Q3 2020 Earnings Call
Earnings Conference call at this time, just principally listen only mode.
Question answer session will follow the formal presentation.
Any whats require operator assistance during the conference. Please press Star Zero Wonder telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host Jack Jancin.
Senior Vice President of corporate Senior developed please go ahead Sir.
Thank you operator.
Good afternoon, everyone and welcome to Helen of Troys 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 CEO your comment on the financial performance for the quarter and specific progress on our strategic initiatives.
Then mr., Brian grass the company CFO will review the financials in more detail and comment on the company outlook for fiscal 2020.
Following this Mr Mininberg and Mr. grass, we'll take your questions you have for us today.
This conference call may contain certain forward looking statements there based on management's current expectations with respect to future events or financial performance.
Generally the words anticipates believes expects in other words similar our 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.
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 companies.
The company cautions listeners to not place undue reliance on forward looking statements were non-GAAP information.
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 Dot Helen of Troy Dot Com.
The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures. They release can be obtained by selecting the investor Relations tab on the company's home page and then the news tab.
I'll now turn the conference call over to Mr. member.
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 improper cross first 2020 for all of us.
During this afternoons call I will discuss our third quarter results and then take the opportunity to share progress. We've 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 released this afternoon, we concluded our third quarter with excellent business momentum, we delivered strong topline and Bottomline results driven by our phase two transformation plan, which continues to drive everything we do and Helen of Troy.
The result, this quarter were ahead of our expectations consolidated core business sales grew 10.7% leadership brands sales increased 10.6% and our online channel sales grew approximately 30% to now represent 24% of total sales.
International sales also demonstrated hyatt healthy growth in the quarter, especially in EMEA and Asia, The international regions, where most focused on in phase two.
We increased our gross margin by two percentage points expanded adjusted operating margin in all three business segments and grew adjusted EPS by 30% the $3 in 12 cents.
Due to the strong performance this quarter, we're increasing our full fiscal your outlook for sales any P. S.
I'm 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 accrete 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 two strategic choices selective 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 two our primary M&A goal continues to be adding critical mass to our flywheel by adding leaders acquiring leadership brands that are the right fit for our portfolio and wheelhouse and where we can add significant value.
As many of you were likely already aware in December we announced an agreement to acquire dry bar products LLC. Upon closing of the transaction. We expect dry bar will be immediately accretive to key measures and we anticipate ending fiscal 2020 with a low leverage ratio.
The dry bar products acquisition will add a multi category leader in prestige hair care that will complement our revlon and hot tools brands and extend our beauty for portfolio across the good better and now best segment.
Helen of Troy believes it can add significant value to the brand through our expertise in new product development sourcing sales marketing digital brick and mortar category development and international 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.
Okay, and growing fleet of Drybar salons, they will license our newly acquired Drybar brand and 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 dry bar 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 gain new distribution benefited from new products and delivered strong Pos at key retailers.
We also saw international expansion for both OXXO and hydro flask standout categories during the quarter, where specialty hydration food storage cleaning and baking.
We continue to make incremental marketing investments to build out digital content in online support that engages consumers on the outstanding innovation design and performance of OXXO 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 number one position in the insulated beverage bottle category over the past 12 months. It was also the number one most search brand on Amazon for the entire month of October .
Named already eyes vendor partner of the year in the camp category.
Focusing on OXXO. Its online presence continues 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 OXXO was recently named vendor of the year across the entire home category.
Hydro flask eco friendly vacuum insulated bottles and its accessories and itself cooler packs continue to grow in popularity as an everyday essential with broad groups of consumers an outdoor enthusiasts, making the brand a staple for retailers.
During the quarter, how hydro flask 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 sales growth at a major sporting goods retailer, where we gained new distribution last year represented only about a quarter of total houseware segment growth Hydro flask grew at other retailers and channels, where our Pos 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 Pos 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.
At the tail shortly.
And 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 boggle 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 household.
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 can you continue to be a key driver of top and bottom line growth for the houseware segment and for the total company.
In health and 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 in homes International growth came from expanded distribution, including early wins for the Braun thermometers expansion in China, and ecommerce growth, especially during singles day, the largest shopping event in China occurring annually each November 11th.
Focusing on the Braun thermometers expansion. This past October I was proud to join leaders from our health and home Division, our new President of International and our Asia Pacific Regional market leaders to formally announced the expansion of brands flagship air 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 the key channels in China will have access to the world's most trusted accurate and reliable your thermometer technology.
Turning to the start of the current cough cold and flu season reported incidents levels or slightly above historical averages as discussed in the past our sales of the monitors correlate to most PDF correlate most the pediatric fever, and vicks humidifiers 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 where 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 in March and wind down by early spring.
This year's illness rates are following the 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're 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.
Yeah.
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 gain 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 is now or nearly 20000 online reviews with an average rate of 4.3 stars.
Our volume Misers 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 deployed investments during black Friday week that performed very well based upon third party syndicated data read one appliances point of sale dollars grew strong double digit compared to last years 2018, Black Friday week, our beauty organization is focused on maintaining our market.
In addition, and on building it further.
As we look at our long term trajectory, we're 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 dry bar 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 everyday.
Operating the business.
And living our culture I'm 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 two initiatives and working nimbly in a highly competitive.
Category. They are also successfully navigating the volatility from changes in terrorists currencies commodities and the retail landscape I.
I believe our phase two choices position our company for continued long term profitable growth not only profitable, but responsible and sustainable growth that delivers on the expectations the needs of our outstanding consumers customers suppliers and associates with that I will now turn the call over to Brian .
Thank you Julie and good afternoon, everyone.
I'm 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 houseware segment.
Consolidated sales revenue was 474.7 million a 10.1% increase over the prior year, driven by strong demand and beauty appliances and across the houseware 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 and 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 Houseware 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 Upto, an hydro flask brands online and in store.
Health and 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.
Duty core business net sales increased 6.2%, primarily due to increased demand and new product introduction introductions in 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 terrorists based on the most recent information we have available to us.
As discussed on our second quarter call list foray tariffs became effective on September onest.
This for be tariffs were scheduled to become effective on December 15, but the great majority of increases that will impact our product categories falling and lists for b.
However in December 2019 to us in 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 for be taking effect in prior to the announcement of the interim trade agreement. We did forward by 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 for B is ultimately implemented.
We anticipate taking the same approach that we've 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 two percentage point increase was primarily due to higher mix of houseware sales at a higher overall gross profit margin and a favorable product and channel mix within the Houseware segment.
These factors were partially offset by lower mix of personal care sales in the beauty segment.
S. DNA was 27.5% of net sales compared to 28%. The 0.5 percentage point decrease is primarily due to lower advertising expense the impact from tariff related pricing actions taken with retail customers the impact of higher overall sales had a net operating leverage and the favorable impact.
The foreign currency exchange in forward contract settlements.
These factors were partially offset by higher incentive compensation expense acquisition related expenses associated with the drive our transaction higher amortization expense and higher freight and distribution expense.
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've discussed in the past our quarterly results are variable do 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 course with the highest revenue or follow historical patterns.
Despite the quarterly variability, we're 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 an 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 and 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.
UTI 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 an operating leverage.
These factors were partially offset by higher incentive compensation expense and the unfavorable margin impact of 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 houseware 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 in 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 onto 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.
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 2.9 times compared to 3.4 times 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 in 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 nine months in 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 was partially offset by increased income from continuing operations and year over year improvement and cash used for inventory.
Total short and long term debt was 244.2 million compared to 339.7 million.
Our leverage ratio was 0.9 times at the end of the third quarter fiscal 2020 compared to 1.4 times 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 30, Onest 2019 or.
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 are 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 and maintaining a healthy balance and margin expansion and growth investment.
For fiscal 2020, we now expect consolidated net sales revenue to be in the range of 1.65 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%.
Health and home net sales decline of 2.4 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.
His joining touched on we expect the housewares growth rate to moderate in the fourth quarter due to combination of factors some of which are short term or nonrecurring in nature.
There were orders to certain key hydro flask retailers that were accelerated into the third quarter due to retail expectations a strong holiday demand there are 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 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're 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 $7 in 45 cents and non-GAAP adjusted diluted EPS from continuing operations in the range of $8, a 90 cents to $9 in 10 cents.
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 drive our products LLC as the exact timing opposing is not known and their conditions to closing that must be met including regulatory approvals assuming the transaction closed on January 30, Onest 2020, we expected it will result in an.
Additional sales of $5 million to $6 million and adjusted diluted EPS of two to three cents in fiscal 2020 that drive our business a 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 in diluted EPS outlook assumes the severity of upcoming cough cold flu season will be in line with historical averages. However, we are prepared to meet the demand of a stronger season is one should occur.
Our outlook also assumes that December 2019, foreign currency exchange rates will remain constant for the remainder of 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 a weight 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 in distribution center and direct to consumer capacity investments 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 to 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 full fiscal year 2020.
The likelihood of potential impact if 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.
Thank you.
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Our first question today is coming from Olivia Tong from Bank of America. Your line is now lives.
Great. Thanks, good afternoon.
First just wanted to touch.
Impressive.
I appreciate the color on timing.
Q4.
Hi.
Major factor.
You're looking for the two year stack.
Thank you.
Maybe you can you compare and contrast between.
Same store sales.
New distribution, the domestic versus international the core drink.
And how much are driving the category.
Thanks.
Yes, let me start Brian might have some built here.
Hi, Olivia the.
Growth is continuing we do expect its moderate a bit as Brian outlined and you'd expect that after the the pace that we've been on.
The pipeline is very strong in both hydro flask, and OXXO and I would say that the pipeline in hydro flask keeps getting stronger and stronger I. We've done an enormous amount of work as we divisional lies the entire housewares operation and so the engineering oversight the design capability the consumer.
How.
Oversight on the manufacturing and.
It is just ever stronger as the Housewares Division two brands come together, that's a big change even versus a year and a half ago.
The pipeline itself. If you look at the products and hydro flask is significant and in OXXO. It's had a very long history of 100 plus products a year that we bring to market. So we're not at all worried about pipeline and we like our prospects. There are some terrific new bottled designs shapes light weighting of.
Materials, all different types of approaches that we feel strong in the core in the beyond the bottle stuff, there's quite a bit of good stuff coming forward.
Hydro packs that you saw there's more things of that general nature, and some new areas that we believe can continue to go beyond the bottle and on the international and.
Domestic side Theres still yet retailer distribution available to us. So we're not worried about the anniversary concern. It does slow the growth rate a little bit, but we see lots of reasons why the branch of keep growing when it comes to hydro flask and the case of OXXO, it's been growing the whole time, so we like like our prospects in that regard.
Ryan you may have some yes, I mean, just to try and answer the question about point of sale versus distribution I characterize the growth has been more about point of sale than distribution. We tried to give you a data point.
In Juliens prepared remarks.
That dicks sporting goods is really the the biggest new incremental distribution that we have and that really dicks the entire growth for the quarter represented only a quarter of housewares growth for the quarter. So if if thats by far our biggest.
Distribution gain a year over year.
And it represents only a quarter I think the conclusion is that the point of sale is driving.
The majority of the growth, 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 bottle, but by a significant margin and added significant share in the quarter. So it's not just new distribution and new doors itself through and sell through at an accelerated rate relative to the category.
And with no arrogance of any kind largely driving the growth of the category itself and we and just to be clear, we only called out the distribution anniversary. So the to it is a factor and why there'll be a moderation of the growth rate in the fourth quarter, because the fill in anniversaries compared to the same period last year. So we called that out only so.
You are aware of one of the things.
Impacting the growth rate in the fourth quarter.
I think you already did the calculation as you mentioned about 10% in the fourth quarter in your in your question. So you've already figured it out that's a very healthy rate and thats, even with those factors and even with a little bit of supply constrained.
And as we get into the forecasted work for fiscal 21, we'll come back in April with specific numbers at the divisional level, what we like our prospects.
Hi, Thanks, that's really helpful.
Can we talk a little bit about the.
Because it looks like at least.
I see that.
Good or bad the flu seasons off Jefferies.
Compared to last year.
Two years ago, so to the extent that.
Does come in better and the demand for your products.
Anticipated.
Next the ball.
In terms of getting product.
Yes.
Has there been enough.
Changes to make sure.
Sure Yes.
Yes, good so yes, it's a great question and it's early in the season. So we all see those projections, we see those curves and we all see the many articles even from people with the MD Phd and other things like that after their titles, saying that it's not clear how things will pan out, how which strains how effective the flu shot temper.
Sure related it's even humidity related there's so many variables that's kind of beyond the scope of current science to just put a number on the whole thing as Brian mentioned in his prepared remarks. He mentioned that we're prepared to meet the demand of a stronger season, if one should occur and that is definitely the case some customers take product direct import and they're largely.
Prepared for a normal season, and if they see the sell out going faster than expected because of these demand curves. They will order from us and we will replenish from a warehouse and there is enough product there to take on a pretty decent spike it would have to be pandemic kind of situation for us to run out and in the case of those the.
Just order in the natural replenishment so they didnt take a lot of direct import or did you hear us sometime say.
Early in the season, that's what our warehouse inventory is largely therefore to fill that demand it on pretty quick timing, especially given the fact that different markets peak and when they peak. The people there are a sick and in terms of incidents as they will be that year and we want to make sure. There's plenty of product and we have no interest people getting sick, but we certainly haven't.
Just in helping them get better and it's important to be there for them and not have empty store shelves. So we're very focused on that.
Great. Thank you very much.
Sure our pleasure Olivia.
Thank you. Our next question today is coming from Linda Bolton Weiser from D.A. Davidson Your line is allies.
Hi, congratulations.
Yeah. Thanks Simon.
So.
Can you talk about I get a lot of.
Two questions from investors about just the underlying fundamentals that drives the demand for hydro flask bottles.
Would you say that.
That you're experiencing a lot of growth because of this phenomenon of people, having multiple bottles being a fashion statement et cetera.
Is it just truly that the household penetration is is rising and can you give any numbers around household penetration are already.
I understand what's really driving the underlying demand.
Sure, let me take a stab share.
The hydro flask category itself for the or the way the metal hydration bottle category, whether its single wall or like hydro flask of some of its competitors double wall and insulated. So this is providing space have longer stays go longer type of benefit that category. In general is just taking hold so how tenure.
As ago people might have carried around a seek Bob lower a plastic nalgene model camelback bottle something like this and be happy and that trend for going on for a long time theres a acceleration of the benefits of the installation, bringing the hot in the cold and there is a further very welcome reaction from consumers against.
Single use plastic water bottles, which are difficult.
From an environmental standpoint, and they demonstrate.
Sustain in some way almost like smoking a cigarette was back in the day for the environment and for your fellow human being and that kind of thing is increasingly taboo. So there's an underlying fundamental trend in that regard in terms of the fashion aspect and the penetration of households, I'm Hydro flask I think has done a great job.
Bob.
Getting consumers to understand that the brand itself is very authentic its organic it's very real and we don't do anything but.
Show consumers other ways that they can benefit so we're not founding our chest or making artificial in any way. It's organic its natural grassroots we've put a lot of money online we put a lot of money into our.
Social media and other areas to help people see this we've been supporting parks for all for years and years and years as a charitable benefit in really being in touch with those consumers as the household penetration and awareness of increase to the levels that youre seeing today that are driving these big gains it's become a bit of a phenomenon among certain crowds.
Young people, even Halloween costumes. This year, there were lots of people dressed up as hydro flask bottles or let's pull made costumes with the.
Logo painted on them.
Hi, because it was afraid natural very organic we're also finding that as you go to homes and so talk to people. This phenomenon of just one more has become quite significant and that's why we mentioned it regularly because lots of households are buying bottles of different shapes different sizes, bringing out new colors that we have they want them new cap.
New collections and accessories are now becoming a big deal.
In our hydro flask and that's made a big difference for the brand and then we've also find that gifting has become a big deal for hydro flask sports team and increasingly customization and now also the collegiate channels are going to college campus and you see this all the time I spent a lot of time in the Boston area.
I can say that the number of consumers.
Just have this type of insulated Bob and largely hydro flask is exploding the bottle itself is becoming a bit of an accessory for a lot of people and therefore the color matters. The next collection matters being similar to your friends, if you're a young kid in similar having the same kind of ones that your cool friends have in all these things are big drivers. So those are the big fund.
The mentals that are making the category growth and hydro flask itself. We've done a lot of things right. We have some extremely good competitors they've done some very good things as well we like the way the trade has supported it and we've provided as much supporters, we humanly can to them and then lastly, we're innovating as much as we can as fast as we can and we're bringing proud.
Through the manufacturing process it ever higher quality as fast as we can and even so we find ourselves a little bit constrained in supply because the demand has been so explosive. So hopefully that gives you a little sense of the fundamentals the underlying dynamics and from a market shim standpoint share standpoint, I can't emphasize enough the degree to which hydro flask is not only the leader.
The segment, that's been mentioned, but picking up share in handfuls at this point and appreciating the ability to build on our position.
Thank you.
I'll just ask about.
The Hilton 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 give us a little color on whether it was a thermometer piece.
Another part of the business that was the part that was maybe a little.
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.
Yes, So let me go through a couple of areas.
It is true that high that health in home performed slightly behind our expectations during Q3 and slightly behind the year ago period by about half a point when you take into account foreign exchange Foreign exchange worked against health in home its bit more international than our other segments and so about a further half.
Yes, exactly 0.6 of a percentage point was related to foreign exchange well into its put perspective about being below expectations I'd say, that's only about three 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 and dollar amount.
Yes, no I appreciate that could it put dimensionalize isn't it's important people understand the degree in terms of the distribution changes and we say the were changes rather than just losses are wins, because it's a net situation, we gain and lose distribution based on each season as it comes and goes so as.
For example, heater and fans shelf, which if you go into a most retailers you'll see that it's the same stores. The same part of the shelf the fans come on the heaters go up you just go off and six months later the heaters go up in the fans go on so there's line reviews of what that shelf will look like every six months or so and the costs.
Question of whether you gain or lose this particular skewer that particular skew happens all the time. So there is net changes in distribution, sometimes you win sometimes you lose it also depends on your new products. It depends on the mix of products. It depends what the competitors have to offer pricing terrorists theres. So many variables there well and I would just add that it can all.
Also depend on what the store is doing with their format and shelf and those type of thing. So sometimes we can lose unoptimized competition necessarily in our space, but lose because the stores decided to emphasize different product category or re reconfigure the shelf for the store itself and so those changes are included in this netting.
Yeah.
Concept to join transcribed and so if in the world that this was not a euphemism to say net distribution changes have lost distribution. It's simply that there are wins and losses in every season and in this particular, one there's more losses than wins when you net it all down and then the case of foreign exchange, we talked already in the case of.
Health in home, we've seen that year over year. The wildfires made a difference in Q3 of this year last year and you might think hey, just a minute there were significant wildfire. This year during Q3, which is true, but you might remember that in the year ago period, especially in the southern part of California, and even also in the northern part of California, There were not only big.
Buyers, but they wouldn't populated areas and so you might the goal how many acres burned and therefore, how much smoke. So how much compromise that were people might need to buy air purifiers. Her fans. It turns out there was a lot more and populated areas last year. So the sort of net position of wildfire to the extent that it's a seasonal effect was more last year than it was this year.
It turned out and on the international side to help them home not only grew it grew nicely and Braun did particularly well 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 brand.
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. The equivalent of the FDA approval now of the product for distribution across.
All channels, we started getting some gas has some gains there and we anticipate that being a meaningful building block going forward, which is why we brought it up in the call.
Great. Thank you I appreciate it.
You bet hope that helps on health and home.
Thank you. Our next question today is coming from Steve Marotta from CL King and Associates. Your line is now lives.
Hey, Steve evening, Julian and Brian Congratulations on a great quarter I wanted to ask a little bit about the tariff Delta as Brian you delineated earlier on in the prepared remarks were their price increases in effect in the third quarter for products that were ultimately not tariff.
And if so what would you attribute that capture to and how do you suspect pricing will.
Hello, if you will over the next quarter to two quarters to three quarters.
On the likelihood of four be not being implemented.
Well there their accounts for the first part of the question there with what I would call pockets of price increases that we took one the original terrorists came out lifts one two and three where we had the opportunity to raise price kind of irrespective of the Tara.
And I would say that that was largely in the housewares.
Part of the business. So we took advantage of those and changes to tear ups that could occur later those price increases would remain in effect. However, they are not talking about rolling back at least that I've heard or seen available in the public domain.
Rolling back anything on list, one two or three the discussion that I've seen is rolling back increases on lists for eight and only halfway and then for be entirely the tariff increases and lists for that affect us or almost entirely and list.
For B, so because for B has was never even implemented it was only discussed in the middle of December we took no pricing action related to for B and we didn't really have much on the list. The for a so I hope that answers. Your question. We took no price increases on list for we do have price increases from list one too.
Three in place and I would say they largely matched the tariffs.
That are still in place today, but in the case of housewares that they were to roll those tariffs back we would likely keep the price increases in place because we have the opportunity to do so does that answer the question yes.
Excuse me and my follow up question has to do a little bit with Housewares I believe you mentioned trying to put a finer 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 OXXO and was.
Are there any shifts in.
Demand.
Through the wholesale channel on quarterly basis in or out of the third quarter more specific talk so.
For us so I would say nothing worth calling out I mean, we have this occur from time to time and smaller amounts in there probably was that some but I would say, it's not worth mentioning.
These were getting a small small strokes, they're up the retailer says oh, you've done a bit more in black Friday, so I'll take that up a little earlier than I might have done for Christmas time, because I see the promotional activity move from one period to another and it just happens to cross the quarterly line for us by two weeks it gets into kind of once weekly chatter in the warehouse.
Sure I understand I'll take the balance of my questions offline. Thank you.
Thank you Steve.
Thank you we reshaped of our question answer session now, let's turn the floor back over to management for any further closing comments.
Well, thanks for joining us today, we look forward to speaking to many of you in the coming weeks and to meeting those of you who will be attending next weeks I see our conference in Orlando beyond that we expect to host our fourth quarter in fiscal year to date, because our fiscal year end call in late April at which time, we will also provide our outlook.
For fiscal year 21.
Thanks, very much and have a great evening.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.