Q1 2021 Helen of Troy Ltd Earnings Call
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At this time, all participants will be in listen only mode.
Great question answer session will follow the formal presentation.
If anyone should of course, operator systems during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to Jack Jancin Senior Vice President corporate.
So you may begin.
Thank you operator.
Turning everyone and welcome to Helen of Troys first quarter fiscal 2021 earnings conference call.
The agenda for the call. This morning is as follows I will begin with a brief discussion of forward looking statements.
Sure Julien Mininberg the company CEO will comment on some high level results for the quarter and discuss current business trends.
Then mr., Brian grass the company CFO will review the financials in more detail and reflect on considerations from the ongoing cobot 19 pandemic uncertainty as fiscal year 21 progressive.
Following this we will open the call take your questions.
This conference call may contain certain forward looking statements that are based on management's current expectations with respect to future events or financial performance generally the words anticipates believes expects in other words, similar or 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 the actual results.
This conference call May also include information that may be considered non-GAAP financial information.
These non-GAAP measures are not an alternative to GAAP financial information and May be calculated differently, then the non-GAAP financial information disclosed by other companies.
The company cautions listeners not to place undue reliance on forward looking statements or non-GAAP information.
Before I turn the call over to Mr. Mininberg I would like to inform all interested parties that a copy of today's earnings release.
Has been posted to the Investor Relations section of the company's website at Www Dot Helen of Troy Dot Com.
The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures.
There were a lease can be obtained by selecting the investor Relations tab on the company's home page and then the news tab I will now turn the conference call over to Mr. Mininberg.
Thank you Jack good morning, everyone and thank you for joining US. This morning, we reported an excellent quarter with net sales growth of 11.8%, an adjusted EPS growth of 22.8% versus year ago.
All three business segments performed well above our expectations.
Many of the positive trends, we highlighted in April accelerated as the quarter progressed and outweighed the unfavorable trends we discussed.
The benefits of our diversified portfolio of brands online capability strong shared services and our highly committed organization showed very well as we adapted quickly to the tremendous challenges from cobot 19 and were able to be there for consumers when they needed us most.
Collectively our eight leadership brands grew sales at 15.7% in the quarter led by double digit growth from all of health and home leadership brands VIX, Ron fewer and Honeywell.
These brands benefit it very strong demand for our highly trusted health and wellness related products.
So also grew nicely in the quarter as can still consumers spent much more time at home.
Hydro flask sales declined the mid store closures, but performed better than we expected hot tools grew sales despite store and so on closures.
Channel mix played a particularly important role as lockdowns kept families home to varying degrees around the world.
Online capability development has been a key strategic focus for both phase one and phase two Helen of Troys transformation growing roughly four fold since 2014 to reach 24% of total company sales at the end of fiscal 20.
In this quarter online grew a further 33% now representing 28% of consolidated sales as even more consumers move from bricks to clicks.
Also performed better than expected in those brick and mortar stores that remained open.
International performance was a standout in the quarter growing faster than total company sales driven by health and home strength across all business segments EEMEA.
Margin profitability and cash flow, we're all highly favorable in the quarter as a result of higher sales improved operating leverage better mix the temporary cost reduction efforts.
Analyzing the current environment, we're seeing some encouraging trends at those brick and mortar stores that have remained open.
And online sales continue to be strong.
Our products that are more discretionary in nature or more dependent on the retail brick and mortar channel continue to see softness the recent trends are improving.
Cobot 19 cases are now rising in multiple regions, an economic reopening plans are being question or even in some cases revised.
Well, we are pleased with our first quarter results. The net impact of the pandemic on our consumers and supply is still very fluid and uncertain and as a result, we will not be providing fiscal 21 guidance at this time.
When we last spoke in April we shared actions taken to protect our people and reduce our costs doing so in a way that focused on protecting the capabilities built during our transformation.
Those cost interventions fell into two major categories personnel cost reductions and reductions or delays in other fiscal 21 spending.
We have been treating the reductions like light switches that we're doing we're turning off.
Hi, preserving our underlying infrastructure of people and systems, we can turn them back on quickly and with minimal disruption as business conditions warrant.
We are generally encouraged by the current trends and prospects for our business and therefore, we're now planning to use the strains in the first quarter to turn on certain light switches and selectively lean back in on many of the key initiatives. We believe are critical to driving our value creation flywheel.
His plans include hiring for certain key positions.
Further expansion of our supply chain.
Further diversification of our China supply base significant investments in expanding our rapidly growing direct to consumer capability.
Increasing our already strong focus on consumer centric marketing and product innovation.
And the strategic expansion of our I T capabilities.
Fortunately effective August 1st we are also restoring all wages salaries and director compensation to pre cope at 19 levels.
I'm very grateful to all of the people that Helen of Troy, who embraced our approach of shared sacrifice as it allowed us to adjust rapidly to the unknowns. This approach is now, allowing us to turn on some of those light switches with much more speed and agility as we were able to keep intact. The organization. We have worked so hard to.
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We believe these plans will enable us to continue with many of our original investments originally slated for fiscal 21 and will help keep us on track to deliver our phase two transformation goals.
We believe we have struck the right balance between the uncertainties the external environment and our strong commitment to doing what is bold and right for executing the strategic choices underlying our multiyear trajectory of transformation.
Another area, we are focusing on much more diversity equity and inclusion or de he and I.
Recent tragic events have demonstrated that we as a nation, we as a company can do better.
During the quarter, we had thoughtful conversations internally, leading us to formalize intensify our efforts under a new multiyear program designed to ensure further improvement on d., He and I had Helen of Troy.
This is highly consistent with our stated strategic goal to attract retain unify train the very best people.
We have now explicitly added diversity and inclusion to key foundational documents such as our strategic plan culture and corporate identity to emphasize that diversity is a source of strength, we embrace and one that multiplies our effectiveness.
When the linkage to the social and governance parts of B.S.G., we are connecting our d. and I efforts to our E. S T program and adding dedicated leaders for both.
The D. and I program also includes elements that increased our focus on recruitment development and retention of minorities in women.
You are looking to attract and retain top talent from every background and ensure work environment, where everyone can engage arrives contribute and grow to their full potential.
We are conducting listening sessions with our associates all around the company on this matter.
We are rolling out mandatory unconscious I'm conscious buyers training worldwide later this summer.
Supporting more external volunteerism and donations among our associates the charitable paid time off and matching contributions we are planning donations to organizations, primarily focused on the education, a black and minority students to improve the quality of opportunity.
We believe these initiatives are good for all Helen of Troy stakeholders, including shareholders, who trust us with their assets.
Customers, who support our business.
Consumers, who believe in and trust, what our brands and company stand for.
Talented worldwide employees, who seek us out as their employer of choice.
And the communities in which we are proud to live and work.
We also simply believe these initiatives are the right thing to do.
I would like to now share some insight into how we're managing the day to day in the Cobot 19 environment.
Externally, we remain very close to customers and are using all of the data sources available to us including point of sale trends out of stocks competitive activity consumer health and geopolitical developments.
As most all of the world has relaxed or allowed their stay at home orders to expire we are closely watching how people feel about coming back in stores, while still early we're seeing some encouraging trends for our leadership brands beyond the already strong demand for VIX, Ron fewer Honeywell and OXXO.
Hydro flask hot tools, and dry bar, which had been adversely impacted by store closures. We are seeing increases in demand as stores and salons reopened tempered in part by consumer behavior as we all the just a new normals.
We have also greatly increased our direct to consumer capacity for key brands, which has helped US further mitigate some of the store closure impact.
Internally, our frontline associates working in the distribution centers and supply chain are going above and beyond the call of duty to help ensure our supply is able to meet growing demand.
We have not only call back workers in our distribution centers, we have added staff to support growth and are paying appreciation bonuses to our associates, serving as the central workers to recognize their dedication to our customers. During this critical difficult time.
Our associates working from home have become extremely adapt continuing Helen of Troy signature level of collaboration and consumer centric innovation.
A combination of virtual tools and through safety protocols in place in our lapse in facilities.
We expect those working from home to continue to do so until at least September depending how practices, our best practices and government guidelines unfold regarding returned to office environment and to travel.
Now I'd like to turn to her of review of our business segments together. They constitute a diversified portfolio that has performed well over the years and demonstrated resiliency.
Individually they each have unique drivers and dynamics at warrant a bit more color.
Health at home is off to an excellent start to the fiscal year with outstanding growth in sales and margins.
The cobot 19 pandemic is elevating demand for health related products and driving significant media focus.
Multiple generations of consumer consumers are receiving an education about the importance of our health related products, which we believe has important positive long term implications for category development.
In the short term consumers are responding with greatly elevated purchases of thermometers Humidifiers air Purifiers water purifiers, driving VIX Braun Honeywell in pure had powerfully in the quarter.
Ron is our most global brand and the seeing significantly elevated demand for thermometers and pro covers.
We increased our production capacity in the quarter, but demand continues to outstrip supply.
We are investing additional capital and human resources into further capacity increases and into the expansion of no touch product offerings, which we expect to come online later in the fiscal year.
In addition to our pro covers other high margin consumables, such as VIX, Paypal pads, and our Vicks Vaposteam coughs suppressing inhalants also saw demand increases during the quarter as consumers focused on preparedness family care.
We saw similar trend for water purification water quality has been a consumer priority in health and wellness for some time as consumers seek ways to protect their families I mean, greater awareness of issues around led and other water safety hazards.
With Covance 19 people are now looking even harder for ways to protect themselves and their families who hygiene and cleanliness that they spend more time at home.
Water filtration systems like viewers pictures and faucet mounts have earned a higher share of a growing category.
Demand during the quarter was up strongly for both.
Our pure products are also seeing the benefits of the single use plastic water bottle bands being implemented around the world as consumers increasingly shift their mindset and purchasing habits toward a more sustainable way of life.
UTI performed especially well in the face of challenges around store closures and homebound consumers delivering 5% sales growth, including Drybar.
Looking at just organic sales the beauty segment held its own with the sales decline of only 1.5%. Despite store closures beauty appliances also continued its forward March on market share in the United States this quarter, adding to its number one share position at Amazon and gaining share at other major customers.
Those share trends accelerated during the quarter as our supply improved and get as consumers continue to favor our product innovations on all of our key beauty appliance brands, including the highly popular volume misers, which have a growing range of variance in new products on the way across our brands and geographies.
Sales of our newest leadership brands Drybar, we're all incremental in the quarter given the recent acquisition.
Drybar online sales were a key bright spot and outpaced historical trends both in DTC and on Amazon.
More recently brick and mortar stores in locations that have reopened are showing positive trends and building as consumers begin to get comfortable returning to shopping key customers like Ulta Sephora and Nordstrom.
As for Drybar salons reopening has begun with 82 salons out of 139 now opened in the United States as of the beginning of July.
With regard to our previously announced divestiture plans for the personal care business. The marketing process is underway and ongoing we will report back when we have more news.
Turning to our Houseware segment, the 3% sales declined in the quarter demonstrated that our diversified portfolio of products is highly resilient after growing 23.8% in the same period last year, even with retail store closures, many outdoor activities on available and the beverage bottle category not deemed essential at Amazon for.
Much of the quarter.
OXXO was a focus area for consumers at those brick and mortar retailers that were open.
Point of sale growth in those stores, coupled with triple digit growth online made a big difference in nearly all of the hot categories, OXXO serves especially baiting coffee storage containers and cleaning.
Hydro flask quarterly results were below the prior year, a sharp increases in online sales were not sufficient to overcome store closures retail customer shipment trends improved as the quarter progressed and hydro flask dot com sales growth was explosive.
Amazon sales late in the quarter also were positive once the retailer expanded product offerings beyond the central items.
International sales for Hydro flask grew strong double digits versus year ago led by Europe and Asia.
Consumer research, social listening and online search trends confirm hydro flask brands brand popularity remains very strong.
Brand continues to sustain its number one market share position and large lead over competitors in insulated hydration vessels. According to simulate syndicated data.
Looking ahead recent shipments and tracking in retail stores in locations that have reopened are showing encouraging trends continue to feel optimistic about the key drivers we've outlined for hybrid hi, hydro flask in our April call.
Before I turn the call over to Brian I want to thank you again for your support for your encouragement for your loyalty and for your trust. During this unprecedented time I'm pleased with how our entire organization has continued to perform at the highest levels. Despite disruptions to nearly every aspect of our business and our lives.
For Helen of Troy fiscal 21 is certainly not one we see as last year. It is an opportunity to adapt and to learn how to win in the many new normals that are now emerging.
The results and the resumption of previously planned investments we are announcing today fiscal 21 is an opportunity to come out stronger.
Our commitment to increasing shareholder value is unwavering. We are excited to continue driving our transformation ahead. We believe we have created a set of capabilities and competitive advantages of allowed Helen of Troy to perform in tough times like now.
In past crises and also in good times.
We are relentlessly focused on further elevating our high performance organization and capabilities as we build brands and deliver multiyear results that can lead to superior shareholder outcomes. We are also diligently focused on maintaining a strong balance sheet to ensure we have the financial resources to deploy capital toward the best opportunities.
Fuel our value creation flywheel.
With that I will now turn the call over to Brian.
Thank you Julien good morning, everyone and thank you for joining us.
I hope that you're all safe and healthy.
Our thoughts continue to be with the people who've been directly affected by the code at 19 pandemic as well the first responders healthcare workers medical providers and essential workers were on the front lines.
We want to extend our appreciation for their efforts and for the efforts of our own associates that aren't able to work from home.
Our priority has been it continues to be the wellbeing of our associates customers and business partners. During this unprecedented time.
More recently acts of violence of underscored the racial and equity that exists in our country.
As Julie mentioned, we're further advancing the cultural changes, we first embarked upon six years ago, greater emphasis on inclusivity and diversity and to promote greater a quality across our company.
We're also supporting organizations that we believe can have an impact in our communities and across the world.
I cannot be proud or the company and how it is responding in these difficult times.
Now turning to our results for the first quarter, we began the year with better than expected results despite operating under unprecedented conditions.
Our diversified portfolio and strategies to maximize the strength of our leadership brands accelerate our omni channel excellence and drive international growth served us well you only double digit sales growth.
This combined with the temporary expense reduction measures. We took during the quarter resulted in healthy margin expansion and adjusted diluted EPS growth of almost 23%.
We also remain steadfast in our focus on fiscal discipline, ending the quarter with $1.1 billion and liquidity, including 88.5 million in cash and cash equivalents 930 million available our 1.25 billion dollar credit facility.
We generated 86 million a free cash flow in the quarter that we will put to use as we look to build healthcare inventory levels that can better satisfy the surges in demand we've seen recently and help mitigate further cobot 19 supply disruptions if any.
As we noted in today's earnings release, we have deferred providing our outlook for fiscal 2021 due to the can continued consumer and business uncertainty related to the cobot 19 pandemic.
We expect to return to our historical practice of providing an outlook once visibility improves.
Now moving onto a more detailed review of the quarter.
Consolidated net sales revenue was 420.8 million, an 11.8% increase over the prior year.
Organic business net sales grew 11.1% driven by a 30.2% increase inorganic business in our health and home segment.
This strength more than mitigated the impact of cobot, 19, retail store closures and supply constraints, which limited organic business net sales in north and our housewares and beauty segments.
Consolidated sales in the online channel grew approximately 33% year over year to comprise approximately 28% of our consolidated net sales in the first quarter.
Sales from our leadership brands grew 15.7% in the quarter, which includes 2.5 percentage points of growth from Drybar.
Well drive our continued contributed to leadership branding consolidated growth. Its first quarter sales were significantly limited by drive our salon in key customer store closures as well as essential item restrictions.
Our houseware segment declined only 3% of the prior year base that grew 23% in the same period last year. Despite store closures at key retailers, such as bed Bath and beyond Dick's sporting goods and already I, among others as well as essential item or restrictions on Amazon for a large part of the quarter.
As Julian mentioned the segment saw robust demand for the also brand as consumers spent more time at home and look to our trust the products and innovation to meet their cooking baking cleaning pantry loading and organizing needs.
Hydro flask was more adversely impacted by region retail store closures as the sports and outdoor channel was deemed non essential its weight within the hydro flask customer base is significant.
Well hydro flask drove strong growth in the ecommerce channel it was not enough to offset the impact of store closures and non essential item restrictions on Amazon.
Health and home organic business net sales increased 30.2%, primarily due to strong mobile consumer demand for healthcare and healthy living products due primarily to covert 19.
Impact of U.S. brick and mortar closures was less pronounced in the health and home segment as key retailers, such as Walmart Amazon target home depot and the drug store channel remained opened in generally experienced strong traffic.
UTI net sales revenue increased 5% driven primarily by online sales new product introductions and growth from the drive our products acquisition.
Organic business net sales declined 1.5%, primarily due to the closure of key brick and mortar customers a decline in personal care supply constraint related to a key product and consumer uncertainty as a result of cobot 19.
Segment net sales were also unfavorably impacted by net foreign currency fluctuations of approximately 2.6 million or 3.4%.
Consolidated gross profit margin expanded to 42.6% compared to 40.8%.
The 1.8 percentage point increase is primarily due to a more favorable product mix within the health and home segment inorganic beauty business the favorable impact of the drive our products acquisition, a favorable favorable channel mix within Houseware segment.
Lower airfreight.
These factors were partially offset by an unfavorable mix of houseware sales within the consolidated total an unfavorable product mix within the houseware segment higher direct import sales and the unfavorable impact of foreign currency on net sales.
Consolidated SGN, a was 29% of net sales compared to 28.1%.
The 0.9 percentage point increase is primarily due to the unfavorable impact of foreign currency exchange.
Higher freight and distribution expense higher bad debt expense higher priced product liability expense and higher long term performance based incentive compensation.
GAAP operating income was 57 million or 13.5% of net sales compared to 47.2 million or 12.5% of net sales in same period last year.
On an adjusted basis consolidated operating margin was 16.9% compared to 15.8% in the same period last year.
The 1.1 percentage point increase primarily reflects a favorable product mix within the health and home and beauty segments.
April channel mix within the Houseware segment improved operating leverage and the impact of cost reduction actions, including temporary personnel advertising and travel expense reductions taken in response to cobot 19.
Housewares adjusted operating margin decreased 4.2 percentage points to 19.5%, primarily reflecting a less favorable product mix. The net unfavorable impact of tariffs and related pricing actions higher bad debt expense higher customer charge back activity higher freight and distribution.
Tends to support strong direct to consumer demand and the unfavorable impact that lower sales had an operating leverage.
These factors were partially offset by the impact of the temporary cost reduction initiatives previously mentioned.
Health and home adjusted operating margin increased five percentage points to 18.7%, primarily reflecting the impact of and more favorable product mix improved operating leverage and the impact of cost reduction initiatives in response to cobot 19.
These factors were partially offset by higher priced product liability expense higher royalty expense the unfavorable impact of foreign currency fluctuations and higher freight expense to support increased retail customer shipments.
UTI adjusted operating margin increased 3.2 percentage points to 8%, primarily due to the margin impact of a more favorable product mix lower airfreight expense and the impact of cobot 19 related cost reduction initiatives.
These factors were partially offset by an unfavorable foreign.
By unfavorable foreign currency fluctuations higher personnel expense from the acquisition of dry bar and higher outbound freight expense.
Moving on to taxes income tax benefit as a percentage of pretax income was 13% compared to income tax expense of 7.6% for the same period last year.
As you know the cares act was signed into law during the first quarter. Among other things the cares that concluded technical corrections to the effective date language in the December 2017 tax Act related the net operating loss carry backs. The carriers act effectively reversed the impact that the tax act had honored.
Operating loss carry back resulting in a tax benefit of 9.4 million in the first quarter of fiscal 2021.
This benefit was the primary driver of the consolidated GAAP income tax benefit for the quarter.
However, it had no impact on adjusted income or adjusted diluted EPS as it was subtracted out in the determination of those non-GAAP measures.
Net income was 60.3 million or $2.37 per diluted share on 25.4 million shares outstanding.
Compared to 40.7 million or $1.61 per diluted share in the prior year on 25.2 million shares outstanding.
Non-GAAP adjusted income grew 23.2% to 64.2 million or $2.53 per diluted share compared to 52.1 million or $2.06 per diluted share.
Now moving onto our financial position for the first quarter fiscal 2001 compared to the first quarter fiscal 20.
Accounts receivable turnover was 67.5 days compared to 66.8 days for the same period last year.
Our accounts receivable balance was 332.8 million compared to 262.5 million.
Inventory turnover was 3.2 times for both the trailing 12 month period, ending May 30, Onest 2020 and 2019.
Inventory was 276.3 million compared to 335.3 million.
Net cash provided by operating activities increased 77.1 million.
To 92.8 million for the first quarter fiscal 21.
Total short long term debt was 324.9 million compared to 321.1 million.
Due to the combination of strong net sales growth are temporary cost reduction measures and lower inventory levels. We've generated strong free cash flow growth and our liquidity has improved since the pandemic began.
As of the ended the first quarter, our leverage ratio as defined in our debt agreements was 1.1 times compared to 1.3 times at the same time last year, we had $930 million of availability under our credit facility and our cash and cash equivalents balance was 88.5 million.
In summary, even after funding the 255 million dollar acquisition to dry bar at the end of January we had a similar amount of debt $70 million more in cash more liquidity and less leverage at may 31st than we did at the same time last year.
We believe our liquidity and cash flow positions us well to navigate the uncertainty of our environment.
Now onto a business update.
Given the recent spike in new Cobot 19 infections. Another uncertainties, we do not feel there's enough visibility to provide an outlook. We're generally encouraged by what we've seen so far.
While there has been some fluidity by segment as the pandemic involves almost daily we believe our diversified portfolio can provide some balance in a difficult and dynamic environment.
We believe we have a solid mix of defensive and discretionary businesses that can help us to be successful in a variety of scenarios.
Based on what we see today, we expect moderation of the first quarter demand surge in the health and home segment, along with improving trends in the housewares and beauty segments.
Offices growth has continued into the second quarter and hydro flask sales strength of steadily improved since the beginning of may through strong online growth the gradual reopening of the brick and mortar channel and consumers now spending more time outdoors.
While total hydro flask brand sales declined in the first quarter going forward, we believe it could be the beneficiary of increasing preference toward outdoor activities that promote social distancing such as camping hiking biking and running.
With respect to beauty first quarter sales were limited by supply constraints, which have largely been resolved.
We expect ongoing beauty sales trends to be further helped by gradual store reopenings as long as rising rates of infection do not further alter reopening plans.
We expect to drive our business to be the most challenged in the short term as the dependence on prestige brick and mortar and discretionary spending is high and the pace and timing of the Salon industries full recovery is difficult to predict.
As you would expect we have less visibility into the second half of the fiscal year and uncertainty remains in terms of how the cobot 19 pandemic will impact a number of key external factors, including stay at home orders.
Retail store, reopenings consumer confidence and behavior and unemployment.
As such we continue to take a cautious approach to our sales expectations and our operational spend.
But we believe our first quarter performance gives us the opportunity to reverse certain cost reduction actions taken in April.
As Julian discussed effective August 1st we plan to reinstate associate and board of director compensation to pre coat levels.
We also plan to begin selectively filling high priority, new and replacement associate positions.
Finally, we plan to slow to resume more normalized brand spending and selectively invest in key initiatives that are critical to delivering our phase two transformation goals.
As the first quarter does not reflect a normalized level of personnel and brand spending.
And there are number of key phase two initiatives that require further investment we expect that there'll be some level of operating margin compression over the balance of the year, particularly in the second half.
In summary, our first quarter results were better than expected.
Which reflects diversification of our product portfolio are scalable operating platform and the steps we took the safeguard our people our brands and our organization. During this crisis I'd like to commend our team for their passion and commitment.
Our associates associates worked diligently and seamlessly to advance for phase two transformation plan under unusual circumstances, demonstrating the power of the culture. We have developed Helen of Troy to stay nimble and positive in times of extraordinary challenge and change.
With that I'd like to turn it back to the operator for questions.
Thank you at this time will be conducting a question and answer session.
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Thank you and our first question comes from the line of Bob Labick CJS Securities. Please proceed with your question.
Good morning, and congratulations on a terrific starting up quite a difficult environment.
Thank you Bob Bob.
Great. So I wanted to start you gave us a little bit of color and its appreciated on the health in home, but maybe you could talk a little more about some of the trends within the segment and kind of from the leadership brands and more specifically about some of the innovation as you may be driving right now to make some of this growth sustainable over.
Medium or longer term.
Yeah, great. Thanks, Bob and high doing here. The innovation is a big deal of Helen of Troy, We've got a leadership brands. If the lifeblood of any strong brand and fiscal 21 and no exception in health and home, there's a slew of new products and all the key categories under development.
Some launching this year and then a very rich pipeline over the next three fiscal years, we're investing in it there and across the other business units.
As part of the transformation. Despite the 19 Lytswitch work earlier in the year and now leaning in further with additional funds with the announcements that we're making today when it comes specifically to other business units beyond health and home, there's two or three pretty big things going on one is that.
The OXXO continue to invest heavily in its pipeline that's been a traditional strength of that brand for over 30 years of its 30 year history.
And hydro flask has a significant pipeline.
Even beyond the bottle.
That we have been working on and bringing to the market with speed when it comes to beauty. The Volumizer franchise is one that we've already proven that we can expand beyond the original innovations from our global organization. There. It is globalizing, there's many variance now.
Yes that franchise and now across the full brand portfolio and it's not just volumizer, there's other areas straightening curling irons and some other specialty products that we have a pipeline work going on in beauty and Thats getting funds tension additional people Drybar is also getting a new prestige focus for us given the acquisition.
And expands our innovation focus there there. It also goes beyond the tools to also liquids, which is so important to drybar very tuned into what stylists want.
3000, frontline people in those salons, where giving us feedback all the time and what's the right next thing to appeal to the prestige market and uniquely for dry bar in the last pick one is international where are the Kelly Helen of Troys chosen double down on international is a key strategy and there's some significant work on the pipeline.
Side going on to make sure that we have product lines that are correct over time for the multi regional.
Aspirations, we have and the consumer habit differences in those regions, So big deal big investment and lots of ways to keep growing through innovation.
Great.
I appreciate it and then one I'm just.
Kind of curiosity and excitement and personal even as it relates to hydro flask. I know you have a customization initiative and I was wondering how much that may have been impacted.
So far by the the pandemic and where you stand on that when we may see increasing customization from hydro flask.
Yep Yep. So this is a key area for us and one where frankly I think were a bit behind we have amp. This up.
And it definitely does go slower during coded our front line and market facing people were very focused on all of the challenges that go with Cove. It just think of getting product out the door of meeting the demand big Big surge is like on fire kind of surges in online.
Direct to consumer in that way. So there was less customization. We are amping this up and now spending even more on it. So I wish I could tell you buy update ex youre going to get capability, why but suffice to say that customization is the strategic for hydro flask one of those.
Eight or nine major long term factors that you cited several times as growth drivers and there is more of it now more of it coming and it's a big focus for hydro.
Got it great. Okay last one from me promise.
You mentioned the sale of personal care as ongoing I was wondering if you could talk more about and update on the M&A environment in general and.
More offensive potential M&A, given your tremendous cash flow and balance sheet, right now and where that stands as it relates to covert pandemic and you know.
Are you able to look at things et cetera.
Hey, Bob It's Brian I think I can start and then maybe.
Jack or to land Wanna add on.
I think.
What it's done I think it's it's limited potential opportunities or at least made it harder to evaluate potential opportunities because the environment is so uncertain and acquisitions are you don't have a level of uncertainty in that type of thing in them already and so you may or on an environment like this I think it makes it.
For coal too.
Get comfortable with acquisitions and I think there's less of a pool that you're excited about in terms of an attractive asset that having.
In saying that there are assets out there that are attractive then we're looking out a couple of right now so to me that's encouraging that you know in such an uncertain environment, we can still.
Get given our hands on some attractive assets and potentially worked towards the deal. So I'm encouraged by that it's really it's really hard to do things like due diligence and you know go visit targets in this environment and that's been really limited, but if I had the way it altogether I would say overall.
Encouraged that at least we have some attractive assets that were kicking around at the moment.
Okay that.
I'm not sure I've really much the AD Brian characterize it right.
Criteria. It's still remains were disciplined about it we do have to find different ways to.
To go in a valuation diligence, but there are couple of attractive assets that we are looking at right now and I understand there could be more that come out over the next year, So we'll wait and see for those but.
We are actively pursuing a couple of things. It's just you just.
What more say if they.
Look.
Attractive after we get a chance did that type of diligence, we need to do in order to.
Consummated transaction.
Yes, two two quick builds from my view of one is that there is likely to be some interesting new prospects as the Govan Bendeka demick shakes out it's probably a little early for that see how how all of it plays out but it can't exposed some very interesting assets to a set of strategic alternatives for them. They may not that are before and that could be a track.
To for Us as a strong player in the industry as we just demonstrated today turns out one with.
Not firepower and the second comment from me is on the subject to firepower you saw a lot of cash generating the quarter, our debt coming down you know about our new revolver that we announced earlier in the calendar year and it gives us the firepower to act when we can do the diligence when the target is right and them already.
Alright terrific. Thank you very much and congratulations again on fantastic quarter.
Thanks, Bob please.
The next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions.
Good morning, Thanks for taking my question also congrats on great quarter.
So maybe maybe maybe I guess I'll start first with the supply chain I know last quarter. There you had some challenges on on the supply chain with a big thermometers and also the volume either product I'm. Just curious right now where are you guys are from a chart from a supply chain perspective in key categories.
Yes, let me start this and bright line may have some builds supply had been a big challenge for us coming through Q1 and into its right through Q4 of last year and into Q1, there are still some areas, including thermometers and some in housewares, where we are building back so, but we've caught up a ton and we.
Just demonstrated that we can meet a lot a lot more demand as it comes in so but let me try to go through them category by category.
There is good news in thermometers, we increased capacity as we mentioned in his prepared remarks are during the quarter and we're able to do that in very short timing that said, it's not enough to meet all the demand we're facing and if we could make more we would definitely sell more demand.
And going forward on thermometers, where now adding additional capacity.
That new capacity will come online in good timing with upcoming cold flu season, and it gives us an opportunity to make and sell more later in the year.
In the case, so volumizer as we did catch up and so you saw that we shipped all that we make.
During the quarter, where we said that in our remarks in April it happened and that we've added significantly to supply and we're shipping two to demand much more closely you also our share grow as a result of that.
That helps when it comes to housewares, especially OXXO, we are facing some out of stocks.
Because the demand surge from the home and nesting trend and the stores that remained open also has significant sales beyond the online search and that led to some out of stocks. If you look at that one will be okay. We're bringing in more supply now, but there will be some out of stocks for the period in between and the last thing I'd say is that theres kind of a triple.
Me going on so you might thinking why are we in this situation Triple Whammy is that in Q4, you remember we have more sales than we expected and as a result, so down.
An amount of our inventory.
In Q.
One we saw the shutdown in China from Covidien 19, right around Chinese new year and for all suppliers, China based and these products. The China supply was simply stopped for a while we were depleted and then faced less replenishment and in the third part of the Whammy I was cove. It in the categories. It would just discuss.
Where it was simply more demand and if we were at a time, we have less supply. So that's why the crunch, where we stand and little bit about.
Brian you may have some views on the supply side no just to put some numbers around that we also grew 15% in the fourth quarter and then as Julie mentioned Chinese new year, and Covance right on top of each other and then you know we've grown close to double digits in the in the first quarter and you kind of put all of that.
Yeah, there and you know if that's something that would have been difficult planned for perfectly, but and as Julien said, it's not like we don't have supply coming in we do have supply coming in we're just chasing that demand, which is good problem to have.
Okay, Great thought that's helpful color and then just going back I go back to retail store reopen if I know you guys provided.
The amount of color in terms of what you're seeing.
I get it might if my interpretation interpretation correct.
At this point you wouldn't be stores there reopened the maybe results are not back to regroup ccrone of ours trends.
Despite the infections in different markets are you guys seem more volatility in these customers recently reopened stores.
Yeah, it's a little too soon to say and it's a great question because it gives you a census, or what's happening in real time, it depends a ton by chain by region and by category. So im sorry for such a.
Loose answer, but it is too soon it does depend a little color Bay help here.
As people went back to stores there was some pent up demand I just think they wanted to buy and now that you're able to store and they bought them. If they haven't already done so online so that helped in there.
Tumor behavior is a little rough in the stores, you've probably seen lots of reports about stores, where people were asked to wear masks. They didnt want to where the masses source and want to make them feel uncomfortable about being there with or without that matches messy.
In a little rough in that environment, I think thats since gotten fairly well sorted and this concept of if you're out in public you need a mass is becoming a national truth and people are simply doing that so people feel more comfortable in their behavior. At also other people know that thats the case, and therefore themselves more comfortable sort of self reinforcement in that regard but.
Also for the frontline workers in the store so they show up and do their jobs and then turn to the store traffic. It's just too soon to know I think is way to say it but I can say that people shopping again stores are shipping and they're also ordering that region by region state by state. So much news every weekend adventure on that one probably some stores.
That are closing to.
A little bit of that and so there'll be some openings and some re closings on they'll just be a lot of chatter for the next couple of months as that gets sorted.
I mean, Brian Scott Bill.
Yes, I mean, just to I think if you want to a headline or take away I think stores in general are going to be a net positive.
To most of our businesses going forward from this point because what's really reopened it's been a slow build so I don't think we've seen a lot of benefit from that yet in should grow and expand from here and the majority of our retailers have taken slow they've wanted to reopen safely and consumers feel safe.
And so I think thats going to continue to build with respect to start reversing in closing again I mean, we've seen recent outbreaks, Arizona, Arkansas, California in North Carolina, South Carolina, Tennessee in Texas.
Out of all that what we've seen in terms of re closing is there were tends to four stores that re closed in the Houston area only so that's pretty isolated it for health and home no no current store closures to report.
There and then in Housewares Dick's Sporting goods has stated that they would only closed stores based on city and state requirements going forward that fastened beyond you may have seen today is closing 200, low performing stores that that's not a little bit related and just from so.
For some perspective on those stores they were low performing and we don't believe they're going to impact. Our plan is still very much at all we've already analyze the stores and we feel good about that and then you may have also seen that sort of the Todd filed for chapter 11, which is probably partially cobot related but but not really a safety thing.
Okay.
And so that's probably the extensive closures that we know about at this point, but we're cautious about it the spike in infections and what that will do in the future, which is one of the reasons why we didnt feel like we could give an outlook.
Okay, great. Thank you I'll pass it along especially when it comes down to even if it's choppy for one okay. Great. Thank you.
The next question is for new line of Olivia Tong with Bank of America. Please proceed with your question.
Thank you good morning.
I.
I wanted to talk a little bit about obviously sales first cousins on those numbers are quite a bit stronger then I think many of us expected across the board.
So I'm wondering if our sense of what you're seeing across the major divisions and what's your expectations are.
Assuming retail stays open but viruses buyers can you just continuing to rise you know like in housewares. What do you think that does for hydro flask does OXXO continue to outperform but obviously not necessarily as well as.
And.
This quarter.
And then what does that mean for housewares margins going forward. Because obviously you saw very big divide between what auction did versus what.
Hydro flask in this quarter. Thanks.
It's great question in high Olivia.
Hydro flask held up surprisingly well compared to what we expected during Q1 and that said was down and it does affect the mix. Some of your to your point about margin within housewares and also therefore on a consolidated basis of Nevertheless, the help at home was big enough to more than counteract.
Both in mix end margin.
On the gross margin also operating margin basis. So all good from a diversified portfolio standpoint, and even diversified with in housewares think of indoor and outdoor just to make as simple as possible.
So in hydro flask and people are more indoors. So more indoor stuff people are less outdoors, we sold less outdoor stuff in the case of now with the stores reopening it's a net positive for hydro flask.
To your question, Brian mentioned in his prepared remarks, we've seen a significant rebound in hydro flask, we'd like very much what's happened.
So far in Q2, and we'd like to trend at the end of Q1 once some store started reopening, but mostly the essential status opening at places like Amazon, which were online.
Hydro flask responded beautifully admitted that happen. So we like that quite a lot in terms of margin.
Mix going forward Hydro flask is one of our best margin brands above not only the fleet average, but to your point above the housewares average and so in terms of margin expectations within housewares balancing of more hydro flask, regardless of what OXXO does will be a good guy for margin mix within housewares and therefore fleet.
Average at the company and as for the stores and the activities as Brian mentioned in his remarks.
There's just a couple of good trends going on one is in the northern Hemisphere summertime.
People are outside more there's a lot more activity of heightened by all of that theres a bit of a trend going on with this idea of solitary.
Adventurism, So think of people who are wanting to go out on their own wanted to go out preferring to stay a bit more away from others and so they might take at hiker bike on their own camping things like this that Brian mentioned all those things are good for hydro flask theyre good for people soles and the stores are open.
Good for sales.
Got it. Thanks, that's helpful maybe little bit more on the margin just some clarification because.
Especially for fiscal two fiscal Q2 since you had that one off tariff benefit last year are you, saying that you expect the reinstatement spending some hiring besson et cetera.
It's going to result in operating margins being down going forward or that you just assume operating expansion will decelerate engineer progressions because of that mean reinstatement spending.
Did I Miss before.
Yeah, I you know, we're almost halfway through the second quarter and so a lot of the things we've talked about reinstating.
Our only going to be in back half of the quarter. So I would say that we expect margins to hold up fairly well in the second quarter year over year, where we were expecting some margin compression potentially is in the back half of the year and that's really going to depend on what.
Investment choices, we make and that's really going to depend on what revenue. We're seeing so there's a lot of moving parts and it's hard to tell you what the exact equation will be between revenue and the margin.
Because we'll make choices based on the revenue, which is going to affect margin, but we know what twice we're going to make until we have a better picture revenue.
All signs are going in the right direction at the moment with respect to revenue in terms of you know we we were expecting you know we have all expectations for for the market in the consumer going into this and I think you know things have proven out to be better and then have been getting better.
As we went and so you know hopefully we are ahead events and then we can see how it plays out in revenue gets better and then we can continue to play off sense, which is what we're trying to do making investments. Each time, we have more clarity in revenue gets a little bit better. So I know, it's not a perfect answer, but if I was going to affect anything.
I would expect pressure on the margins year over year in the second half the year.
Okay. That's helpful on two last ones first and helping.
You talked about increased capacity already can you just put some numbers around how much you've increased capacity already and what you're preparing for.
Assuming that we do have a more substantial legal cases in the fall winter and obviously in preparation for.
For a norm just regular cold and flu as well.
What conversations you've had with retailers in terms of expected increase in purchasing and then on beauty you made some comments earlier about the.
The M&A environment, how it's difficult to do due diligence all these other things from a acquisition perspective. So can you just talk about that from the lens.
You guys trying to divest the personal care business and how those conversations are going as well. Thanks. That's it for me sure sure let let's start with start with the second one just because I think is top of mind for a number of people on the divestiture.
We're in a point in the process, where it's not we're not yet ready for the deep diligence from potential buyers theres outreach theres inbound theres material, there's advisor thats been hired and we're doing all the right things and as we said in our prepared remarks process is ongoing marketing as we got.
So we're not at the stage, yet where we brought into the road block.
Theres, an assumption, but it's not necessarily for sure that over time as coated.
Plays through and people do or virtual and travel and all that.
There will be easier not only for us on the acquisition side, but to your point potential buyers as that process unfolds opt to do their work. So I don't know if that will slow us down yet or not I can also say that the.
Prospects. So so far so good but it's too early to make any declarations, Brian I think as a build on a divestiture and thank you can go to supply.
With respect to the asset that we're selling I mean, it it lines up fairly well with the environment. There that brand. It's more of that defense is a product line and I think you know that serves us well in this environment and we have had a solid interest in.
Asset so and the as you know we've been through the process before and so we're not starting from ground zero and have good connections with potential buyers and we like some of the may have already diligenced before and so the whole diligence roadblocks that you're talking about are limited.
Question I think we're set up to have that be less of an impact with respect to this particular asset because we've been through the process before we have a set of buyers who are interested in and.
Theres familiarity with with it and less need to do as much due diligence now of course announced new new people that will have to get comfortable but.
It's not this broad group of people that have to go through the complete process.
Gotcha.
Good and an Undersupply question, Olivia and specifically about the monitors in the upcoming coming cold and flu season, it's a little complicated so I'll try to simplify as easy as I can on this let's look at the supply side and then the demand side on the supply side I would think in three buckets stuff. That's made in China stuff. That's made to Mexico stuff has made the United States in China.
I know, there's a number of Arthur monitors, which you're asking about specifically in Mexico. There are certain thermometers, especially that year to monitor which is our flagship and our biggest volume item from a dollar standpoint millions mines units as well and then in the United States. The pro covers that go with.
Your thermometers, both for us and for our.
A major professional customer Welch allyn and so those are those supply buckets. If you look inside each of one of those go you'll see that supply as increased considerably in China as that triple Whammy of post covert shutdown a comes back online. We've also increased the capacity there and are simply getting more thermometers.
And plan to have that increase again as the year plays out in Mexico, We've made some pretty big investments to increase the number of the monitors that are coming through that is occurring all that said those factors are not immune to cove. It from a worker standpoint, there's plenty of cove at in Mexico, So would actually can be a setback for.
An increase capacity line to produce all of that increased capacity and then when it comes to the Mexican supply, we're making additional investments.
Big ones that should further increase supply by a fair amount that will take some time until that plays through.
As it pertains to the United States bass Pro cover we've increased that capacity already in there is work underway to take it up again.
So that should help on the demand side, it's a funny thing when when the.
Wave of Cove, it comes through off the cold and flu season, because it begs the question for everybody. So what will the next cold flu season will be like we simply made that the assumption that it will be in normal one only because we don't know better and we also believe that cove it will be with us for a while because that's been the behavior of code. It's so far.
I'd now think of consumer behavior, and lastly customers on consumers are demonstrate that they are keenly interested in having thermometers available. Some people, it's maybe new penetration of their household, especially younger ones before probably didnt have a moment if they were young.
For older people to make sure they're prepared there's an upgrade cycle for mobile technology to new things that are working to get lost on people. One just one more because one for your go back one for your house for this kind of maybe one for your office.
In the case of customers.
There is a reality of having more thermometers because the demand is there and we're getting some nice distribution wins as well, especially one or two key ones that should help us on the customer side and then the trick is to thread the needle on supplying all that and we're working very hard on that now so theres, a little insight into supply demand customer and consumer.
[music].
Thank you guys appreciate it.
Sure. Thank you.
Our next question is filling of Linda Bolton Weiser with D.A. Davidson. Please proceed with your questions.
Hi.
In the beauty segment I think you mentioned that Volumizer growth are you had caught up with demand in terms of supply of volume either but I think you did mentioned that there was some product that was in short supply and you were constrained by that and beauty can you just elaborate on what that was.
The comments about being constrained was for the first quarter.
We are now looking forward in a good supply position. So we got into a good supply position at the beginning of June but for the bulk of the quarter almost all the quarter, we're chasing demand for volume misers in beauty. So that was the comment the comment about being constrained was Q1 the comment about being.
And the good supply position is Q2 and going forward.
Great. Thanks for that clarification, and then is really that you can quantify.
How far below normal your investment spending was in the quarter and then some kind of delta between.
The level in the first half versus what you may anticipate in the second half.
Yes, I think it's hard to quantify because what's normal and we've got a lot of things going on where we.
We need to get to a normalized level as fan and then we have additional investments that we had on top that we want to make we we believe we've identified the right investments to make the question is really going to be about timing how quickly we lean yet and how much of that spending will occur in fiscal <unk> 21, and then maybe how much.
That will fall to 22, we'd like to spend as much as as we cannot be investments, we've identified and or basically going to be light on that for the first half a year, which means if you want to spend.
In fiscal 2001, you would have to double up almost in the back half year I'm not sure. If that's what will happen again, our spending will be based on a revenue in our revenue is still very murky at this point for the rest of the year as it is I think for almost anyone in our position and so.
To give you something more absolute I think it's difficult I tried to make it as as you know.
Something finite you could latch onto as possible in saying that look we expect margins may be compressed and we're not cocky full percentage points and things like that we're talking 10 percentage point you know in the 22, two tenths of a percentage point things like that over the balance of the year.
Sure as we try to make up for the period of time, where we were light on our spending for good reason, we needed to see how how these environment played out and how a quarter played out for we could make some of those choices and we're now doing that and you'll see some of it in Q2, but the bulk of it will be in Q3 Q4.
Sure.
Yes. The framework. It may help here Linda is to think of in terms of multiyear transformation. So as we went through our strategy reviews last December ahead of the planning cycle for this fiscal year.
It was very clear that there was a set of meaningful investments that were bold and right for fish 21.
For Helen of Troy, and we were not afraid to budget them and we were ready to act and we will prepare given cove it and this pullback.
The light switches and all of that.
Let spending has slid to the right on our timelines.
Building on that Brian has said as we lean back in now with the announcements that we're making today that will have some compression effect on the back half, but net for the year, we'll get what we think is the majority of those investments made which sets us up very well for fiscal 2002 in fiscal 2003 in terms of the things that we listed.
Slide diversification in Asia, I T direct to consumer customization of these kinds of things. These are big deals were held Detroit with must invest not only that supporting our leadership brands and the innovation comments that were made earlier in the queue. In a section is these are all over there all right in the case of how much we get on this tight ration.
As the year plays out because of the fog coated on I think we've demonstrated that were fairly nimble on this and as we have funds that are not yet fully committed we will watch super close and just make our choices in real time on where we do and don't don't do to get the balance right and make sure that were sensitive to what's going on and Mark.
Just a quick add I mean, the way I look at it is were up one percentage point for the first quarter. If we ended up with a flat margins year over year for the full year, we were fortunate to get to that position I consider that a win and so that's kind of the way we're trying to look at it in Julien said, we'll see.
Then the bulk of the investments this year I think the qualification though on that is if the revenue is there. If you think it's hard to go into different direction from a revenue perspective, we're going to adjust accordingly, but yeah right. If revenue keeps going in the direction that it is that is our class.
Thank you that's very helpful. Congratulations.
Thanks Linda.
The next question is from the line of Steve Marotta with CL King. Please proceed with your question.
Good morning, Julian Bride, and Jack I only have one question altogether offline brine just want to verify you said earlier in the call and your commentary that you expect moderation of Q1 demand.
In health and home and sort of an increase or version upward reversion and housewares and beauty that was specific for the second quarter and can you overlay your commentary a little bit with inventory being down 18% I assume that.
The increases in the potential increase in consolidated sales on the second quarter is based on the improvements within the supply chain over the past three months.
Yes.
Let me go to the first part of it.
You're right absolutely right, we do see some moderation in demand for health and home and that's only because it was such a big demand surge and we were able to felt compelled by Smith.
In stock inventory and now it's going to be more of a steady demand that will have to fill with our kind of continuous supply, which will be a you know less surge type of of path in more of a consistent.
Strong growth path, we hope and.
And so you know moderation from the 30% growth in the quarter, but we're still expecting growth. There. So hopefully we're not getting across the idea that the growth going away. That's not it just won't be as explosives as it was in Q1, and then you know and in op. So in beauty.
Our housewares and beauty that all signs are going in the right direction on both of those with store Reopenings, there and continued strong demand for rock so.
You know that we.
The everything is going in the right direction on the other hand, we're being cautious as you know there could be re closures in retailers and you no longer term more protracted impacts from from Cobot 19, So theres a balance there even though we're seeing positive trends I think theres things.
Can change and they are changing almost daily in this environment and we have to be cautious that your second question. Steve was on inventory could you repeat that.
Basically if sales I know youre, providing guidance for the sales on a consolidated basis in the second quarter do increase on a year over year basis, considering that you are coming into the quarter was such a low inventory I'm assuming that the differential there is for the supply chain improvements that have been made over the past three months.
I think that's fair to say and inventory is low, but it's not as low as weve been recently.
275 million, we've been down as low as 250, so we're actually making a little bit of progress on inventory, but we're not where we need to be we acknowledge that but we've got a lot of things in place that are going to get us there shortly and you know.
The D capacity improvement Julian was talking about we improved to monitor capacity by 30% already and then we're looking to for the next amounted improvement that will come online later in the years. So I'm just making the comment to illustrate that are making progress from our supply inventory is low.
But but the the triple Whammy, the Julian mentioned is real coming off of Chinese new year and co bid and then big demand surge is on top of that have or a huge thing to overcome and I feel like we've done pretty well.
I got it. Thank you again I'll take the balance offline.
Thank you great at this time, if we should have a question and answer session and I'll turn the call back over to Mr. Mininberg for his closing remarks.
Thank you operator, and thank you to everyone for being with US on the call today, we very much appreciate your support and we look forward to speaking with many of you later today and also in the coming weeks. Thanks, again, I'm very much appreciate and transformation rolls on.
Thank you.
To conclude today's conference you may now disconnect your lines at this time and thank you for your participation.