thanks. And then just for my follow-up/second question. I was wondering if you could talk about what changes in consumer behavior have emerged from the pandemic that have created opportunities and new products for Helen of Troy and for your brands, and how does the fiscal 2023 new product development stack up versus prior years?
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. We’re consumercentric, so I love this question, and we spend a lot of time staying close to the consumer. As we said in our prepared remarks, there is a nesting behavior that we have seen has been pretty sticky. And I say that because even during the brief intervals between Delta and Omicron, you saw the results that we were able to put up during that period of time. So, we’ve seen consumers sort of rediscover the joys of home, so to speak, even though everybody feels cooped up and restricted and all the bad stuff that goes with those sides of the behavior.
We’ve also seen that people have no problem investing their money, I’m talking about their spendable income, into improving the quality of their home world. So, whether it’s storage, organization stuff, cleaning stuff, kitchen stuff, and this has been very, very good for us. As the consumers, households get penetrated, that rabbit effect that we often talk about on OXO gets multiplied, so to speak, just because the products are penetrating into new households and they start filling the drawers. And remember, plenty of people moved during the pandemic because they were getting out of some of the cities, and those were bigger houses. So, we see those kind of trends.
We also see people super attentive to their health. So, in – just everyone’s radar is up a couple of clicks versus pre-pandemic. So, when you hear words like fever, air quality, change your filters these kind of things, it always triggers people, but now more than ever, and that obviously affects our Health & Home business. And then, consumers, yeah, I’ve never met a woman who doesn’t want to look good, and that has not changed despite people being more at home in the pandemic, and that reflects on our Beauty business, regardless of salon closures, et cetera. So, it makes a big deal.
And then, lastly, I would say, on the impact that it has for the future, we have a product development in place to keep going in that area. So, for example, the On-the-Go line from OXO rolled out just at the right time because people want to take that safety of home or that comfort of home that I’m describing with them, even if it’s back to the office or hybrid or whatever their model is, back-to-school, etcetera. It helps Hydro Flask, too, and all of that.
And, in the case of the channels, we just see a bit more balancing between online and brick-and-mortar, and we called that out in our press release and as well as in my prepared remarks today in order for people to understand that there’s a balance there. Online is still huge for us. It’s 23% of the entire company, and that’s like a $0.5 billion worth of sales. On the one hand, on the other hand, brick-and-mortar is not dead. Five years ago, everybody was talking about will brick-and-mortar make it? Brick-and-mortar is doing screamingly well, and that channel rebalancing is occurring.
The last point on channels is direct-to-consumer. Direct-to-consumer is taking off, it’s a major trend. You’ve seen us invest in it. Frankly, we’ve been a little slow. And that said, we’re coming up fast in our ability to customize, in our ability to fulfill, and the state-of-the-art stuff that we’re investing in, that new
Housewares warehouse, the one that we are putting all of the money into, is going to have the best of the best. And that will help us a lot on that direct-to-consumer channel and the customization.
<Q - Bob J. Labick - CJS Securities, Inc.>: Okay. Super. Thank you so much.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: You bet, Bob. Great questions.
Operator: Thank you. Our next question has come from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions.
<Q - Rupesh Parikh - Oppenheimer & Co., Inc.>: Good morning. Thanks for taking my question. Also congrats on a really nice quarter.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Thanks. Hi, Rupesh.
<Q - Rupesh Parikh - Oppenheimer & Co., Inc.>: So I guess my first question is, you know, as you look at your sales base exiting this year, do you believe it’s now very reflection of underlying demand or do you think there could still be some normalization in certain categories as we go into next year?
<A - Julien R. Mininberg - Helen of Troy Ltd.>: There’s a – it’s an up-and-down answer, I would say, Rupesh. And the reason I say is because as good as we are on having more inventory, there’s still some demand left on the table that’s out there because it’s hard to have all the right things and all the right places all the time in such a surging environment and with the supply chain interruptions. So there’s, believe it or not, even still some unsatisfied demand in the marketplace. So, said it another way we could be selling even just a little bit more than the growth we just put down.
And then in terms of the go-forward, there’s some rebalancing going on like the thermometers ups and downs that we were talking about. And there’s a reality right now, which is the cough, cold and flu season while it’s amazingly better than last year because it was so poor last year, now probably will be below the pre-COVID average. And then lastly, there’s some EPA rebalancing going on. And what I mean by that is this year was rough because of all the ups and downs of that. And now as we shift back into that suction for our products we see benefit, and into next year that will be a good guide. So, a lot of ups and downs.
Perhaps the best way to think about it, just to step back from all the chatter and just look at the big picture, and the big picture is that we believe we’re going to grow in fiscal 2023 our revenues on top of the base that we just gave outlook for today in line with the multiyear averages of our Phase II goals. So it lets you just sort of cut through it all and say, is this company going to grow next year. It is our expectation.
<Q - Rupesh Parikh - Oppenheimer & Co., Inc.>: Okay. Great. That’s very helpful color. And then, just – I guess just one follow-up question. For the guidance this year in Health & Home, there was a reduction or a slight modification on the Health & Home side. I think you guys narrowed it to the lower end of the range. And that’s even with the EPA as you’re having a smaller impact. So, maybe just some more color there in terms of what changed on the Health & Home side and the guidance range.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Two things; one, you’ve already called out. If the lower half of what was a two-point range, so it’s true that we said it was 18% to 20% decline in the Q2 release when we gave that outlook and here in the Q3 release with our improved outlook, we’re saying it’s 19% to 20% decline. So, that’s a two-point range, and we pick the lower half. And you might think, wow, with the EPA thing getting better, why did you pick the lower half? And the reason is because the cough, cold, and flu season when we projected in Q2 was expected to be in line with historical averages, it’s now likely to be below historical averages but again importantly, way better than year ago.
So, if you’re comparing versus a year ago, you’ll see a tremendous gain. But if you’re comparing on a forecast basis when we only saw historical averages in the front of us, it’s a small decline. You say, wow, that’s going to be a big deal. And the answer is no. It’s exactly within the range that we projected before. It’s just in the lower half of that range by a single percentage point.
<Q - Rupesh Parikh - Oppenheimer & Co., Inc.>: Okay. Great. I’m going to sneak in one quick one, just on the cost pressure as well. Your cost pressure headwind actually went down versus last quarter, but then it sounds like next year you guys are expecting even higher cost pressures. So, just curious if there’s anything to call out in terms of the reduction in terms of what you’re expecting this year.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Let me make sure I understand it. You’re saying that the cost pressure...
<A - Matt Osberg - Helen of Troy Ltd.>: I can take this one, Julien. I can take this one.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Go ahead, Matt.
<A - Matt Osberg - Helen of Troy Ltd.>: Yeah. No, Rupesh, you’re right. And it’s really just kind of it moved around a little bit. We thought we moved the range down about $5 million. And just as we kind of look at their inventory and the cost and how it’s going to play out, I mean, some of those things do reflect inflationary costs and some wages and labor and things like that. So, just a little bit of a wiggle, I would say, nothing big in terms of our outlook for this year. And then I think you read the right message into fiscal 2023 in terms of kind of our overall general expectations where we see costs trending for next year.
<Q - Rupesh Parikh - Oppenheimer & Co., Inc.>: Okay. Great. Thank you for all the color.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: No problem. And one quick follow-up, Rupesh, on the cold and flu stuff. I want to assure everyone on the call has the right impression that the incidence is growing. It’s growing considerably. In fact, we’ve just seen most recent data as of this week and our sell-through is looking quite good. Our reorders are looking good. So, I don’t know if it’s Omicron purchases. People need a humidifier or a thermometer, something like this, but we like what we’re seeing in the trade. But the only difference versus what we had in the Q2 was the difference between average and a below average total outcome.
<Q - Rupesh Parikh - Oppenheimer & Co., Inc.>: Great. Thank you.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: You bet.
Operator: Thank you. Our next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your questions.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Hey, Linda.
<Q - Linda Bolton Weiser - D. A. Davidson & Co.>: Hello. Hi. How are you doing?
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Good. Hi. Nice to talk to you.
<Q - Linda Bolton Weiser - D. A. Davidson & Co.>: Yeah. Same here. So, I think when you were talking about the EPA impact on Health & Home, you said you expect to recover a portion of those sales in FY 2023. I guess I’m questioning, why just portion? Why wouldn’t you be able to kind of recover like all of the sales? And going along with that, could you actually quantify for us the EPA impact on Health & Home sales in the second quarter and in the third quarter? Thank you.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Let me take the first one and I’ll pick the – Matt would be best for the second one. In the case of the portion versus all, there’s kind of an academic thought on this and a real world thought on this, and that we’ve spoken about it in prior quarters, too.
In the academic world, you definitely would get A on any test of saying, okay, if it was impacted in one year and you’ve gotten the clearance from the EPA to do the rework and you’ve largely done the rework and you’ve kept the customers, then don’t you get it all back just a year later? That’s the academic answer. The real world answer is that there’s all kinds of shuffling going on. Think of trade inventories that have moved around a lot. So, there’s a lot of replenishment going on right now. Think of consumer demand that wiggles, shelves that have been set and reset, and now reset again as we’ve played into the mix with what we’ve been able to ship versus what we had to rework, and then think also of consumer loyalty, filter repurchases, competitive moves, et cetera. So, in the real world, it’s not so black and white. We think we’ll get the vast majority of it back, that’s the good news, but there should be a year-over-year gap, and we’ll just work on closing it.
And in the case of spending, we obviously reduced our spending during the period when we were not shipping and, in some cases, not on the shelf and competitors did not. And so, we have to spend to earn back our market share just like we did on PUR, and we’ve largely accomplished that on PUR. So, this now has to happen on air purifiers.
And on the subject of the competitors, just an update because the people always ask, which is, you know, wouldn’t others be affected by this in the future? We have seen evidence in the marketplace that other companies I wouldn’t name any particular ones, are experiencing some inquiries from the EPA and going through their version of the same story. So that creates opportunity in the future should they have to run the gauntlet as well.
<A - Matt Osberg - Helen of Troy Ltd.>: And, Linda, just to follow up on your second point in terms of the impact, you saw us kind of improve our overall impact for the year. And while we haven’t given out in the quarter the specific impacts by quarter, I think the best way to think about it is we said there’s really not going to be a material impact of the EPA in Q4, and it wasn’t really a Q1 issue just in terms of the timing of when the issue arose. So it’s mainly a Q2-Q3 issue.
And if you remember, in Q2, we had shipping restrictions on air and water. By the end of Q2, we largely resolved water. So Q3 was mostly an air impact. So I kind of take the $60 million and kind of roughly spread it between Q2 and Q3 knowing where we had more shipping restrictions and lesser shipping restrictions, and that’s about the amount of guidance we’ve given on it during the year. So, hope that helps.
<Q - Linda Bolton Weiser - D. A. Davidson & Co.>: Okay. Thank you. And then can I just slip in. I guess on the gross margin, you know, there’s a lot of moving pieces because you’re – you have mitigation effects and then you have price increases going on. If you had to just qualitatively try to explain where you think the gross margin might bottom out on a sequential basis, do you think it’s in the fourth quarter or do you think that happens more in the first half of FY 2023?
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Say, Matt.
<A - Matt Osberg - Helen of Troy Ltd.>: Yeah. I can take a shot, Julien. It’s a good question, Linda. And unfortunately, it’s probably one of those things that I’m not going to give you a super specific answer because it depends on future trends of what’s happening with freight and inflationary costs. What I can say is, in Q3, we got a lot of price increases in place, not all of the ones. And so, we’ll continue to benefit from those more in Q4 than in Q3 sequentially. And then as we look into next year, as we look at ways to continue to mitigate higher cost environments, price increases is still in our playbook and something that we’d be looking at again. So, hopefully, if we’re able to continue to improve our price increases
sequentially from Q3 to Q4 and the impacts of that will be more favorable, and then into next year, if we’re looking at more price increases that would help us, I think that’s the benefit side. The tough side for us to have a crystal ball on is next year’s cost profile and what’s happening as the year progresses with inflationary rates. So, I think improvement sequentially as you look at this year and next year we’ll probably have more thoughts on that as we get through our budget process.
<Q - Linda Bolton Weiser - D. A. Davidson & Co.>: Okay. Well, thank you very much. I appreciate it.
<A - Matt Osberg - Helen of Troy Ltd.>: Thanks.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Thanks, Linda. Happy New Year.
Operator: Thank you. Our next question comes from the line of Steve Marotta with C.L. King. Please proceed with your questions.
<Q - Steven L. Marotta - C.L. King & Associates, Inc.>: Good morning, Julien.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Hi, Steve.
<Q - Steven L. Marotta - C.L. King & Associates, Inc.>: Hey. Good morning, Julien.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah.
<Q - Steven L. Marotta - C.L. King & Associates, Inc.>: Good morning, Matt. Good morning, Jack. Thank you for taking my question. Most have been asked and answered. I’ll only limit just to one. Julien, maybe you can comment a little bit on current logistic challenges and where that stands at this moment in time, and where you see that and the improvement in the next calendar year if that’s you can quantitatively measure it with either weeks behind or none at all. Any sort of specificity there would be helpful. Thanks.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: I’m not sure I understand it, Steve. Just give me one more shot at the question itself?
<Q - Steven L. Marotta - C.L. King & Associates, Inc.>: Sure. Just the supply chain issues that you’re experiencing right now and how many containers do you have off the port? I mean, obviously, you’re not going to give that number specifically.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah.
<Q - Steven L. Marotta - C.L. King & Associates, Inc.>: But if you could talk a little bit about where it stands now and how you see improvement over the next three to [indiscernible] (00:59:36).
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Now I get it. Yeah, thanks. Thanks for the clarification. Yeah, I think that the short answer is we’re not immune, but we’re better positioned than others. So we’re subjected to all the same factors. But the reason we’re better positioned is because we have more inventory and because we have been able to renegotiate those sea freight contracts. So the impact to us both in time and cost and out of stock and all of that is mitigated, and it’s been successful for us. You heard us make a lot of comments about it.
In terms of the flow of products, it’s fairly reasonable right now. We’re able to bring in what we need. We have enough of the right stuff almost everywhere. There’s a few exceptions to that always and that’s true now, too. And then the – in terms of the ability to handle it all, it’s a lot to do that in our warehouse. It’s one of the reasons that we’re building another warehouse and we’ll do some pretty significant shuffling
over the next couple of years to optimize the entire footprint to the point where we’ll be unrecognizably better by the end of Phase II on this and able to handle not just what we have, but also new stuff as we buy it, like Osprey and integrate it.
And in the case of the growth, I mean, we’re talking like this company is more than 40% bigger than it was four years ago, and that’s before Osprey and before the growth that we said on today’s call that we expect to put down in fiscal 2023. So, we’re in better shape.
And in the case of the specifics like right now, to your question, reasonable is the short answer. And if you look forward for next year, we’ve – as we said in our prepared remarks, we have pre-negotiated new sea freight container contracts and we’ll carry a bit more inventory next year to try to run that same playbook, again, because there’s more of this to come. And so, that’s where we are. So, unless it gets a lot worse, we’re going to be okay, but it isn’t easy out there and that playbook works.
<Q - Steven L. Marotta - C.L. King & Associates, Inc.>: Julien, that’s helpful. You know, I do have one more question. Given the massive uptick in air filters and water filters and thermometers last year, and the consumables that are associated with those product lines, are you where you want to be – the higher margin consumables, of course – are you where you expected to be at this point in time with those consumables on units that have already been purchased? Are you a little ahead? Are you a little behind? Maybe you can comment where you are, again, currently on those consumables? Thanks.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. It’s about right, I think, is the answer, so in line. I don’t have a lot of specific data on it, but I can say that, in general, it’s about right. And what’s driving it is a lot of different factors. Start with wildfires, there was a lot of that last year, and what was available in the marketplace when we were in the darker part of the EPA period was sold through. We’re glad that consumers were able to get ahold of those filters because they needed them, and we worked very hard to get those into the marketplace as quickly as we could rework them. And so, they were gobbled up.
I even got personal appeals from consumers on e-mails like please, please, please, I need, I need, I need. And we did stuff like scrounging our own closets to find them. So, we found ways, but only once they were reworked we put them into the marketplace.
And in the case of the next big driver, it’s the cold and flu season, that’s a big deal. We’re in the kind of an indoor time. There was the allergies, the fall allergies that just passed. And then while we don’t make any specific COVID claims, everybody is trying to improve the quality of their indoor air. So, these are the drivers and I’d say we’re in line and it’s good. We like the loyalty. We like serving people. And we like making sure they buy our filters because they’re the best ones for our products and the ones we recommend.
<Q - Steven L. Marotta - C.L. King & Associates, Inc.>: Super helpful. Thanks. I’ll take the balance offline. Thank you again.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: You bet. Thank you.
Operator: Thank you. Our next question comes from the line of Anthony Lebiedzinski. Please proceed with your questions.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Hey, Anthony.
<Q - Anthony C. Lebiedzinski - Sidoti & Co. LLC>: Yes.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Happy New Year to you.
<Q - Anthony C. Lebiedzinski - Sidoti & Co. LLC>: Yes. Hi. Good morning and Happy New Year to all as well. So, I know this may be a difficult maybe question to answer, but as far as the Omicron variant, it started really at the tail end of your third fiscal quarter. Now that we’re a few weeks into it, just what is your sense as to how that’s impacted your business? Has that impacted anything meaningfully, or what is your expectation is for that?
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. It’s always tough to read because it’s hard to tease things apart. So, it’s not so much about it in a short period of time. It’s more just mixed with a lot of other stuff. So, the short answer on this one is COVID really sucks. Every time you get your head above water, you find some other reason to be afraid. So, nobody likes any of this.
In the case of what it’s doing to the business, there’s a couple of things happening that we’re – it’s hard to quantify any of it. The sales that we just saw in December were very strong. Matt mentioned them in his prepared remarks. I can’t say that they’re directly linked to Omicron. I can just say that if anyone on the call is worried about the pull forward for the holiday supply chain stuff into Q3, they should not be. And the reason is, A, sales were strong in December; B, we like our prospects for January and February; and C, we just raised our guidance and flowed it all through or, said another way, held our Q4 outlook despite the Q3 beat and despite the pull forward into Q3. So, if that’s not confidence in an Omicron environment, I don’t know what is.
And then in terms of Omicron itself on consumer behavior, it’s hard to know. People are back home a little more. There’s fewer kids in school and all that stuff on the one hand. On the other hand, people are now two years into this and they know how to navigate a little bit better. All that nesting and home stickiness stuff will just be more. So that’s, I guess, good for us.
And in the cold and flu world, I can’t really say what it’s going to do. Maybe people have trouble distinguishing between the Omicron symptoms, which feel like that, and the normal cold and flu stuff so that we might get some conflation in the data. Either way, we’ll keep providing the health-related products that people want. And as I said before to Rupesh’s question, we’re just seeing good sell-through of things like humidifiers right now, even with the cold and flu season picking up. I can’t tell you if it’s Omicron or the others that are driving it. I just think people want to be safe.
<Q - Anthony C. Lebiedzinski - Sidoti & Co. LLC>: Got it. Understood. And as far as the – just as a follow-up about the pull forward, was that in the – in each segment, or was there any one segment that you saw more than others as far as that pull forward of buying by retailers in the quarter?
<A - Julien R. Mininberg - Helen of Troy Ltd.>: What would you say, Matt...
<A - Matt Osberg - Helen of Troy Ltd.>: Yeah, Anthony.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: ...about that?
<A - Matt Osberg - Helen of Troy Ltd.>: Yeah, Anthony. We saw it mostly in Beauty and in Housewares. And, I would say, it’s kind of two-thirds Housewares, one-third Beauty kind of a thing.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Probably more gifting is involved, especially if you think of all of those hot hair tools that people want. And there’s all of the home-type of products that often end up under that Christmas tree. So, that’s probably what’s driving it. And the retailers themselves, I think that they surprised themselves broadly that they did a good job of handling that issue and then spread out the purchases, you know, between Black Friday and Christmas. So, it was more of a month of it rather than two weeks of it. And so, we were able to supply it a little bit better.
And on the DTC side, as I mentioned in the prepared remarks, we just saw a really good business. And then, all of those investments that we’ve been talking about our flywheel for the last two or three years, keep paying off now as we are pressure-tested by big surges like that, and our websites and warehouses are able to handle it. It’s good news. So, I wouldn’t worry. I wouldn’t worry about the pull-forward.
<Q - Anthony C. Lebiedzinski - Sidoti & Co. LLC>: Got you. And then, the last question, if I can just kind of sneak that in. So, obviously, on the cost side of the business, there’s a lot of puts and takes with the inflationary cost pressures, and you’ve quantified that. But in terms of the cost reduction initiatives when you look at the different buckets of the cost reductions, I mean, which ones are kind of the most sustainable you think kind of going forward as we look forward to fiscal 2023?
<A - Matt Osberg - Helen of Troy Ltd.>: Yeah.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah, I love this question, and I’m glad it comes in, you know, the broad call here so that we can put it right in the public record. Attacking our costs has been strategic for us in the transformation for years and years. What’s happened is we’ve pulled massive amounts of cost out by going to global shared services, by investing in all of these capabilities. And then, right now, in each of the three business units, there’s large, like eight-digit large cost savings projects over multiple years yet to come, so think of the back half of Phase II and each business unit having big projects to take advantage of the opportunities that we’ve identified. Not all of it comes right away, and some of those benefits will just get sliced away as offsets to the rising inflation that we have to confront along with everybody else. But there’s big savings ahead to get there.
And in terms of drivers, automation is a big one. Finding further optimization within our supply chain is another big one. And then the labor costs, because they’ve risen, have made payouts of projects around DC or warehouse type of automation much more attractive than they would have been at much lower wages like only a few years ago. And so, all of these create new opportunities for the future. Some of that does require some CapEx, as Matt pointed out, but it’s worth it. It pays out and it delivers for us over a long period of time.
So, we’re pretty excited about the cost savings opportunities, but please don’t get the idea that it means we magically gain ground. It just helps us further offset and then we can put down some gains. In fact, this year’s may be a good testimony to it. Matt mentioned in his remarks that we would put down roughly 50 bps of margin expansion this fiscal year in the outlook we just provided. If you look at the 20 bps to 30 bps per year targets that we put out for Phase II, that’s two years’ worth of gain in a single year, and not just any year, in the heavy year where there was so much inflation and so much supply chain disruption.
Doesn’t mean you get that in fiscal 2023 and fiscal 2024. It just means, at least in our view, that there should be some confidence that these savings projects have the ability to deliver. And if we can grow our revenues on top of that and get operating leverage, which we specifically said earlier in the call is our intention to grow revenues in fiscal 2023 at the average annual rate of the Phase II goals, we’ll, of course, try to do better. And then for fiscal 2024, while it’s hard to project that far out, it’s our intention to do it again. So, there’s some operating leverage, and all that is before acquisition, which creates more operating leverage and synergy opportunities with new cost savings projects. So that’s the flywheel effect, and we see it very much intact.
<Q - Anthony C. Lebiedzinski - Sidoti & Co. LLC>: Got it. Okay. Well, thank you, and best of luck going forward.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Thanks. Thanks, Anthony.
Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing comments.
<A - Julien R. Mininberg - Helen of Troy Ltd.>: Yeah. Thanks, operator, and thank you, everyone, for joining us today and for your continued interest in Helen of Troy. We look forward to speaking with many of you later this week and next week at the Virtual ICR Conference, as well as virtually in the coming weeks during another conference that’s scheduled and several NDRs that have been planned. So, glad to be out of the closed quiet period and able to speak with you and we’re looking forward to it. Thanks very much and have a very nice day.
Operator: This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.