Q2 2021 Helen of Troy Ltd Earnings Call

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It is now my pleasure to introduce your host Mr. Johnson Senior Vice President of corporate business development sales.

Yes, Sir please go ahead.

Thank you operator, good morning, everyone and welcome to Helen of Troys second quarter fiscal year 21 earnings Conference call.

On the call. This morning is as follows I will begin with a brief discussion of forward looking statements Ms.

Mr. Julien Mininberg, the company's CEO will comment on some high level results for the quarter discuss birth current business trends.

Then mr., Brian grass, the company's CFO will review the financials in more detail and reflect on considerations from the ongoing COVID-19 pandemic uncertainty as fiscal year 21 progress is both.

Both Juliet and Brian will speak to you about our announced leadership plans. Following this we will open the call to 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 and other words of 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 maybe calculated differently than 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. minute, Bert 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 earn.

The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures the release.

The 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. Mininberg.

Thank you Jack good morning, everyone and thank you for joining US today I Hope you and your families are staying safe and healthy.

We recognize the people around the world continue to suffer as the virus and natural disasters take their toll.

We extend our deepest sympathies to those who have lost loved ones to COVID-19 have been ill with the virus faced financial hardship for dealing with the devastating impact of hurricanes for wildfires.

Turning to our earnings Helen of Troy posted outstanding results. This morning, as our diversified portfolio continues to perform very well.

We have been able to successfully adapt to navigate through countless kobin related challenges.

From the start of this pandemic, we took decisive action to lead our business an organization through uncharted waters, we had two goals in mind. Our first was the safe guard employee health, while continuing to provide our consumers and customers with a high level of service they have become accustomed to.

Our second goal has been to adapt to the new normals with the speed and agility needed to stay focused on delivering business results for the here and now well.

While also advancing our multiyear phase two strategic plan for sustained long term results.

We remain laser focused on those goals in our phase two transformation targets.

We began leaning back into our key phase two priorities in the second quarter.

Continued strength of the business now puts us in a position to do so even further in the back half of our fiscal year.

We believe these investments will continue to benefit all stakeholders as we drive our value creation flywheel.

The results we are reporting today would not be possible without the tremendous commitment of our exceptional people. The dedication of the essential front line workers in our distribution centers in our test labs in our <unk> and in our operational hubs around the world continue to make the difference every single day.

All around the world our associates are delivering elevated throughput to meet as much demand as possible in the challenging conditions from cove, it and its ripple effects around the world.

I am very proud to see how Helen of Troys people in all parts of our business have embraced the shared sacrifice we asked of them. During the early months of this crisis to preserve the organization and capabilities. We all worked so hard to build in the transformation.

Their trust in their hard work continue to pay off as the resilience of our business organization and culture gets tested and confirmed.

As a result in early July we shared that we wouldn't be store, all wages salaries and director compensation to pre Cove it levels effective August onest.

I'm pleased to share that later in the second quarter. We also made our people hold on all back pay resulting from the temporary wage and salary reductions we bid.

We believe this is core to our values and highly consistent with our stated strategic goal to attract retain unify and train the very best people.

It's also simply the right thing to do.

With regard to the status of our offices and our work from home arrangements. We expect to continue our current mix of essential workers operating our distribution centers and keeping many of our international offices open such as those in Europe and Asia, while other Helen of Troy Associates will most likely continue to work from home through the.

End of this fiscal year we.

We will continue to closely monitor the ever changing cold at 19 situation to make sure our approach to facilities and work environment stays timely thoughtful carefully measured and complies with expert guidance and local regulations.

Before I discuss our business results further I would like to touch on the two executive leadership announcements highlighted in today's press release held up.

Helen of Troys Board of Directors has asked me to extend my service as Helen of Troys CEO beyond the February 20, Eightth 2023 end date in my current employment agreement.

I am honored by their continued faith in me and enthusiastic about serving an additional year.

I believe there is considerable opportunity ahead for continued growth of our revenues profitability brand portfolio, our global footprint and our capabilities.

When the amended employment agreement is finalized we will make a formal announcement.

I feel very fortunate to have had the opportunity to lead the company not only through the remaining three and a half years of phase two of our transformation plan, but also to provide continuity of leadership through all 10 years of transformation.

I am right, where I enjoy being at the heart of our strategic thinking with the special responsibility to further reinvent our business.

Liver sustained performance and continue building organizational and cultural excellence.

I look forward to Stewarding the company through the end of fiscal 24 and through smooth succession planning for the next Gen fleet generation of leaders for fiscal 25 and beyond.

The second executive management announcement, we made today is that our friend colleague and Chief Financial Officer, Brian grass intends to retire a little over a year from now effective November Onest 2021.

Brian as a valued partner to me and to our global leadership team I go.

I greatly appreciate his expertise integrity high standards and countless contributions during what will be more than a 15 year career at Helen of Troy.

He has been influential and helping advance our transformation into a company that is built to last.

Brian is rightfully proud of what he and the company have achieved as well as the considerable progress he and his team have accomplished raising the levels of excellence for our global corporate finance team and for many of our systems. He has also.

He has also been highly focused on establishing a compelling bench of internal CFO succession talent that we intend to group over the next year.

We also intend to conduct a comprehensive external search to ensure we have the very best next CFO for Helen of Troy.

We expect that person to provide the outstanding level of financial leadership, we are accustomed to and to continue to deliver on our transformation.

Ryan will speak more about his plans to retire during his remarks over the next year you will come to you will continue to remain fully in his role providing highly effective executive management and financial governance and will assist with a seamless transition when the time comes.

Now onto our business results.

Our diversified business model and portfolio served us well in the second quarter and drove an outstanding first half for fiscal 21.

As highlighted in our press release, we continued to see strong customer demand for our products across each of our three business segments globally.

Net sales growth was 28.2% adjusted diluted EPS grew a robust 68.3%.

That growth was broad based as all business segments and international grew at least 20% in the quarter.

Margins expanded behind mix improvements disciplined investment spending and operating leverage within our business units and in our shared service platforms.

Our leadership brands performed extremely well going 30.3%, including a 3.2 contribution from Drybar on.

Online sales grew 32% and represented approximately 24% of our total sales in the quarter. The pandemic continued to accelerate consumer trend from bricks to clicks.

The first half of this fiscal year marked an excellent start to the second year of phase two.

First half net sales grew by 20.4% powered by leadership brand growth of 23.3% in or.

International sales were notable growing double digit in the first half of the year.

The major projects in EMEA and Asia Asia under our phase two strategy to double down on international are performing ahead of internal expectations, and creating attractive new investment opportunities to continue driving international growth.

Sales to the online channel increased by 32% to represent approximately 26% of our total fiscal year to date sales.

Adjusted diluted EPS increased by 46.5% in the first half and we generated $186 million of operating cash flow.

Combination of winning first half results and strong prospects for the business in the back half of this fiscal year la west to restore even more of the major phase two investments originally planned for this year and what we communicated in our July call.

We believe this will help power the long term sustainability of our value creation flywheel.

The additional spending allows us to make key hires and drive ahead on direct to consumer customization product innovation and marketing it all.

It also allows us to provide more marketing support for the distribution gains. We have earned further diversify our supply chain beyond China and make investments to expand our supply capacity and our infrastructure.

Infrastructure investments are especially important in these middle years of phase two as we expand our distribution and I T capabilities to keep up with what has been more than 30% growth since our original transformation began and to prepare us to handle our future growth prospects.

We are also leaning into additional select marketing opportunities across our business and regional portfolio, such as hydro flask touched the monitors and then supporting our Volumizer franchise.

Even with demand continuing to surge in health related categories. We believe it is prudent to continue to manage our marketing spend in the back half given the biological uncertainty about the path of coated and given the veracity of the current cold and flu season as well as other unknowns around consumer demand our EPS.

Our efforts to improve supply are working yet are still unlikely to satisfy all of the current demand taken.

Taken together these uncertainties make us unable to get specific quantitative financial guidance at this time Brian.

Brian will provide some additional perspective on this in his remarks.

Regarding current trends, we like what we see so far September was another very strong month across nearly all parts of the business major trends in health related products continue, especially as the indoor season begins in northern climates as hybrid school model start up and as the overall nesting trend continues.

While those have been positive business drivers for us we expect the torrid pace of revenue growth to moderate somewhat in the back half as we anniversary very strong finish to our last fiscal year.

Witching now to results for the second quarter in our business segments. We are extremely pleased with our performance in beauty delivering 23% organic sales growth the highest we have seen in more than a decade.

The drive our acquisition contributed a further 12.1 percentage points to the segment's total sales growth of 34.6% in the quarter.

The organic growth comes on top of the 9.3% organic sales growth in the same period last year. Despite the current challenges around retailers, who are grappling with stay at home recommendations and measured reopening of their brick and mortar stores.

Testament to our innovation stream and the strength of the Onestep Volumizer franchise as it continues to generate generate rave customer reviews on expanding distribution and grow its market share.

Syndicated data shows that during the latest 52 week period Helen of Troy.

Further grew its number one market share position in the online channel for U.S. hair care appliances and continues to hold a significant leap.

Syndicated deep data in brick and mortar shows that during the latest 52 week period. We also grew our number two share position in the market for U.S. retail appliances.

Our first mover Volumizer appliance innovations continue to be a major driver and are a key expansion focus for us even as competitive copycat products enter the market.

Our Revlon Hot tools, one step volume misers have now earned more than 90000 online consumer reviews with ratings of 4.5 stars and depending on the site and considerable media attention both in traditional vehicles and on social media platforms.

Sales of our newest leadership brand Drybar, we're all incremental in the quarter.

The beauty industry has been among the hardest hit by coated shutting down hair salons, and slow slowing reopenings and traffic at major retailers in the prestige channel and in other parts of retail brick and mortar.

Despite this challenge Drybar revenue improved sequentially each month of the second quarter as Drybar salons expanded their careful market by market reopening plans.

Yeah, our ties the safety of its clients.

By mid September Drybar salons had largely reopened for business, especially those outside of coastal cities, but remain impacted by Cove. It.

Prestige retail face similar challenges during the quarter responding by accelerating the use of E commerce.

Hi, online and pickup in store or Bopis, and curbside pickup they gradually reopened more of their brick and mortar stores for key customers like Ulta, Sephora and Nordstrom traffic remains a challenge, but we continue to see positive sequential purchase trends for stores that have reopened.

With regard to our previously disclosed divestiture plan for the personal care business process is advancing and we anticipate being able to share more progress when we report our earnings for the third quarter in January.

Now turning to health and home and outstanding performance momentum continued in the second quarter as the segment simple mission was more relevant than ever.

Be there when consumers need us most trusted solutions for healthy living and peace of mind.

Organic sales grew 33.1% as all four of our health and home leadership brands grew sharply in the quarter demand.

Demand remains very strong for VIX, Braun, Honeywell and fewer products that address needs around temperature humidity water quality and air quality.

Trends in the second quarter were especially powerful new covert developments emerge almost every day the northern hemisphere generally experienced a very hot and dry summer and devastating wildfires continued to rage across large swaths of the western United States.

Beyond the immediate impact of these events on the business. We believe the heightened media attention on our categories and brands has had important positive she.

Short and long term implications for category development and household penetration.

Especially as this attention comes at a time when consumers are focused on current events and learning more about protecting health.

Ron remains our most global brand and is seeing significantly elevated demand all Braun thermometers types are very relevant today, but none more so than our no touch or non contact the monitors, which measure and record a person's temperature with clinical accuracy, yet require no physical contact.

Use of thermometers is changing from what was primarily a diagnostic tool to understand the severity of illness.

Distinguish between a cold and flu to now a prescreening device recommended by experts for use in identifying the potential presence of the virus like cold at 19.

Monitors have become the first line of defense to help protect not only our loved ones in the home. It's now also monitor public health and safety in schools restaurants stores work sites institutions and in transportation systems.

Earlier this year, we shared that we began investing additional capital and human resources into expanding thermometer production capacity, including no touch and year.

On top of the increasing capacity, we secured in the first quarter further production increases helped us satisfy even more of the demand in the second quarter.

We are also adding incremental supply that should be operational in the third quarter and get more coming online in the fourth quarter.

With this ramp up we expect to be more than double our total pre cove it capacity by the end of the year.

This will be much better matched to monitor output to the ongoing pandemic and better handle our fourth quarter during which the cough cold and flu season traditionally peaks.

Air Purification has also been a very hot category.

US sales for our Honeywell Air Purifiers grew strongly during the quarter. The key drivers were increasing concerns around cove, it, especially as indoor season approaches for many households, as well as institutions, such as restaurants and schools and universities.

Our air Purifier sales were further aided by heightened media attention highlighting the potential health benefits of using an air purifier during the pandemic.

We also saw an early start to the wildfire season. This year multiple August places in the Western United States. Unfortunately stand out even among recent record breaking fire seasons for their scale and their intensity.

Finding air quality from wildfires can also compound concerns around COVID-19, as more people are confined to enclosed spaces and polluted air can create risk of airway damage respiratory infection the search.

The surgeon Air Purifier demand has been much stronger than we expected straining our supply chain. We have responded quickly with a 50% increase in air purifier supply, becoming operational by the end of next month.

Man for water purification also continued in the quarter underscored by two key trends.

First is from COVID-19, as many people who continue to shelter in place and work from home or seeking additional avenues to help protect themselves and their families.

The second is that our pure products are benefiting from an increasing trend of single use plastic bottle bands around the world as mindset shift toward multiple put towards more sustainable purchase and usage habits propel.

Propelled by these trends and increases in supply and in distribution syndicated data shows that pures growth has outpaced the growth of the category, resulting in market share gains for viewers U.S. devices and replacement filters in brick and mortar.

Lastly, in health and home, we have seen continued strong demand for our VIX humidifier devices and Vaposteam inhalants. These.

These products are designed to ease breathing by helping relieve the common symptoms of cold cough and congestion that can accompany a wide range of respiratory infections.

According to syndicated data, our vicks inhalant and humidifier businesses grew market share in the U.S. brick and mortar market during the quarter.

In housewares sales.

Second quarter sales increased by over 20%, even as we faced a particularly strong comparison in which the segment grew more than 22% in the same period last year both of us.

Both of our Housewares leadership brands grew during the quarter it is clear.

It is clear the pandemic is changing nearly everything in our daily lives, including the way consumers look at food.

As people continue adapting to shelter in place guidelines, new habits are forming may.

Many who used to rely on eating outside the home are now getting reacquainted with their kitchens.

Studies confirmed that consumers, especially millennials are experiencing the joy of cooking more while sheltering in place and experimenting with a wider variety of meal options. It is this time of experimentation and newfound fund that is also expanding their use of essential products and gadgets for cooking baking brewing cleaning store.

Bridge and organization all of.

All of these are in the sweet spot for our outstanding OXXO line up that helps consumers transforming their homes and kitchens into engaging efficient spaces that make everyday better every day we are.

We are excited about the prospects for the brand as OXXO benefits from these positive new habits, and greater adoption by a new and younger demographic. This is positively compounded by follow on sales OXXO, usually earns once a household is penetrate.

OXXO grew in brick and mortar online and internationally during the quarter as we gain distribution launched new products and benefited from very strong point of sale trends and store traffic at certain retailers.

Fast food storage coffee, measuring and baking had particularly explosive growth.

International sales for OXXO were also an excellent source of growth, especially in EMEA and online.

Oxos domestic online sales benefited from significant increases in direct to consumer as the trends from bricks to clicks continue.

Dotcom, such as Amazon OXXO Dot com and target Dot Com. We're also standouts market share gains were strong for OXXO in the United States syndicated data shows that even as the U.S. housewares category has grown fast oxos dollar sales growth during the quarter has been roughly twice as fast.

Oxos partnership with 1% for the planet further aligns the brand with its consumer as it joins a global community of brands that we enforced their positive equity, giving back the equivalent of 1% of that sales to environmental nonprofits.

Hydro flask returned to growth during the quarter as more people return to the outdoors and to keep brick and mortar retailers, which slowly reopening.

Brand overcame a particularly strong comparison in the same period last year and overcame this year's headwinds from closures and lower store traffic at key retailers.

According to syndicated data hydro flask.

Continued to sustain its number one U.S. market share position and its large lead over competitors in insulated hydration vessels.

International sales for hydro flask very fast in the quarter, while retail stores were largely open by the end of the quarter consumers continue to shop online, where the brand delivered strong E commerce and DTC sales I'd.

Hydro flask brick and mortar point of sale also began to improve as foot traffic started to reemerge in regions, where consumers felt more comfortable leaving their homes.

While it is likely cove, it will persist for a longer time than any of us would like we continue to like our prospects on hydro flask as it remains highly relevant and wildly popular and with its on trend positioning products distribution and online presence.

As I wrap up my comments I would like to emphasize the focus we are placing on our phase two initiatives. They are the key to continuing to drive our value creation flywheel huh.

Heading into the back half of fiscal 21, our port portfolio is demonstrating excellent momentum, allowing us to use our cash flow to continue selectively investing in phase two.

Our balance sheet and financial position are very strong and capable of supporting accelerated investment with.

With our strong cash flow and low leverage we were in a strong position to fund higher inventory levels deploy capital toward accretive acquisition that adds more critical mass to that flywheel and consider opportunistic share repurchases.

While many challenges from Cove. It grabbed the headlines we believe we are creating a company that is built to last and has proven its ability to create value for our stakeholders in a wide range of market environments.

Focusing on delivering results for all stakeholders has been a hallmark of Helen of Troy throughout its transformation. We are proud to continue that work.

I will now turn the call over to Brian.

Thank you Julie and good morning, everyone and thank you for joining us I hope that you are safe and healthy.

Our thoughts continue to deal with the people who've been directly affected by the COVID-19 pandemic.

We want to extend our appreciation for the efforts of first responders health care providers and the central workers and the efforts of our own associates that aren't able to work from home I'm. Please.

I'm pleased to say that the rate of infection, among our associates has been minimal.

Our priority has been and continues to be their wellbeing during the some person at a time.

The impact to COVID-19 pandemic has significantly it's accelerated demand for our leadership brands and I'm grateful that Helen of Troy is in the position to continue to provide products that help individuals and families. During this difficult time.

As Julian highlighted we delivered an exceptional quarter reporting more than 20% growth across all three segments and strong operating margin expansion.

Our profitability was buoyed by temporary expense reduction in deferral initiatives put in place earlier in the year due to the uncertainty of the Pandemics impact on economic activity.

Based on our strong performance in a little more visibility with respect to Covance impact on our business. We have now reversed many of the expense reduction initiatives, particularly personnel related actions and reactivated several key phase two investments we were.

We remain below normalized levels of marketing spend for several reasons, which I will cover later in my remarks.

On the whole the business showing sales strength that I have not seen that my 14 years with the company, which combined with an expanding gross profit margin and expense discipline resulted in adjusted diluted EPS growth of 68.3% in the second quarter.

Our liquidity was another highlight ending the quarter was 1.1 billion in liquidity, including 148.4 million in cash and 955 million available on our $1.25 billion credit facility and our liquidity has continued to improve into October.

We generated 171 million of free cash flow in the first six months of the year, we increased inventory by almost $100 million and they'd capital expenditure investments of $15.2 million to better satisfy the surgeons and in demand we have seen and help mitigate any potential further COVID-19 disruption.

On our supply chain.

As we noted in today's earnings release, we have deferred or outlook for fiscal 2021 at this time we.

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 Consol.

Consolidated net sales revenue was 530.9 million the top 28.2% increase over the prior year.

Organic business net sales grew 25.7% driven by very strong sales growth in all three business segments.

As expected, we saw improving trends in the housewares and beauty segments and second quarter demand in the health and home segment continued to drive growth consistent with the first quarter.

This strength more than offset the adverse impact of open 19 related store closures and lower store traffic at certain retail customers during the quarter, which continued to adversely impact net sales primarily in our housewares and beauty segments.

This includes retailers such as Dicks already high that beyond.

Vessel T outdoor specialty kitchen Department stores also sally's drive our salons in close out retailers, where same store net sales were generally down due to either store closures early in the quarter or reductions in foot traffic as consumers continue to adjust their shopping behaviors and describe.

Canary spending.

Consolidated sales in the online channel grew approximately 32% year over year to comprise approximately 24% of our consolidated net sales in the second quarter.

Sales from our leadership brands grew 30.3% in the quarter, which includes 3.2 percentage points of growth from Drybar Walter.

Well drive our sales improved sequentially from the first quarter of the fiscal year second quarter sales continued to be hindered by driver Salon in key customer store closures.

Organic sales for Houseware segment increased 20.2%, which included growth for both the auto and hydro flask, France. This replay.

This reflects higher demand for OXXO products is consumer spent more time at home cooking cleaning organizing and pantry loading in response to cope in 19 and then.

An increase in online sales for both also on hydro flask.

Higher sales in the club channel growth in international sales and new product introductions. These.

These factors were partially offset by the cold at 19 related impact of reduced store traffic and store closures at certain retail brick and mortar casino customers, mostly in the early part of the quarter.

Health and home organic business net sales increased 33.1% due to consumer demand for health care and healthy living products in domestic and international markets in both brick and mortar and online channels due primarily to COVID-19 in demand driven by severe wildcard activity on the west coast.

States.

These factors were partially offset by declines in non strategic categories.

Beauty segment net sales grew 34.6% and organic sales increased 23% driven primarily primarily by strong demand for our monster family of products expanded distribution and an increase in international sales.

Drive our products can contributed net sales revenue of 10.5 million were 12.1% to segment net sales growth.

These factors were partially offset by sales decline in the legacy mass market personal care business the impact of store closures earlier early in the quarter and lower foot traffic at certain retailers in the unfavorably impacted net foreign currency fluctuations of approximately <unk> point fourmillion or 0.5%.

Consolidated gross profit margin expanded 42, 43.4% compared to 43%. The 0.4 percentage point increase is primarily due to favorable product mix within health and home in the organic beauty business.

The favorable impact of the drive our product acquisition the favorite.

The favorable channel mix within the Houseware segment.

Lower direct import sales and lower airfreight expense.

These factors were partially offset by unfavorable product mix and the houseware segment and the unfavorable comparative impact the tariff exclusion refunds received in the prior year period.

Consolidated SDMA was 24.7% of net sales compared to 29.8% to five.

The 5.1 percentage point decrease is primarily due to the impact of higher overall sales had on operating leverage and cost reduction initiatives, including temporary personnel advertising and travel expense reductions due to the uncertainty of Cove at 19.

These factors were partially offset by higher performance based annual incentive compensation higher League.

Higher legal expense and higher customer charge back activity.

NSG any ratio of 24.7% is below our historical norm due partially to the surge in revenue, but also due to cost reduction measures in place for a portion of the quarter and lower marketing spend due to supply and distribution capacity constraints in certain parts of the business, which I will discuss later in my remarks.

Yes.

GAAP operating income was 99.3 million or 18.7% of net sales compared to $54.5 million or 13.2% of net sales in the same period last year.

On an adjusted basis consolidated operating margin was 20.4% compared to 15.9% in the same period last year the fourth.

The 4.5 percentage point increase primarily reflects the favorable impact at higher overall sales had an operating leverage.

The favorable product mix within health and how all in the organic beauty business, a favorable channel mix within housewares.

And cost reduction initiatives, including temporary personnel advertising and travel expense reductions due to the uncertainty of COVID-19.

These factors were partially offset by an unfavorable product mix within the houseware segment, the favorable comparative impact of tariffs exclusion refunds received in the prior year period higher performance based incentive compensation higher legal expense and higher freight and distribution expense.

Housewares adjusted operating margin increased 1.3 percentage points to 23.7%, primarily reflecting the impact of higher overall sales had an operating leverage a more favorable channel mix and cost reduction initiatives, including temporary personnel advertising and travel expense reductions due to cold at night.

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These factors were partially offset by a less favorable product mix higher performance based incentive compensation expense higher freight and distribution expense to support strong demand and increased customer charge back activity.

Health and home adjusted operating margin increased 6.7 percentage points to 17.9% Premier.

Primarily primarily reflecting the impact of higher overall sales had on operating leverage a more favorable product mix and cost reduction initiatives due to cope with 19.

These factors were partially offset by the unfavorable comparative impact of tariff exclusion refunds received in the prior year period and higher performance based incentive compensation expense.

UTI adjusted operating margin increased 7.6 percentage points to 19.5% primarily due to the impact that higher overall sales had on operating leverage a more favorable product mix lower airfreight expense and cost reduction initiatives due to COVID-19.

These factors were partially offset by higher personnel expense related to the acquisition of drive our products higher performance based incentive compensation expense and increased legal expense.

Moving on to taxes income tax expense as a percentage of pre tax income was 9.6% compared to income tax expense of 10.3% print.

Primarily due to the benefits recognized from the transition of our Macao entity from offshore to onshore status, partially offset by increases in liabilities related to uncertain tax positions as you may.

As you May recall, we were currently have an indefinite tax holiday in Macau, the Macau offshore market in the supplementary less regulation the graph tax incentives to approved offshore institutions will be abolished on January Onest 2021.

Existing approved offshore institution, such as ours can continue to operate under the offshore regime until the end of calendar year 2020.

Beginning to calendar year 2021, our Macao subsidiaries will transition to onshore status and become subject to the statutory corporate income tax rate of approximately 12%.

As previously disclosed the impact of this change our consolidated effective tax rate was subject to the transfer pricing analysis, which was completed in the second quarter on.

On an annual basis, we expect this change to increase our overall consolidated effective tax rate by 1.5 to two percentage points beginning in fiscal year, 2022, which we consider to be a favorable outcome given the extent of the corporate tax rate change.

Net income was 87.3 million or $3.43 per diluted share on 25.5 million shares outstanding.

Compared to 46.1 million or $1.83 per diluted share in the prior year on 25.2 million shares outstanding.

Non-GAAP adjusted income grew 69.7% to 95.9 million or $3.77 per diluted share compared to 56.5 million or $2.24 per diluted share.

Now moving onto our financial position for the second quarter of fiscal 2021 compared to the second quarter fiscal 2020.

Accounts receivable turnover was 68.7 days compared to 68.4 days for the same period last year. Our accounts receivable balance was 402 million compared to 310 million 310.4 million in the same period last year inventory.

Inventory turnover was 3.3 times for the trailing 12 months ended August 31st 2020, compared to 2.99 times for the prior year period.

Inventories is 350.2 million compared to 370.9 million.

Net cash provided by operating activities increased 148.1 million to 186.3 million for the first six months of fiscal 2021.

The increase was primarily due to higher net income and higher cash provided by accounts payable and accrued expenses.

Partially offset by higher cash used for receivables and inventory.

The increases in working capital components are in line with our expectations due to the significant growth this fiscal year and our efforts to mitigate any further potential COVID-19 disruption on our supply chain with higher inventory levels.

We expect to further build inventory leading into our peak selling season in the second half of the year.

Total short and long term debt was 300.1 million compared to 301.2 million.

Free cash flow for the first six months of fiscal 2021 increased to 141.7 million to 171 million.

At the end of the second quarter, our leverage ratio as defined in our debt agreements was 0.9 times compared to 1.2 times at the same time last year. This is the.

This is the sequential decrease compared to 1.1 times as of the end of the first quarter of this fiscal year our.

Our net leverage ratio, which nets were cash and cash equivalents with our outstanding debt was 0.5 times at the end of the quarter we can.

We continue to hold higher than normal levels of cash to protect us against any future touching the shocks to the credit markets and allow us to fund our targeted inventory levels going into our peak selling seasons and through Chinese new year without the need to incur further debt.

We believe our liquidity and cash flow puts us in a great position to continue navigating the uncertainty of the external environment and take advantage of potential capital allocation opportunities.

Now onto a business update as we.

As we look to the remainder of the fiscal year, we are still operating in an extremely dynamic environment due to the evolving COVID-19, pandemic and related consumer and business uncertainty, we're not providing an outlook for fiscal 2021 at this time.

In addition to the lack of visibility into consumer demand and the uncertain impact to COVID-19 on the retail environment.

Trends are emerging that may impact our ability to fill some orders on a timely basis and our ability to make marketing investments within acceptable return all of which have a significant impact on our ability to forecast within a reasonable range.

As previously disclosed during the first quarter of fiscal 2021 as part of a comprehensive approach to preserve our cash flow and adjust our cost structure to align to lower anticipated revenue we.

Well when we implemented a number of temporary cautionary measures in response to the uncertainty from Pope at 19.

Based on stronger than expected performance, we reversed a number of these measures towards the end of the second quarter of fiscal 2021, including the restoration of all wages salaries and director compensation to pre cope at 19 levels.

In addition towards the end of the second quarter. We also selectively increased levels of investments in certain marketing activities, new product development and launches in capital expenditures in support of our phase two transformation strategy there.

During the remainder of the fiscal year, we're planning to continue to increase our marketing and other growth investments.

We continue to see very strong demand trends in many of our product categories in the second quarter demand continued to outpace even recently increased supply capacity with respect to thermometry air filtration water filtration and various products within housewares, which in some cases is resulting in us.

Stops.

Surges in demand and shifts in shopping patterns related to COVID-19 have strain the U.S. freight network, which is resulting carrier delays in it.

In addition to houseware sales growth for 14.1% and 22.4% in fiscal years, 2019, and 2020, respectively.

Demand has further surge for the OXXO grant, which in combination with carrier delays has caused order flow to outpace shipping capacity in one of our distribution centers in sales.

In some cases this is resulting in out of stocks at retail for some OXXO items well we.

Well, we have moved very quickly to bring additional distribution and storage facilities online in support of surging order volume and higher targeted inventory holdings heading into our peak selling season. We believe there could continue to be some level of out of stocks in certain parts of our business.

Not only do these trends impact our ability to accurately forecast revenue. They can also limit our ability to make marketing expenditures with an adequate return on investment.

Certain categories, where macro trends like open 19 are driving demand significantly higher than historical levels or in situations, where supply or distribution is capacity constrained.

We believe that driving additional demand through incremental marketing activities could compounds potential ship shipment delays were out of stocks in these.

In these situations currently planned marketing investments designed to drive short term demand would not be made.

We believe these factors could contribute to why variation of outcomes with respect to our adjusted diluted EPS for the remainder of the year.

Our base plan is to make the majority of the incremental marketing investments that we planned at the beginning of the year and that we believe are best for the long term health of our brands.

If we are able to execute against our base plan, we would expect adjusted operating margin for the full fiscal year to expand by approximately point to 2.4 percentage points compared to fiscal 2020, which would imply year over year compression in the second half of the year.

The current demand trends continue and we are not able to execute against our base plan adjusted operating margin could expand by as much as 0.8 to 1.6 percentage points for the full fiscal year compared to fiscal 2020.

As a result, we believe there is could be as much as 50 cents to a dollar of adjusted diluted EPS variability just for marketing investments that are planned for the second half of the year, but may not be made due to an unacceptable return on investment capacity constraints or lack of visibility. This range does not.

Include the additional potential revenue variability from COVID-19.

Well this year certainly testing us all I'm pleased with how our entire organization is rising to the challenge or two.

Our teams are working hard to fulfill customer and consumer orders, while simultaneously executing the key phase two initiatives, we have chosen in developing operational plans for a variety of scenarios.

We remain disciplined and opportunistic in our extensive capital investment approach focusing on maintaining strong balance sheet to ensure we have the flexibility to pivot our approach as we navigate these uncertain times.

Finally, just a few comments regarding the announcement of my intent to retire on November Onest 2021, just over one year from now.

Stated in today's earnings release, I put aside my entrepreneurial interest for almost my entire career and I have now reached a point where I can explore these interests in a financially responsible way while still being young enough to do it is my team to build something that I can hand over to my son, One day I also want to be more available for my son, and I would be if I continued.

In my current role I believe I can be successful in different ways in my professional career, but the only way I can be successful as the data has to be there.

Our life has done nothing but patiently supportive despite the long hours personal sacrifices in intrusions on family time, but I owe her more.

She is a financial analogy I made a lot of withdrawals from the family account and it is time to start making some deposits.

Finally, I've always tried to put the company's interest first and I believe the company will benefit from a fresh set of eyes, new glut in a different voice.

I'm proud to say that the company has never been stronger financially operationally, we're strategically and I believe the best is yet to come I'm also.

I'm also proud that we have developed strong internal CFO succession talent, who we will continue to groom over the next year the.

The company also intends to conduct an external search to ensure the best possible succession for Helen of Troy.

Well I think Julien for his friendship Mentorship and trust I also want to thank Joe and the board of directors, our global leadership team and the finance organization for allowing me to be a part of the sneezing journey.

As a gift to be entrusted with responsibility of leading a company like Helen of Troy and I am truly grateful I look forward to working with you and to ensure the smooth as possible transition for the company.

I also look forward to speaking with many of you over the next year hopefully in person at some point.

And with that I'd like to turn it back to the operator for questions.

Thank you ladies and gentlemen, the floor is now open for questions.

He would like to ask a question. Please press star one on your telephone keypad at this time.

Confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the Q.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key once again.

Once again that is star one to register questions at this time.

First question today is coming from Bob Labick CJS Securities. Please go ahead.

Good morning, and congratulations on the personal news as well as the strong operating performance.

Thanks, Bob Thanks, Bob Great to hear from you. Appreciate yeah, you guys as well correct, that's super exciting to hear Julian that you're extending your contract and staying on it Brian obviously.

Maybe a little bit of a surprise announcement, but it sounds like you've thought about it a lot and that sounds terrific. Congratulations both.

Well, thanks, so much I Miss working with you for sure and you know it's not to buy now so we have a little bit of time, but but I values are Ah working together over the past 12 months.

Oh, absolutely no I appreciate it very much as well and I wont say goodbye, yet either because we have another year, maybe before just jumping to the.

Operational there's that's one more question for you Brian If you don't mind you talk about your current ownership position in Helen of Troy, and how that might change or be impacted if that's you know.

A lot of as part of the funding of your your future pursuits, or how you're thinking about that.

Sure so.

So I have a meaningful position in Helen of Troy in terms of stock ownership and you know I would expect that the take away is I would expect that to continue through my retirement I do expect to have you know some level of sales for diversification purposes and retirement planning purposes.

But but again I expect my ownership to remain meaningful throughout my tenure. It's also important to note that hurt my severance agreement and our retirement plan.

Let's hope for continued vesting of my stock awards and so on have a vested interest in hell on trade success.

Succession planning work that we're doing for years. After my retirement, because I have a vested interest in those stock awards that will vest.

123 years after the date of my retirement, so I think the key takeaway is I have a very very meaningful ownership interest and Helen of Troy stock and I would expect that to change in a meaningful way, although there there there could be some sales over time, just again for diversification.

Patient and retirement planning.

Okay got it it makes a lot of sense and as I said, we have another year, so I won't say goodbye, but jumping over to operations or just the business in general obviously, you guys are a consumer centric company focusing on innovation and new products and that's what's been driving your growth for so long how have.

Needs to want sort of the desires of your customers changed from coated and how are you changing right now to address these needs and.

Being able to still get consumer insights in a different environment.

Yeah. Thanks, Bob It's a great question consumer centric that's exactly the right word for US. It is our single minded focus and frankly, our obsession in.

In the case of.

Coated related demand consumers are doing some interesting things in.

As indoor season comes along in the northern Hemisphere, So think schools.

Schools universities, but I'm outside in general because of the temperature, where seeing a considerable surge and things like air Purifiers, there's tons of articles in the press some of the scientific press lots of recommendations now even from the CDC on the subject of indoor transmissions.

Ventilated spaces droplets articles et cetera. So.

So this is a big deal.

And it is changing consumer behavior, we're seeing a tremendous surge air purifier sales that's only accelerated since Q2. So here we are almost the middle of Q3 and I can definitely say that that is growing.

Growing considerably, we're bringing tons more capacity online as well.

As we've said in the public remarks.

About 50% more purifiers on top of what we've already sold and have coming by the end.

Coming by the end of next month into our production system and in the case of thermometers. There is a change as well here, we're seeing people going from this idea of the.

Detecting temperature to now screening.

Thats happening both on the consumer household side and also institutions of all kinds. So thermometers you may have seen it yourself I recently went to an Apple store and people 16 part online.

First thing they do is check your temperature on importantly, with no contact thermometers, which has become a big excuse for us.

We're making a lot more of those as well in our production increases lastly on consumer behavior. The nesting thing has been a really big deal in housewares and this is good news for the company as well we're seeing for example, a younger people millennials and even younger households than that now discovering sort of joys of home cooking.

Tooling up that's catching up and I think everyone. On this call probably knows that also has a very positive a rabbit like quality, meaning ones once or to one or two up so items make it into the home audio quality their excellence the field someone experienced what we call the second moment of truth.

After you buy it use it at second moment.

Make of rabbits multiply considerably within the house and you go back a year or two later, it's kind of like hydro flask, you'll just see a lot of them are scattered around the house. So that's a couple of examples of consumer habit changes I'll give you one last one which is around drybar, there's quite a lot of drybar.

Home health care happening, so think women wholl more fewer trips to the salon, but nonetheless on zoom calls and all their other obligations and I want to look good drive our products are just spectacular for that people are buying them, especially online.

Okay, Great appreciate all that color there and you've talked about you know a number times on the call. Today, obviously, you are selling products as fast and sometimes you know can't even sell as many you or me.

You're making as you suggest that you can make them and you've pulled back on marketing to not exacerbate the supply constraints.

What is for other areas to spend are you shifting your spending patterns. One of the projects can you spend on it can you give us some examples of what you're doing with that marketing obviously some of the marketing is flowing through with a lack of marketing flowing through to the bottom line, but are there other things you can be spending on internally.

Yeah, a ton so and there may even be some confusion on this so I want to make sure. This gets up and I'm really glad you bring it up to two things I'd like to say a one is we are spending heavily on the phase two key initiatives and it's not just marketing and the second is that we are spending on marketing, especially in certain areas you just don't want to.

Like short term demand on products, where we already have so much natural demand that we can't meet the supply. So that's an ROI thing if you already had.

An overwhelming amount of orders and you can't meet every single one of them to spin short term money to generate more of those orders is not a good return on the investments in the case of the other areas that we're spending think of the things that were listed in the call infrastructure, that's I T distribution throughput capability.

It's also the ability.

The ability to diversify our supply chain beyond just China, which is something that many people on this call were.

Pounding the table for only a few months ago and we have been doing for some time. We're also.

We're also.

Spending a fair amount of money on hiring, especially in key areas of the company think upstream, especially.

Especially engineering quality product development spending on product development in a big way and in marketing itself Theres things that don't hit the market in the very short term so think of content for Vin.

For videos packaging.

New claims development testing I've been paid.

New products.

Testing with consumers market research and other areas as well as mentioned on the call. We're spending money also on the topic of culture.

Culture, especially now with new people coming on board of training them into.

In the work from home environment takes a little bit of extra costs, because they don't have the natural.

Onboarding experience, so plenty of money going out the door and on the subject of all of it against phase two flywheel generators and lastly on the marketing to be careful not to spend to generate short term demand if.

If we don't see enough supply.

Hey, Bob I would like to add something to worst worth taking advantage of this opportunity to spend a lot operationally as well so we're expanding our distribution footprint where.

You know improving the quality of our systems and doing a lot of activities around that I and and I really think the outcomes good either way I think.

Maybe there's focus on a little bit of compression in the back half.

But I think if we have a little compression even with that you still get a very good outcome for the year and we've been able to invest behind our brands. If we are able to do.

Due to spending then we're going to get paid.

Great tremendous outcome in terms of earnings and I think still being a very good spot with respect to demand trends in the health of the business and we've made the investment operationally that to support the growth for the future. So I kind of view the situation. We're in as being no lose its just a little bit fluid and so when people want.

A very precise financial projections, it's hard to give but it's not a bad outcome either way.

It's either going to be very strong profit result, or it will be a good profit result, with investment behind our brands in investment behind the infrastructure of our business. So I view. It as you know can't lose in the situation. It's just a wide range of outcomes that we could have for the full year and we want to be very transparent about that and that's what we're trying.

Thank you.

Okay, great no that sounds terrific and one last one I promise I'll I'll jump back in queue, but typically your back to school has been pretty big for Hydro flask I was kind of curious this years, obviously massively different than any other time and what kind of update on that how that may have may or may not be impacting hydro flask and I can't.

It myself. So I also want to ask about potential customization enhancements to the hydro flask opportunity and kind of where that stands.

Yeah that lets start with hydro flask just tons of opportunity on hydro flask. We spent years building that franchise, we're doing a ton more of it right now.

Use the word leaning in a couple of times in our.

Comments, and we mean it there's some key brands that we said we are investing heavily and we also said that short term there are marketing opportunities hydro flask is very much one of them in fact.

First on the top of the list. We're spending also by the way on Volumizer franchise, which is growing rapidly.

Expanding around the world, we're spending on international we're spending on those no contact the monitors, especially in Asia.

As examples and on Hydro flask Buildout is big deal, it's doing extremely well in most of its markets, especially outside the United States right now happens to be on fire.

And on DTC is a huge new driver for hydro flask beyond what we've done already one where we feel we can catch up considerably with what's going on in the market and we're putting a ton of investment.

Okay Super well I will jump back in the past the questions on thank you.

Thanks, a pleasure.

Thank you. Our next question is coming from Rupesh Parikh.

Oppenheimer. Please go ahead.

Good morning, Thanks for taking my question and also congrats on a on a nice quarter I'm, sorry, I guess I wanted to start out with just just just a question on guidance. So we look at your commentary it suggests a.

Hi, there we could see if you guys are 20 to 40 basis points. If your daughter spending plans are 80 to 60 basis 80 to 160 basis point. If you can at least based on my estimates that implies operating margins could be down more than 200 basis points in the back half of the year is that is that accurate and then is there any way to I guess think about you know what you know what.

Whether these investments accelerate investments maybe that you would have made in future years. Then you just pulled them forward to this year.

So I think it's called the Directionally accurate I mean, I didn't calculate the back half, but I think if you do the math of what we've given you you can you get the outcome. So it's really just math what happens in the back half and that's really not our focus our focus is the outcome for the year and the Hell.

Most of the business going forward and that's what we're striving to.

Striving towards the quarterly variability I think is is not worth spending.

Spending much time on because.

You know it doesn't matter at the end of the day, how we get there just matters, you know, where we get and we want to be careful with that the health of the business and we're focused on that but like I said previously to Bob either outcome is very positive in our minds, either we've used the opportunity that we've been given to invest behind the brands and we're in a.

Very strong position going into next year.

And we have a little bit of compression in the back half of the year or we don't have the compression. We have an incredible result for the full fiscal year and we're still position, we believe do well going forward, but we are very conscious and aware of the health of our brands and so we're we want to use every opportunity that we've been given.

The demand surged to invest behind our brands. It's just the demand surge has been so great that we have to be a little more selective in terms of our marketing spend because we can't drive demand, where we can't fulfill.

Meet the needs of the demand and so it's a very unique situation to be in a good situation to be in and we're figuring it out and I think were stewarding the brands in the business as well as we possibly can given all the volatility. So I hope that answers. Your question I know, it's more specific about the precise compression.

I think that's.

Something to consider I know as you're doing the math of our projections, but I don't think it should be the takeaway the takeaway should be we're stewarding the health of our business. The best we can in this environment and I think we're in a very good place.

Okay, Great. That's helpful color there and then maybe just one follow up question. So as we look at the health and home business, obviously very strong growth in Q2 of this year.

Just curious if you could speak to sell in versus sell out if you saw any restocking benefit during the quarter as maybe some semi retired as ordered ahead of the key season.

Yes, it's mostly sell in and sell out the demand is extremely strong, especially in for leadership brands that make up the vast majority of health and home. So just to be clear, that's VIX Braun Honeywell and fewer and people.

People may have the wrong impression they may think that somehow we don't have supply. It's not true we have large amounts of supply we've made them bigger and they're going to get bigger still what is true is that we have even larger amounts of demand.

Especially in the air Purifiers, and the thermometers and so what's happening is the sell in is sorry the.

Inbound as quickly the outbound and for retailers, what's ordered as quickly sold through that is leading to some out of stocks and thats why we called it out you can probably see those in the marketplace in the case of the replenished.

Replenishment orders, there constant and we're fulfilling as much of those as we human the Cam there is some allocation I'm just because of the limited supply and as we catch up there's less and less of that and then in terms of the replenishment for the cold and flu season.

Taylor's are properly.

Physician I believe for a normal cold flu season, there is uncertainty and we called it out in our remarks about what that season will be like for the simple reason that co.

The coal that is unusual and concurrent so we'll see how that goes but everything is in the right place and the more that we bring in it all sales through and that's happening for retailers to and their replenishing as fast as they can.

Okay, great. Thank you very much for all the color and best of luck for the balance there Oh, sorry, sorry.

Alright, let me talk a little bit on the compression in the second half I mean, you're pointing out I think that it seems like a big number I want to point out that in the the profitability in the back half last year was very strong too and in the end we had a very strong demand surge or volume surge, especially in Q4, which was a little bit ahead.

All of our expectations and so the profit was also ahead of our expectations and we didn't have the spending line lined up to go along with that.

Outcomes, so that hopefully a little bit of color there and you understand that the comparison is important as well and that will factor into the compression, but like I said I think either way.

The outcome is good for the full year and quite honestly, even the second half because I think we'll be positioning ourselves well for for next year.

Yes, it may be time to just get real clear on this compression thing because I think it's coming up a fair amount and it's possible that people are having a concern that is greater than the situation that we are really in.

Think think of the year is a lumpy one.

We were in a situation like everyone else in the World where Cove. It hit hard in months like March April may and we like others turned off some light switches and cut our spending we had increases in margin because of that as the demand surged and we saw that in Q1 now again in Q2, we.

Had margin expansion, that's above normal and not a sustainable regular number as we look at our phase two investments that we enbridge originally envisioned at the beginning of the year. They are bold and they are right and those significant investments or what powers flywheel is creating the long term transformation that is generated so much value.

In this stock the result.

The result, now is that the same management team is doing the right thing we are using the tremendous cash flow of the company that you saw that $171 million the free cash flow in the first half.

Drive that engine in the back half. So if you start spending in the <unk>.

Spending in the front half because of the lumpy a coated thing and have opportunities both on infrastructure.

As well as in the marketplace hiring of the other things I mentioned in the list I gave in the public remarks.

On the AFFO would not do that and spend into strength, what you'll see as Brian pointed out is a year that should have a tremendous outcome on top of the tremendous out than we had last year and the lumpiness in between is the truth of Cove it.

We went and spent the rest of the year hiding under our beds and preserving that very very high unusual margin of the first half I think we'd be doing a tremendous disservice to the long term trajectory of the business and to our shareholders.

Okay. Great. Thank you I think that was that was helpful color to clear up some of the countries yeah, sorry to be tough there, but I think people have this idea that short termism is somehow a good idea, we're not only managing for the long haul, but I think of it. This way we plan in I think in five year chunks, that's our strategy we play.

We plan in three year chunks that are did you get.

Did you get execution and we delivered one near term chunks for the last six years, we've not only done that but delivered strongly we don't think this year will be an exception, but that lumpiness is unusual its coded driven and we are doing the right thing.

Okay, great. Thank you.

Thank you. Our next question is coming from Olivia Tong of Bank of America. Please go ahead.

Great. Thanks, good morning.

First I want to talk a little bit about sales you talked about September kind of continuing the trend that you saw in the in the quarter.

In the August quarter can you talk a little bit about the winter.

Q2 benefited from catching up to prior demand during the quarter.

Did the quarter benefit in any way from a pull forward of future sales are these trends kind of just net net you know sort of any impact from timing shifts and then just also you know obviously realizing a number of categories are benefiting from coal bed prevention wildfire related demand all these things so.

Can you talk to your expectations when when we do get a vaccine and what what implications that might have sales. Thanks.

Yeah, a couple of things in there so theres backward ones current ones in future ones. So let me try to unpack it that way start with the backward ones. We did not see pull forward. What we see is a surge in demand in Q1, we saw it again in Q2 and we saw an acceleration in Q2 noted not only in demand, but in people's opportunity to.

By in brick and mortar stores open in Q2, we all saw that during months like June July into August and people were shopping, but frankly at a lower rate online continued to search that's the whole bricks to clicks thing and the fact that people at home lot more so they're just in stores last thats the traffic thing.

So not pull forward, but sell through into.

In terms of the searches in demand, it's correct that covance is driving surges in things like the health related products like the thermometers air Purifiers water purifiers et cetera.

And in the case of the future what we've seen so far in September is the same it's just very very strong. We're in the early days of October while we Didnt say it in our prepared remarks I can say, we're in a safe harbor here in a public call. But October is also continuing to be excellent. Although we are in the early.

Days of October.

Course, we've re forecasted internally and that forecast looks good.

That said there is a park that comes with Covance and to your point about the future. There are unknowns and we tried to call that out in our prepared remarks and be responsible.

The truth of that uncertainty so starting with the vaccine theres much talk about the vaccine, but there are three questions about it that nobody knows when how many and how many will take it. So then with the vaccine come how many doses will be available and how many people will take it after all not to mention how effective I'm just assuming.

The effective those things are just not known but let alone the impact it may have on the cold and flu season, which which people speculate about that frankly, no facts on the matter. So as we looked at the future. What we think is that sales will remain strong as we said in our prepared remarks, the torrid growth of the first half will moderate a bit.

People should hear the word rope and remember in the back half base.

There was significant growth in the back half base and we see significant growth over that so hopefully that gives you some color on the sales side past present and future.

Olivia it's Brian I, just want to add that Joey mentioned store closures and lower foot traffic I want to point out that we got the results for Q2 without even having a full quarter of either stores being open or operating at full kind of traffic with full traffic patterns and that's still not going to continue for.

While I mean, we had some of our retailers have same store sales down 50% year over year, yet we were still able to produce the results that we did for the second quarter. So you're kind of asking did we accelerate anything into the second quarter and and answer is no. In fact, I think the second quarter was dampened by the fact that we.

Didnt have brick and mortar fully up and operating probably likely wall for some time, but I think our results have shown that we can be very successful in that environment.

Great. Thanks, that's helpful.

That's helpful.

Second question for me is just and I apologize for it appears like I'm, beating a dead horse, but it does seem like the market is it's clearly questioning the second half margin implication so.

Why shouldn't the year benefit more significantly from the sales leverage in the first half I mean, you, adding more projects than you. Originally planned if so what are they because adding personnel back you know whats, but that was part of the plan pre called it right up taking two investments that was the plan Greenco bad So why isn't there more ebay inc.

Mental margin.

Expansion plan for the year just from the fact that tells her coming into next going better than you thought.

Yeah go ahead, Brian let me start Olivia and I think that Julian will add.

Yes, we had plans pretty covance, but we put those plants largely on the shelf for the first half year. So if you're now than she takes something that was going to be spread over four quarters of the year and now you're concentrating them into two quarters of the year. You will obviously have compression I also think it's just not the right way.

To run a business to take a tailwind like we've seen from co bid and not use the opportunity to invest some of that a tailwind that we've received back into the business. We've always talked about our kind of algorithm.

Tate letting 50% of our unexpected or a profit improvements were expected and allowing that to drop to the bottom line and then reinvesting the other half that we're taking the same approach now and we've got this situation, where we weren't able to make all the expenditures or chose not to make you extend the tourism.

First half the year and we want to get back on track.

On a lot of that so to me, it's very clear why the situation would occur with the numbers in the compression across the quarters did the we are spending was very much dampened by the actions. We were taking the first half year. I mean, you can see addressed DNA margin and look back at the.

Historically, it's we've never had that SDMA rate.

Yes gene a ratio below 25%. So it's artificially low we need to get a base of spending back and yes, we are choosing to make more investments than we had even originally planned in terms of operations and infrastructure, because we need to keep up with.

Keep up with the.

Amazing growth that we've had honestly over the last two years and half year. This year. So hopefully that helps maybe Julian wants to add.

Yes, just a simple thought which is as maybe like Sesame Street simple. So apologies if it's that simple which is if you look at the beginning of the year and the end I think you like what you see in the beginning of the year, we were coming off tremendous strain from last fiscal big growth, 9.2% and $9.30 of adjusted EPS, We had.

A significant incremental investments, that's what we call bolt and right in phase two and they were shut down for a period of time, largely the first quarter because of Cove. It as we started turning them back on at the beginning of Q2, we had tremendous sales surge and that margin expansion that everybody and the more.

It seems to be focused on that's great news, we would be absolute fools now with better forecast in our hand, a better result in our hands not to deliver a year that same or even better than the one that we originally envisioned on the going in basis, we have the cash flow for it we have the earnings for it and we have the initiatives for it and we are only.

The spending money on things that we strongly believe in so if you look at the end of the year you should get a result is better than the one that all of the analysts envision better than the one that we ourselves division.

And you end up with a significant acceleration of a business that already was accelerating from that.

From that standpoint, it's hard to see the problem here.

Yes, one last thing I'll point out as you have things like incentive compensation that with the results that we have for the first half of the year and what we're projecting for the full year EPS.

Escalate significantly because the results are so good so the compensation has to get adjusted and that falls in.

In the back half as well so there are things like that and also contribute to the compression, but in our minds. It's all positive and intellectually inside I think you're going to like yelp coming into the year.

Great. Thanks, guys.

On.

Thank you. Our next question is coming from Anthony Lebiedzinski of Sidoti and company. Please go ahead.

Yes, good morning, and thank you for taking the questions and the nice to hear that the Julian you'll be staying on for another year and the congratulations Brian for your pending.

Pending retirement, so just wanted to.

Just wanted to follow up a Julian you said the earlier that you'd be looking to it for the torrid pace of sales to moderate.

Would that be mostly in the health and home segment or are you are you concerned.

Concerned about moderation in other segments of your business as well.

Yeah, let's make sure we're clear on the on the sort of moderation. We just grew 28% so that probably qualifies for being torrid I don't know if that's the right word, but it's fast I can say that and it's ahead of our expectations and as well as the consensus that was in the market in the case of moderation. If you look at the sales that were.

Respected in the market, we don't think they're very far off to be very honest and that said we are continuing to see sales.

Sales coming in faster I've mentioned, a couple of times at September was extremely strong for us and October while it's early days so far quite good in terms of the stuff that's yet to come and that's where the fog of Cove. It comes in and I just can't tell you how that's going to turn out I can say that what we do see on on sales it looks so.

Ron just doesn't look 28% strong so that's all that we meant by the word moderation if the market heard anything else with full respect that they are incorrect and.

And on the topic of extension of my tenure I want to say thank you.

Very proud of what we're doing at Helen of Troy, We are building the company.

Building the company to last it has delivered and the idea of seeing all through the transformation phase one in the first five years and now phase two and the second five years that would mark a 10 year run and.

And I would be very proud and honored to have the opportunity to take the company through the entire.

Entire transformation from start to finish so thank you.

In regard to Brian or were you said strong though for the full year and we have tremendous internal capability as well.

In the company. In addition to the external search that we mentioned in our prepared remarks, so you're in good hands on the CFO side now as well as on the other side of Brian's retirement the euro.

Joe and let me just add a little bit on the compression I think our sorry does the moderation of the sales in the second half I think it's a function of reduced demand and more a function of the comparison to the prior year. We grew 10% in the third quarter of last year, we grew 15% in the fourth quarter.

Last year.

Beauty grew 23% Housewares grew 15 in health and home through a 10 or 11 tenant.

So just to be clear the moderation in growth is less we see demand weakening in more up it's going to be against the comparison, where there was very high growth.

In the last year and some of those even cobot related in the fourth quarter in the health and home business State. There was early demand for thermometry, even in our fourth quarter of last year and some of the other products. So hopefully that makes sense, it's not a weakening so much in the demand it's more the compares.

Got it okay. Thank you very much for that and.

And Doug just wondering if you guys could perhaps maybe quantify the cost of additional distribution and storage facilities that you talked about in the press release and also.

You know as far as the impact of reversing the previous compensation reductions or is there a number you can quantify for those as well.

Well on the distribution expense I would say, it's probably not a needle mover at the total company level, it's meaningful spend that we're having to incur to keep up with growth and in its the right thing to do.

And it bridges us into the next phase of our distribution footprint that we're in the middle of working on right. Now I think you have to understand that the levels of growth that we've gone through over the last three years to appreciate why we're in the position where we need to make these investments and we've had extensive growth and it's a good problem.

To have and we're making those investments and doing it in the right way, but I wouldn't say you're going to see that is a factor for the second half of the year, but I don't think its.

Now the highest on the list is maybe on them in the middle of the list are towards the bottom of the list in terms of influencing that in that in terms of the the compensation reduction anniversary I think the way. It played out is that won't be so.

So significant of a hurdle to overcome because we acted quickly to restore a lot about compensation and even we were in situations, where we felt like we needed to make hires certain hires even though we were in the middle of a hiring freeze because strategically and support the business with.

It was the right thing to do so I think weve minimized the impact of the lower personnel spending in the first part of the year will be a factor that we have to consider for next year, but like I said I think it and the way. It played out it ended up being smaller than than we all thought it would be as we COVID-19 began.

Got it and then I guess last question from me as far as you know the tax credit tax rate. The can you bring to recap what you expect for the back half of the year for tax rate and then for fiscal 2002.

Sure back half of the year consistent with where we normally are you know I think 10% 910, 11% then it'll bounce around quarter to quarter in that range and then as I mentioned, there is a change with respect to our Macao entity and the tax regulations there.

Where we are we will now going into next fiscal year be subject to the corporate tax rate there, whereas in the past we had a zero tax rate there and that's a massive change, but we were able to structure and do our transfer pricing analysis in a way where the total.

Total consolidated.

The tax rate impact will only be 1.5 to two percentage points going into next year. So you could you could take where we are call. It 10 ish, maybe a little lower and then add a one and a half to two percentage points to that and that should be kind of our ongoing effective tax rate.

Got it okay, well, thank you and best of luck. Thanks.

Thank you. Thank you.

Thank you Anthony.

Thank you, ladies and gentlemen in the interest of time, we are asking the additional questioners to please limit themselves to one question and additional questions can be followed up with offline our net.

Our next question is coming from the Bolton Weiser with da Davidson. Please go ahead.

Hi, how are you and congratulations on the quarter and your personal knows.

Can I just ask you about when you talked about the second half of last year and not the hard comparisons. If you actually look back. It looked like you had margin decline in the fourth fiscal quarter last year and it was because it looked like the EPS DNA spending was actually really high it was up.

As seen it was up 33% year over year. So can you remind us what happened in the fourth quarter of last year was that marketing spending or was that compensation expense or what was that exactly in the fourth quarter of last year.

Fourth quarter or in your right Linda I'll also point out that the third quarter of last year margins were extremely high so high margin Q3 lower margin. In Q4, you are right I think if you blend the two together you get more of a normalized margin for us and so yes. There was shift since then.

Less spending in Q3 and more spending in Q4, and we leave what we did in Q4 as we saw the results in Q3 and made very conscious decisions in Q4 to spend into the strength that we were seeing and we likely would have continued that trend going into Q1, and Q2 of this year, but because of co bid we.

Readjust, so hopefully that makes sense you. We saw the result for Q3, and we had a good outlook for the remainder of the year, we made decisions to spend into the business in Q4, and that's why the Q4 margin is lower than normal, but I think if you look at both of those two quarters together.

It's more normalized margin.

Okay. Thanks, I'll leave it there thank you.

Thank you. Our next question is coming from Steve Marotta of CL King. Please go ahead.

Morning, Julien and brine in the interest of time I'll ask one very quick question as it pertains I believe drilling you mentioned the share repurchase as one potential outcome for a capital use can you talk a little bit about if that has been officially suspended during cove. It if it had been and suspended if it was never suspended and what the balance of that share.

Repurchase plan might be.

Yeah, Yeah, good thanks, and hi, Stephen Thanks, Thanks for asking that in the early days of Cove. It we didnt feel comfortable on the topic of share repurchase even though the stock was greatly depressed along with the rest of the entire securities market. There were just too much uncertainty and we didn't know what was to come we also couldn't give guy.

Items.

At that time and not even the pretty significant set bread crumbs that we've put out today.

In the second quarter, the first quarterly.

The first quarterly report the when we gave in July.

We gave much more news about what we were seeing in terms of trends and signals about where we were on the business, but nonetheless as you can tell from today's announcement did not buy back stock in terms.

In terms of where we are now.

Without telegraphing in any way I can simply say that we have put out a pretty strong results in the first half and we've given you as much visibility as we can for the second half so even in the absence of guidance, where we to make the decision to buy back stock we would feel very comfortable doing so and the market is given a keen understanding.

Standing, where we stand past present, and our visibility for the future and with regard to the capital allocation you see our balance sheet and also our cash flow I'd like to remind everyone. Here at we're entering the strongest cash flow part of the year, which traditionally is the back half so thats likely to be an accelerant.

For us from a balance sheet standpoint, you see our debt ratios as well our net debt ratio that we just reported is half a turn I believe and trying to please confirm.

And we're about to generate a lot more cash assuming the second half of the year goes well and so even with the investments that we're making which I again remind these were the original investments that we planned at the beginning of the year. They just got lumpy, meaning less in the first half more in the second half I just can't emphasize that enough.

We believe that the full visibility is there and what are we to buy back stock do so without concern.

Helpful. Thank you.

Thank you at this time I'd like to turn the floor back over to Mr. Mininberg for closing comments.

Yeah, well. Thank you everybody for joining us we really appreciate it. Thank you for listening it was simply an outstanding quarter and not just an outstanding quarter, but an outstanding first half we like very much where we stand we believe we're making all the right choices on what to do going forward that said there is uncertainty out there and my hope is communicated it responds.

Today, we.

We look forward to speaking to many of you in the coming days and weeks and updating you on our progress. Our next report will be of our results for the third quarter and that will come on the traditional timing in January so with that thank you very much.

Ladies and gentlemen, thank you for your participation. This concludes todays event you may disconnect. Your lines are like off the webcast at this time and have a wonderful day.

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