Earnings Call Transcript - HELE Q3 2020

Operator, Operator

Greetings and welcome to the Helen of Troy Limited Third Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded.

Jack Jancin, Senior Vice President of Corporate Senior Development

Thank you, Operator. Good afternoon, everyone, and welcome to Helen of Troy's Third Quarter Fiscal 2020 Earnings Conference Call. The agenda for the call this afternoon 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 in the quarter and specific progress on our strategic initiatives. Then Mr. Brian Grass, the company's CFO, will review the financials in more detail and comment on the company's outlook for fiscal 2020. Following this, Mr. Mininberg and Mr. Grass will take your 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 anticipated results to differ materially from actual results. Before I turn the call over to Mr. Mininberg, I'd like to inform all interested parties that a copy of today's earnings release can be 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 the News tab. I will now turn the conference call over to Mr. Mininberg.

Julien Mininberg, CEO

Thank you, Jack, and good afternoon to everyone. Thank you for joining us today. I'd like to wish everyone a happy new year. I look forward to a successful and prosperous 2020 for all of us. During this afternoon's call, I will discuss our third quarter results and then take the opportunity to share progress we have made on our strategic plan and in the business segments. Following my remarks, Brian will provide a deeper look into our financials, and then we'll open the line for your questions. As you saw in our earnings release this afternoon, we concluded our third quarter with excellent business momentum. We delivered strong top line and bottom line results driven by our Phase II transformation plan, which continues to drive everything we do at Helen of Troy. The results this quarter were ahead of our expectations. Consolidated core business sales grew 10.7%. Leadership Brand sales increased 10.6%, and our online channel sales grew approximately 30% to now represent 24% of total sales. International sales also demonstrated healthy growth in the quarter, especially in EMEA and Asia, the international regions we are most focused on in Phase II. We increased our gross margin by 2 percentage points, expanded adjusted operating margin in all 3 business segments, and grew adjusted EPS by 30% to $3.12. Due to the strong performance this quarter, we are increasing our full fiscal year outlook for sales and EPS. I am pleased to raise our outlook even as we execute our planned incremental investments in the business and absorb higher costs to support our distribution centers as we meet the growing demand for our products. Our balance sheet remains strong with significant progress on further reducing our already low debt and a reduction in inventory during the quarter. Cash flow from these and other working capital efficiency efforts helped us ensure dry powder to execute our strategic objective of adding accretive businesses we believe fit strategically within our portfolio. Our secondary capital deployment strategy remains opportunistic shareholder purchases as a vehicle to return capital to shareholders. Before I provide color on each business segment, I would like to take a few moments to focus on one of our major Phase II strategic choices, selective and strategic M&A. As discussed during our May 2019 Investor Day, M&A is expected to be a key component of our growth in Phase II. Our primary M&A goal continues to be adding critical mass to our flywheel by acquiring leadership brands that are the right fit for our portfolio and where we can add significant value. As many of you are likely already aware, in December, we announced an agreement to acquire Drybar Products LLC. Upon closing of the transaction, we expect Drybar will be immediately accretive to key measures, and we anticipate ending fiscal 2020 with a low leverage ratio. The Drybar Products acquisition will add a multicategory leader in prestige hair care that will complement our Revlon and Hot Tools brands and extend our Beauty portfolio across the good, better, and best segments. Helen of Troy believes it can add significant value to the brand through our expertise in new product development, sourcing, sales, marketing, digital, and brick-and-mortar category development. Concurrently with the closing of the transaction, we will enter into a relationship with Drybar Holdings LLC, the owner and long-time operator of the highly successful and growing fleet of Drybar salons. They will license our newly acquired Drybar brand in their continued management of all Drybar salons. We believe this relationship will provide a better-together combination that will strengthen a powerhouse brand. Our capabilities and existing infrastructure combined with the expertise and brand experience of the Drybar Products team makes for what we believe will be a compelling combination with a business model unlike any other brand in the industry. We remain disciplined as we actively search for additional acquisition opportunities that we believe could provide the right strategic fit and the right financial fit for our dry powder and our company. Turning now to our business segments, Housewares delivered another outstanding quarter with core business net sales increasing 28.5%. Housewares grew in brick-and-mortar and online, gained new distribution, benefited from new products, and delivered strong point-of-sale at key retailers. We also saw international expansion for both OXO and Hydro Flask. Standout categories during the quarter were specialty hydration, food storage, cleaning, and baking. We continue to make incremental marketing investments to build out digital content and online support that engages consumers on the outstanding innovation, design, and performance of OXO and Hydro Flask products. Our investments online and across the consumer journey continue to pay off. For example, based on third-party data, Hydro Flask continued to add significant incremental market share to its #1 position in the insulated beverage bottle category over the past 12 months. It was also the #1 most-searched brand on Amazon for the entire month of October and named REI's vendor partner of the year in the camp category. Focusing on OXO, its online presence continued to impress with social media engagement that far exceeds industry averages, millions of online searches each year, and a long string of awards for its business performance and product innovation. At Target, OXO was recently named Vendor of the Year across the entire home category. Hydro Flask's eco-friendly vacuum-insulated bottles and its accessories and soft cooler packs continue to grow in popularity as an everyday essential with broad groups of consumers and outdoor enthusiasts, making the brand a staple for retailers. During the quarter, Hydro Flask's growth was broad-based, domestically and internationally across all channels and key retailers, including online, active lifestyle, specialty outdoor, natural foods, and collegiate. Hydro Flask's sales growth at a major sporting goods retailer, where we gained new distribution last year, represented only about a quarter of total Housewares segment growth. Hydro Flask grew at other retailers and channels where our point-of-sale exceeded the category average growth rate, and we added new doors and shelf space, particularly in the Eastern United States. In addition, some retailers accelerated orders to support holiday demand as well as expected shelf replenishment needs based on point-of-sale trends. As we look forward to the fourth quarter, we expect year-over-year growth to naturally moderate as we anniversary the previously mentioned distribution gains at the major sporting goods retailer. Brian will provide a bit more detail shortly. Beyond the current fiscal year, Hydro Flask has multiple key growth drivers, including new product introductions, expansion into new categories as the brand expands beyond the bottle, additional distribution gains not only in the U.S. but also internationally, where the brand is currently underpenetrated, and of course, our just-one-more strategy to further penetrate the households of our existing consumers. Based on its market-leading position with rapidly growing consumer appeal, awareness, and equity, we expect the brand to grow at a healthy rate on an annual basis and continue to be a key driver of top and bottom line growth for the Housewares segment and for the total company. In Health & Home, core business net sales declined slightly due to net retail distribution changes year-over-year and more wildfire activity in the year-ago base more than offsetting strength internationally. Health & Home's international growth came from expanded distribution, including early wins from the Braun thermometer expansion in China and e-commerce growth, especially during Singles' Day, the largest shopping event in China occurring annually each November 11. Focused on the Braun thermometer expansion, this past October, I was proud to join leaders from our Health & Home division, our new President of International and our Asia Pacific regional market leaders to formally announce the expansion of Braun's flagship ear thermometers in China. This initiative broadens our footprint from the China cross-border exchange market, where it is already market leader for Braun, to the national markets online and in brick-and-mortar offline. Now families across all of the key channels in China will have access to the world's most trusted, accurate and reliable ear thermometer technology. Turning to the start of the current cough/cold/flu season, reported incidence levels are slightly above historical averages. As discussed in the past, our sales of thermometers correlate most closely to pediatric fever, and Vicks humidifier sales correlate most closely to congestion and cough. Our sales depend not only on point of sale but also on whether retailers bought ahead of the season via direct import or are placing replenishment orders to our warehouse now that the season is beginning to progress closer to its likely peak in the Northern hemisphere. The exact timing and duration of the season for each symptom can vary, but most types of respiratory illness, including influenza, usually begin to increase in October, peak between December and March, and wind down by early spring. This year's illness rates are following this same pattern so far, with some increased fever, cough, and congestion incidents in recent weeks. Our outlook continues to assume a normal season for the balance of fiscal 2020 in line with historical averages. Now turning to Beauty. I am pleased to share that our Beauty segment delivered another strong quarter, with core business net sales increasing by 5.4%. We are raising our outlook for Beauty, which we believe is now on track to deliver growth in the range of 3% to 5% this fiscal year. Based on that outlook, we expect fiscal '20 will mark the third consecutive year of Beauty appliance growth. During the third quarter, beauty sales were driven by consumer-centric appliance innovation that continues to sell ahead of expectations domestically and is now getting significant traction internationally. Our Beauty appliances gained further share in the quarter in both brick-and-mortar and online as the momentum and appeal of our volumizer franchise continues to build. Our Revlon volumizer has now earned nearly 20,000 online reviews, with an average rate of 4.3 stars. Our volumizers have gained considerable share online and have earned positive media attention online, on TV, and through consumer word of mouth. Our Beauty team strategically developed investments during Black Friday's week that performed very well. Based upon third-party syndicated data, Revlon appliances' point-of-sale dollars grew strong double digits compared to last year's 2018 Black Friday week. Our Beauty organization is focused on maintaining our market position and on building it further. As we look at our long-term trajectory, we are hard at work on adding new consumer-centric innovation to our pipeline of appliances, increasing international expansion, and investing more in the marketing efforts that we have found performed best. We are proud of our progress and are excited about the prospects in Beauty, including the addition of Drybar in the prestige segment. Before turning the call over to Brian, I would like to call your attention to the excellence of our associates as they continue to bring to Helen of Troy every day, operating the business and living our culture. I am very pleased with their ability to deliver significant results in a highly dynamic environment. On top of their day jobs of meeting the needs of our customers, keeping our Leadership Brands healthy, introducing outstanding new products, developing and executing the key Phase II initiatives, and working nimbly in a highly competitive category, they are also successfully navigating the volatility from changes in tariffs, currencies, commodities, and the retail landscape. I believe our Phase II choices position our company for continued long-term profitable growth, not only profitable but responsible and sustainable growth that delivers on the expectations and needs of our outstanding consumers, customers, suppliers, and associates. With that, I will now turn the call over to Brian.

Brian Grass, CFO

Thank you, Julien. Good afternoon, everyone. We are pleased with our third quarter results and to be in a position to raise our full year consolidated outlook. We achieved strong results with adjusted diluted EPS growth above our expectations, largely due to stronger-than-expected net sales in the Housewares segment. Consolidated sales revenue was $474.7 million, a 10.1% increase over the prior year, driven by strong demand in Beauty appliances and across the Housewares segment, both in the online and brick-and-mortar channels. Growth was partially offset by a slight decline in core business sales in the Health & Home segment, a decline in Personal Care within Beauty, and unfavorable foreign currency. Consolidated sales in the online channel grew approximately 30% year-over-year to comprise approximately 24% of our consolidated net sales in the third quarter, and sales from our Leadership Brands grew 10.6% in the quarter. This was another strong quarter for our Housewares segment, which posted a core business increase of 28.5% on top of 11.6% core business growth in the same period last year. The segment continues to see strong demand for both the OXO and Hydro Flask brands online and in-store. Health & Home core business net sales declined slightly due to lower domestic sales driven by net retail distribution changes year-over-year and the unfavorable comparative impact from more wildfire activity in the same period last year, partially offset by growth in international. Beauty core business net sales increased 6.2% primarily due to increased demand in new product introductions and appliances, growth in the online channel, and an increase in international sales. These factors were partially offset by a decline in Personal Care. Before discussing gross profit, I'd like to touch upon the impact of tariffs based on the most recent information we have available to us. As discussed on our second quarter call, List 4A tariffs became effective on September 1. List 4B tariffs were scheduled to become effective on December 15, with the great majority of increases that will impact our product categories falling in List 4B. However, in December 2019, the U.S. and China announced an interim trade agreement to halt these additional tariff increases and reverse some tariff increases that became effective in September 2019. The specific details of the interim trade agreement are unclear as is the ultimate outcome of the broader trade negotiations. In anticipation of List 4B taking effect and prior to the announcement of the interim trade agreement, we did forward buy some inventory in selected categories during the third quarter in order to defer the impact on our cost of goods sold as long as possible. If List 4B is ultimately implemented, we anticipate taking the same approach that we'd taken in the past. The goal would be to offset the gross profit dollar impact with the combination of pricing, cost reductions, supplier consolidation, other sourcing changes, exclusions, and other mitigation efforts. Consolidated gross profit margin was 44.2% compared to 42.2%. The 2 percentage point increase is primarily due to a higher mix of Housewares sales at a higher overall gross profit margin and a favorable product and channel mix within the Housewares segment. These factors were partially offset by a lower mix of Personal Care sales in the Beauty segment. SG&A was 27.5% of net sales compared to 28%. The 0.5 percentage point decrease is primarily due to lower advertising expense, the impact of tariff-related pricing actions taken with retail customers, the impact of higher overall sales had on net operating leverage, and the favorable impact of foreign currency exchange and forward contract settlements. These factors were partially offset by higher incentive compensation expense, acquisition-related expenses associated with the Drybar transaction, higher amortization expense, and higher freight and distribution expenses. GAAP operating income grew to $79.3 million or 16.7% of net sales. This compares to $61.3 million or 14.2% of net sales in the same period last year. On an adjusted basis, consolidated operating margin was 19%, a 2.6 percentage point increase compared to 16.4% in the same period last year. Advertising expense in the third quarter was below the same period last year, which benefited operating margin by approximately 1.2 percentage points. The decrease in advertising expense is entirely timing-related and does not change our growth investment expectations for the full fiscal year. As we have discussed in the past, our quarterly results are variable due to the seasonality of our various businesses and the timing of investment spend, which is based on strategic marketing and commercial initiatives and will not necessarily fall in the quarters with the highest revenue or follow historical patterns. Despite the quarterly variability, we are pleased with the strength and consistency of our annual results and our ability to increase growth investments year-over-year in the best opportunities for our Leadership Brands. Housewares adjusted operating margin increased 1.5 percentage points to 24.3%, primarily reflecting the margin impact of a more favorable product and channel mix, lower advertising expense, and the impact that higher sales had on operating leverage. These factors were partially offset by higher incentive compensation expense and higher freight and distribution expense to support increased retail customer shipments and strong direct-to-consumer demand. Health & Home adjusted operating margin increased 2.5 percentage points to 15.5%, primarily reflecting lower advertising expense and the margin impact of a more favorable product mix. These factors were partially offset by unfavorable operating leverage from the decline in sales. Beauty adjusted operating margin increased 2.5 percentage points to 16% primarily due to a more favorable product mix within the appliance category, lower advertising expense, and the impact that higher sales had on operating leverage. These factors were partially offset by higher incentive compensation expense and the unfavorable margin impact of the lower mix of Personal Care sales. Our effective tax rate was 10.3% compared to 6.9%. The year-over-year increase in our effective tax rate is primarily due to shifts in the mix of taxable income in our various tax jurisdictions and increases in certain statutory tax rates. Income from continuing operations was $68.7 million or $2.71 per diluted share compared to $54.3 million or $2.06 per diluted share. Non-GAAP adjusted income from continuing operations grew to $79.1 million or $3.12 per diluted share compared to $63.2 million or $2.40 per diluted share. This represents a 30% increase in adjusted diluted EPS. EPS growth was primarily driven by strong growth in the Housewares segment. EPS growth also benefited from the timing-related advertising decrease in the third quarter referred to previously. With consolidated sales growth of 10.1%, we would normally expect adjusted diluted EPS growth of close to 20% with operating leverage and our targeted margin expansion, but it was higher because of the advertising decrease that fell into the third quarter. Because the advertising decrease was timing-related, we expect an offsetting impact in the fourth quarter. Despite the quarterly variability, the adjusted diluted EPS growth implied in our revised outlook is 9% to 14% for the second half of fiscal 2020 compared to 12% in the first half. Now moving on to our financial position. Accounts receivable turnover decreased to 68.9 days for the third quarter compared to 69.4 days in the same period last year. Our accounts receivable balance at the end of the third quarter was $365.5 million compared to $339.1 million at the same time last year. Trailing 12-month inventory turnover was 2.9x compared to 3.4x in the prior year period. Inventory was $333.7 million compared to $300.6 million at the same time last year. This includes approximately $11.6 million of additional value related to higher tariff rates as well as higher inventory levels due to lower direct import sales year-to-date in fiscal year 2020. The remaining increase largely reflects additional inventory to support strong demand and shipment volume as well as for risk management as we progress through supplier consolidation, complete and optimize integration activities, and implement systems and processes to increase capacity and throughput for future growth. It also reflects some tariff-related forward buying of inventory in the third quarter. We expect to continue to improve our inventory levels in the fourth quarter of the fiscal year and believe we remain on track to meet our stated cash flow objectives for the full fiscal year. Net cash provided by operating activities from continuing operations for the first 9 months of fiscal 2020 was $101.4 million compared to $109.5 million in the same period last year. The decrease is primarily due to an increase in cash used for accounts receivable, accounts payable, and accrued expenses. It was partially offset by increased income from continuing operations and year-over-year improvement in cash used for inventory. Total short- and long-term debt was $244.2 million compared to $339.7 million. Our leverage ratio was 0.9x at the end of the third quarter of fiscal 2020 compared to 1.4x for the same period last year. Consistent with our comments at the time we announced the agreement to acquire Drybar, we expect to end fiscal 2020 with the post-acquisition pro forma debt to adjusted EBITDA ratio just slightly above the pre-acquisition debt to adjusted EBITDA ratio we reported at the end of the second quarter ended August 31, 2019. The strong cash flow generation will allow us to keep our debt at very comfortable levels while providing significant dry powder to make additional acquisitions or opportunistically repurchase shares in the future. Turning to our outlook, our strong business performance year-to-date gives us the opportunity to raise our full year sales and earnings outlook even as we continue to make incremental growth investments. This is consistent with our stated objective of maintaining a healthy balance of margin expansion and growth investment. For fiscal 2020, we now expect consolidated net sales revenue to be in the range of $1.65 billion to $1.675 billion, which implies consolidated sales growth of 5.5% to 7.1%. This compares to our prior expectation of 2.9% to 4.8%. Our net sales outlook reflects an increase in Housewares net sales growth to 19% to 21% compared to our prior expectation of 13% to 15%, the Health & Home net sales decline of 2% to 4% compared to the prior expectation of a low single-digit decline, and Beauty net sales growth of 3% to 5% compared to the prior expectation of growth in the low single digits. As Julien touched on, we expect the Housewares growth rate to moderate in the fourth quarter due to a combination of factors, some of which are short-term or nonrecurring in nature. There were orders from certain key Hydro Flask retailers that were accelerated into the third quarter due to retail expectations of strong holiday demand, their additional promotional activity, and to meet their expected replenishment needs after the holiday season. Hydro Flask will also fully anniversary significant new incremental distribution fill-in at a key sporting goods retailer in the fourth quarter. Finally, we expect Hydro Flask to experience some supply constraints in the fourth quarter due to stronger-than-expected demand and transitions out of old product versions and into new ones. Despite the quarterly variability, we are extremely pleased with Housewares' expected growth for the full fiscal year and anticipate healthy growth from this segment going forward. We now expect consolidated GAAP diluted EPS from continuing operations of $7.29 to $7.45, and non-GAAP adjusted diluted EPS from continuing operations in the range of $8.90 to $9.10, which excludes any asset impairment charges, acquisition-related expenses, restructuring charges, share-based compensation expense, and intangible asset amortization. Our outlook does not include any results related to the pending acquisition of Drybar Products LLC as the exact timing of closing is not known and there are conditions to closing that must be met, including regulatory approvals. Assuming the transaction closes on January 31, 2020, we expect that it will result in additional sales of $5 million to $6 million and adjusted diluted EPS of $0.02 to $0.03 in fiscal 2020. The Drybar business is seasonal in nature, with revenue and earnings heavily weighted in the second half of the calendar year. As such, results for the month of February are expected to be below the average for the full year. Our net sales and diluted EPS outlook assumes the severity of the upcoming cough/cold/flu season will be in line with historical averages. However, we are prepared to meet the demand of a stronger season if one should occur. Our outlook also assumes that December 2019 foreign currency exchange rates will remain constant for the remainder of the year. We continue to expect the year-over-year comparison of adjusted diluted EPS from continuing operations to be impacted by an expected increase in growth investments of 13% to 18% in fiscal 2020. The diluted EPS outlook is based on estimated weighted average diluted shares outstanding of $25.3 million. The increase in adjusted diluted EPS outlook for fiscal 2020 reflects the company's strong performance year-to-date, partially offset by an expected increase in growth investments and distribution center and direct-to-consumer capacity investments. As referred to earlier, we expect the shift in the timing of advertising expense from the third to the fourth quarter of approximately $5 million after-tax as compared to the prior year but still expect to meet our gross investment targets for the full fiscal year. We now expect a reported GAAP effective tax rate range of 9.7% to 9.9% and an adjusted effective tax rate range of 9.1% to 9.2% for the full fiscal year 2020. The likelihood and potential impact of any additional fiscal 2020 acquisitions or divestitures, future asset impairment charges, future foreign currency fluctuations, further tariff increases, or future share repurchases are unknown and cannot be reasonably estimated. Therefore, they are not included in our sales and earnings outlook. And now I'd like to turn the call back to the operator for questions.

Olivia Tong, Analyst

First, I just want to touch on Housewares and the impressive growth there. I appreciate the color on timing of Q3 versus Q4. That's certainly very helpful. So can we talk a little bit about the pipeline because it doesn't sound like you see major factors that suggest that the trend is slowing, yet you are looking for the 2-year stack to have in Housewares. So maybe can you compare and contrast the growth between either same-store sales versus new distribution, the domestic versus international, the core strength versus the extensions like coolers and how much you're driving the category versus. Thanks.

Julien Mininberg, CEO

Let me begin, and Brian may have some additional insights. Hi Olivia, our growth is ongoing, although we anticipate a slight moderation, as Brian mentioned, which is expected after the pace we have been experiencing. Our pipeline remains strong for both Hydro Flask and OXO, with Hydro Flask's pipeline consistently improving. We have invested substantial effort in restructuring the entire Housewares operation, enhancing our engineering oversight, design capabilities, consumer insights, and manufacturing supervision, which are becoming increasingly robust as the Housewares division integrates its two brands. This represents a significant shift from about a year and a half ago. The product pipeline for Hydro Flask is considerable, and OXO has a long history of introducing over 100 products annually. We are confident in our pipeline and optimistic about our future. There are numerous impressive new bottle designs, lightweight materials, and various innovative approaches that bolster our core products. Additionally, there are exciting developments beyond bottle designs, such as the hydro packs, as well as new categories we believe will expand our offerings. On both the international and domestic fronts, we still have opportunities for retailer distribution. Therefore, we are not concerned about the anniversary effects. While growth may slow slightly, we believe there are ample reasons for continued brand expansion with Hydro Flask. As for OXO, it has experienced consistent growth throughout. We remain optimistic about our future prospects.

Brian Grass, CFO

Yes. To address the question regarding point-of-sale versus distribution, I would say that the growth has primarily been driven by point-of-sale rather than distribution. In Julien's prepared remarks, we mentioned that DICK's Sporting Goods is the most significant new incremental distribution we have. However, DICK's growth for the quarter only accounted for a quarter of Housewares' overall growth in that same period. Therefore, since this is our largest distribution gain year-over-year, which only represents a quarter of the growth, it suggests that point-of-sale is the main factor contributing to the overall growth.

Julien Mininberg, CEO

Yes, that's showing up in the share. I think you heard in the prepared remarks, there's not only number one in the insulated beverage bottles but by a significant margin and added significant share in the quarter. So, it's not just new distribution and new doors it sells through, and sells through at an accelerated rate relative to the category, and with no arrogance of any kind largely driving the growth of the category itself.

Olivia Tong, Analyst

Got it. That's really helpful. Can we discuss the flu season? It appears that, based on my data, the flu season is starting off strong compared to last year and the year before. If the flu season does come in better than expected and demand for your product increases, how adaptable are you in getting products to stores, whether physical locations or online? Have there been enough changes to ensure that there are no supply constraints and similar issues?

Julien Mininberg, CEO

It's a great question, and it’s early in the season. We all see the projections and numerous articles from experts indicating uncertainty about how the season will unfold, including which strains will be prevalent and the effectiveness of the flu shot, which can be influenced by temperature and humidity. There are many variables that exceed current scientific capabilities to quantify comprehensively. As Brian mentioned earlier, we are ready to meet the demand if a stronger flu season occurs. Some customers import products directly and are mostly prepared for a typical season. If they notice faster sell-out rates due to demand changes, they will order from us, and we can restock from our warehouse, which has sufficient product to handle a significant increase in demand. It would take a pandemic situation for us to run out of stock. For those who order on a regular replenishment basis without much direct import, our warehouse inventory is designed to quickly meet that demand. This is particularly important since different markets peak at different times, and we aim to ensure ample product availability when illness rates are high.

Linda Bolton-Weiser, Analyst

Congratulations. Can you discuss the many questions I receive from investors about the underlying fundamentals driving the demand for Hydro Flask bottles? Are you seeing significant growth due to factors like people owning multiple bottles and it being a fashion statement, or is the increase simply a result of rising household penetration? Additionally, can you provide any figures related to household penetration or other details to help us understand what is truly driving the underlying demand?

Julien Mininberg, CEO

Sure. Let me address that. The Hydro Flask category, including both single wall and double wall insulated metal hydration bottles, is gaining traction. Ten years ago, people were content with SIGG bottles or plastic Nalgene or CamelBak bottles, but now there's increasing interest in the insulation benefits that keep drinks hot or cold longer. Additionally, there's a growing consumer backlash against single-use plastic water bottles due to their environmental impact, which is becoming increasingly frowned upon, similar to the past stigma around smoking. This trend is fundamental. Regarding fashion and household penetration, Hydro Flask has effectively communicated that the brand is authentic and genuine. We offer consumers real benefits without any artificial marketing. Our approach is grassroots, and we have invested significantly in online and social media to engage consumers. We've also consistently supported Parks for All as part of our charitable efforts, maintaining a strong connection with our customers.

Linda Bolton-Weiser, Analyst

Can I also just ask about the Health & Home segment? I think you maybe said in one of your comments last quarter that you did expect it would be up in the third fiscal quarter. So it was just a little off. Could you like give us a little color on whether it was the thermometer piece or another part of the business that was the part that was maybe a little worse than you expected? And I think you said something about a distribution change. Is that some distribution that you actually lost? So can you give us a little more color?

Julien Mininberg, CEO

Yes. So let me go through a couple of areas. It is true that Health & Home performed slightly behind our expectations during Q3 and slightly behind the year-ago period by about 0.5 point when you take into account foreign exchange. Foreign exchange worked against Health & Home. It's a bit more international than our other segments. And so about a further 0.5 or exactly 0.6 of a percentage point was related to foreign exchange.

Brian Grass, CFO

Well, and just to put some perspective about being below expectations, I'd say that's only about $3 million or $4 million. So yes, we did expect it to have growth in the third quarter, but the difference between what we're expecting and what we realized is really small in dollar amounts.

Julien Mininberg, CEO

Yes. In terms of the distribution changes, we say the word changes rather than just losses or wins because it's a net situation. We gain and lose distribution based on each season as it comes and goes. So as the, for example, heater and fan shelf, which if you go into most retailers, you'll see that it's the same stores, the same part of the shelf. The fans come on, the heaters go off. And 6 months later, the heaters go up and the fans go on. So there's line reviews of what that shelf will look like every 6 months or so, and the question of whether you gain or lose this particular SKU or that particular SKU happens all the time.

Brian Grass, CFO

Well, and I would just add that it can also depend on what the store is doing with their format and shelf and those types of things. So sometimes we can lose and not lose to competition necessarily in our space but lose because the store has decided to emphasize a different product category or reconfigure the shelf for the store itself. And so those changes are included in this netting concept that Julien is describing.

Julien Mininberg, CEO

There are wins and losses in every season, and in this particular one, the losses outweigh the wins when everything is considered. Regarding foreign exchange, we've already discussed it. In the case of Health & Home, year-over-year, the wildfires impacted Q3 this year and last year. You might think there were significant wildfires this year during Q3, which is true. However, in the previous year, particularly in southern and northern California, there were major fires in populated areas. You might consider the number of acres burned and the resulting smoke, which affects how much people might need to purchase air purifiers or fans. It turns out there were significantly more issues in populated areas last year compared to this year.

Brian Grass, CFO

And on the international side, Health & Home not only grew, it grew nicely. And Braun did particularly well. And you heard the remarks already, I think, on China, where we see not only significant growth opportunities for China, but we had a breakthrough during Q3, which is the ability to bring the Braun thermometers on the Chinese market, both online and also offline beyond just the cross-border exchange market, where we're already the market leader, but we've been limited to that channel only for the last couple of years. And with the China equivalent of the FDA's approval now of the product for distribution across all channels, we started getting some gains there, and we anticipate that being a meaningful building block going forward, which is why we brought it up in the call.

Steven Marotta, Analyst

I wanted to ask a little bit about the tariff deltas, Brian, that you delineated earlier on in the prepared remarks. Were there price increases in effect in the third quarter for products that were ultimately not tariffed? And if so, what would you attribute that capture to? And how do you suspect pricing will flow, if you will, over the next quarter to two quarters to three quarters based on the likelihood of 4B not being implemented?

Brian Grass, CFO

To address the first part of your question, we did implement some price increases when the initial tariffs from Lists 1, 2, and 3 were introduced, particularly in the Housewares segment. We took advantage of those opportunities to raise prices independently of the tariffs. Any changes to tariffs in the future would not affect those price increases. However, it appears that there are no plans to roll back items on Lists 1, 2, or 3, at least based on what I've seen publicly. The discussions seem to focus on partially rolling back increases on List 4A and completely on List 4B. The tariff increases that impact us are mainly in List 4B, which was never implemented; it was only mentioned around mid-December. Consequently, we did not take any pricing actions related to List 4B, and we didn’t have much associated with List 4A. I hope this clears up your question.

Steven Marotta, Analyst

Yes. Yes, it does. I guess my follow-up question has to do a little bit about Housewares. I believe you mentioned, trying to put a fine point on it, the Hydro Flask, there was demand pull-forward this year into the third quarter from the fourth quarter. Can you talk a little bit about OXO? And was there any shifts in demand through the wholesale channel on a quarterly basis in or out of the third quarter more specific to OXO?

Brian Grass, CFO

For OXO, I would say nothing worth calling out. I mean we have this occur from time to time in smaller amounts, and there probably was some. But I would say it's not worth mentioning.

Julien Mininberg, CEO

Yes, we're noticing some smaller adjustments. A retailer might decide to stock up a bit earlier than usual for Christmas after observing increased promotional activity during Black Friday, which ends up affecting our quarterly results by about two weeks. This creates ongoing discussions in the warehouse.

Operator, Operator

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Julien Mininberg, CEO

Thank you for joining us today. We look forward to speaking with many of you in the upcoming weeks and meeting those attending next week's ICR conference in Orlando. Additionally, we plan to host our fourth quarter and fiscal year-end call in late April, during which we will provide our outlook for FY '21. Thank you very much and have a great evening.

Operator, Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.