Q3 2021 Helen of Troy Ltd Earnings Call

Greetings and welcome to the Helen of Troy third quarter fiscal 2021 earnings call.

At this time all participants are in a listen only mode of question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as.

As a reminder of this conference is being recorded I would now like to turn the conference over to your host Mr. Jack Jancin.

Senior Vice President corporate business development for Helen of Troy. Thank you you may begin.

Thank you operator, good morning, everyone and welcome on Detroit third quarter fiscal 2021 earnings Conference call.

The agenda of the call. This morning is as follows I'll begin with a brief discussion of forward looking statements.

Mr. Julien Mininberg, the company's CEO will provide some high level of comments on results for the quarter and current business trends, then outline some longer term drivers of growth.

Then mr., Brian grass the company's CFO.

On the financials in more detail.

Comment on the company's outlook for fiscal 2021.

Following this we will open the call from taking questions.

This conference call may contain certain forward looking statements that are based on management's current expectations with respect of future events financial performance.

Generally the words anticipates believes expects and other words similar words identifying forward looking statements.

Statements of 72 of 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 on not an alternative to GAAP financial information and maybe calculated differently than the non-GAAP financial information disclosed by other companies.

The company cost of listeners not to place undue reliance on forward looking statements.

Non-GAAP information.

Before I turn the call over just for mid of birds eye come from all interested parties that a copy of todays earnings release has been posted the best of relations section on the company's website at <unk>.

W. W Dot Helen of Troy Dotcom. The earnings release contains tables that reconcile GAAP non-GAAP financial measures to their score corresponding GAAP based measures debt.

Well these can be obtained by selecting the investor relations tab on the <unk>.

These home page and then the news tab.

Now I'll turn the call over just per minute.

Thank you Jack and good morning, everyone happy New year I Hope you all had of safe and happy holiday season. Thank you for joining us today.

A lot of ground to cover this morning.

I want to start by highlighting our outstanding third quarter results sales in the quarter to over 34% strong demand for our products driving significant growth in each of our three business segments globally.

Adjusted EPS grew over 20% of cash flow from operations was very healthy.

Tremendous progress that further accelerates outstanding year to date performance.

Just a few weeks ago before the end of fiscal 21, we're on track to becoming a 2 billion dollar company this year and delivering at least $11 from 50 cents per share in adjusted EPS. We are especially pleased to announce this expected earnings result, even as we make significantly increased growth investments to fund of key programs.

It will help drive fiscal 22 and lay the groundwork for the major initiatives intended to power of value creation flywheel for the back half of phase two.

In line with our capital allocation strategy, we put some of our strong cash flow to work in the third quarter, returning capital to shareholders by buying back just under a million shares of our stock at an average price below $200 of share.

During the third quarter. We also continue to build our inventories back to healthy levels and in December we extended our exclusive global license for the wrap on trademark with a one time upfront payment at an attractive multiple it.

In recent years, our Revlon business has more than doubled making it a key propellant of our global hair appliance business.

We are pleased to secure the Revlon brand as an important element of our good better best approach for continued growth in global hair appliances, along with our own brands of hot tools Golden Hot and dry bar.

This transaction is an excellent fit with Helen of Troy goal of to own outright or preserve long term use of the brands that are important to our portfolio and that we have proven we can grow under our stewardship.

We know many of you are interested in our perspective on continued growth for Helen of Troy, especially following this year of accelerated revenue and earnings growth. So before giving color on the third quarter results in each business unit I want to discuss some of the key investments we are making to continue creating value in fiscal 22 and be on.

These include direct to consumer new product development customization marketing international Nexgen distribution infrastructure and dyed T as well as capex for higher production capacity several meaningful cost of goods savings program and further geographic.

Nickel diversification of our sourcing footprint beyond China without to southeast Asia and to Mexico.

Even with the significant investments we have already made and plan we have the capacity for further value creation by acquisition and remain focused on selective strategic M&A as an additional growth driver.

We are excited to be in a position this fiscal year to make the long term investments needed to catch up with our rapid growth over the past couple of years and to invest in the building blocks of capabilities. We believe will create incremental revenue and earnings growth during the rest of phase two.

We believe it is much healthier to lean forward into the business momentum, we are seeing and support our multi multi year plans as opposed to be overly focused on our results from quarter to quarter.

This is the same formula we've used in both phases of our transformation and believe it has been a key driver of our track record of sustained success.

I also want to take a moment to speak to our average annual growth targets. We are pleased with the accelerated top and bottom line growth rates in the first two years of our five year phase two transformation plan.

Looking ahead to the remaining three years of phase two we remain confident in the average annual organic sales growth targets of two and a half to three and a half percentage and the average annual adjusted EPS growth of 8% over the course of fiscal years 20 to 24.

I'd like to now turn to our results in the third quarter of share some perspective of each business segment.

We are extremely pleased with our performance in beauty delivering total sales growth of over 56%, including 40% organic net sales growth.

Operating leverage from higher sales and a more favorable mix drove significant gains in beauty margins.

Even as we made additional investment in new product development supporting customers and hot tools sponsorships like the country Music Awards Keith.

Key business drivers included continued high demand for one step volumizer isn't waivers new distribution earned during the quarter and an incremental 17 and a half million dollars of dried bar revenue.

Even as competitors enter the marketplace are one step volume wise your franchise across our four major beauty brands continues to grow and garner considerable attention it.

It is now amassed more than 150000 on line reviews at an average of 4.6 stars on Amazon alone.

He online and brick and mortar retailers of highlighted Revlon, one step volumizer sales as a standout in their own early holiday reported.

Third party syndicated data shows 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 of significantly since.

Syndicated data in brick and mortar shows that during the latest 52 week period. We also grew on a number to share position in U.S. retail appliances over.

Over the course of fiscal 21, we have become the share leader at several key customers.

The share growth in beauty was broad based across our brands with strength in Revlon Hot tools bed head Golden Hot and dry bar Revlon also continued to grow share in EMEA, especially in the United Kingdom.

Drybar improved sequentially again this quarter despite retailers on salons still struggling with the challenges of stay at home recommendations in certain areas of the country like Los Angeles, and New York.

Regarding our previously disclosed divestiture plan for the personal care business the process is advancing.

We are seeing strong interest from potential strategic and financial buyers. The business has many iconic brands and we believe it can be more successful with a high level of focus investment and attention from a new owner, we are still targeting completion of the process by the end of this fiscal year.

In health and home our largest on our most global business sales performance in the third quarter was particularly strong growing almost 35% and bringing the revenue the segment's growth to over 32% fiscal year to date.

Profitability in this segment remains healthy supporting necessary investments in key areas, such as new product development direct to consumer and new hires in engineering marketing institutional sales and other mission critical departments.

The biggest driver of the sales growth in health and home was continued demand for health related products, such as VIX flow on Honeywell and pure that address the needs of mater lots of monitor of body temperature control, the humidity levels and improve air quality water quality.

Tremendous media attention and focus from authorities and scientific experts on reducing airborne droplets, an aerosol drove air purifier demand from consumers and institutions more than doubling sales of our highly rated Honeywell purifiers in the quarter.

The high demand and our work to increase supply have led to new market share gains in the United States for our market, leading Honeywell purifiers fewer water filters and big Humidifiers. The investments we made earlier this year to increase supply in categories, such as the monitors and air Purifiers have created considerable additional.

Capacity in the third quarter, and we expect further capacity increases in our fourth quarter as we meet demand and build back to healthy inventory levels.

As previously shared in total we expect our supply of more than doubled versus pre COVID-19 in these key categories.

This also allows us to better handle demand above historical averages as cove, it peaks and in the future handled the new normal of demand. We expect now that consumers and institutions are more aware of the importance of these categories and of our hearts and of our high quality products.

Like other events, such as global warming and 911 that change long term consumer behavior. We believe the heightened awareness driven by coal that will be sticky.

Our products are well respected they are market leaders in these categories and they are where consumers institutions and retailers generally favor high quality brands, They know and trust.

Give you some perspective on the current cough cold and flu season, which usually peaks late in our fourth quarter incidence levels of been tracking well below historical averages. We believe the lower cold and flu incidents is at least partly due to social distancing.

Increased hygiene protocols Ltd back to school work from home reduced travel and Ltd group gatherings. Meanwhile, Cove. It related demand is more than offsetting the lower cold and flu base, that's being laid down this season.

In housewares third quarter total net sales increased by over 21%, even as we face the particularly strong comparison in which the segment grew more than 28% in the same period last year.

Our housewares portfolio continues to be ideally situated to support the cooking cleanliness and sustainability focus that has now habit in homes around the world, especially during the pandemic.

Housewares grew in brick and mortar on line and internationally.

Oxos food storage baking cooking utensils, and kitchen organization categories were all growth drivers as the home nesting trends continue.

But just one more strategy, we have talked in the past has been a very positive factor for OXXO. This year, new generations are discovering the excellence of OXXO products, and adding new OXXO items to their household income.

Consumers that already know and love the brand are also buying more OXXO items.

These factors drove very strong point of sales growth, both online and in brick and mortar at key retailers OXXO also benefited from expanded distribution and new product launches during the quarter.

All of these drivers helped contribute to market share gains in the United States.

Hydro flask face a strong comparisons of domestic distribution gains in the prior year period, especially on the sporting goods channel and was also challenged in the quarter by a soft back to school season as most of US students were learning remotely outside the classroom internet.

Internationally, the brand did very well growing sales and making significant distribution gains.

Before leaving my remarks on the business performance side I would like to touch on international for just a moment. It is an important plank of our phase two strategy with EMEA and Asia Pacific chosen as the key regions. We are focused on.

Both of these regions performed very well in the third quarter fueling international sales growth rates only slightly behind the fast pace. We saw at the consolidated total company level.

International margins also expanded in the quarter coby.

Cove. It is indeed, a driver but it is important to note that the growth. We're seeing in EMEA is across all of our business units with beauty and both housewares brands growing strongly in the region.

Now I'd like to share some thoughts on our longer term prospects and opportunities. We look beyond we are looking at beyond the pandemic and as we plan on our growth for the back half of phase two.

Well, while we have not face of global pandemic on the scale of code that 19 in the past. It is important to note that over the past several years, we have overcome significant obstacles many thought could put us back on our heels exam.

Examples include major new terrorists rapid evolution of Digitization and impact on sales and marketing shift to online as a major new channel large seasonal swings such as the incidence of illness due to cold and flu or the unpredictability of wildfires major consolidation in the freight industry formidable new cash.

Competition currency fluctuations and significant changes in tax law.

In each case, we adapted improved our capabilities and powered through to deliver top and bottom line growth.

Helen of Troy came into the pandemic with momentum you came in with a diversified portfolio of proven leadership brands and a well developed culture and organization.

The consumer trends related to covert gold at 19 further strength in many of our leadership brands and accelerated our online presence.

We wrap up fiscal 21 and expect to start fiscal 22 with the same all weather portfolio.

Healthy business fundamentals improved inventory position tailwinds from the accelerated investments, we're making now in the second half of fiscal 21.

Many exciting soon to be announced product innovations robust slate of strategic initiatives and of culture and organization that continue to distinguish itself as a rally as as it rallied to overcome the many challenges from COVID-19.

As we select our building blocks to drive growth for the back half of phase two.

I thought it might be helpful to touch upon a few of the consumer themes of macro trends we believe.

And add value in fiscal 22 and beyond.

The first is a higher installed base for our health and wellness products that have consumables, we are selling more air filtration water purification and thermometry thermometry devices that at any time in our history.

Many of these devices have high margin consumable such as air filters water filters and probe covers that have hers of replacement cycle.

I believe there is power in the just one more strategy for these devices as well with air Purifiers of Humidifiers now in more rooms, and institutions and items like the monitors and humidifiers once thought of as seasonal now becoming more like year round staples.

The second is the shift from cities the suburbs that each seeding a new cohort of buyers for many of our leadership brands.

For example, new and younger households are discovering OXXO rolling its awareness and its installed base.

Consumer habits will likely continue to focus on cleanliness storage coffee and baking as the work from home pendulum is expected to recalibrate to some new normal beyond Cove at 19.

Historically OXXO earns follow on adjacent sales in kitchens bathrooms and throughout the home once a household is penetrated of.

Again, the idea of just one more is making a difference for our consumers our brands and our business.

The third trend is that we anticipate is a new safety of home of opportunity to satisfy new consumer needs as people look for ways to ensure safe and clean food and water.

We expect they will also be looking for methods of transport food and water when they must travel or commute both.

Both OXXO and hydro flask of the perfect on the go solutions to provide the peace of mind and trust of home as consumers venture back into the post cold It 19 world.

Another trend just consumer centric innovation. This one has always been bedrock for us, bringing new products from brands people trust to make life easier save time and sustainably solve problems better than competition is a permanent trend on a proven strength for Helen of Troy.

As we look at current and future consumer needs. We have identified new focus areas that include customization personalization portability multi functionality durability increased storage wireless connectivity and next generation lightweight materials, all intended to offer more reasons for consumers to try.

Try trust and prefer our brands.

This trend is of the sustainability trend, which we see as important not only for our brands, but also corporately.

Sustainable eco friendly components are inspiring Helen of Troy to look for new ways to Reimagine and reduce packaging as one of the many approaches to reduce our environmental footprint from.

For consumers, reducing ones carbon footprint in plastic pollution by using products like hydro flask, drinkware and insulated coolers and totes versus single use items is expected to become even more important than it already is today.

Our global associates and consumers around the world are demanding stronger ethics, and greater equality from each other their brands and their company.

Recently, we made key hires to lead our EPS Gi and diversity equity and inclusion of initiatives.

Our grassroots work in these areas and are more formal approach over the past year is already producing results. For example, Helen of Troy is helping home division is recognized as an official Walmart it gets on Google.

OXXO is now a member of one per cent for the planet fewer is leading drinking water education programs and communities where lead is a major health concern on hydro flask continues to distinguish itself as an environmental and accessibility leader with its park for all programs.

In fact hydro flask recently won the 2020 American Park experience award from the National Park Trust we're.

We are excited to take all of this to the next level during phase two.

Sixth we see direct to consumer and further acceleration of E commerce as attractive organic building blocks for the back half of phase two.

We have been investing in online for years and have seen the benefit with roughly a quarter of all Helen of Troy sales now occurring from some form of E commerce.

Our on line reviews of growing rapidly as has our ability to serve consumers directly with the best yet to come as we invest further in this area with new people and much better systems to acquire and fulfill consumer and institutional demand directly.

Direct to consumer has long been a part of hydro flask growth and has more recently become a major driver for OXXO and dry bar as we dial up our DTC capabilities with new front end systems on the sales and marketing sides and scalability on the I.T. and operations side.

We are investing further in technology people and best of breed I T platforms to create a much more seamless end to end consumer experience that further distinguishes our leadership brands.

And lastly, beauty remains timeless looking good and feeling your best is always on trend. The pandemic has led to a rise of do it yourself beauty products like our one step volume misers, earning influencer attention because they save women time deliver a great look and make beauty ready.

Humans, not only of faster, but also easier.

During the pandemic consumer priorities of shifted towards products that allow them to mimic the salon experience at home by on line and look great during virtual meetings.

Our brands of flourished in store and online by reacting quickly to changing trends. We also expect tell of Troy beauty business will benefit by serving consumers and stylists as the vaccine becomes more widely available salons reopen and social gatherings once again become a part of everyday life.

Stepping back we believe Helen of Troy leadership brand portfolio is well positioned to leverage this late of themes and macro trends our investment choices have been tailored to match blacks.

Black Swan events like COVID-19 served as change agents and catalysts that create new trends and accelerate predicting the pre existing ones.

The most significant shifts typically have relevance for many years.

We believe brands like ours that resonate with consumer need for authenticity comfort and security are the one shoppers frequently turn too and trust.

In conclusion, as we look to a strong finish for fiscal 21 and prepare for fiscal 22. Our attention is focused on carefully balancing three critical measure of the progress the.

The first is generating an excellent financial result, each fiscal year.

Second is making the bold and the right investments to further build our world class brands and the capabilities, we believe will power us through the back half of phase two.

The third is advancing our culture.

Our core values of being in touch.

Mutual respect ingenuity and all of its forms share successes and maximizing the contribution from exceptional people have helped drive our phase two strategy to attract retain unify and train the very best people.

We continue of the measure our progress in each of these areas are.

Our financial results are published for all of the seat.

Our car on culture, while a bit harder to measure we just completed the survey among more than a thousand of our global associates. The results show we advanced on every single metric over the two years since we last surveyed our organization.

Powerful confirmation that we're on the right track and building, an even stronger organization and cultural foundation in phase two.

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

With strong cash flow of low leverage we are well positioned to add more critical mass to our value creation flywheel include the opportunity to deploy capital towards.

Accretive acquisition and consider opportunistic share repurchases.

Delivery for all stakeholders has been a hallmark of Helen of Troy every year throughout its transformation.

We continue to work on creating long term value in fiscal 22 wouldn't be on and we are grateful for your trust in us as we do so.

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 are all sales unhealthy.

Julien highlighted we delivered an exceptional quarter debt exceeded our expectations with broad based and consistently strong sales growth across all our business segments of the key measures.

Building on solid results from the first half of the year and despite significantly higher income freight costs. We also drove meaningful gross profit margin expansion in the quarter by strengthening and consolidating our supplier base, introducing new products with healthier margins.

And improving our sales mix organically and through the acquisition of Trump on products at the end of fiscal 20.

I asked you in a ratio in operating margin reflects the shift in marketing and new higher spending to the second half of fiscal 21 due to cost reduction measures on the first to us as well as incremental marketing and long term investment spending to drive growth during phase two of our transformation.

As we stated last quarter, we are using the strength of fiscal 21, as an opportunity to accelerate and fund investments that we believe will benefit fiscal 22 and beyond.

Ill speak more of these investments later in my comments regarding our outlook for the full fiscal year 21.

Overall, our business continues to show strength and resiliency generating adjusted diluted EPS growth of 20.5% per quarter.

And on the 35% growth for the fiscal year to date.

On liquidity was another highlight ending the quarter with approximately $962 million, including 157 million in cash and cash equivalents and 805 million available on a $1.25 billion credit facility.

This is just slightly below a $1.1 billion on liquidity at the end of the second quarter, reflecting investments from working capital of capital expenditures as.

As well as open market share repurchases from $192 million made during the quarter.

We generated $230 million of free cash flow in the first nine months of the fiscal year even.

Even as we increased inventory by 127 million and made capital expenditures of over 19 million in part to expand our production capacity to better satisfy surges in demand and diversify the geographic footprint of our supplier base to help mitigate any potential future for COVID-19 disruption on our supply chain.

Yeah.

As Julian mentioned after the end of the third quarter, we entered into an amended fully paid up 100 year exclusive global license from the level on trademarks.

Part of this transaction, we paid a onetime upfront license fee 72.5 million in lieu of any future ongoing royalties from fees.

On license fee implied multiple of less than nine times. The estimated fiscal year 22 after tax cash flow benefit from annual royalty savings.

We believe this is and that's sort of strategic use of our strong balance sheet to further accelerate or value creation flywheel and help supplement earnings growth in fiscal 2002 and beyond.

Now moving on to a more detailed review of the quarter.

Consolidated net sales revenue of 637.7 million, 34.3% increase over the prior year.

Organic business net sales from 30.3% driven by very strong sales growth in all three business segments.

As expected, we saw improving trends on the beauty segment, which drove exceptional growth and third quarter demand on health and home and housewares remains strong.

The strength of more than offset the upper simple reduced store traffic at certain retail brick and mortar stores.

Back to school season, due to Covance and a decline of non core business.

Consolidated sales from the online channel grew approximately 34% year over year to comprise approximately 24% of our consolidated net sales in the third quarter.

Sales from our leadership brands grew almost 34% in the quarter, which includes 4.6 percentage points of growth from the dry bar products acquisition.

Of our product sales continued to show sequential improvement in the third quarter, even if anyone of our salons were either closed at various times during the quarter saw significantly lower store traffic due to covance, especially on some of the larger markets of California, and New York.

Organic sales from Houseware segment increased 21.2% off a base that grew 28% last year.

Reflecting a continuation of strong demand for lots of products as consumers spent more time on cooking cleaning organizing and pantry loading.

Oh sales was talking about the online and brick and mortar channels.

Hi per class faced headwinds in the quarter from the cobot impacts reduced store traffic at certain retail brick and mortar stores, such as Dicks Ari eye on specialty outdoor.

So back to school season, due to Toby increased competitive activity and the unfavorable comparison of impact just on demand trends in distribution growth from the same period last year.

A key highlight of the quarter was a meaningful increase in international sales, both OXXO and hydro class as we continue to expand distribution and marketing initiatives outside the U.S.

Well from home organic business net sales increased 33.8%, reflecting continued strong consumer demand for health care and healthy living products in domestic and international markets.

Sales were strong in both the online and brick and mortar channels.

Well part of wildfire activity on the West Coast, United States also contributed to sales growth for air Purifiers debt.

Factors from partially offset by declines of non strategic categories.

[noise] beauty segment net sales from 56.2% on organic sales increased 39.8%.

Sorry, I cant sales growth on both online and brick and mortar channels driven by the strength of the Onestep family of products share.

I have two greater and more aggressive early season retail holiday promotions.

And the distribution, primarily on the club and sub channels and an increase in international sales.

So I bought products contributed net sales revenue of 17.5 million from 16.6% She segment net sales though.

These factors from partially offset by reduced store traffic at certain retail brick and mortar stores due to coal bed and the net sales revenue decline in non core business.

Consolidated gross profit margin standard of 45.1 per cent compared to 44.2%.

Nine percentage point increase is primarily due to a favorable product mix within health from home in the organic beauty business.

Favorable impacts of the driver products acquisition.

And the favorable favorable channel mix within housewares.

These factors from partially offset by higher inbound freight expense and an unfavorable unfavorable product mix in housewares.

Consolidated adjusted DNA was 29.3% of net sales compared to 27.5% 1.8 percentage point increase.

This quarters, that's DNA rate largely reflects the shift in marketing of new higher expenditures from second half of fiscal 21 due to cost reduction measures in the first half as well as incremental growth and infrastructure investments that we have chosen to accelerate into fiscal 21.

On the strength of our results in the needs of support of rapid growth in recent years.

Although we were able to catch up on some investment spending from the first half and we increased our overall growth investments by approximately 100% year over year on the third quarter on.

Marketing expenses were below the base plan that we outlined on our second quarter call like $4 million to $5 million.

We were either not able to execute that level of increased investment standard short timeframe available, we're not able to do so with an effect of ROI considering demand trends in certain categories that will not benefit from the out of investment.

In some cases from a demand creation kind of led to adjusted EPS.

Therefore, the remaining baseline spending was delayed until the fourth quarter has been reflected in our outlook.

This variability in spending and timing of something that we saw as a possible outcome, which is why we called it out during our second quarter call.

As we move forward through the remainder of the year.

We're prioritizing prioritizing long term growth from infrastructure investments that we believe can set of substance itself in fiscal 22 and be on well still taking advantage of as many short term demand creation opportunities as possible.

The increase in Michigan. A racial also reflects increased freight and distribution expense higher royalty expense increased legal and other professional fees and higher bad debt expense each.

These factors from partially offset by favorable operating leverage travel expense reductions and the favorable compared of impact of acquisition related expenses in the prior year period.

GAAP operating income was 100.7 million or 15.8% of net sales compared to 79.3 million or 16.7 per cent of net sales in the same from your last year.

On an adjusted basis consolidated operating margin of 17.6% compared to 19% on same period last year.

1.4 percentage point decrease primarily reflects increased marketing expenses increased freight and distribution expense and unfavorable product mix from the houseware segment.

Higher royalty expense.

Legal and other professional fees and higher bad debt expense.

Feedstock from some partially offset by favorable operating leverage.

Favorable product mix within health and home in your organic beauty business.

Well channel mix within housewares and travel expense reductions.

[noise] housewares adjusted operating margin decreased 5.9 percentage points to 18.4%.

Primarily reflecting on less favorable product mix increased marketing expense increased freight and distribution expense to support strong demand.

Royalty expense and increased legal and other professional fees.

These factors were partially offset by favorable operating leverage more favorable channel mix and travel expense reductions.

[music].

How come home adjusted operating margin decreased 1.4 percentage points to 14.1% primarily.

Primarily reflecting increased marketing expense higher royalty expense and the favorable impact of foreign currency settlements year over year.

These factors were partially offset by favorable operating leverage and the impact of of more favorable product mix.

[noise] beauty adjusted operating margin increased 5.7 percentage points to 21.7 per cent primarily.

Primarily due to favorable operating leverage margin impact of a more favorable product mix and travel expense reductions.

These factors of partially offset by higher personnel expense related to the acquisition of drive on products increased marketing expense higher bad debt expense.

And higher legal and other professional fees.

Moving on to taxes income tax expense as a percentage of pre tax income was 14 per cent compared to income tax expense of 10.3%, primarily due to an increase in liabilities related to uncertain tax positions.

Net income of 84.2 million on $3 from 34 cents per diluted share compared to 68.7 million for $2 from 71 cents per diluted share in the prior year period.

Non-GAAP adjusted income from 19.8%.

To 94.8 million on $3 from 76 per diluted share compared to 79.1 million or $3 from 12 cents per diluted share in the prior year period.

Now moving on to our financial position for the third quarter fiscal 21 compared to the third quarter fiscal 20.

Accounts receivable turnover was 70 days compared to 68.9 days from the same period last year.

On accounts receivable balance was 500.1 million compared to 365.5.

Inventory turnover was 3.6 times for the trailing 12 months ended November 30 of 2020.

The 2.9 times for the price of <unk>.

Inventory was 380 383.4 million compared to 333.7 million.

Net cash provided by operating activities increased to 148.3 million to $249.7 million for the first nine months of just from 21.

The increase was primarily due to higher net income and increased cash from accounts payable on accrued expenses, partially offset by increased cash used from receivables and inventory.

Increases on working capital of components are in line with our expectations as we build inventory in an effort to eliminate out of stops navigate Chinese new year production downtime and mitigate any further potential cobot disruption on our supply chain, leading into our peak selling season, an impetus from talking to you.

Total short and long term debt was 440.4 million compared to 244.2 moving.

As of the end of the third quarter on leverage ratio of trying to enter of debt agreements was 1.3 times compared to <unk> 0.9 times of the same time last year.

[laughter] on sequential increase compared to <unk> 0.9 times at the end of the second quarter and reflects additional borrowings to fund the open market share repurchases of $192 million and to continue to build additional inventory.

Our net leverage ratio, which net for cash and cash equivalents with our outstanding debt was.

Eight times that you ended the quarter compared to <unk> 0.5 times at the end of the second quarter.

We continue to hold higher than normal levels of cash from the third quarter to protect us against any potential disruption in the credit markets due to the U.S. presidential and congressional elections and to allow us to fund our targeted inventory levels during our peak selling seasons, and well past Chinese new year.

We believe on liquidity and cash flow put us in a great position to continue navigating the uncertainty of the external environment.

And take advantage of from potential capital allocation opportunities.

Now, let's turn to our annual outlook for fiscal 21.

We expect consolidated net sales revenue in the range of 2.75 to 2.1 billion from fiscal 21, some price consolidated sales growth of 21.5% to 23%.

Our net sales outlook reflects housewares full year net sales growth of 12 to 12 and a half percentage.

Health and home on your net sales growth of 27.5% to 30%.

And beauty full year net sales growth of 27% to 28%.

We expect consolidated GAAP diluted EPS of $10 from 29 cents to $10 from 46 cents.

And non-GAAP adjusted diluted EPS in the range of 11, 52, Elevenseventy, which excludes any asset impairment charges acquisition related expenses restructuring charges tax reform share based compensation expense and intangible asset amortization expense.

Our outlook from net sales growth also reflects the volume.

The assumption of cold at night Keene related demand trend seen in the second and third quarters of fiscal 21 continued through the fourth quarter.

The assumption that the impact of the cough cold flu season on the fourth quarter will be below average compared to an above average impact from last year due to the COVID-19 impact on back to school work from home travel group cabling and brick and mortar shopping.

Sequentially more difficult comparison to the fourth quarter of last year, which included initial COVID-19 related demand sort of genes in all from home segment.

And then on Michelin surge in demand from the Onestep family of products and beauty segment.

An estimated increase of growth investments of approximately 50 per cent for the whole fiscal year 21, which is heavily concentrated in the second half of the year due to cost reduction initiatives in the first half.

The assumption that in December 2020, foreign currency exchange rates will remain constant for the remainder of the fiscal year.

And an estimated weighted average diluted shares outstanding of 25.3 million.

We expect to reported GAAP effective tax rate range of 6.7% to 6.8% and on adjusted effective tax rate range of 9.5 to 9.7 per cent for the full fiscal year 21.

We expect capital asset expenditures of 32 to 35 million sort of whole fiscal year 21, which includes estimated initial expenditures related to a new 2 million square foot distribution facility state of the on automation and direct to consumer fulfillment capabilities for House force.

We are designing of facility to be a best in class solution for the segments fast growing DTC customization and pick pack and ship needs.

We expect somebody to be highly efficient cost effective with the ability to quickly flex up or down in response to volume.

New facility will also allow us to reconfigure our existing distribution footprint to support the significant growth in health and home and beauty.

We expect intangible asset expenditures from 74 of 75 million, which includes $72.5 million occurred in December for the Rep on license transaction referred to previously.

The likelihood of potential impact of any additional fiscal 21 acquisitions and divestitures future asset impairment charges future foreign currency fluctuations further tariff increases from future share repurchases run on and cannot be reasonably estimated therefore, they are not included in our sales and earnings outlook.

In closing we are proud of our accomplishments so far on fiscal 21 looking to build on the accelerated success of recent years for the remainder of phase two.

We have decided to use the strength of fiscal 21, so it sounds like both growth and infrastructure investments that would have otherwise occurred of fiscal 22 or later.

Although we came into the year on the plans for sick significant incremental investment we expect fiscal 21 to become even more of an investment year and we had planned which we believe sets us up well from fiscal 22 and beyond.

We consider the expected financial outcomes of year on the strength of the company as we head into fiscal 22 to be remarkable.

I'm grateful that we are in a position to grow revenue more than 20% an increase of growth investments by almost 50%.

Well, maintaining adjusted operating margin in growing adjusted EPS of 23% on more.

Another way, we look at a day is delivered almost three years of our guidance from long term earnings growth in a single year well at the same time, making significant growth of the infrastructure investments for fiscal 22 and be on it.

Yes, we've been able to accelerate investments in the fiscal 21, we head into fiscal 22 of the momentum of that stand behind the business and expect to have much more flexibility in managing our investment choice, making and our earnings growth Formula from next year.

More importantly, we believe our all weather portfolio and actions taken this year to leverage the more lasting trends that emerged from carbonite team to improve on long term growth algorithm.

We dramatically improved our installed base for devices that use proprietary consumables, you penetrated new households, with brands, such as OXXO, Revlon, Brawn, and Honeywell, which sets the stage for future consumer engagement and part of proliferation.

We believe we can use the expected sticky notes to stay at home trends to drive even further new household penetration across a wide array of products.

We've already taken advantage of the opportunity to open new channel such as institutional and expand existing channels such as club on DTC, where we see much further growth potential to come.

We're making meaningful media content production investments that should benefit the next several years.

We continue to make front and backend investments and capabilities that will unlock growth and proud of customization and product set configuration.

We continue to invest in our businesses that were more negatively impacted by COVID-19, such as hydro class can try bar, which should set them up for success is the world's reopens.

We significantly expanded our production capacity diversified and strength in our supply base and shorten lead times on key product categories.

We put our balance sheet to work to strengthen our ongoing cash flow and supplement future earnings growth through the rough on license transaction and open market share repurchases, which combined we expect to contribute adjusted EPS of almost 70 cents in fiscal 22.

We also have the opportunity to significantly de lever and fiscal 22, as we move back towards steady state working capital and user so on cash flow and existing safety net cash to pay down debt, which we expect will result in lower interest expense in fiscal 22.

We believe we have pulled a lot of levers to position the company to sustained earnings growth off of base that we expect to grow by 23% from more in fiscal 21, we'd.

We like our diversified portfolio, our ability to leverage current and future trends the momentum in our business on investment choices and our ability to continue to develop additional opportunities to further supplement future earnings growth as we head into fiscal 22.

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

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Our first question comes from the line of Bob on the Bank with CJS Securities. Please proceed with your question.

Good morning, happy new year on congratulations on continued outstanding results.

Thanks, Bob.

[noise], Great I'd love to start with obviously, you know Super strong growth on line, you're at 24% still which is great Ah that's still means of 76% of your sales from bricks and mortar so I got out of it.

Two part question here, one could you give us an update on you know the health and strength of your retail network given what's going on in the World and then the second part of the question is.

Intuit.

Intuitively I would have guessed that on line would have grown faster than bricks and mortar and in this quarter or in this time period net you're still at that kind of 24, 25% online and organic growth is outstanding, but maybe give us a sense of why on lines, not outpacing bricks and mortar too.

And Joanne do you want to take on or do you want me to.

Your line is muted possibly.

Then let me go and do that so.

So the first part of the question you asked about the retail net worth.

Let me understand what you mean by the strength of that are you talking about our distribution channel or b the customer relation yes.

Oh sure just no just more of the help of free up your retail partners and how they stand on how they've been impacted and how that may impact you going forward. So the you mentioned some you know Dick's bed Bath and beyond you know all of your target Walmart et cetera, you know how are their businesses doing given the pandemic you know <unk> and is that.

How will that impact you going forward and on the other part of Howard how is that I, obviously worked network.

Growing as fast as you're on line also just kind of curious on both.

Yeah, and then I I think the.

First started their schooling.

Yeah. No you go ahead, Brian I'm now on the call sales I have some thoughts here, but please go ahead yeah.

I would say overall I think the the retail our retail customers are strong I mean, there's there's winners and losers and the ones that have one obviously and there are more mass kind of base like Walmart and target and Amazon of course.

You know, we feel very good about our positioning with those customers and then the ones that are not doing as well I think they're just more focused on the future and preparing themselves for you know what life is going to look like.

When we come out of this and you brought up to very good ones debts of already high we see no weakness in kind of their view of the future and their positioning in fact, I think they're they're leaning in on a lot of our products. More then then we would it's bad and so I see Kaufman.

Since in the in the retail community almost across the board on there's pockets, where you know they're in a very tough situation drive our salons for instance, there on a very tough spot because God told it's had of such a significant impact on them, but but that's the exception in my mind in terms of the strength of with our.

Tell customers I, I see positivity and they're really lining things up for the future does that does that answer your question.

Yes, but that part of the cost of perfectly.

Yeah, well one of build Bob on this one and I Hope My voice is coming through now in.

In terms of this one a lot of companies are posting big gains on line, but importantly, as a substitution for weakness in brick and mortar on.

And in our case there are big gains on line 30, plus percent online growth is is not shabby, especially given the big growth of the base that it's on because most companies are not coming from of 20 plus percent online sales growth. So if were that developed and then growing at 30 or so per cent from there.

I would stand behind that on line result, but one of my point I'm trying to make is that for plenty of people on the.

The.

Brick and mortar strength is just not there that's not the case for Helen of Troy of nor was it the case in Q3 as an example in beauty a huge growth in distribution and sell through in brick and mortar volume misers in particular, the onestep products and not just revlon, So think of Walmart.

Costco Walgreens has three examples in Q3 in beauty and he said well that must mean that Amazon or something was down and its not the case Amazon themselves kind of said that that same product was their number one beauty item during their on pre holiday.

Announcements that they made on just to give an example in beauty in housewares big Dot com sales, but even bigger brick and mortar sales and then in health and home on the brick and mortar purchases for health care products tends to generally exceed the online for the simple reason.

When you're sick you don't wait two days for Amazon to deliver a package you just go by and those buys are happening in brick and mortar. So I would look at a bit the opposite to be on as Bob of Wow, Here's a company that was already big online got a lot bigger and unlike plenty of other companies big brick and mortar on top of the drivers like the ones you just heard not so shabby.

Yeah, Bob I was kind of due to answer the second part of the question separately I think it's a math moving online didnt really slow down for US. It just was on pace with the rest with the strong growth elsewhere. So same growth in online that we've experienced in the past no deceleration, it's just doesn't make any progress.

On the percentage of the total when the rest of the company is growing as fast. So we don't we don't I.

It's a little bit of of math anomaly, but we don't think there was any slowdown in online. It was just that everything else access.

Accelerate.

Terrific, Okay, and then from my follow up just sticking with kind of.

I don't know channels or whatever I'm trying to tie this into calling it a follow up but I'm kind of pass we've talked about commercial opportunities for you, particularly on the health home related products, you know schools hotels <unk> office spaces can you just give us an update on the progress on and you know how long does this this take just to set expectations. So I won't ask you every quarter.

For two to three years, [laughter] debt or something like that.

Yeah I'll take this one institutional was identified early on in the pandemic as an opportunity and it's been something that's been on our mine for a while on the pandemic reported route of provided a catalyst for it [laughter] I'm just like it has for other things.

In this world you like work from home and things like this and so.

Institutional became a thing what it did for US is it allowed us to bring on some folks in the sales force who have unique in institutional sales a work with inline product at first which has been successful for us think air Purifiers.

Over the last quarter as an example of that to monitors before that and also on going as two examples of institutional of now in line.

It further gave us the opportunity to really look at the way, we do connected devices bring some new capability of engineering and outline of road map for institutional it'll go on for multiple years. So.

Progress on sales.

Progress in sales force progress in new product development planning and progress.

Excuse me on creating a multi year trajectory for institutional per Helen of Troy, So we like our prospects.

I'm, sorry, it's primarily on health at home.

And we think it will go on for several years, the demand will ebb and flow I think [laughter] I'm, sorry, it's a big deal right now.

Just because there is so much demand for it.

[laughter] that may abate, a little bit on.

The other side of the vaccine on one hand on the other side there is a new normal.

Going on in the marketplace and that the normal.

[laughter] will favor institutional sales.

Got it got it okay. Thank you congratulations again on other sales trend of results and I will jump back in queue.

Bobby So most of all about it he gets choked up yeah forgive them yes.

Yeah. Thanks, It just a one of those moments when a talk control of the same time, but I survived the question about.

Thank you. Our next question comes from the line every penny per each with Oppenheimer. Please proceed with your question.

Good morning, Thanks for taking my question on all four congrats on a really strong quarter from.

For me, maybe I'll start with a question from Brian first for joining me on it yourself or channel <unk>. So the commentary the commentary I guess, you know <unk> through your transcript from its on its I guess as I look towards an expert from here and maybe you can't really provide much commentary. It seems to me that you guys are trying to put out there that there's you know many drivers to.

But you guys have in your control to drive EPS growth going forward. So is there any commentary you can ride in terms of their next fiscal year. If you expect to see growth versus the guidance provided this year.

Well, yeah, I mean, what we said in our comments Tonight and I think we added a lot I think I would if I was an investor the things I would focus on is the fact that you know were able to exceed our expectations for this year significantly and then still make a lot of it.

Investments for next year, and so we've accelerated things that we would have normally had to spend on in fiscal year 2002 and are now haven't seen those things in fiscal 21, which you know really sets us up as I said in my remarks to be flexible next year, we're always on managing this kind of formulary.

South of rhythm of between how much we want to invest and how much you know do we need to to contribute to earnings growth and so next year, we feel were going to be much more flexible on that because we've been able to make investments. This year that we didn't anticipate being able to make so we like that we talked about things, we did with our balance sheet.

In the quarter were after the quarter that you know our growth EPS growth drivers for next year and that 70 cents of contribution just from two balance sheet actions, which is you know over or in line with what our annual growth rate would be on long term in terms of a percentage.

Yes, so we get a contribution from now I'm not guaranteeing that in terms of growth for next year I'm, saying, that's a driver that we have that will help as we manage the formula of investment and all the other things that we need to get through next year. So I mean in conclusion from me that it's the future is bright because we've been able to take advantage of fiscal 21.

To set up 22 for success and that's how we look at it.

Yep, Okay, great I strongly affirmed this rupesh of what we can't project fiscal 22. This early on you know the fog of Tobey. This is period of burning fairly bright.

Even right now you know the new the new variant that is more contagious and you know who knows what the what the world will bring in the next couple of months of that said, we arent on normal budget cycle of the 70 cents building block that Brian just referred to and mentioned in his formal remarks on.

Is substantial and it is largely secured for next year is just math and it is already in our.

Plants and it is favorable.

So that's a good start Ah you add the football of forward spending that we're accelerating rate into fiscal 21.

But he mentioned.

And there's less spending required in fiscal 22, because we are doing it now and you look at that said all of that compresses the back half of this year.

Our response is of course of course it does it does because we were largely dark in the first half of this fiscal year just like the entire rest of the plant. It was and yet are leaning forward to do whats bold and right now on all of that stuff not only helps the business for the long term, but it helps fiscal 22, specifically so if there's an.

Elephant in the room, which is can these guys grow earnings in fiscal 22, we're trying to send a message which is we've got good building blocks now 70 cents plus what you just heard will spend now and will help fiscal 22 and on top of this will work through our budget and and get the rest of the details right and intend to give guidance.

In April so we also tried to say in our comments and with no arrogance I assure you that it's not the first time that something big comes along on your Pandemics are global and we're humble on the one hand on the other hand tariffs were supposed to a bowl Helen of Troy over and the other list of that we gave and we were able to find.

Weighs on strongly our intention today as well when we even just reaffirmed our forward guidance for the rest of phase two with that 8% of year average annual EPS growth, there's a message in there.

Okay, Great. That's not true that's really helpful color of its clearly that's one of the concerns out there and and then of beauty segment. You know obviously very explosive growth. This growth. This quarter is there any way to quantify on how much came from distribution versus consumption.

Yeah, mostly consumption.

But plenty of new distribution on I don't know how to emphasize this one enough. We've got the formula right on the subject of being in touch with consumers with a good product. So think of the Onestep franchise. It's not just on Revlon, Although revlon is our lead and it's doing extremely well and the distribution gains our cash.

Moving because of the strength of the product not coming and therefore, we're shipping a lot of product and its somehow sitting on the shelf you wouldn't have Walmart and Amazon coming out with statements that the biggest sell through items for the holidays in those areas are the volume misers. If it was just sell in for us.

And it's the same story in drug where traditionally we're not a big presence in the appliance business in drugs, but now we are making significant progress there because of the product is selling through then you take the same story in the UK you take the same story in target and other big customers and it tells you a message which is that that product is a bit.

Big seller look on Amazon hundred and 50000 reviews by definition of every single one of them is from someone who bought the product not someone who got new district. Some company they've got new distribution loaded up the trade and we've now caught up on the supply side. So we're able to supply that demand in the market. So this is sell through.

On the distribution is coming because of the sell throughs, So costco and others are saying I wanted to and we're finding ways to give them SK use that work for them and it's now across the lineup. So think of bed head cold and hot Hot tools and dry bar. So we like where we're going with this and we're bringing new products all over the place including international.

Great. Thank you I'll pass it along.

Thank you. Our next question comes from the line of Anthony Ltd.

It's in ski with Sidoti and company. Please proceed with your question.

Oh, yes, good morning, everyone on an l., so happy new year to all as well. So you guys talked about the high growth on consumables in terms of air filters, and Oh water filters on and so on and Oh can you give a sense as to what percentage of your revenue is coming from.

I'm consumables now just just on it.

Get a better sense, so the opportunity [laughter] growth from from that going forward.

Sure I'll start here and I think Brian's got some builds we don't break out specifically on.

The ratio that you're looking at but it is very favorable and not just in terms of sales, but importantly also in terms of margin. So think of of consumable at punching at a multiple times of the weight of the device itself because of the relative profitability. So we've never sold as many air Purifiers and some monitors as we did.

Right now and things like Air Purifiers water Purifiers also a record for us and same story with humidifiers, but to a lesser extent the.

These products all have filters that go with them those filters are not only selling through because of the installed base, but that installed base is so much bigger that next year those filters at a higher margin or a new building block for us maybe just to give you a on a number that could help us think of like 50 per.

Recent growth in the installed base and then take two or three times the profitability and no matter. What the number is it's one to three times higher than what it was before being two to three times double or higher than it was before and that gets you.

A lot of growth room in the revenue as well as the margins Yeah. Let me have some more of some numbers you want to put to those statements. Yeah. Let me build on that I mean, you you framed it up as growth in the quarter from consumables and I think there was but it's more of a future opportunity, which is why we're calling it out.

So I can give you an example in health and home in the categories that do have consumables devices brew.

Like a 100%.

But consumables only grew 50% so that's an indication of the future opportunity by getting the installed base increased but not as much of that has been year to date in health and home devices that take consumables and then the fact of consumable revenue was lagging that I you know how.

It's a future opportunity, which is why we're calling it out that installed base increase that we drove this fiscal year is going to provide consumables revenue for years to come in and we know it because we see consumable revenue lagging device revenue and it's a future indicator we still got.

Consumable revenue on our installed base from the past, but our installed base now and going forward is much much greater and that's why we called it out.

Yeah, I think helped him home as the big Guy for consumables on right now we sell more pure.

Filters that we do devices and it's not like there's something wrong of the devices. It's just that we've been at it for many many years and there is a large installed base of devices now its larger. So this is beats what Brian just said in air Purifiers of course, there is a large installed base. There is now just on larger one including in institutional.

Then every year when we sell more devices you don't just get the new devices repurchase cycle of filters, but also the entire installed base that was there before over the life of the existing devices to same and humidifiers, you've heard us talk to years ago about the importance of of vapor pad.

It's on VIX. It was the same math on Mark.

<unk> market, maybe didn't didn't care much but that doesn't mean they were right on the fact is we sell tens of millions of pads a year at very high margin in a hugely installed base of humidifiers, almost all of which take makes maple pads and that's incredibly profitable for us, but again just for perspective devices group.

Air purification, that's definitely guidance is talking about it grew over 100% in the <unk> nine months year to date consumables in for air purification only grew 50% so by installing bye.

Creasing the installed base by a 100% there will be huge driving consumables going forward.

All right. So think of it that's very helpful and I guess my second question.

Going back to the last quarterly conference call back on the October you guys talked about out of issues as well as inventory looks like you build up your inventories sequentially.

Can you give us a sense as to how satisfied are you with current inventory levels and are there any other out of stock issues that you want to speak about or do you think you're in good shape with that.

I think I can start I think given the circumstances were really happy with where we are it's not perfect and we do have isolated instances about of stocks or organic in the third quarter, but we are light years ahead of where we were in considering the circumstances and what we come through to get here, we're happy we.

We'll likely still continue to build a inventories through the fourth quarter and that's really out of an abundance of caution to get us through Chinese new year, and even you know a couple of months past that period and be able to assess the environment in the supply chain and the virus and all the things that go along with it and then you know.

Really positioned ourselves next year by the end of the year to get the optimal inventory levels. So I'd say, we feel overall good we've got pockets of things, where we'd like to be in a little bit better positioned but considering the circumstances I think I think we're it's when.

Yeah look at we look at where we were just two quarters ago, we were unable to meet the demand behind on inventory and not happy with our position catching up as quick as we could with supply you heard in our prepared remarks, how much progress. We've made on that and then if you think of like does it mean for the numbers you how could we be billed.

Inventory, if we don't have enough supply of just doesn't work and so what Brian just said is the testimony and if you look at the levels, they're healthy on the our turns were of and I think 3.6 times last quarter versus 2.9 in the year ago period, that's a reflection of the excess demand and the under supply.

Now that we catch up that number of normalizes and there's more inventory going into words per day.

Got it. Thank you very much on best of luck.

Yeah pleasure.

Thank you. Our next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.

[noise] Yeah, Hi, So my question is I mean, you just talked about your greater confidence on little bit in your inventory level, but the right data indicate that you're still kind of maybe chasing demand in some areas like thermometers. So given that maybe the case how confident are you that you.

Well they on follow through with the investment spending in the fourth quarter that you're guiding tell yeah Im So got high Linda happy new year and I'm. So glad. This question comes up and we are still chasing demand in some aspects of the monitor and particularly no touch so I R T or in infrared thermometers that measure through the year, we're doing much more.

We've made very significant capacity.

[noise] investments and they have increased our volume of markedly same thing and no debt, but not even quite as much to keep up with the demand.

The point is we're still chasing a little bit there soon enough, we'll have more and be able to satisfy all the demand and we think of forward as well there are even a few selective out of stocks here and they're still on out of on OXXO much much less than there was just a quarter ago, let alone two quarters ago, and then in terms of the confidence of.

On the investments I'm really glad you asked this because there's a massive difference between this idea of short term investments that stimulate demand, we're not especially focused on those at all because we have the demand. We're interested in investments that are driving fiscal 22 and be on a and that gives us an opportunity.

Two of forward buys so to speak some of the things like media content. So think of lots of assets that are being developed there I'll give you a concrete example, maybe it'll help will be launching the relaunching the dry bar website with a major overhaul in just a month or so maybe two months now and that it has all new car.

Content entirely new systems underneath it that cost of fair amount of money none of it will stimulate demand in Q4, and that's not our focus our focus is on fiscal 22. It's one example on others in Europe, there's two or three very large projects in Europe around distribution improvements in certain products on certain category.

He is a there's new products of peak launched in Europe, where we're spending money now and in Asia on the no touch side for thermometers on we're putting from three significant investments anticipating that increase in supply very little of that will impact Q4 demand, but all of it is a forward buy on fiscal 2002 and money that we won't.

Have to spend in fiscal 2002 to do the same which is very good for the flow of earnings which I know is an important thing on this call.

Linda I would build on that just a little bit in in say I'm more confident about it than I was at the end of last quarter. You saw that we had four or $5 million that we weren't able to spend in Q3, and we now have a forecast for Q4.

I think the worst case scenario you could see something like that again in Q4, where we have four or $5 million or or something like that where we just can't get it all through the pipe, but that small on the Grand scheme of things on I'm going to consider that level of different it's a win for $5 million of the big enough for us even worry about so I think we're getting.

Narrowed in on what we're able to do and not able do based on the demand trends and you could see some of that spending bleed over but but not much at all.

Thank you and then can I just ask a quick one on the whole kind of home segment, you've had easy comparisons in the prior year up till now which has helped the growth rate, but you do have a harder comparison coming up in the fourth quarter and then you've got the weaker flu season, but then you've still got the covert driven demand.

On do you think that health and home can actually still post revenue growth in the fiscal fourth quarter.

Well, yeah, we I don't know of T. caught it in the prepared remarks, let implied in our outlook is growth of 15% to 25% for health and volume in the fourth quarter. So we wouldn't we wouldn't put that out there we didnt believe that.

We believe that but you do see that the growth is decelerating from the first nine months of the fiscal year and it's for the exact reason that you point out which is debt. The comparison gets much more difficult in the fourth quarter. They grew 10 on a half present in the fourth quarter of last year and year to date they were in the day.

Klein of 5.2% so.

Hopefully that makes sense to you. We are now that we are forecasting of these solid decelerated rate of growth in the fourth quarter, but we still believe the segment ROE on as I said, 15% to 25%, which is pretty good on that side of the house and central things. It's not just that one I know who wants asking that is because of of cove. It.

But the other segments beauty and housewares also have significant large year over year increases in Q4 base and yet that a percentage that Brian side of his prepared remarks applies to all of the certain of the percentage of it the message applies to all of the business units, which is all of them our GAAP.

On a growth in the Q4, despite the big Q4 surge in the year ago base and health and home more so than any which I think is a testimony to the question that you're asking.

Okay. Thank you very much.

Thank you. Our next question comes I'm sorry.

Our net please go ahead operator. Thank you. Our next question comes from the line of Olivia Tong with Bank of America. Please proceed with your question.

Great. Thanks, Good morning, I really wanted to talk a little bit about the margins by segment because I imagine there are many different dynamics at play, particularly as we eventually start to move towards reopening so first in terms of.

The Housewares Division if you can just talk true I imagine that's just a mix between ox on hydro flask. When do you expect and in fiscal 22 of that starts to turn the opposite way and then if you could just talk through margins on the other two dimensions of small health and home and beauty and.

On the sustainability, particularly on the the.

The acceleration of beauty margins. Thank so much.

Yeah, Olivia it's Brian I guess I'll start on of tooling wants to build he can add on housewares you mentioned the mix and yes. It is a driver, but I mean, almost as big of a driver is many of the marketing spend that they had in the third quarter and in we're expecting you know to to build on that fourth quarter. So it's it's combination.

On the those things from other smaller things going on there, but really I would focus on those two big things, it's mix and and then don't forget about marketing I mean, we were talking a lot about this investment spend a lot of that is going into you know behind the Oso N type of class brands. So you know.

We feel good about their margins the margins haven't really deteriorated in going forward to your question about hydro flask, yes, we see that that mix rebalancing or into next year.

And so you know hopefully margin tailwind in the houseware segment compared to this year for two reasons one of the mix will rebalance. We believe and then to you know we may not have the same level of marketing spend but who knows we may the reason why we're not giving you more information on this we are 20 twos, we haven't made all of this.

Well this is yet what we're telling you is we've accelerated investments out of 2200, 21 of which frees us up to be a lot more flexible, but we could choose to double down on some investment spending of just weird money do therefore, because they have made decisions we can't give more color other than that so hopefully that helps yeah, yeah, we see margin net.

On the tailwind for Fourq for the Houseware segment as compared to this year going forward.

Then on the other day well go ahead drilling on average I say of it because you're talking on the go forward part on on beauty of remember there's a building block for next year at a higher margin, which is dry bar on dry bar was largely shut down this year think of the salons and for next year of there'll be more of more of that assuming on on the other side of the vaccine.

Drybar punches at a higher weight than the average for beauty. So there's good building blocks for next year [laughter] and some of the investment was pulled into this year. So it helps in that regard you also heard us talk about of large multi year cost of goods reduction projects not all of that will hit in fiscal 22, and some of it will be reinvested in the bid.

Yes on.

That said it it's all of that from margin.

Yeah, I was actually Olivia going to talk about the other two segments are on right. Yeah. No. That's okay health and home also a major driver of of.

Their compression was in spending and again, we expect that to continue in the fourth quarter and that's kind of the headline there. It's really spending driven and then a beauty is in a situation where the growth was so significant that that you know spending was not quite in line with back on so you see that margin.

Expanding quite of bit, but but the idea is we want to be somewhat proportional with our growth in terms of our spending you kind of do the 50 50 formula of you know.

All of our over performance, we spent 50 per cent back on the business of dropped 50% of the bottom line and beauty got little bit out of whack without the significant growth in the third quarter, but we want to rebalance that going forward.

I think thats about how of yeah for sure for sure one that sort of squaring on on beauty of little bit.

Just the sustainability of that beauty growth because that you know obviously the other two divisions were very strong as well, but beauty when someone that's a pretty big acceleration relative to prior quarters. So as you sort of lean into that and think also thinking about potential reopening of covering try marketing better tenor of selling out again.

How do you think about the best sustainability of the demand from the from the volume Wise our products and then also you know your ability to maintain market share because you are starting to see a lot more in terms of copycat products creep up are you expanding capacity do you have capacity for expansion in order to kind.

Continue to support that growth and drive that growth.

As we sort of look at next year on potential reopening as well thanks.

Yeah. It's it's a great question on beauty, because when you've got a boom like that you know, 50% growth and they say well you know who grows 50% and then getting keeps it all of my comment might surprise you. A beauty grew in spite of cove it not because of co of it so health and home got a big tailwind from Cove. It OXXO the home nesting trend, which we've talked about.

On a lot, but if you think about coded give me a couple of fundamentals that were not helpful to beauty and yet there is the growth. So now imagine to your question what happens when those fundamentals are good.

Favorable or at least not negative and you balance it against the increased competition, so store and so on closures in the beginning or the first half of this year. During the shutdown period were pretty high there is less of that now but as we go into at least the first half of fiscal 22, It's just an advantage on the other side of the of.

Vaccine whenever that gets prevalent enough.

So that's a headwind in the base that not in some form of fiscal 22 on another that people of May not remember just because it was a long time ago, but as Corona virus first spread in China around the period of Chinese new year last year, it largely shut down the Chinese manufacturing base of.

Because the workers were locked down hard by the Chinese government due to the spread out of the Wu hand area at the beginning before it was a pandemic on.

That hurt our supply and we've since increased our supply of.

Considerably so that mix.

Miss or out of stock is in the base, but for next year on we get to grow over it especially in the early part of the year.

And then the whole stay home thing.

It's less social less work.

In offices less travel.

To the extent that there is more social more work in offices and more travel next year all of those things are good guys for beauty because people just out more especially women and then in terms of dry bar, we talked about it before its ability to do that moat, where there's you know eight or 9000 demonstrations of year, Oh, sorry, a day of dry.

Bar products on the salons of the prior run rate of.

For dry bar products like machine gets to restart let alone the database of all of the women who are going to the salons and our abilities of to work from that new web site that I mentioned earlier. So I guess my point is that beauty, you say well how do you sustain the growth. My point is we had on one hand tied behind our back this year. So as you on tied that other hands on them.

Measures I just measured mentioned all those are good they can talk about the competition on household penetration for the Onestep type of products is still fairly low we try to measure it and we don't I don't think publicly disclose it but I guess my comment is there's plenty of room in town for us and the competition and our lead is significant and you can see that in the on.

Line reviews on the stars and all the media attention. The you tube videos of it just goes on and on and.

And all of that is good for us so we like that and if you think we're just relying on one product like it's a one hit wonder I can't emphasize enough how much proliferation has occurred so think of detachable head versions of multiple brands now across in fact, all our major brands the double shot on dry bar the hot tools signature series the new debt.

Taxable head version on the hot tools and of course, all of the new Revlon variants of its more than just color. Then you throw international expansion on top of that especially in Europe, and especially be on the UK. All of these are future growth building blocks. So I think we like our prospects as the short answer and we'd like to get the other hand on tied from behind our backs or we can go forward and the post covert.

Here.

Thank you. Our next question comes from the line of Steve Marotta with CL King. Please proceed with your question.

Good morning, Julien, Brian and Jack given the time constraints on them on my question to one and.

We'll deal with everything else offline could you talk a little bit about the profitability of differential in your direct to consumer digital channel versus the wholesale channel, both brick and mortar and digital.

Sure. So there's not much of a difference in that profitability when when when you're when.

When you say digital I'm, assuming you're referring to all E. Commerce, you know not just our own DTC are on DTC. The smaller of the business. Obviously the less profitable. It is until you are able to scale up but we've got enough critical mass where you know our DTC is.

This is very profitable and even in most cases in line with the entire company, even though the cost of served is higher and that includes the cost of acquiring new customers and all of that so we're you know we use of warm agnostic about which channel. They go through I don't I don't like that word I like.

Better the thought that we want to you know sort of the customer wherever they want to be and profitability is something that we have to work through but it's really on the earlier stages of development of of DTC business and we're at a point in most of our not most but in a lot of ours, where.

Were passed that point of we don't really have to focus on the profitability because it's there and we're meeting the customer where the customer wants to be now where we're trying to create something new in terms of DTC. That's more of a factor that we have to consider but but you know again with the businesses that we bought that are really driving their non.

On a factor at all of the profitability is at least neutral in some cases, it's even better.

Yes that answers the question Brian Thank you.

Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Mininberg for any final comments.

Yeah, Thanks, operator, and thanks, everybody for joining us today, we're very excited about the results. We just put up a we're extremely excited to become a 2 billion dollar company per our guidance and continue to add earnings per share above expectations, even as we make all the investments and the forward investments that we talked about we're also quite excited.

About our long term prospects for the back half of phase two when we tried to outline those building blocks for you today in the form that they are at this stage in our budget cycle, we see room for encouragement there.

Of note of mildly.

So we look forward to speaking to many of you in the coming weeks and many of those of you who are attending next weeks I see our and CGS Djs virtual conferences.

Beyond that we do expect to host our fourth quarter and fiscal year end call in late April at which time. We also intend to provide our outlook for fiscal 2002, so have a great day, everybody and thank you so much for joining today.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.