Q1 2020 Earnings Call
[music] please stand by.
Welcome to the Helen of Troy Limited first quarter 2020 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Jack Jancin Senior Vice President of corporate business development you may begin.
Thank you operator, good afternoon, everyone and welcome to Helen of Troys first quarter fiscal 2020 earnings conference call.
The agenda for the call. This afternoon is as follows.
I'll begin with a brief discussion of forward looking statements.
Mr. Julien Mininberg, the company's CEO will comment on the financial performance of the quarter and specific progress on our strategic initiatives.
Then mr., Brian grass, the company's CFO will review the financials in more detail and comment on the company's outlook for fiscal 2020.
Following this mr. mininberg and Mr. grass will take your questions you have for us today.
This conference call may contain certain forward looking statements that are based on management's current expectation with respect to future events or financial performance.
Generally the words anticipates believes expects and other words similar our words identifying forward looking statements.
Forward looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results.
This conference call May also include information that may be considered non-GAAP financial information.
These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently 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. Mininberg I'd like to inform all interested parties that a copy of todays earnings release has been posted to the Investor Relations section of the company's website at Www Dot Helen of Troy Dot Com. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures.
The release can be obtained by selecting the Investor Relations tab on the company's home page and then the news tab I will now turn the conference call over to Mr. Mininberg.
Thank you Jack good afternoon, everyone and thank you for joining US. This afternoon, we reported a great start to our fiscal year also a great start to phase two of our transformation plan, which we detailed during our May 20, Onest Investor Day in New York.
Consolidated core business sales grew 6.8% and adjusted diluted EPS grew 10.2% in the quarter. Both ahead of our expectations, given the especially high year ago base.
Sales growth was driven by our leadership brands, which grew 7.4%.
Our continued focus and investments in innovation and marketing paid off handsomely.
We gained further ground online with sales growing 28% now representing 23% of consolidated sales for the quarter. These operating results give us the fuel to further increase our spending behind attractive investment opportunities for the balance of the year and also raise our revenue and EPS outlook for fiscal 2020.
Before continuing my discussion on the quarters results I'd like to express my sincere appreciation for those of you who attended or listened to our Investor day.
In addition to presenting our phase two plans, we introduced you to some of the outstanding leaders in our company shared our long term financial goals for phase two and gave you a flavor of the culture and level of engagement that our people bring to work every day.
We believe they are passionate commitment powers Helen of Troy and is a key driver of success as our phase two plans come to life.
As outlined during Investor day Phase two built on the accomplishments of phase one by focusing on eight key strategic priorities.
These are investing in leadership brands doubling down on international selective and strategic M&A consumer centric.
Unifying and elevating the best people accelerating shared service excellence.
Maximizing operating efficiency and optimizing capital deployment.
Since deploying these strategies internally nine months ago, we have been implementing them to bring next level capabilities to our organization and pursue new growth opportunities for our leadership brands OXXO Hydro flask, Vicks Braun Honeywell pure and hot tools comprised approximately 80% of our net sales and an even higher proportion of our operating profit they sweeten our mix as we continue to grow them.
The innovation showcase section of Investor day revealed important new product launches and highlighted the skill and creativity of our consumer centric engineers leaders and our sales and marketing organizations. They work tirelessly to match consumer insights and trends to new technologies and differentiated timeless designs.
For us delighting consumers with branded solutions, They love and trust is a healthy obsession.
Again, thank you to everyone, who joined us during Investor day.
Now I'd like to turn to review of our business segments in the call in this quarter.
Sales growth was led by our Houseware segment, which increased core business net sales by 23.8% with growth across both brands outstanding.
Also saw strong growth at key brick and mortar retailers as we gained distribution benefited from solid Pos and improved store traffic at key retailers.
New product introductions contributed to oxos growth as both retailers and consumers responded well to new launches.
Further investment in Oxos equity in store in E Commerce and via digital marketing were also key drivers.
The food storage and kitchen organization categories were particularly strong and on trend with the rising popularity of organizational gurus that focus on de cluttering and household organization.
For hydro flask, another outstanding quarter.
The brand's strong equity and popularity continued to grow with outdoor enthusiast and retailers alike.
It continues to expand its number one market share position and reinforce its role as a key contributor to category growth for high performance insulated hydration vessels.
The brand made terrific strides with retailers and consumers on the east coast of the United States, especially in the northeast, where we further expanded hydro flask offerings and brick and mortar broaden placement on the shelf and expanded the selection of on trend and trendsetting items.
We see we are seeing strong point of sale results in inventory replenishment orders in lined with accelerating sell through for those customers, where we have the visibility.
In addition to hydro flask growing brand equity the introduction of a new spring collection refreshingly bold colors across the hydration coffee beer and food lines is resonating well with consumers.
Hydro flask also advanced it's beyond the bottle strategy with the announcement of a number of new products and its growing line of soft goods, including two new high performance hydration packs.
The first is the new 14 leader Downshift hydration pack designed to prove to provide a lower center of gravity and increased stability.
The second is the new 16 leader women's hydration pack tailored through the back passed through the back panel shoulder straps and hip belt to fit more comfortably on a woman's body.
These new consumer centric insulated hydration backpacks are especially suited to mountain bikers and hikers their innovative cold flow system allows for more than four hours of hands free cold hydration.
More new products are on the way both in bottles and beyond.
Outside the U.S. Hydro flask continues to grow and is targeted key markets as we double down on the international we believe hydro flask offers much more promise and can be a leading environmental and sustainability forward authentic global brand.
Turning to the health and home segment core business net sales declined 4% in the quarter in the face of a difficult comparison to the prior year. However, we made sequential improvements in Asian Asia Pacific as retailers sold down previously elevated inventory levels.
Earned incremental us distribution for our vicks thermometers, and our vehicle lines and introduce new products.
Recent new launches such as the Honeywell Dream Weaver sleep Pam have been well received a great example of our just one more strategy. This product furthers the reach of Honeywell fans into households, the dream Weaver extended the brand into the sleep category with new benefits that can keep a formerly seasonal product front and center all year long.
It uses a soothing sound frequency tone called pink noise to provide sound blocking benefits that can help promote deeper more restorative sleep.
To help it earning keep a spot on Nightstands. It also includes the USBC charger for bed size bed side effect, the essentials like phones.
Similarly in beauty consumer centric innovation continues to be a key success driver the appliance momentum over the past two years accelerated in the quarter driving 3.8% growth in core business.
Force.
Sorry, 3.8% growth in core business sales for beauty.
Our innovations combined with digital marketing and increasingly viral support for consumers are key drivers of this success online and international were also standout in the quarter for appliances. We have rapidly earned a large base of four and five star in rate ratings on key web sites and our earnings strong support from bloggers and media as word spreads.
Stepping away from the business segment I would like to now stops by light some of the other phase two strategies, where we made good progress in the quarter, namely accelerating shared service excellence maximizing operating efficiency and unifying and elevating the best people.
For shared services a key focus area in phase two is building further excellence in our processes.
We have begun what we call the Helen of Troy way, which includes simplifying standardizing and systematizing over 150 unique processes across our supply chain with the intent to create new efficiencies lower inventory and reduce out of stocks at the point of purchase as an example at the very end of May we rolled out an upgrade of our Oracle demand planning tool. This is key when managing a complex global portfolio across multiple product categories regions and customer requirements.
In addition, during the quarter. We also successfully transitioned our hydro flask direct to consumer operations from a third party partner to our own distribution center and are now in the midst of transitioning our customizing, our customization operations and retail distribution in house.
We expect these actions will help improve cost quality and speed.
These changes and many more like them that our plan for phase two would not be possible without the culture of collaboration that is now second nature across all Helen of Troy business units shared services and regional organizations.
During phase one we substantially upgraded our talent pool in phase two we are emphasizing training and raising the bar on performance expectations. During the quarter, we rolled out our new Helen of Troy Academy and in House suite of training programs that helps each associate sharpen their skills and reach their full potential.
It has been very well received and the new skills, we'll take our people even farther.
Before I turn the call over to Brian I want to thank you again for your trust and support as we focus on phase two we have created a flywheel with considerable potential for further value creation.
Its power starts with our people who are focused on organic revenue growth margin expansion from innovation and investment in our leadership brands. It gains efficiency from improvements to shared services and working capital further momentum comes from our debt and tax structure and accretive low risk deployment of capital. We believe these powerful elements drive the flywheel. They also underscore my belief that the brightest days for Helen of Troy are ahead of us.
With that I will now turn the call over to Brian .
Thank you Julien good afternoon, everyone.
We're pleased with our first quarter results and to be in a position to raise our full year outlook before discussing the quarter in more detail I'd like to further discuss the impact of tariffs since I know this is an important topic for many of you as it is for us.
As I outlined during our Investor day in May we had been planning for the list three tariff increase from 10% to 25% for some time and believe we're in a good position to take pricing and supply chain actions to mitigate the impact of those increases.
In terms of the recently announced lifts for these tariffs were introduced for public comment, but have now been postponed pending a potential trade deal with China.
As list for has not been implemented we have not considered any changes to our fiscal 2020 outlook at this point.
If ultimately implemented we anticipate taking the same approach that we've taken in the past the goal would be to offset the vast majority of the gross profit dollar impact with pricing cost reductions supplier consolidation and other mitigation efforts.
I'd also like to explain the impacts of the new UK offshore receipts in respect of intangible property tax commonly referred to as the ore up tax and foreign currency fluctuations that I will be discussing during the call.
Beginning with the new UK or attacks, where intangible property is held offshore and that property is used to facilitate sales in the UK sales can be subject to UK gross receipts tax of 20%. The tax came into effect during the middle of the first quarter and there are still many aspects of the legislation and implementation that remain unclear. We intend to treat this as a transactional tax included in operating expenses, while we do not believe the tax law the material adverse impact on our operating results. It is a headwind for the first quarter and fiscal 2020 that was not included in our original outlook.
Turning to currency average foreign exchange rates were generally unfavorable compared to the same period last year, which negatively impacted net sales and gross profit.
You will also hear me refer to a favorable impact from foreign currency in SDMA, which primarily relates to the settlement of forward contracts that are intended to offset unfavorable impact of currency on net sales and gross profit.
Turning to a review of the quarter, we achieved strong results with adjusted diluted EPS above our expectations largely due to stronger than expected net sales in housewares and beauty in the second half of the quarter.
Consolidated sales revenue was 376.3 million, 6.1% increase over the prior year driven by a core business increased to 6.8%, reflecting an increase in brick and mortar sales in the houseware segment growth in consolidated online sales and an increase in appliance sales in the beauty segment.
Sales in the online channel grew approximately 28% year over year to now comprised approximately 23% of our consolidated net sales in the first quarter.
These factors were partially offset by lower international sales in the health and home segment a decline in personal care sales.
Within the beauty segment, and the unfavorable impact from foreign currency of approximately $2.5 million or 0.7%.
This was a very strong quarter for houseware segment, which posted a core business increase of 23.8% as a segment continues to see strong demand for both OXXO in hydro flask brands online and in store with new product introductions contributing meaningfully to growth.
In line with our expectations health and home Dcor business net sales decreased 4%.
Which reflects the difficult comparison to expanded international distribution and the tail end of a strong cough cold flu season in the same period last year.
These factors were partially offset by incremental distribution with existing domestic customers in early replenishment of certain seasonal categories.
Judy core business net sales increased 3.8%, primarily due to growth in the appliance category, especially online and growth in international.
These factors were partially offset by a decrease in brick and mortar and that decline in personal care.
Consolidated gross profit margin was 40.8% compared to 41.3%.
The 0.5 percentage point decrease is primarily due to the impact of tariff increases unfavorable foreign currency and higher freight expense, partially offset by the favorable margin impact from growth from leadership brands and a higher mix of houseware sales.
SDMA was 28.1% of net sales compared to 28.6%.
The 0.5 percentage point decrease is primarily due to the impact of our pricing actions taken with retail customers the favorable impact of foreign currency exchange and forward contract settlements.
The impact of greater operating leverage and lower product liability claim expense.
These factors were partially offset by higher annual incentive and share based compensation expense related to short and long term performance higher new product development expense and higher advertising expense.
GAAP operating income was $47.2 million or 12.5% of net sales. This compares to $43.3 million or 12.2% of net sales in the same period last year.
The increase in margin was driven by the favorable comparative impact of restructuring charges of $1.1 million and lower SGN as percentage of net sales, partially offset by a reduction in gross profit margin.
Adjusted operating income was $59.3 million or 15.8% of net sales compared to $55.5 million or 15.6% of net sales.
Turning now to adjusted operating margin by segment Housewares adjusted operating margin was 23.7% compared to 21.7%. The two percentage point increase primarily reflects the margin impact of a more favorable product and channel mix and greater operating leverage.
These factors were partially offset by higher advertising investment to support the brand's new product launches and expanded distribution higher annual incentive compensation expense and higher new product development expense.
Health and home adjusted operating margin was 13.7% compared to 15.3% to 1.6 percentage point decrease primarily reflects the impact of tariff increases the unfavorable impact of foreign currency on net sales and gross profit.
Higher new product development expense, lower operating leverage and a less favorable product and channel mix.
These factors were partially offset by the favorable impact of foreign currency exchange and Ford contract settlements and SDMA and lower product liability claim expense.
Beauty adjusted operating margin was 4.8% compared to 6.8%.
The two percentage point decrease is primarily due to higher freight expense to meet the strong demand in the product in the appliance category, a less favorable product and channel mix and higher new product development expense. These factors were partially offset by lower advertising and amortization expense.
Our effective tax rate was 7.6% compared to 6.2% the year over year increase in the effective tax rate is primarily due to shifts in the mix of taxable income and the companys various tax jurisdictions and increases in certain statutory tax rates.
Income from continuing operations was $40.7 million or $1.61 per diluted share compared to $38.2 million or $1.43 per diluted share.
non-GAAP adjusted income from continuing operations was $52.1 million or $2.06 per diluted share compared to $49.8 million or $1.87 per diluted share.
This represents a 10.2% increase in adjusted diluted EPS, despite unfavorable foreign currency, the new UK or attacks and an increase in growth investments year over year. We're pleased to deliver strong growth on top of a 32.6% increase in adjusted diluted EPS in the same period last year.
Now moving onto our financial position accounts receivable turnover increased to 66.8 days for the first quarter compared to 62.6 days in the same period last year turnover as an average trailing 12 month calculation in the increase primarily reflects the timing of revenue growth and cash collections period over period.
Our accounts receivable balance at the end of the first quarter was $262.5 million compared to $255.7 million at the same time last year.
Trailing 12 month inventory turnover improved to 3.2 times compared to 3.1 times in the prior year period.
Inventory was $335.3 million compared to $256.3 million at the same time last year.
The increase largely reflects temporarily higher inventory levels to avoid any potential disruption in supply as we continue certain strategic supplier consolidations and as we complete the integration of hydro flask into one of our core distribution facilities.
We expect to improve our inventory levels as these projects are completed.
Net cash provided by operating activities from continuing operations decreased $13.2 million compared to the same period last year.
The decrease was primarily was primarily due to an increase in cash used for inventory. This was partially offset by a decrease in cash used by accrued expenses and other current liabilities.
Total short and long term debt was $321.1 million compared to $300.1 million.
Our leverage ratio was 1.3 times for both periods.
Our first quarter results are a good example of how that dynamic omnichannel omnichannel retail environment can alter the cadence of our quarterly results as we continue to adapt to this evolving landscape in quickly capitalize on opportunities.
Retailers are adjusting to the same environment, which can result in order volatility.
Our digital advertising initiatives have been effective and measurable measurable, but can also vary quarter to quarter and year over year.
Despite this variability we are pleased with our operational execution and ability to achieve consistent annual results and expect to continue to prioritize annual performance and the long term health of our businesses.
Turning to our outlook. Although it is early in our fiscal year, we are increasing of our full year expectations to reflect the strength of the first quarter, we were especially pleased to increase our adjusted diluted EPS outlook, while making incremental growth investments and absorbing unfavorable impacts from foreign currency and the new UK or of tax all of which were not included in our original outlook.
For fiscal 2020, we now expect consolidated net sales revenue in the range of $1.59 billion to $1.62 billion, which implies consolidated sales growth of 1.7% to 3.6% compared to the prior expectation of 1% to 3%.
Our net sales outlook reflects an increase in housewares net sales growth to 6% to 8% compared to our prior expectation of 4% to 6%.
We are maintaining our outlook for health and home net sales growth of 2% to 3% and we are maintaining our outlook for beauty net sales decline in low single digits, which includes the expectation for a third consecutive year of growth in our appliance business.
We now expect consolidated GAAP diluted EPS from continuing operations of $6.80 to $6.97 and non-GAAP adjusted diluted EPS from continuing operations in the range of $8.40 to $8.65, which excludes any asset impairment charges restructuring charges share based compensation expense and intangible asset amortization expense.
Our net sales and diluted EPS outlook assumes a severity at the upcoming cough cold flu season will be in line with historical averages and that June 2019, foreign currency exchange rates will remain constant for the remainder of the fiscal year.
The year over year comparison of adjusted diluted EPS from continuing operations is impacted by an expected increase in growth investments of 12% to 17% in fiscal 2020 compared to our prior expectation of 10% to 15%.
Our diluted EPS outlook is based on an estimated diluted shares outstanding of $25.3 million.
The increase in adjusted diluted EPS outlook reflects our strong performance in the first quarter, partially offset by the expected impact of the new UK or attacks you expected unfavorable impact from the assumption that June 2019, foreign currency exchange rates remain constant for the rest of fiscal 2020, and the expected increase in growth investments compared to our original outlook.
Combined these items have an impact of approximately 20 cents per diluted share.
We continue to expect adjusted EPS growth for fiscal 2020 to be concentrated in the second half of the year due to strong performance comparison and specific events in the first half of fiscal 2019.
We now expect growth and adjusted diluted EPS for the first half of fiscal 2020 of 4% to 6% year over year.
We expect to reported GAAP effective tax rate range of 9.9% to 11.9% and an adjusted effective tax rate range of 9.1% to 10.7% for the full fiscal year 2020.
The likelihood and potential impact of any fiscal 2020 acquisitions and divestitures future asset impairment charges future foreign currency fluctuations.
Further tariff increases or further share repurchases are unknown and cannot be reasonably estimated therefore, they are not included in our sales and earnings outlook.
Now I would like to turn it back to the operator for questions.
Thank you if you would like to ask a question. Please signal by pressing star one.
If you are using a speakerphone. Please make sure your mute function is turned off.
Again press Star one to ask a question and we'll pause for just a moment everyone an opportunity to signal for questions.
Well go first to Frank Camma with Sidoti.
Hey, good afternoon guys.
Hey, Brian how are you doing.
Good thanks for taking the question.
Hey, a couple of things can you start.
To give some color on this but can you talk a little bit more about the cadence of the quarter given the.
The size of the beat here I mean, obviously.
You called out housewares and beauty and it sounds like it was really back end weighted was that Replenishments was the new distribution can you go a little bit more into that by by segment.
Sure I think there there's while we don't expect.
23% growth in that segment on an ongoing basis.
I would say, there's there's not a lot of unusual things driving sales there is being driven by strong demand for both hydro flask and OXXO products and solid.
Distribution, but not what I would call a lot of pipeline fill it's really mostly being driven by demand in and.
You know maybe is a little bit lumpy based on the timing of some of the programs that's going on at the retailers but.
I would call nothing incredibly unusual and you're right. It was concentrated more in the back half of the quarter.
And there was no and there was no there was no club channel either it sounded like or less oceanside pelvic less less direct channel in both periods, but actually less than in the first quarter of this year compared to the same quarter last year. So they are highly field.
Okay, sorry about that makes me go ahead Im sorry go ahead.
I apologize Julien here and I'm, sorry to interrupt either review I want to sale. So that in the beauty segment. We just really have very strong demand in the appliances and as product came in especially late in the quarter as Brian mentioned, even with last few weeks.
A lot of product going out the door to meet pent up demands us is not.
Inventory or pipeline. This is just pure sell through and filling in the assumption from the market for some really good products and those innovations are drawing that viral stuff that you heard me talk about in the prepared remarks, and the result is not just a big beat but surprise us, especially in the back half of the quarter well beauty makes sense to me because you had success in the first.
The last quarter, so I kind of see kind of a pull through on that but.
Your numbers your guidance for housewares for the balance of the year would suggest you know no matter how you look at it a huge deceleration.
Revenue growth. So can you explain like how that works through your system.
You mean versus the big number that was just obviously just wanted me reading versus that of the year.
Well, yes, and no I get that it's an increase in the year, but to get to a I thought you said.
A top.
Top and growth for the year revenue growth was 8% is that correct correct.
Yes, it's early in the year neither.
Mathematically you have to grow.
You know like in a range of 4% to 5% for the balance well keep keep in mind that the first quarter is a smaller quarter comparatively in absolute dollars. So the.
The following quarters have much more ability to influence. The result, so I mean, it's you got to do the math and dollars you can't just look at percentages to be able to get there and not only the size of the base and the different quarters, but the year over year of the prior year. So if you look at Q2 of housewares since so when you are asking about in the second quarter of last year the growth from the year before was substantial so to grow over that is a big number we will.
And then to grow further for the rest of the year than we originally pointed out some of its rolling through the beat that we just have to your question and some of it is just early days, we havent seen the whole year play out yet.
I'm, not saying, we'll do better I'm simply saying.
Might even turn out up from there, we'll see how the year plays out from historically the first quarter is there are small as their smallest sales quarter.
No I get that and you comp, but you did comp against your pretty much your biggest quarter from a year over year. So unless my numbers are wrong. So I think you had 19% year over year last year at about 19% and then by fourth quarter. It decelerate a percent correct for you have a careful with what Brian is saying, it's one thing to do the percentages and the other thing I look at it the dollars.
Yeah Okay.
Okay that I don't want to be at that point, but okay.
Can you just.
And then I'll get out of the line on this but.
Can you explain why the beauty margin given the sales no I'm just looking at it.
Net of restructuring expenses.
Why the margin.
And have expanded more.
There were.
Great.
Right there theres a fairly we called that out there's a fairly significant amount of freight expense that we we made the decision to incur to in order to fulfill against the strong demand that we have for some of the products and so we we had to use expedited freight in order to meet that strong demand and we chose.
A lot of the options to make that choice, even though it does have a temporary drag on margins were out of that position, where we'll we'll need to incur that expense on a go forward basis, alcobras oil or might not that fish.
Yep correct, Dan remember were consumer centric and there's a lot of draw for those products in the market. So.
It's one thing to say no to a customer we don't have the product at the full level of order and allocate it's another thing to make the choice to supply the market satisfy the consumer with a product that we know is a winner and in several those innovations at just a lot of demand and we made that choice and as Brian mentioned, we had the supply now.
Significantly increase we don't see that going forward. So there is a normalization you also had a frank.
The mix factor of the decline in personal care, which has got a much stronger margin that decreasing will have an impact on on the overall margin.
Okay, great. Thanks, guys.
You bet. Thanks, Mike.
And we'll go next to Olivia Tong with Bank of America.
Yeah, Hey.
Yeah, Hi, your first call with US welcome. We're thrilled I know you've been following the company for a long time, but great to see you on this call terrific with Olivia.
Thank you. Your first question is just around the incremental investment dollars.
Nice quarter.
Spending a little bit more.
On growth investments can you talk about.
Yes, Great question and we are we are increasing we're very pleased to do that the fuel from.
The first quarter result gives us the confidence there is a lot of opportunities across the leadership brands. So it's concentrated in those seven brands.
It's primarily going online.
There is some money going into international expansion.
And there is a fair amount focused on the digital marketing side of online as.
Opposed to just the e-commerce support so you will see us very active on the Amazons of the world.
On the E Commerce E tail side, because that's where the consumer is and we are consumer centric and the rest of that digital money is going against marketing campaigns for new items.
Feeding some of the viral stuff that has just been so strong that we almost couldn't for enough money into it at this point.
And then as the seasons come up whether it's.
Cold flu or you know to hot Summer for example, so that those are places, where we didnt have to put marketing money against things like fans are they sold themselves.
Things like.
The cold flu season, or the upcoming heaters, we'll see how the wildfires and all that stuff if there are any.
Turn out. So these are the places where the money will be spent on the social media side. We found some really good levers with attractive ROI and now that we have some more money to pour into them, we will increase the investments.
Super Helpful, and then talk a little bit about.
One time.
So if you could.
Perhaps.
And is it distribution.
So we should anticipate potential.
Elevated crew or.
Also.
Our partner.
Yes understood. So we're talking about both brands OXXO in hydro flask of of that.
Housewares if theres.
Both positive book, but also different stories, so starting with OXXO OXXO.
It's fairly well penetrated in this country in the United States. It does have lots of opportunity overseas and we are making progress overseas and we like we like what we see on the one hand on the other hand in say in the United States.
Some of the new products just earned incremental distribution at some of the biggest customers and we are doing well on shelf, they're making decisions about rationalizing what they want on shelf in OXXO is strong enough and its Pos performance that it's emerging the Victor.
In plenty of those decisions at buyer. So there is some incremental distribution. There we're leaning in online online is doing very well for OXXO in that incremental spending that I just referred to.
Is helping to feed it and were learning everyday and just getting sharper and sharper on how how we spend and the new products themselves. They are just appealing to consumers and they are generally selling through very well you heard us talk about food storage and personal household organization stuff as two examples in the prepared remarks. This quarter pop 2.0 containers is specific and I think you saw those in the.
Innovation showcase in the Investor day, and they're pretty cool the new coffee grinders are tearing up the track their winning all kinds of awards as well. So these are things that we are leaning leaning into.
In the case of hydro flask.
Hydro flask has earned a lot of new distribution, especially in the east coast at a couple of big retailers, who have listened in on the category and specifically lean in on the brand and then we've earned more shelf space, we're putting some very good items on the shelf and also some new ones, so that major out or sports and those retailers.
They are now Anniversarying and so as a result, you are talking about fewer sell through and acceleration of the consumer appeal and you can see it in the market share actually and I mentioned that we're expanding an already leadership position in the metal beverage ware.
Market share and Thats, a result of some of what I'm, saying here and then in terms of growth drivers. The same that we've highlighted a couple of times on hydro flask beyond still winning distribution are hard at work. So I'm talking about new products like the soft lines that we talked about specifically in the call today, we even named a couple of specific items around the new hydration packs.
Theres a few other new packs that are just out there now and attractive to consumers. So the sell through of good other new products in the bottle space, whether it's new colors, new shapes and sizes. We have some very cool ones that are being introduced into the marketplace customization and then lastly international which is a growth driver for hydro flask and a lot of white space for us on the subject of international. So this is where the sustainability comes from.
Had the concern frankly from investors for probably about three years now which is your how could you keep that thing growing and with no arrogance of any kind.
Its revenues are multiples of when we bought it and it continues to grow very strongly.
Thank you very much.
You bet on the defensive too.
Well go next to Linda Bolton Weiser with da Davidson.
Hi.
Hi, Linda.
So just keeping on that topic of the growth of housewares in terms of what inning hydro flask is in in terms of distribution gains what inning would you say it's in.
I would say in the us it's probably in the later part of the middle innings. So think like six sending something like that but just with respect to bottles. Its core category. It has new categories that we are distribution still begin im talking about bottles. So if you back up like two three years.
Primarily west Coast heavy brand, which is just crushing it on the on the West coast expanded into the Midwest started expanding into the southwest and then into the east.
Southeast is still even still a little underdeveloped the northeast just a year ago was underdeveloped. So this is the trip from the call. It the second into the third fourth fifth like that it's probably more like the fixed now and I think theres incremental distribution yet to be earned for hydro flask is setting trends I myself was just in northern California for some business things.
Week, or so ago I was on a campus of a major university. There there were tons of kids and doing all kinds of sports things at two teams of 2030 kids were walking by and we're easily 15, and 18 hydro flasks in a pot of of 20 kids and a lot of them with a newer colors. So even in a place where the distribution is in its higher innings, like California, where a lot of this started you're seeing the new items penetrate far and all kinds of users coming in and buying into the trend and won't want these products. So it's not just about innings of distribution. It's about new items that are driving existing distribution into new sale through and then we talk about international even though we're doing very well the whole doubling down thing I tell you would be.
Shorter to sale all the opportunities and the sale of the places where we are there's just so many ways to grow but I'd say they were probably in the second inning that most on the subject of maybe first on the subject of distribution opportunities in the developed part of the worlds and then the specific countries, where we've chosen obviously for competitive reasons, we wouldn't list them all but the intention is to drive.
Far in the international where.
Eight of the nine innings or lift.
Okay and then.
Can I just ask on the.
Hello Hello.
You know I think your prior year comparison gets even tougher in the second quarter.
Yes.
I mean like could say it could could core sales be down actually like 10% or more in the second quarter and then if so it really has to be a big ramp in the second half.
Is there any particular new product.
Any kind of comparison issue it would give us confidence you can really see a much higher growth rate in the second half of the fiscal.
For health and home in particular gas, which is asking yes, yes, you mentioned, 10% I would say, we're not expecting a 10% decline in the second quarter, but I think it's safe to assume or expecting a decline.
But.
You know somewhere in the range of zero to 5%.
For health and home.
But to be clear thats, not because of some sort of huge weakness, it's because your point that you just made.
That base is is a monster in the year ago period, we're very proud of that result, now grow over it that's a hard thing to do and so that that's what's doing the math of that.
Decline these documents.
Does that answer all the questions.
Yes.
Excellent and then.
On the.
On the.
Can you just.
Well mine.
The list three which I guess is the 25% correct when when is that effect.
It's already effective and our pricing as.
Already effective.
Yes, and Theres the moves on the.
Great All right, maybe you are talking about lists for not three.
But there is a lift for that's on a very large group of items, including I phones and things like that that has not been put into place it's been.
It was announced and then it was delayed pending a potential trade deal negotiation. There was a less list three that was announced and implemented to go from 10% to 25. It has been put in place and we have implemented our pricing actions on it.
Okay and then.
Just the 20 cents.
A difference between your beaten your guidance raise for the for those three things is there any way to break down the 20 cents by FX, the UK taxing any investment increase.
They actually work out to be kind of equal roughly equal amongst all three so that if you want to work with that you can.
Okay. Thank you very much I appreciate it.
Yeah, Yeah. Thanks, and then the one thing I want to say before we move to the next question. Then a lot of you have asked about housewares sustainability, because it because of the big beat in the total guidance for the year I wanted to emphasize a point that I know we hit in the prepared remarks, but not in the response to your question, which is this concept of just one more is a very powerful one on hydro flask and so is the idea of beyond the bottle and so we're amping up our ability in the categories were already strong like the beverage bottles to bring it it's probably not just one more but just several more into many people's households, and for those of you who have teenagers or something like that in your house or their friends.
I don't know how many times you heard just something along the lines of yet, but the new one meaning the new size or the new color or I've seen my friend has this cool thing and I'm interested in it too I can tell you. It's very true on the college campuses and there's people now that are going to inflate bottles Hydro flask is winning and then you're even seeing some of those kids with multiple.
Hi, just as you think of a gym one versus the when you take to the classes different sizes and caps and things like that and on the subject of beyond the bottle the soft lines and we talked about them in the call, but I really want to emphasize that any new distribution. There is just incremental distribution and because weve started off small there it's not our heritage. Our heritage was in the bottles, that's all incremental growth for us and we are innovating on those hydration packs that we just called out today for like mountain biking, hiking and also the womens version. These are innovative and we'll see how it all sell through but we like our prospects on the subject to beyond the ball.
Thank you.
You bet.
At this time I'd like to pass it back to management for any additional or closing comments.
Yes. Thank you operator, and thank you to everyone for being with US on the call today, we very much appreciate your support and we know we'll be talking with many of you in the coming weeks. So thanks for attending and have a great evening.
That does conclude today's conference we thank you for your participation.
Thank you.