Q4 2021 Helen of Troy Ltd Earnings Call
Really well.
And to the Helen of Troy Ltd, fourth quarter fiscal 2021 earnings call. At this time, all participants are in a listen only mode.
And the answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Mr. Jack <unk> Senior Vice President corporate business development. Mr. Johnson, you may begin.
Thank you operator.
Good morning, everyone and <unk>.
Welcome to Helen of Troy fourth quarter and fiscal year 2021 earnings conference call.
The agenda for the call. This morning is as follows.
And with a brief discussion of forward looking statements.
Mr Julien and Edinburg, the company's CEO will comment on our business performance and key accomplishments and then provide some perspective as we begin the new fiscal year.
And then Mr. Brian grass, the company's CFO will review the financials in more detail and comment about the current trends and expectations for the upcoming fiscal year.
Following this and we'll open the call to take your questions.
This conference call may contain certain forward looking statements and are based on management's current expectation with respect to future events or financial performance.
Generally the words anticipates believes expects and other words and similar words identifying forward looking statements forward looking statements are subject to a number of risks and uncertainties that could cause the anticipated results to differ materially from the actual results.
This call May also include information that may be considered non-GAAP financial information.
These non-GAAP measures are not and alternative to GAAP financial information and may be 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. Greenberg I would like to inform all the just kind of.
A copy of today's earnings release.
The Investor Relations section of the company's website at Www Dot Helen of Troy Dot Com.
The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures.
These can be obtained by selecting the investor relations tab on the Companys homepage and then the news tab.
And I'll turn the conference call over to Mr. Minerva.
Thanks, Jack Good morning, everyone and thank you for joining US today, we reported of great fourth quarter, completing and extraordinary performance in fiscal year 2021 across nearly any key measure of fiscal 'twenty, one with the strongest and our 53 year history and an outstanding second year of our phase two transformation.
And plan.
Broke records operationally financially and on the health of our brands driving the company passed the $2 billion sales milestone.
<unk> outstanding operating cash flow further expanding operating margin and growing EPS.
Now two years into phase two revenue has grown over 34% and adjusted EPS by more than 44 per cent.
In fiscal 'twenty, one we grew net sales by 23% led by our eight leadership brands, which collectively grew over 25 per cent and accounted for over 81% of sales our.
And our digital initiatives continued to produce excellent results with online sales up approximately 32% per the year to represent approximately 26% of total sales.
Focus on international continued to bear fruit and fiscal 'twenty, one, but even faster sales growth and the company average and we delivered adjusted diluted EPS growth of over 25 per cent for the year, which is a meaningful acceleration from the excellent growth in fiscal 'twenty and our fifth consecutive year of posting double digit adjusted EPS growth.
Our business once again generated significant cash flow and we were not shy about putting it to work and key phase two initiatives intended to power our long term value creation flywheel.
And as examples during fiscal 'twenty, one we made strategic investment decisions such as securing of fully paid up hundred year global hair appliance license for the Revlon brand and increasing our inventory levels significantly during the year.
Higher inventory puts us in a much better position to meet the elevated levels of the man and reduce the risk from supply chain disruption, it's now affecting nearly all companies.
We also increased our spending on consumer centric innovation, and digital marketing and media and new packaging and expanded production and distribution capacity and non stepped up investments to direct to consumer I T. He hires ESG and diversity equity and inclusion.
These investments and the business and the organization helped us catch up with our rapid growth during our transformation and many of them will help us and fiscal 'twenty two.
During fiscal 'twenty, one we returned capital to shareholders buying back just under 1 million shares of our stock at an average price just below $200 of share.
Turning to ESG and diversity equity and inclusion and our goals are to further our environmental and social initiatives, making us even more of an employer of choice for all of associates to thrive.
Also at the goal of delivering value across all stakeholder groups, including our consumers our associates, our customers our shareholders and our communities.
On the ESG and fiscal 'twenty, one we implemented several initiatives related to increasing recyclability and reducing single use plastic and our packaging.
We also work with several key suppliers to increase their energy and carbon efficiency, earning recognition from one of our top customers for our role in their global supply chain climate action of initiative.
We continue to implement relevant waste management programs, and our operations, including recycling metal waste and our distribution centers.
In February we published Helen of Troy as ESG guiding principles publicly outlining our commitment to ESG and its principles.
These and other multi year efforts are now more fully reflected and external measurement systems, including MSCI, where we are now included in the leader category, among our peers and the household durables sector, and and ISS, where our environmental scores are improving.
Social scores are now and the upper third and our governance score has been best in class for some time.
This work is ongoing and we will provide more detail and our first ever ESG report, which we expect the published this summer.
And diversity equity inclusion and fiscal 'twenty, one we followed our public statement about Helen of Troy strong commitment to be Eni with major internal initiatives to make our action plan strategic impactful and enduring.
The highlight of few of these actions, we conducted a companywide unconscious bias training.
The stepped up our recruiting and hiring of minority candidates with most searches now including at least one diversity candidates.
Our annual Global Senior leadership conference in February was centered on the theme of learning and reapplying best practices and colleagues and from industry leaders and the areas of diversity business success culture engagement and coaching.
We held the company wide conversation with Rushmore sales, Johnny founder and CEO of Girls, who code for International Women's day with the majority of our people attending.
We launched the new program for donating time and swamps to diversity causes which includes adding a second the paid day off for our associates to donate their time to causes of their choosing it included the financial contributions for Helen of Troy for selected charities and included a new employee employee donation matching program.
We take a long term strategic approach to developing our business and our organization. When it comes to investment. We continue to believe it is right to lean into our business momentum to support multi year plans.
This principle has served us well and both phases of our transformation. We believe our combination of agility and long term thinking has been a key driver of our track record of sustained success and our actions position us well to create significant additional shareholder value over the course of the remaining three years of phase two.
As we look back on fiscal 'twenty, one and the financial performance underscores the benefits of our diversified portfolio of our unique operating structure and of the strength and resiliency of our culture and our people the day.
Diversification nature of our portfolio provides consistency with all segments and international growing double digits.
Some categories benefited from changed consumers' behavior and some of our categories posted another year of strong growth based on the timeless power of consumer centric innovation.
All of our businesses benefited from the greatly improved capability of the global shared services, we have built.
Internally, we focused on the health and safety of our employees I am very proud of the tremendous resilience and agility, they demonstrated and they distinguish themselves the distinguished our brands and distinguish our company in the face of challenge after challenge from COVID-19, and.
Whether it was our frontline workers or those working from home.
Whether it was in the U S or abroad, we worked together with even more passion to find solutions to challenges and use that signature of agility to take advantage of opportunities.
We responded quickly to the needs and maximize production and delivery from our factory partners, and China, Mexico, and the United States to support unprecedented demand.
We met the challenge to run our operations safely even as we posted new shipping records month. After month. He had it on the fly over flow distribution capability and record time to meet that rising demand from brick and mortar DTC and from E Commerce.
Once we have the visibility to return to investment mode and the back half of the fiscal year. Our teams plowed ahead with many of the initiatives that are central to our phase two plans, such as new product innovations and marketing programs.
Initiatives and cost savings projects.
While one might think of year of working with such intensity on the frontline or from home would tear our social fabric and very pleased to report that our culture served as the strong foundation for unity and collaborative problem solving.
During the fourth quarter, we conducted the culture survey of our worldwide associates for the first time and two years and.
Result showed further progress on every single attribute we measure.
We believe that the culture, we have built since the beginning of our transformation and 2014 has become a.
Net of advantage for Helen of Troy, and attracting retaining and unifying including and training the best people.
I would now like the share for some perspective on our results and the fourth quarter.
Right one.
Fight the adverse impacts from winter storm, Yuri the brought ice and snow and cold temperatures and much of the United States. Our sales were in line with our internal expectations and the external guidance we provided in January.
Net sales revenue grew over 15% and was broad based.
Our leadership brands grew at a 20% clip the online channel continued to be of major growth driver of approximately 30% year over year and contributed approximately 27 per cent of our total fourth quarter sales.
Health and home led the way for the quarter the sales growth of 23%, even if that part of the company face the sharp decline and the traditional cough cold and flu season and began to anniversary of the original COVID-19 related spikes and the monitor demand first theme last January and February in Asia.
The biggest sales driver was continued demand for health related Vicks Braun and Honeywell products.
Air Purifier demand continues to be very high as consumers and institutions take steps to address indoor air quality and increasingly recognize the importance and benefits of the category and everyday basic and <unk>.
<unk> and businesses reopen and there's travel gradually resumes and fiscal 'twenty. Two we have the right brands and products to meet demand amid the much greater sensitivity to indoor air quality and the heightened the ongoing attention to health and hygiene and is widely expected post COVID-19.
While thermometer demand is soft and domestically, we see meaningful growth opportunities and our Asia Pacific markets.
The fourth quarter traditionally includes thermometer and humidifier sales related to the incidence of cough cold and flu symptoms.
But for the recent 2000 and 'twenty to 'twenty, one season, Lockdowns, and social distancing and reduced cough cold and flu incidents and some of the lowest levels on record.
As planned we continued to invest behind many strategic initiatives during the quarter, such as marketing campaigns and materials do product development.
Direct to consumer and new hires.
In fiscal 'twenty, one and especially in the fourth quarter, we invested and the initiatives with strategic importance such as increasing the household penetration of air and water purifiers encouraging filter replacement rolling our share of no touch the monitors and long term awareness builds for our Honeywell fewer and brand products.
Health and home continues to distinguish it the brands with the consumers. We are pleased to report that our broad franchise has recently been awarded with to cover the product design Awards.
And our ball and nasal aspirator earned the prestigious Red Dot design Award and are no touch foreheads. The monitor was honored with the good design Award.
Gone low touch the monitor and it's ergonomic design is especially sought after for its non contact benefits, which extend well beyond the COVID-19, the timeless situations such as when the parent needs to accurately measure of the temperature of the sleeping child.
And our Houseware segment fourth quarter total net sales increased by over 12%.
Our hauswirth portfolio mix of oxo products that it sells indoors and hydro flask compelling indoor and outdoor lineup provide consumers the world over with outstanding brands and products, They love and provide Helen of Troy with attractive diversification.
The OXXO the excellent fourth quarter performance rounded out of brilliant and fiscal 'twenty one.
<unk> growth and the quarter was broad based across the U S brick and mortar e-commerce direct to consumer and international.
Explosive growth and pop containers off of utensils baking and food storage came in part from the combination of the work and learn from home trend during COVID-19, and in part from the brand's unique ongoing ability to deliver quality design excellence and innovation for consumers.
Now 30 years into it the distinguished history of the brand continues to earn additional distribution and market share.
Last month OXXO was recognized by the NPD group during their eighth annual home industry performance Award as the brands with the largest dollar share increase in the food storage category in the U S per calendar year 2020.
This is the fourth consecutive year, and which OXXO as market share gains have been honored by NPD.
As we now have access to additional share data and ox those categories and the U S. From NPD. We're also pleased to confirm OXXO is number one overall share position.
Oxo also continued its long tradition of earnings the earnings prestigious awards for its outstanding design and products in fiscal 'twenty one.
In recent months it distinguished itself with the Red Dot award for steel pop containers.
And I ask design awards.
And good design of War and editorial Awards awards from leading influential publications like good housekeeping for its storage products better homes and gardens, and they're clean House Awards, and 15 award from the kitchen and their annual kitchen essentials tool the dishes.
We expect much of the ground gained in fiscal 'twenty, one to be sticky for OXXO the.
The brand has a long track record of growth in many environments.
Oxo enters fiscal 'twenty, two with increased household penetration and distribution gains and we expect the number of people working from home to compare favorably versus pre COVID-19.
Consumers continue to value of the safety of home, even if the work and learn from home trend moderates post COVID-19.
Also of current and new food storage and its prep and go solutions are a perfect fit for this need as.
As a result of our investments and consumer centric innovation and fiscal 'twenty. One OXXO also has an attractive slate of new products at the hit the market in fiscal 'twenty, two and strong plans to build on its accelerating international business.
Hydro flask exceeded our expectations after the explosive growth in fiscal 'twenty, and especially considering the lower store traffic of key retailers and the effectively no back to school lift.
Every little sports greatly reduced social activities and the unique fiscal 'twenty trend the anniversary events, such as visco major distribution expansion and certain new introductions of products.
The brand continues to see significant international growth and strong DTC sales during fiscal 'twenty, one which accelerated during the holidays.
We are excited about hydro flask growth prospects as the world begins to reopen store traffic has picked up and hydro flask trends have improved we expect this trend to accelerate as vaccination rates increase and more students go back to in person learning across the United States.
We expect consumers will continue to turn to more outdoor activities as the weather improves and as people become more comfortable and Greek GAAP group gatherings after.
And also has a strong slate of new product offerings going to market, including the limited edition Scenic Trail collection, New lids outdoor kitchen sets back to school and back to office lunch totes and food storage products that bring more to love on top of the functional benefits of the brand consumers already of door.
Turning to beauty the fourth quarter delivered total sales growth of 6%. The strong performance as we were up against the tough comparison, and which the segment grew more than 23% and the same period last year the.
The segment's full fiscal year annual growth was over 26% with 15 points of that coming from organic growth.
Almost all of our beauty appliance brands grew during the quarter and on a full fiscal year basis, reflecting the strength of our turnaround in recent years.
Our Revlon franchise continued to grow propelled by the success of its pioneering family of one step volume misers of all.
<unk> of highly popular with consumers and continue to proliferate virally on social media.
Now of accumulated more than 250000 online reviews and the average of four six stars on the Amazon alone.
Over 200000 of these reviews of five star ratings.
We have expanded the franchise internationally with positive results and EMEA, Canada, and Latin America further explained and expansion plans are slated for fiscal 'twenty two.
Third party syndicated market data shows Helen of Troy Beauty further expanded its number one position in the online channel for U S hair appliances in fiscal 'twenty, one and continues to hold the meaningful lead at more than twice the share of the nearest competitor.
Syndicated data and brick and mortar shows that during the latest 52 week period. We also grew our number two share position and U S retail appliances.
Over the course of fiscal 'twenty. One we are now the share leader at a number of major brick and mortar retailers.
Confirming what we are seeing in our customer point of sale data Revlon as best in class market share growth was recently recognized by the NPD group, winning two of their 2020 awards for the top increase and market share.
The first award was for the largest dollar share increase and the personal care category for the United States, Canada and Mexico.
The Revlon franchise also earned Npd's award for the largest dollar share increase and the Hairstyling category for the United States and 2020.
Consumer centric design and innovation is a core competency and beauty.
Route of share that our hot tools professional black gold one step detachable blowout <unk> was recently honored with the good design Award.
Features of unique detachable head for compact travel and ease of.
Quickly vortec bristles of activated charcoal that easily smoothed and straight and hair.
Rounding out my comments on the business results I would like to touch on international which was the standout and both the fourth quarter and the full year basis.
<unk> down on the international is an important strategic choice and our phase II strategy.
While the COVID-19 trend help lift health related categories internationally consumer behavior. During the COVID-19 has been a headwind for many of our other businesses, making the double digit growth, we delivered and all three segments for the fiscal year, especially meaningful and.
In fact international sales grew faster than our company average and both the quarter and and the full fiscal year.
We also expanded new distribution and launched new product innovation with bodes well for fiscal 'twenty two.
Now two years into phase II. We are ahead of the glide path, we announced in our 2019 investor day to create at least $100 million of incremental organic sales across these regions by the end of phase two and fiscal 'twenty four.
International margins expanded meaningfully in fiscal 'twenty, one, making additional investment to further accelerate outside of the United States, even more compelling.
As we look the fiscal 'twenty two we see a series of headwinds and tailwind that are accompanied by high enough levels of variability around matters outside of our control that we are not providing guidance at this time.
Like many other companies we face the uncertain path of the COVID-19 recovery.
Fly chain disruptions and cost inflation, even with so much change to the macro environment. Since we last spoke in January we have been very busy mitigating and we still believe adjusted EPS growth in fiscal 'twenty two is achievable.
We see many positives we saw a strong start the fiscal 'twenty two and March.
Sales that carried over from February into March due to winter storm Yuri were of further held in March.
April sales are also delivering strong year over year growth versus the lockdown period, and the year ago base.
Outside of any particular month or all weather portfolio as well through suited to serve consumers. It includes brands such as hydro flask dry bar Revlon and hot tools that were held back by consumer behavior and reduced store traffic during most of the restrictive parts of COVID-19.
Several of our brands, such as oxo and hydro flask benefited from higher store traffic and greater impulse buying especially given the very prominent in store visibility.
Our innovation investments are poised to deliver strong new product lineups. We are excited about new initiatives from institutional sales filter replacements on the large base of new air and water purifier sold in fiscal 'twenty, one and excited about DTC customization the shifts the online and the place where we've been especially active.
The work done in recent months to expand our production and distribution center capacity is also serving us well.
And at the macro level consumer confidence and financial health are improving as employment large amounts of government stimulus and vaccines work their way into consumers' lives and into the economy.
Reopening of schools offices, and travel is likely to result in more normalized cough cold and flu incidents that are highly correlated to the sales of thermometers and humidifiers vicks vapor steam and vapor pads.
It is our mission to be there for consumers when they need us most.
Finally, looking at our balance sheet, our operational capability and the caliber of our organization, we have never been stronger.
We have a proven seasoned leadership team.
Built and exceptional culture and organization have significant momentum from 40% sales growth over the past three years and are making investments and the right long term initiatives, we have the liquidity to make further acquisition as well.
We are excited about the power of these elements to drive our flywheel all across the back half of the phase II.
With that I will now turn the call over to Brian.
Thank you Julien good morning, everyone and thank you for joining us.
Reflecting on fiscal 'twenty, one and it was a remarkable year the challenges and adversity, but unlike I've ever seen.
We think the dynamic and uncertain environment, and adapt quickly and decisively and navigate the crisis and help protect our people our business our shareholders and our communities.
And the first half of the year, we made choice full and flexible adjustments to our cost structure, while continuing to feed new product development and lean into opportunities to try and healthy and sustainable long term demand.
Just as the pandemic was beginning we upsized our revolving credit facility on better terms and we also increased our cash position to maximize our financial flexibility and a volatile environment.
As we moved into the second half of the year, our strong results and diversified portfolio allowed us to lean back into all parts of our flywheel, including key initiatives for phase two of our transformation.
Although our investment spending was heavily concentrated in the second half of the year. We were nevertheless, able to increase our full year of growth investments by 40% year over year of.
Still expanding adjusted operating margin.
We also deployed over $300 million and capital as we invested and proprietary manufacturing equipment and direct to consumer capabilities.
Further strengthened our brand portfolio and profitability with the one time payment of $72 $5 million for the use of the Revlon trademark royalty free for the next 100 years.
And repurchased over $200 million of our common stock.
For the full year, we reported exceptional results with net sales growth of 22, 9% adjusted diluted EPS growth of 25, 3% and operating cash flow growth of 15, 8%.
We were able to grow cash flow, while increasing our inventory position by $225 million to meet strong demand.
To mitigate supply chain disruption and help us the way the impact of rising commodity and freight costs.
Even with the significant capital deployment and working capital investments, we enter fiscal 'twenty, two and with low leverage and significant dry powder for further acquisitions, which we have continued to aggressively pursue.
We became an even better stronger and more nimble company as we rose to the challenges of fiscal 'twenty one.
I also believe we found the sweet spot and our growth algorithm of delivering strong results. This year, while reinvesting over performance back into our businesses.
Our success and fueling the flywheel under such extraordinary circumstances over the past year is the only increased my confidence and the companys future and I couldn't be prouder of our organization and culture.
Now I'd like to discuss our fourth quarter results and year end financial position before discussing fiscal 'twenty two.
We delivered consolidated net sales growth of 15, 1% to 509 4 million and organic business growth of 12, 2%.
We achieved strong growth despite the impact of winter storm Yuri and late February.
The storm delayed and backlog freight carriers across the country and prevented us from shipping approximately $15 million of orders from our northern Mississippi distribution centers before the end of the quarter.
This adversely impacted our fourth quarter consolidated revenue growth by three 4% and each of the segments by roughly similar dollar amounts.
The delayed shipments will be of benefit the sales growth and the first quarter of fiscal 'twenty two.
And also on how and led the way and the fourth quarter with 23% sales growth, even as we began to lap higher demand driven by the beginning of the global pandemic and above average pediatric fever, and the same period last year.
Housewares continued its consistent growth trend with 12, 1% in the fourth quarter on top of 15% growth and the same period last year, despite significantly lower store traffic of key customers, such as bed Bath and beyond Dick's sporting goods and Rei among others.
It is growth decelerated compared to the first three quarters of the year due to the impact of the storm related shipping delays and a more difficult comparison the growth of 23, 1% in the fourth quarter of last year.
<unk> for the eight week period prior to the first anniversary of the acquisition contributed $10 four millions of sales growth and as reported net sales revenue from acquisition.
Five of our revenue for the remaining five week period of the quarter as reported and organic business.
Our beauty segment continues to see strong overall demand across the brand portfolio, despite soft store traffic and key customers and the professional and prestige channels.
We remain encouraged by how well beauty has done during the pandemic and are excited about its further growth opportunities as the world reopens.
The drove meaningful gross profit margin expansion of one seven percentage points as we continued to benefit from favorable product mix within organic beauty health and home and dry bar.
These factors helped us offset and less favorable product mix and housewares and higher inbound freight expense.
Our SG&A ratio increased four three percentage points to 38, 7%.
As we continue to catch up on human capital spending make planned growth investments deferred from the first half of the year and make incremental strategic investments originally planned for fiscal 'twenty two or later.
This contributed to the year over year increase and gross investments of over 80% and the fourth quarter largely in line with our expectations.
We chose to make selected long term growth and infrastructure investments that we believe of set us up for success in fiscal 'twenty two and beyond.
While also taking advantage of short term demand creation opportunities.
Our SG&A ratio was also adversely impacted by higher outbound freight and distribution expense.
Higher incentive compensation expense and higher legal and patent defense and other professional fees.
GAAP operating income was $24 5 million or four 8% of net sales compared to an operating loss of $2 7 million of <unk>.
6% of net sales and the same period last year.
And adjusted basis consolidated operating margin was eight 4% compared to 12, 2% in the same period last year.
The three eight percentage point decrease and adjusted operating margin was driven by the increase in person and growth investments, particularly in the health and home segment.
Air freight and distribution expense and higher incentive compensation expense, partially offset by operating leverage and gross profit margin expansion.
Moving on the taxes income tax benefit as a percentage of income before tax was two 7% compared to income tax benefit as a percentage of the loss before tax of 48, 1%.
Year over year change was primarily due to the the comparative impacts of tax benefits recognized an impairment charges recorded in both periods.
Net income was $22 2 million or <unk> 90 per diluted share compared to a net loss of $3 2 million or <unk> 13 per diluted share and the prior year.
The non-GAAP adjusted income decreased 19% to $38 8 million or $1 57 per diluted share.
This includes an estimated adverse impact from winter storm here of approximately <unk> 20 per share.
Now moving onto our financial position and liquidity.
We grew operating cash flow by 15, 8% to $314 1 million, while increasing inventories by $225 million year over year.
As mentioned earlier in my remarks, the inventory build was largely of strategic choice to meet strong demand mitigate continued supply chain disruption.
The impact of current and expected future commodity and freight cost increases and help reduce our exposure to the potential inflationary cycle as we work on further cost mitigation efforts and finalize our pricing strategies.
Total short and long term debt was $343 6 million compared to $339 3 million.
This was the sequential decrease from $440 4 million at the end of the third quarter.
Right the cash outflow of $72 $5 million per the Revlon license, reflecting strong cash flow and the corner and our decision to hold less safety net cash.
Our leverage ratio as defined in our debt agreements was one times compared to one two times at the same time last year and one three times at the end of the third quarter.
Our net leverage ratio, which nets, our cash and cash equivalents with our outstanding debt was <unk> nine times at the end of the fourth quarter compared to the 0.8 times at the end of the third quarter largely due to the cash outflow for the Revlon license.
Fiscal 'twenty, one was an extraordinary year, which we grew revenue of just under 23% and the increase our growth investments by 40% while expanded the expanding adjusted operating margin and growing adjusted EPS by over 25%.
The strength allowed us to accelerate investments in the fiscal 'twenty, one and would've otherwise occurred in fiscal 'twenty two or later.
Giving us the momentum of of that spend behind the business and much more flexibility and managing our investment choices and our earnings growth strategy for fiscal 'twenty two.
Even with the elevated base of fiscal 'twenty, one and newly emerging cost increases we remain committed to our long term growth targets of average annual organic net sales growth of two and a half to three and 5%.
And average annual adjusted EPS growth of at least 8% over the remainder of phase two.
Looking to fiscal 'twenty two specifically.
As we noted in today's earnings release, we are deferring our formal outlook for the fiscal year due to high levels of uncertainty surrounding the surrounding the COVID-19 pandemic and presumed recovery as.
As well as ongoing disruption and global supply chains, and volatility and the cost and availability of commodity and freight and other resources.
We expect to return to our historic practice of providing an annual outlook once theres less variability.
And we will however, make some broad comments about current trends and expectations for the year.
Demand remains strong and several of our key categories, especially within the housewares and beauty segments.
Would you expect demand to moderate and several of health and home categories. As we continue to lap the extraordinary growth of 30% and fiscal 'twenty one.
We expect categories that were adversely impacted by stay at home mandates and retail store closures the benefit from a gradual reopening of the schools and communities the vaccination rates increase and.
Anticipating the tiny timing and pace of recovery is challenging given the uneven rate of vaccinations uncertainty regarding vaccine for duration and effectiveness and further outbreaks and variance across the world.
Adding to this uncertainty our global supply chain disruptions and the industry wide volatility and the cost and availability of commodities processors and free the.
Chinese RMB has also appreciated near five year highs, which increases the U S dollar cost of labor and raw materials to our suppliers.
Burgess and demand for certain products and shifts and shopping patterns related to COVID-19, as well as other factors the strength of global freight network, resulting in higher cost less capacity and longer lead times.
More recently elevated demand for Chinese imports as part of shipment receding and unloading backlogs of any U S ports that have been unable to keep pace with unprecedented inbound container volume.
The situation has been further compounded by COVID-19 illness, and protocols and any port locations.
Due to the backlog and increasing trade imbalance with China, many shipping containers and not being shipped back to China are being shipped back empty, which impacts both availability and cost.
As a result, the market cost of inbound freight has increased several fold compared to calendar year 2020 averages.
Although we have secured contracts at below current market rates. It is uncertain, how much we will be able to leverage our contracted rates due to the supply constraints.
All of this has an impact on our ability to forecast of costs and could impact our ability to meet demand if it worsens.
And in order to adjust to the volatile and uncertain environment. The company has implemented a number of mitigation and cost reduction measures that will remain in place until there is greater and greater certainty and less variability you'd.
You've likely seen other consumer companies disclose their intentions to increase prices recently.
And of inflation related concerns are debated daily and the market.
While we have not yet made all of our pricing decisions price increases are being considered along with a variety of cost mitigation and reduction strategies.
We believe we earn a good position and navigate the uncertainty and volatility relative to the broader consumer peer set.
And with the healthy inventory position and the momentum from investment spending in fiscal 'twenty, one that does not need to occur in fiscal 'twenty two.
We believe we have a lot of flexibility to make spending choices put our balance sheet to work and take pricing action as we navigate the year.
Our goal is to strike the right balance and our earnings growth Formula as we've done for the last several years.
Netting down the impact of somewhat unusual and lumpy revenue and spending and spending patterns and fiscal 'twenty, one against our expectations for fiscal 'twenty two.
We would of that we would expect to see easier adjusted EPS comparisons and the first and fourth quarters with more difficult comparisons and the second and third quarters.
We continue to believe that adjusted EPS growth is achievable for the full fiscal 'twenty, two but variability from the many moving parts and the macro environment and its impact on the range of potential outcomes as well as our choices during the year is keeping us from providing a more formal outlook at this time.
We expect our tax rate to be and the range of 11% to 12%, which incorporates the previously disclosed adverse impact of one 5% to two percentage points due to changes in tax law impacting our Macau sourcing operation.
Additionally, although the tax plan outlined by the by the administration does not have enough detailed the fully assess the broad strokes of the plan are largely as we expected and I will make some comments based on our initial interpretations and areas of uncertainty.
Although the rest of proposed increase to the U S corporate tax rate and are less impacted by these changes due to a lower amount of income subject to tax and the U S, which is generally 20% to 25% of our worldwide income before tax.
We do not expect volume plan to impose the 21% minimum tax on U S companies foreign income to have a meaningful impact on our consolidated tax expense because many of our foreign subsidiaries are not directly or indirectly owned by the U S parent and are not subject to U S taxation.
Although the Treasury Secretary of Janet Yellen as remarks for of global minimum corporate tax rate signals support for a pillar two of the OECD is ongoing work to implement of global minimum tax.
It's too early to assess the impact of the bite and plan will have on the OECD efforts.
And the OECD might successfully implemented global minimum tax or what that tax rate might be.
And do not expect any proposed changes to global intangible low taxed income often referred to as guilty to have a meaningful impact on our consolidated tax expense.
As many of our foreign subsidiaries that are not subject to guilty or U S taxation.
At this stage it is still unclear of what loss will be passed and what form as well as when they will take the fact, but nevertheless, we are not expecting a meaningful impact from legislation changes and fiscal 'twenty two.
And we will continue to assess the impact of the proposed legislation is considered and keep you updated.
We are planning for capital asset expenditures of between $100 million to $125 million, which includes construction and equipment expenditures related to a new 2 million square foot distribution facility with state of the art automation and direct to consumer fulfillment capabilities.
Finally, and update on the process to divest our global mass market personal care business.
We entered into exclusive negotiations with the select the dinner at the end of February and have largely agreed to the broader terms.
We are now working through the detailed negotiation of the various agreements and complexities needed to complete the transaction.
We hope to have more to announce very soon.
In closing we are proud of our accomplishments in fiscal 'twenty, one, which showcased the benefits of our all weather portfolio of strong balance sheet and our scalable operating platform all supported by an extraordinary team of associates.
We look forward to building upon our unique platform as we leverage the more lasting trends that emerge from COVID-19.
And the beneficial trends of a return to normal.
Of helped drive our long term growth algorithm and deliver continued value for our consumers associates customers communities and shareholders during phase two of our transformation.
And with that I'd like to turn it back to the operator for questions.
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Our first question is cash free with Oppenheimer and company. Please proceed with your question.
Good morning, Thanks for taking my question.
So I guess the first year of I wanted to start with it started out with his health and home. So the margins were much weaker than we expected. So im hoping you can provide some more color there and and just any way to think about the rights of sustainable level of margins I guess going forward for that segment.
Yes. This is Brian.
I'm not sure.
And we tried to be as clear as we could when we talked about margins and the fourth quarter and we.
Specifically called out that health and home would be the most compressed. So so maybe it's the extent of the compression that you're referring to but I think and our prior comments, we pointed to this and as we said as I said in my prepared remarks, our spending was largely in line with expectations. So I would say theres really not a surprise there from.
Our perspective, and our perspective and it was all intentional.
And we.
We have a lot of things we were trying to accomplish in terms of long term.
Brand awareness.
And making investments in assets that we could use in the long term I'll also point out that there were other margin.
The compression factors in that segments such as higher.
Higher incentive compensation expense and industry wide increases and in freight expense. So there's several moving parts there, but I would say most all of them were in line with our expectations and.
It's just the quarterly.
Thing that you see in the fourth quarter and long term, we believe health and homes margins of more than sustainable.
And they should be flat to up net.
Next year, but there's again a lot of moving parts next year with respect to potential cost inflation and then how do we respond to that cost inflation. The price increases are cost mitigation efforts, so health and homes margins are clearly sustainable and this is just quarterly compression.
Okay great.
That's actually very helpful.
And then I guess, maybe a question for Julien. So your core beauty growth did slow sequentially and obviously Q3 was an amazing performance just any more color there in terms of what drove that moderation sequentially within the within the within the beauty segment.
Again this was the.
The choice, making on our part to set ourselves up for success and we again tried to point to it and our previous remarks that we were going to take advantage of the advantage of opportunities to spend into the strength of fiscal 'twenty, one to set us up for fiscal year 'twenty. Two they also have some of the other margin compression factors such as higher incentive compensation.
<unk> expense and and higher freight expense impacting their margins.
Again, we've implemented cost mitigation.
The strategies and initiatives to help offset the higher cost and were exploring price increases.
And <unk>.
For next year. So we've got a lot of levers we can pull.
And.
Where we're sizing all of those up some of them are in place and some of them will be acted on shortly.
Yes.
Rupert and let me build a little bit there.
The specific answer to your question is that the base grew 23% year over a year ago.
And so growing over that base organically means that we're anniversarying of 23% increase I know pretty much everyone on the call.
And is having the question of so it can handle the Helen of Troy and.
Diversity of 23% growth on a total company basis in fiscal 'twenty. Two you look at this test on beauty and the answer turns out to be 6% for the fourth quarter and if you look at the specific base in the fourth quarter of a year ago. What Youll see is that of the volume is your franchise started to grow very.
Rapid Lee.
In that quarter.
And then you look at this quarter and see of continuing to grow on top of that I think it speaks very loudly and remember in the last year quarter.
Comparative period.
Was no of extremely little COVID-19.
And this year's fourth quarter, there was plenty of COVID-19. So think of all of the reduced store traffic all of the women not traveling social events office et cetera, So to put growth on top of that speed and a meaningfully different environment and I speak I think speaks to the strength of the volume of hydro franchise and not it's deceleration and then if you.
Talk about <unk>.
Market share you heard quite a lot of my remarks on the subject of.
Market share we grew mightily during <unk>.
Fiscal 'twenty, one, including and the fourth quarter and if you put the last comment on that is is the storm Yuri.
And we had a hand tied behind our back in the last eight days or so or middle of of eight days of February because of the storm and.
We grew right over that too so.
And that one left and right.
Sorry, I misunderstood the question and that it was on margins not not revenue Julien agree with everything Julien said, the sorry for the confusion, but that's okay and what.
One last quick one just since we've gotten a lot of questions. On this so inventory did increase pretty significantly and you guys did telegraph that and in the prior quarters the expected increase.
So I've been getting questions in terms of.
And if we look at the inventory increase of any color you can share in terms of what categories drove that increase and then what are you guys and what would you guys consider what's like the excess amount of inventory off versus where you'd normally like to keep if you didn't have all of these risk out there related to COVID-19.
Yes, let me start on this one we generally target three to four turns of inventory of year. So if you take the size of the company and do the math of that you'll you'll get the answer to what is the.
Darts to constitute.
Excess and and the subject of.
Turn to watch out a little bit for seasonality, but there's some parts of the year, when we sell quite a bit more stuff and in other parts of the year and some of that is seasonal by category. So it matters, a lot, which category and which time of year on the topic of adding more inventory. It was the strategic choice. We were also a bit lucky frankly that choice happened right at the.
Time, when we very quickly realized that the supply constraints, we're getting tight so the strategic choice part was we were too lean on inventory for much of fiscal 'twenty. One as we were selling through much faster than we were able to replenish and it made us have more out of stocks and we would like certainly than our customers would like it's not good for the.
It's not good for giving competitors too much opportunity, it's not good for market share all of these things are bad about not having enough inventory we caught up during the course of fiscal 'twenty. One and then at the end of fiscal 'twenty, one made a strategic choice to a bring in more inventory on certain categories, such as the ones and health and home where tariff.
And we're set to expire at the end of December 31, 2021, and we wanted to bring in more product ahead of those tariffs.
<unk> very good for cost of goods for obvious reasons, good for margins and then and the case of.
The other categories more than catching up and being ready.
About volume misers.
The Q1 of the year ago period, we had very little inventory and Werent able to meet a lot of the very big surge in demand.
And no longer and that situation. So you can see that it helps and then the the luckier part was that the timing of that was just before some of the heavy supply chain disruptions were becoming big and and as those emerge we were not shy during Q4 to amp up our inventory even further then.
And we were planning to because we knew that the disruptions we're starting to emerge. So there's some perspective on inventory and in terms of the amount of inventory we have I'd say, it's a strategic advantage at this point a lot of companies are hit by the supply chain training supply chain constraints, but not as many of them are coming into their fiscal year with.
The improved inventory situation and I, just described sort of have that kind of buffer in this environment. Thank goodness would be my comment.
And I agree with everything Julien said and especially the last part I don't think we have any real excess inventory and no concerns about the health of the inventory at all in this environment I think we have the right level of inventory, but yet I do think we can come down and operate more efficiently in a more.
<unk> already steady state environment. So I think we're perfectly positioned no concerns on inventory and fact agree the Julien that its the strength.
Okay, great. Thank you for all of the color of really helpful.
Thank you. Our next question is from Bob <unk> with CJS Securities. Please limit to one question and return to the queue for any follow up question. Bob. Please proceed with your question.
Thank you good morning, and congratulations on excellent.
Operations and execution, and obviously, a very difficult environment.
Thank you.
Okay, how are you.
Good day.
I wanted to start with one of the comments, Brian kind of made at the end and ended there with a new 2 million square foot distribution center for direct to consumer et cetera, and some capital investment behind it. So maybe you could talk a little bit more about that how long will this take to build out and.
One of the benefits that you expect to get one of its dawn, which brands will be and it just how should we think about this you know.
Expanded distribution center and capacity.
Well, it's it's being built and designed specifically for the OXXO business business, both the housewares and sorry for the hydro flask and OXXO and as we said will have state of the art automation and direct to consumer capabilities. So it's very exciting for us.
Allows us to really kind of expand our distribution footprint and it.
Solves distribution needs for the housewares business, but also for the other businesses and some of them are combined and the same distribution centers housewares.
Currently and really allows us to tailor each distribution center for each business segment's needs and so we're very excited about it.
It's been delayed the kick the initial steps of it had been a little bit delayed versus our original expectations, but.
It should be about 18 months when we're operating out of the facility and the facility also allows us to put in a lot of new.
Software and enhancements and technology and get all of that running smoothly and then be able to roll that out to the rest of the organization as well. So we're very excited about it and.
Looking forward to getting that going and.
And while the facility is dedicated to the housewares the implication of moving housewares out of one of our other facilities has very positive implications on the ability to reconfigure those for the larger businesses that we have and to re optimize those older facilities to pick up some pretty significant efficiency gains.
Gains that have been constrained by us being a bit too crammed in and having to or.
While at the dumb down the best possible configurations to accommodate the different kinds of business. So think of OXXO, specifically with the big conveyor belt.
That is designed to pick pack and ship the highly customized orders and I think of the the big machines that we've described in the past like fast was one and furious with the other.
To handle the greatly increased number of DTC orders that we now fulfill on and automated basis.
And then think of the ability to handle seasonality. So it affects the whole footprint and in an efficient way and the last point is were just bigger this company as I've mentioned in my prepared remarks is 40% bigger than it was four years ago and at a certain point when you're still living and a three bedroom house, but you got 40% more kids need and.
For the bedroom.
Got it great and then just following up on that.
I think even with the spend the balance sheet will be approaching net cash position by the end of next year. If you don't.
And do something else so could you talk about.
Brian mentioned M&A.
Uses of capital because you're getting you have too much cash. So how are you thinking about yeah, yeah of high quality problem Helen of Troy as the cash flow of machine, we're super focused on it and proud of it and and I said in my prepared remarks, we're not shy about putting it to work and the flywheel.
And so to be able to do deals like we talked about whether it was the revlon deal or the.
And.
The share buyback last year.
As an example, within the last 12 months of dry bar, only 14 months ago, and that's more than half of $1 billion worth of stuff and it's all of that stuff is off the books I'm sorry off the debt rolls already so that's cash generation right there and in terms of what to do with it.
And if we finished the sale and personal care, which is our expectation.
And we mentioned in our prepared remarks, then and more cash out of there. So the intention is to put it to work and our capital deployment strategy Couldnt be clear number one is M&A.
We're on the hunt, we see some good prospects and we like to add more barrels to our strength, there's even a tuck in or two along the way that.
It would be right for us so put it into making our machine have a little bit more mass to it and gathering and the momentum of the flywheel the.
Second use can be opportunistic buyback.
Which we've done from time to time.
And then even from time to time, we analyze the benefits of the dividend we've done that more than once over the years.
And so far come to the conclusion to go down the capital strategy that we're already and so lots of flexibility and while we're keenly aware that our balance sheet is airtight and looking for the right use of that cash and a responsible way.
Bob I'd, just add that we can't give you specifics, but we've got three attractive acquisition targets that we're taking will look out of various sizes. So we're excited about that and we'll see how that plays out.
Super Thank you so much.
Okay. Thanks.
Thank you. Our next question is from Steve Marotta with C. L. King. Please proceed with your question.
Good morning, Julien and Brian and Jack just one very quick question and then of one on one of the little bit more in depth.
And based on commentary regarding March and April it sounds like quarter to date sales of positive is that accurate.
Yes, yes, we had a very strong March.
And we're very pleased with our our situation in the beginning of the year people might get the impression of that's because of the jewelry revenue that spilled from February into March.
Just as gravy on top.
So we just had a good margin and jewelry actually ended up helping March further Brian talked about that 20 of <unk>.
Bottom line impact in February that would have been and the results that we just reported today. So we just reported $11 65.
Net 20, hence that is not included in that number is added on top for March and in April were at the end of the month and we like very much where we are on the sales upfront and we're right on track with where we expect it to be the balance of the portfolio is working once again in our favor. So we like this.
And then we will see how the rest of the core of plays out which.
Wish we could say great and now we can see the whole year, but there's just too much variability to just say well good eight weeks and let's give a rock solid guidance.
Understandable and helpful. Julien, maybe you can comment a little bit on institutional sales the.
The opportunities there in the more obvious brands, maybe some opportunities and less obvious brands and the potential impact and the current fiscal year.
Yes, Im glad you ask about this people asked about it a lot last year, because I think they were wondering more about all of those hotels and airlines and stores and things that wanted to check people's temperature or have and air Purifier and I think what's really happened here is there is a new normal in a lot of institutions think of schools universities.
And the secondary schools, where I don't think people would dream, especially these days of not having and air purifier available for their students or their teachers think of hotels, where humidifiers air purifiers of water purifiers and and the monitors of this stuff was secondary.
Shipment and not top of mind like the post 911 era, where theres just been with 20 years of heightened awareness of the security and all of the products that go with the ability to provide security so think of cameras and surveillance and things like this this is a new normal. So we think the institutional market is sticky and sticky beyond COVID-19.
We've now hired in this area we've had some success.
We have prospects and our fiscal 'twenty two budget and we like it during the tale of COVID-19 during the whole reopening periods of good reopening play because if you want to reopen you've gotta do with safe and then post COVID-19 the stickiness and I'm trying to suggest we think is real and that's what the institutional customers are telling us. We're also working on institutional products that are specific.
Just for the institutional market, so think of connected devices and certain types of filter change indicators that are wired to the central system more internet of things. These things that are of the fear that may not be relevant for a home environment, but are relevant for and institutional environment. So we like it and as for which categories. You know, there's the obvious ones like the.
One's I mentioned.
But it's possible that the institutional markets like the security comment or just a little more woken up.
The the every day essentially ality of these types of categories as opposed to the of my customers won't come back and less I do more of this right now because of COVID-19 and I'll, let anybody talks about.
Terrific very helpful. Thank you I'll take the balance of my questions offline.
Okay.
Thank you. Our final question is from Linda Bolton Weiser with D. A Davidson. Please proceed with your question.
Hi, My questions are on the beauty segment.
Just wondering it sounds like you maybe feel like beauty organic sales can grow and FY 'twenty two so I'm wondering on the appliance side are you seeing and have plans for another major innovation on the order of the one step volumize are or do you just see continuing strength of that volume is a franchise.
And then on the dry bar side of it obviously that business will benefit as we as the everything reopens, but have you been able to do any work them, yet and expanding the drive our distribution for the products. Thanks.
Yeah, Hi, Linda and accurate.
For the questions.
So beauty grew despite COVID-19 not because of it. So there's just a good prospects going on the other side of this and even even right now and you heard my remarks, driven cash about the strength of the fourth quarter.
Right the 6%.
Year over year growth and so we're in a good situation innovation has been the core of beauties turnaround over the last couple of years for those on this call that have been following us for a long time. They remember the days when beauty was not as consumer centric and not able to grow.
Appliance business the volume is or is not the only driver of that it's just the biggest one what really happened was we got woken up on the power of consumer centric innovation in beauty and then started to come out with a whole bunch of products. So for example, there's a new set of copper Tong straightening irons and I think we've shown them to you and the past Linda they're just done.
Well our market share in the straightening irons segment of the beauty category, which has nothing to do with volume Misers has also increased and and the case of curling irons, where the reigning kings of the.
Salon Curling iron business with the gold up tools curling irons, and so innovation and those areas is helping us a ton and you take volume misers, we're well past the original boom of volume misers, and three and four generations in with the proliferation of <unk>.
All of your minds are spin offs that are making a very big difference. We think we've created a new sub segment of the category entirely there are two or three other.
And I don't know if there.
<unk> Buster innovations of that same level, but theyre very meaningful to consumers. We know it from our testing we know it from our insights and then on dry bar. We're now extending many of those innovations into dry bar to drive its business at the higher end and prestige. So we can capture the good better and best of the market. So it goes well.
The on volume <unk> and Volumize of itself you might think of all of this train is going to slow we.
We do see growth prospects for beauty during fiscal 'twenty, one with the tailwind from things reopening and also from further international expansion and not just volume monitoring when you drive bar question, we are expanding distribution of dry bar, which does help us and we're also working on international for dry bar and that said theres the.
A whole another play on dry bar, which is the salons of reopening.
So as salons reopen there's just more of everything to do with hair, including blowout and and the dry bars salons, while they're actually not that big of a part of the sales for dry bar. They are a big part of the brand experience and people, having a demonstration of those products and use of the hands of of professionals.
Atlas on their own hair, which makes them purchase later either online or in the norge drill most of the for something else in terms of specific distribution Amazon and Macy's are two specific examples and the United States, where we've just built new distribution and we're very pleased with the sell through that we've had so far.
Linda It's Brian just the little build on dry bar for me. If you talk to the people that came with the acquisition Theyre, saying that the new product development and the innovation slated for fiscal 'twenty. Two is the best that they've ever seen so hopefully we brought something to the table and then the <unk>.
Help build on what the created but they think the new product development lineup and the innovation is is better than ever and dry bars, and we're very excited about its prospects and not just on the tools, but also on the liquids and I think Wow, that's less of our sweet spot and that said take the liquid glass of product as an example, it was developed on our <unk>.
<unk> by that team and it's become a best seller.
Great. Thank you very much.
You bet and Linda.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I will now turn the call over to management for closing remarks.
Yeah. Thank you operator, and thanks, everybody for joining US today, we just had a terrific quarter. We've had the best year in our history and that was after last year, which was the best year in our history. So we are very pleased we're coming into fiscal 'twenty, two with tremendous momentum both on the business and the organization.
Tons of things to balance and we're very happy to talk to you.
The offline on that but we very much like where we're headed for the entire back half of phase two and we think the best is yet to come for Helen of Troy. So we appreciate your continued interest and support and we look forward to speaking many of many of you and the coming days and also the coming weeks. Thank you very much and have a great day.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great day.