Helen of Troy Limited Reports First Quarter Fiscal 2022 Results
Consolidated Net Sales Growth of 28.6%; Organic Business Net Sales Growth of 27.3%
GAAP Diluted Earnings Per Share (“EPS”) of $2.31
Adjusted Diluted EPS Growth of 37.5% to $3.48
Initiates Fiscal 2022 Outlook:
Consolidated GAAP Diluted EPS of $6.80 to $7.49; Core Diluted EPS of $6.60 to $7.28
Consolidated Adjusted Diluted EPS of $10.46 to $10.97; Core Adjusted Diluted EPS of $10.25 to $10.75
Consolidated Net Sales of $1.93 to $1.98 Billion; Core Net Sales of $1.90 to $1.95 Billion
EL PASO, Texas–(BUSINESS WIRE)–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 May 31, 2021.
Executive Summary – First Quarter of Fiscal 2022
- Consolidated net sales revenue increase of 28.6% to $541.2 million, including:
- An increase in Leadership Brand net sales of 22.9%
- An increase in online channel net sales of approximately 4%
- Organic business net sales growth of 27.3%
- Core business net sales growth of 28.9%
- The Company is in discussions with the U.S. Environmental Protection Agency (the “EPA”) regarding concerns that packaging claims on certain products in its U.S. water and air filtration and a limited subset of humidifier products are not in compliance with the EPA’s strict interpretation of specific regulations. On May 27, 2021, the Company voluntarily implemented a temporary stop shipment action while it continues to work with the EPA to resolve outstanding concerns on the affected products. The EPA has not raised any product quality, safety or performance issues. The Company has already addressed the EPA’s concerns on the water filtration products by making modest changes to our packaging and have resumed shipping those products. The Company expects to similarly resolve the EPA’s concerns on air and humidification packaging and then resume shipping of those products as soon as operationally possible. During the first quarter of fiscal 2022, the Company recorded a $13.1 million charge referred to as “EPA compliance costs” in cost of goods sold to reflect the costs of its compliance plans with respect to inventory on hand at the end of the quarter.
- GAAP consolidated operating income of $64.8 million, or 12.0% of net sales, which includes $13.1 million in EPA compliance costs, compared to $57.0 million, or 13.5% of net sales, for the same period last year
- Non-GAAP consolidated adjusted operating income increase of 33.6% to $95.0 million, or 17.5% of net sales, compared to $71.1 million, or 16.9% of net sales, for the same period last year
- GAAP diluted EPS of $2.31, which includes EPA compliance costs of $0.52 per share, compared to $2.37 for the same period last year
- Non-GAAP adjusted diluted EPS increase of 37.5% to $3.48, compared to $2.53 for the same period last year
- Repurchased 436,842 shares of common stock in the open market during the quarter for $95.5 million, at an average price of $218.58 per share
Julien R. Mininberg, Chief Executive Officer, stated: “We delivered an outstanding first quarter, with even higher sales growth and stronger profitability than we expected. The 28.6% sales growth was broad based, with Beauty and Housewares leading the way as re-openings drove store traffic and our brands continued to distinguish themselves with consumers. Health & Home also grew, surpassing the very large COVID-related first quarter base laid down a year ago. International sales grew even faster than the fleet average as this strategic focus area benefited from prior flywheel investments. We grew adjusted EPS by 37.5%, as the very strong sales growth more than offset normalized spending versus last year and headwinds from widespread inflation affecting nearly all input costs including materials, labor, and transportation.
So far in Fiscal 2022, we have continued to take actions intended to drive long-term value for shareholders. We divested our Personal Care business in line with our long-term strategy to focus on our Leadership Brands, finalized a land purchase in Gallaway, Tennessee to build a state-of-the-art distribution center which will have high levels of automation and scalable direct-to-consumer capability, and re-purchased just under 2% of our stock. We also secured more inventory ahead of the more recent cost increases in the market, positioning us well to continue to meet demand and better manage the current period of inflation and global supply chain disruption.”
Mr. Mininberg continued: “Looking ahead to full fiscal 2022, we are now in a position to provide an outlook. Our Housewares and Beauty segments are each projecting healthy growth in revenue and profitability on top of their strong growth last year. Our projection in Health & Home includes the estimated impact of lost sales volume related to the EPA matter. Our rapid response team is working to bring this to resolution as quickly as possible. Excluding the impact of the EPA matter, we were on track to achieve growth in both Core net sales and Core adjusted EPS, which is in line with the thinking we communicated in April.
Longer term, we remain committed to our Phase II Transformation Plan and expect to return to our Phase II targets of average annual organic revenue growth of 3% and adjusted EPS growth of 8% in Fiscal 2023 and Fiscal 2024. We also remain actively focused on acquisition opportunities to further accelerate long-term value creation.”
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| Three Months Ended May 31, | |||||||||||||||
| (in thousands) (unaudited) | Housewares |
| Health & Home |
| Beauty |
| Total | |||||||||
| Fiscal 2021 sales revenue, net | $ | 140,628 |
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| $ | 199,956 |
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| $ | 80,251 |
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| $ | 420,835 |
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| Organic business (1) | 52,127 |
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| 1,203 |
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| 61,552 |
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| 114,882 |
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| Impact of foreign currency | 889 |
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| 2,937 |
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| 1,680 |
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| 5,506 |
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| Change in sales revenue, net | 53,016 |
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| 4,140 |
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| 63,232 |
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| 120,388 |
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| Fiscal 2022 sales revenue, net | $ | 193,644 |
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| $ | 204,096 |
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| $ | 143,483 |
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| $ | 541,223 |
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| Total net sales revenue growth | 37.7 | % |
| 2.1 | % |
| 78.8 | % |
| 28.6 | % | |||||
| Organic business | 37.1 | % |
| 0.6 | % |
| 76.7 | % |
| 27.3 | % | |||||
| Impact of foreign currency | 0.6 | % |
| 1.5 | % |
| 2.1 | % |
| 1.3 | % | |||||
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| Operating margin (GAAP) |
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| Fiscal 2022 | 14.0 | % |
| 5.5 | % |
| 18.4 | % |
| 12.0 | % | |||||
| Fiscal 2021 | 16.5 | % |
| 15.8 | % |
| 2.8 | % |
| 13.5 | % | |||||
| Adjusted operating margin (non-GAAP) |
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| Fiscal 2022 | 17.2 | % |
| 14.6 | % |
| 22.3 | % |
| 17.5 | % | |||||
| Fiscal 2021 | 19.5 | % |
| 18.7 | % |
| 8.0 | % |
| 16.9 | % | |||||
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”). The net assets to be disposed of include intangible assets, inventory, certain net trade receivables, fixed assets, and certain accrued sales discounts and allowances relating to the Company’s mass channel liquids, powder and aerosol products under brands such as Pert, Brut, Sure and Infusium. Accordingly, the Company classified the identified net assets of the disposal group as held for sale. The divestiture was completed during the second quarter of fiscal 2022. 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.
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| Three Months Ended May 31, | |||||||||||||||
| (in thousands) (unaudited) | Housewares |
| Health & Home |
| Beauty |
| Total | |||||||||
| Fiscal 2021 sales revenue, net | $ | 140,628 |
|
| $ | 199,956 |
|
| $ | 80,251 |
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| $ | 420,835 |
| |
| Core business (2) | 53,016 |
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| 4,140 |
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| 64,429 |
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| 121,585 |
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| Non-Core business (Personal Care) (2) | — |
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| — |
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| (1,197 | ) |
| (1,197 | ) | |||||
| Change in sales revenue, net | 53,016 |
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| 4,140 |
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| 63,232 |
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| 120,388 |
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| Fiscal 2022 sales revenue, net | $ | 193,644 |
|
| $ | 204,096 |
|
| $ | 143,483 |
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| $ | 541,223 |
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| Total net sales revenue growth (decline) | 37.7 | % |
| 2.1 | % |
| 78.8 | % |
| 28.6 | % | |||||
| Core business | 37.7 | % |
| 2.1 | % |
| 80.3 | % |
| 28.9 | % | |||||
| Non-Core business (Personal Care) | — | % |
| — | % |
| (1.5 | )% |
| (0.3 | )% | |||||
EPA Packaging Compliance Matter
The Company is currently in discussions with the EPA regarding the compliance of packaging claims on certain of its products in the air and water filtration and a limited subset of humidifier products within the Health & Home segment that are sold in the United States. The EPA has not raised any product quality, safety or performance issues. The Company expects these products to be available for distribution with the only changes being modified labeling or different packaging. As a result of these discussions, on May 27, 2021, the Company voluntarily implemented a temporary stop shipment action in the U.S. while it works with the EPA towards an expedient resolution. The EPA has approved modest changes to the Company’s labeling claims on its existing water filtration packaging, which the Company has begun to implement. The Company resumed shipment of these products this week and is actively working towards similar agreements regarding its air filtration and humidification packaging in continued collaboration with the EPA. At the Company’s request, the EPA issued a Stop Sale, Use or Removal Order on June 29, 2021, which among other things, allows for the movement of certain of its products among its warehouses and will facilitate rework of the affected air filtration packaging once agreed to with the EPA. The Company believes this is meaningful progress towards a final resolution with the EPA. The stop shipment will remain in effect until the Company implements an approved labeling and repackaging plan. During the first quarter of fiscal 2022, the Company recorded a $13.1 million charge to write-off the obsolete packaging for the affected products in inventory on-hand and in-transit as of the end of the first quarter of fiscal 2022. The charge was recognized in cost of goods sold and is referred to as “EPA compliance costs.” The Company expects to incur additional EPA compliance costs, which may include costs to relabel or repackage existing inventory as well as incremental freight and storage costs, among other things.
Consolidated Results – First Quarter Fiscal 2022 Compared to First Quarter Fiscal 2021
- Consolidated net sales revenue increased $120.4 million, or 28.6%, to $541.2 million compared to $420.8 million. The growth was driven by an Organic business increase of $114.9 million, or 27.3%, primarily due to higher consolidated brick and mortar sales in the Beauty and Housewares segments due to the favorable comparative impact of store closures and reduced store traffic in the prior year period, an increase in consolidated international sales, higher sales in the club and closeout channels, growth in consolidated online sales, and the favorable impact of $15 million of orders that were not able to be shipped at the end of the fourth quarter of fiscal 2021 due to the late-February winter storm in the U.S. (“Winter Storm Uri”). These factors were partially offset by a net sales revenue decline in Non-Core business. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $5.5 million, or 1.3%.
- Consolidated gross profit margin decreased 1.8 percentage points to 40.8%, compared to 42.6%. The decrease in consolidated gross profit margin was primarily due to higher inbound freight expense due to rising freight costs and container supply shortages, EPA compliance costs in the Health & Home segment of $13.1 million, and a less favorable channel mix in the Housewares segment. These factors were partially offset by a more favorable product mix in the Beauty segment.
- Consolidated selling, general and administrative expense (“SG&A”) ratio decreased 0.2 percentage points to 28.8%, compared to 29.0%. The decrease in the consolidated SG&A ratio was primarily due to favorable operating leverage, reduced royalty expense as a result of the amendment of the Revlon trademark license, lower amortization expense, and a decrease in bad debt expense. These factors were partially offset by the impact of higher personnel and advertising expenses due to cost reduction initiatives in the prior year period and higher distribution expense.
- Consolidated operating income was $64.8 million, or 12.0% of net sales revenue, compared to $57.0 million, or 13.5% of net sales revenue. The decrease in consolidated operating margin was primarily driven by higher inbound freight expense due to rising freight costs and container supply shortages, EPA compliance costs, a less favorable channel mix in the Housewares segment, higher personnel and advertising expenses due to cost reduction initiatives in the prior year period, and higher distribution expenses. These factors were partially offset by a more favorable product mix in the Beauty segment, favorable operating leverage, reduced royalty expense as a result of the amendment of the Revlon trademark license, lower amortization expense, and a decrease in bad debt expense.
- Income tax expense as a percentage of income before tax was 8.0% compared to an income tax benefit of 13.0% for the same period last year, primarily due to the benefit of the CARES Act in fiscal 2021. Income tax expense for the three months ended May 31, 2021 is driven by the mix of taxable income in the Company’s various jurisdictions and tax benefits associated with share-based compensation recognized in the period in which it is settled.
- Net income was $57.0 million, compared to $60.3 million. Diluted EPS was $2.31 compared to $2.37. Diluted EPS decreased primarily due to lower operating income in the Health & Home segment and the comparative impact from the CARES Act tax benefit recognized in the prior year period, partially offset by higher operating income in the Beauty and Housewares segments, lower interest expense, and lower weighted average diluted shares outstanding.
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 32.7% to $100.8 million compared to $76.0 million.
On an adjusted basis for the first quarters of fiscal 2022 and 2021, excluding EPA compliance costs, restructuring charges, tax reform, amortization of intangible assets, and non-cash share-based compensation, as applicable:
- Adjusted operating income increased $23.9 million, or 33.6%, to $95.0 million, or 17.5% of net sales revenue, compared to $71.1 million, or 16.9% of net sales revenue. The 0.6 percentage point increase in adjusted operating margin primarily reflects a more favorable product mix in the Beauty segment, favorable operating leverage, reduced royalty expense as a result of the amendment of the Revlon trademark license, and a decrease in bad debt expense. These factors were partially offset by higher inbound freight expense due to rising freight costs and container supply shortages, a less favorable channel mix in the Housewares segment, higher personnel and advertising expenses due to cost reduction initiatives in the prior year period, and higher distribution expenses.
- Adjusted income increased $21.7 million, or 33.7%, to $85.8 million, compared to $64.2 million for the same period last year. Adjusted diluted EPS increased 37.5% to $3.48 compared to $2.53. The increase in adjusted diluted EPS was primarily due to higher adjusted operating income in the Beauty and Housewares segments, lower interest expense, and lower weighted average diluted shares outstanding, partially offset by lower adjusted operating income in the Health & Home segment and higher tax expense resulting from the CARES Act tax benefit recognized in the prior year period.
Segment Results – First Quarter Fiscal 2022 Compared to First Quarter Fiscal 2021
Housewares net sales revenue increased $53.0 million, or 37.7%, to $193.6 million, compared to $140.6 million. Growth was driven by an Organic business increase of $52.1 million, or 37.1%, primarily due to an increase in brick and mortar sales for both OXO and Hydro Flask due to the favorable comparative impact of store closures and reduced store traffic in the prior year period, growth in international sales, higher sales in the club and closeout channels, and the favorable impact of orders that were not able to be shipped at the end of the fourth quarter of fiscal 2021 due to Winter Storm Uri. These factors were partially offset by a decrease in online sales due to the unfavorable comparative impact of an even greater shift to online shopping in the prior year period due to store closures. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $0.9 million, or 0.6%. Operating income was $27.1 million, or 14.0% of segment net sales revenue, compared to $23.2 million, or 16.5% of segment net sales revenue. The 2.5 percentage point decrease in segment operating margin was primarily due to a less favorable channel mix, higher inbound freight expense, higher distribution costs, an increase in marketing expense, and higher personnel expense. These factors were partially offset by lower bad debt expense and favorable operating leverage. Adjusted operating income increased 21.3% to $33.2 million, or 17.2% of segment net sales revenue compared to $27.4 million, or 19.5% of segment net sales revenue.
Health & Home net sales revenue increased $4.1 million, or 2.1%, to $204.1 million, compared to $200.0 million. Growth was driven by an Organic business increase of $1.2 million, or 0.6%, primarily due to an increase in sales in the air filtration category, growth in international sales, and the favorable impact of orders that were not able to be shipped at the end of the fourth quarter of fiscal 2021 due to Winter Storm Uri. These factors were sufficient to grow over the 30.2% organic sales increase fueled by strong COVID-19 driven demand for healthcare and healthy living products in the comparative prior year period. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $2.9 million, or 1.5%. Operating income was $11.2 million, or 5.5% of segment net sales revenue, compared to $31.5 million, or 15.8% of segment net sales revenue. The 10.3 percentage point decrease in segment operating margin was primarily due to a less favorable product mix, EPA compliance costs of $13.1 million, higher inbound freight expense, higher distribution costs, an increase in marketing expense, and higher personnel expenses. These factors were partially offset by lower product liability claim costs, reduced amortization expense, a decrease in royalty expense, and the favorable impact of foreign currency fluctuations. Adjusted operating income decreased 20.1% to $29.8 million, or 14.6% of segment net sales revenue, compared to $37.3 million, or 18.7% of segment net sales revenue.
Beauty net sales revenue increased $63.2 million, or 78.8%, to $143.5 million, compared to $80.3 million. The increase was driven by an Organic business increase of $61.6 million, or 76.7%. The Organic growth was broad based with strength across many aspects of the business. The growth drivers include an increase in brick and mortar sales due to the favorable comparative impact of store closures and reduced store traffic in the prior year period, growth in the volumizer franchise due to continued high consumer demand, expanded distribution primarily in the club channel, new product introductions, the favorable comparative impact of constrained supply levels in the prior year period, a strong increase in Drybar sales, an increase in online channel sales, significantly higher international sales, and the favorable impact of orders that were not able to be shipped at the end of the fourth quarter of fiscal 2021 due to Winter Storm Uri. These factors were partially offset by a decline in Non-Core business. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $1.7 million, or 2.1%. Operating income was $26.4 million, or 18.4% of segment net sales revenue, compared to $2.2 million, or 2.8% of segment net sales revenue. The 15.6 percentage point increase in segment operating margin was primarily due to favorable operating leverage, a more favorable product mix, reduced royalty expense as a result of the amendment of the Revlon trademark license, lower inventory obsolescence costs, the favorable impact of foreign currency fluctuations, and a decrease in bad debt expense. These factors were partially offset by higher inbound freight expense, increased marketing expense, and increased personnel expense. Adjusted operating income increased $25.5 million to $31.9 million, or 22.3% of segment net sales revenue, compared to $6.4 million, or 8.0% of segment net sales revenue.
Balance Sheet and Cash Flow Highlights – First Quarter Fiscal 2022 Compared to First Quarter Fiscal 2021
- Cash and cash equivalents totaled $37.4 million, compared to $88.5 million.
- Accounts receivable turnover was 67.4 days, compared to 67.5 days.
- Inventory was $540.1 million, compared to $276.3 million. Trailing twelve-month inventory turnover was 3.0 times compared to 3.2 times.
- Total short- and long-term debt was $511.0 million, compared to $324.9 million.
- Net cash used by operating activities for the first three months of the fiscal year was $63.4 million, compared to net cash provided of $92.8 million for the same period last year.
Subsequent Event
On June 7, 2021, 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. The sale also includes an option that provides HRB Brands LLC the right to purchase the Latin America and Caribbean Personal Care businesses no later than the end of fiscal 2022, subject to meeting certain agreed-upon conditions. The carrying amount of the identified assets and liabilities within the disposal group were classified as held for sale as of May 31, 2021. The transaction is not reflected in the Company’s condensed consolidated financial statements as of and for the period ended May 31, 2021.
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 outlook the Company is providing is on both a consolidated and Core business basis in order to provide comparability between historical and future periods.
The Company’s outlook includes the current estimated impact of the duration of the EPA-related stop shipment action previously discussed, which is based on the estimated timing of approval and implementation of the Company’s compliance plans. The Company’s outlook includes an estimated unfavorable sales revenue impact of $110 to $135 million and an unfavorable adjusted diluted EPS impact of $0.70 to $1.00 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 significant reductions in personnel, marketing and select new product development costs.
The Company incurred $13.1 million of EPA compliance costs in the first quarter of fiscal 2022 in conjunction with the implementation of its compliance plans. These costs were included in our GAAP operating results but were excluded in our non-GAAP adjusted operating results. The Company expects to incur additional EPA compliance costs, which may include costs to relabel or repackage existing inventory as well as incremental freight and storage costs, among other things. The Company expects to continue to exclude these costs from non-GAAP adjusted operating results, and the costs have been excluded from the annual outlook for non-GAAP adjusted diluted EPS.
Contacts
Investors:
Helen of Troy Limited
Anne Rakunas, Director, External Communications
(915) 225-4841
ICR, Inc.
Allison Malkin, Partner
(203) 682-8200
