Q1 2022 Helen of Troy Ltd Earnings Call

Ladies and gentlemen, thank you for standing by our conference will begin shortly once again. Thank you for standing by our conference will begin shortly.

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Thank you for joining US today. This program will begin momentarily. Thank you for your patience. This program will begin momentarily.

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Greetings and welcome to the Helen of Troy first quarter 'twenty 'twenty 2 earnings call. At this time, all participants are in a listen only mode.

Question and answer session will follow the formal presentation.

And what should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded and is now my pleasure to introduce Jack Johnson Senior Vice President corporate business development. Thank you you may begin.

And you operator, good morning, everyone and welcome to Helen of Troy and the first quarter of fiscal 'twenty 2 earnings conference call.

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

Mr. Julien many bird the company's CEO will comment on financial performance of the quarter specific progress on our <unk>.

<unk> initiatives.

And then Mr. Brian grass, the company's CFO and Matt Osborne, the company's senior Vice President of corporate finance.

Our use of financials in more detail and comment on the company's outlook for fiscal 'twenty 2.

Following this Mr <unk>, Mr grass and Mr. Osborne and take 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 of similar words identifying forward looking statements.

And we're 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 and alternative to GAAP financial information and maybe calculated differently and the non-GAAP financial information disclosed by other companies the cash.

Cost of listeners not to place undue reliance on forward looking statements or non-GAAP information.

Before I turn the call over to Mr. Min and I would like to inform all interested parties and a copy of today's earnings release has been posted to the Investor Relations section of the company's website at Www Dot Helen of Troy Dot Com.

The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures. The release can be obtained by selecting the investor Relations tab on the company's homepage and then the press release and staff I will now turn the conference call over to Mr. Many of them.

Thank you Jack good morning, everyone and thank you for joining us we have a lot of areas to cover this morning.

Before talking about the excellent quarter, the many strength across the business and the outlook for the full fiscal year that we introduced today I would like to update you on the EPA matter and our press release I will finish my remarks with some important updates about our organization.

The EPA raised concerns that packaging claims on certain products and our U S water and air filtration lines and of limited subset of our humidifier products are not in compliance with the Epa's strict interpretation of specific regulations, we have already addressed their concerns on the water filtration products by making modest changes to our packaging and have resumed.

Shipping or fewer products.

From the believes we can likewise address the EPA is concerned on air and humidifier patient packaging after which we will work as quickly as operationally possible to restart shipments on those as well.

It is important to emphasize that the EPA has not raised any concerns on product quality safety or performance.

These are outstanding products and observe consumers well over several decades with plenty of first rate innovation along the way.

Health and home sales were not impacted and the first quarter, but we expect a significant headwind and the second quarter, while we resolve the remaining concerns on the packaging for the air products and the effect of humidifiers.

Since the stop ship, we have been working closely with the EPA and continue to emphasize speed. Our people are working around the clock to minimize the impact of consumers retailers and to our business.

Now turning to the first quarter business results as we discussed when we last reported in April we were seeing of it that was very strong first quarter, taking shape and <unk>.

<unk> reported today were even stronger than we expected with 28, 6% sales growth and 37, 5% growth and adjusted earnings per share.

Growth was broad based the beauty and houseware, leading the way as re openings drove store traffic and our brands continued to distinguish themselves with consumers.

And home also brew, surpassing the very large COVID-19 related first quarter base laid down a year ago.

Our strategy to double down on international continues to bear fruit from prior flywheel investments growing sales, even faster than the fleet average and the quarter.

The outstanding earnings per share growth was driven primarily by very strong sales, which was more than enough to offset of returned to more normalized spending and the headwinds from widespread inflation affecting nearly all input costs, including materials labor and transportation.

Operating margins expanded in the quarter further benefiting from the resurgence of our 2 highest margin brands dry bar and hydro flask.

The quarter also demonstrated the importance of our leadership brands and our omni channel capabilities leadership brand sales grew by approximately 23% and Revlon, which is our largest up and coming non leadership brand grew even faster.

Our ability to win across channels was once again on display as consumers coming out of lockdown rebalanced between brick and mortar and online.

And you will by pent up demand and stimulus money consumers of returning to stores as restrictions lift our brick and mortar sales increased significantly compared to the same period last year. When the majority of stores and salons were closed brick and mortars resurgence and the quarter, maybe at a higher than usual percentage of our sales mix and our online sales growth moderated and.

As expected, increasing approximately 4% representing approximately 22% of consolidated sales and way.

[noise] of comparison online sales and the first quarter of last year grew 33% and represented approximately 28% of consolidated revenue, which notably was double the average for the total U S e-commerce industry.

With even greater comfort and convenience of online shopping many consumers experienced and the lockdown era likely to remain sticky for years to come and we continue to invest and online capability and and direct to consumer as important growth channels.

On the capital side, we continued to take steps intended to drive long term value for shareholders with 4 major actions so far this fiscal year.

First with divesting the majority of our mass market personal care business as announced in early June the transaction with strategic as it sharpens. Our focus on stated objectives of growing our leadership brands and expanding consolidated operating margin. We can now deploy resources that historically have gone towards our personal care business opportunities.

Is that better fit our long term growth objectives have more attractive growth prospects and I expect it to have a better ROI.

The divestiture also allows our sales and profit growth rates to accelerate by eliminating the drag of the personal care business.

The second action was finalizing of land purchase and Galloway, Tennessee to build of state of the art distribution Center, which will have high levels of automation and scalable direct to consumer capability. This new 2 million square foot facility will support our housewares portfolio allow us to capture even higher levels of efficiency and the back half of phase 2.

We re optimize how we use the rest of our distribution footprint across the company and it will position us to better support future organic and inorganic growth.

The third action was adding further value to shareholders by repurchasing just under 2% of our stock.

The fourth action was securing more inventory ahead of the bulk of the cost increase is currently seen in the market. It has multiple benefits. It is an important component of our cost mitigation plans and the face of higher supply chain costs. It also positions us well to continue to meet demand and better manage the current period of global supply chain disruption.

And on more inventory ahead of our seasonal high volume periods and.

It provides more certainty in the face of container shortages shipping delays and Covid outbreaks at several key ports at.

It also makes good use of our pre negotiated sea freight contracts at rates considerably lower and what would be paid and the current spot market.

You are no doubt aware from many other sources of supply chain disruptions and higher costs for commodities and labor have caused substantial challenges of profitability and nearly all industries and I'm very proud of how our supply chain our business units and our finance teams worked together to attack this surge and costs over the past several months.

And implement a set of <unk> mitigation plans that largely offset the estimated dollar impact.

Beyond the inventory and the pre negotiated sea freight container rates I mentioned, we have reduced or delayed our spending plans and several areas and we are implementing price increases those price increases have been carefully designed to protect our market shares by managing key consumer price points.

And additional mitigation measure has been to introduce new products at higher price points and at that elevate the benefits of our brands. So they can deliver for consumers and can sweeten our mix.

I would now like to touch on our business segment results for the first quarter.

Beauty led the way with exceptional sales growth and just under 79%.

All 4 of our major beauty brands grew substantially.

T drivers were significant improvements and supply to meet continued high demand for current products, such as volume managers and waivers and the successful launch of new innovations such as the dry bar Reserve line.

We also earn new distribution and the U S Club channel and expanded distribution in Europe, and Latin America.

And I'll stored and Salon shutdowns and homebound consumers a year ago made the comparison easier. This quarter. We note that our beauty segment grew 5% and a year ago comparison period.

<unk> operating margin improved markedly behind mix improvement operating leverage and the benefits of our amended Revlon trademark license.

Pioneering family of 1 step volume misers continued to grow across Revlon and hot tools bed head and now also on dry bar commute.

Communication across more and more social media platforms is helping expand popular popularity with consumers and help to build the franchise.

1 step is now of accumulated more than 300000 online reviews at an average of 4.6 stars on Amazon alone, but 80% of them at 5 stars and we continue to see opportunities for further household penetration and market share upside in the U S. We also see more upside as we further expand our presence in EMEA and.

Canada and in Latin America.

Dry bar was a substantial contributor to the growth and margin improvement and stores and salons reopened.

And social gatherings resumed and as we launch more of the innovative new products, we have invested and over the 18 months since acquisition and.

And binding our scale distribution reach and strategic focus on beauty appliance with dry bars prestige positioning is very powerful.

Examples in recent months include the single shot appliance on dry bar high and dry bar reserve Ultra light dryer and the liquid grass glass product line.

Now that we have a good better and best beauty appliance portfolio, we are leaning into our momentum through a robust pipeline of new consumer centric innovation, new marketing programs, and even stronger organization and feet and further new distributions.

And our Houseware segment first quarter sales surged by approximately 38%. Our houseware segment is a diversified mix of OXXO debt sales indoors and hydro flask with its compelling indoor and outdoor lineup.

Both brands grew in the quarter and both increased market share and their categories.

Oxo saw an upturn of key brick and mortar retailers and solid point of sale results, reflecting improved store traffic and new distribution, both domestically and internationally.

New product introductions contributed to growth and reached as retailers and consumers responded well to the new launches OXXO. Good grip soft works oxo tot and OXXO steel all made healthy contributions to the quarterly growth on <unk>.

Market share growth was broad based gaining ground across all of the categories. We track.

So share gains across the past 3.6 and 12 months reinforce our belief that the trends seen with younger consumers and new households, buying more OXXO items are sticky.

We also expect to capitalize on the expected surge and weddings that were postponed during COVID-19.

True glass continues to be very strong rolling both domestically and internationally and the quarter. We are focused on building it into a global brand with an industry, leading sustainability and environmentally forward profile that contribute to the authenticity consumers of door.

Domestically, we saw broad improvement in brick and mortar across the outdoor grocery and sporting goods segments internationally Hydro grew even faster Canada was of growth leader, while EMEA and the Asia Pacific and Latin America also experienced significant growth as we further build out hydro flask distribution footprint.

We are seeing healthy domestic point of sale of returns as well as inventory replenishment orders corresponding to the strong sell through rate for those customers, where we have visibility.

I drew class grew its market share considerably during the quarter.

It continues to lead the U S insulated water bottle category by well more than double the share of its nearest competitor.

New hydro flask items that go beyond the bottle and began shipping and contributed to the quarter, including the outdoor kitchen collection hydration hit back and dry storage. The brand also fed the excitement on the bottle side to attract new consumers and encourage loyal hydro flask users to add just 1 or even 2 more to their collection by launching new colors.

<unk> and designs and its traded series.

Health and home delivered sales growth of just over 2% climbing over the especially strong 29% growth and the year ago comparison period.

This quarter came from of continued high level demand for air Purifiers Thermometers sales were essentially flat despite the elevated year over year base in Europe, our biggest the monitor market sales in the quarter remained high as the vaccination rates are below that of the United States and data suggests those rates will peak at lower levels.

Looking at chat channels and new products of the business saw an upturn of key brick and mortar retailers this quarter with improved store traffic and new distribution, both domestically and internationally current and new product introductions contributed to the growth as prior investments in innovation and fans and blood pressure monitors and honeywell's true half that.

Air Purifiers, and and the new Vicks non contact of monitors were favorably received by retailers and by consumers.

Given the tailwind from Covid and health and home theater ago base. We believe it is instructive to look at the first quarter and full fiscal year on a 2 year stack that would imply sales are up over 30% versus 2 years ago and a clear indication of the higher installed base of products that use our high margin replacement filters, such as Vicks and Honeywell.

Humidifiers pure water filtration pitchers and pure faucet mounts and on Honeywell Air filtration devices.

While the threat of Covid itself may be receding and much of the world. We believe the heightened levels of overall awareness regarding the need and the importance for cleaner air and water will remain sticky and homes and workplaces is Mrs hotels and institutions. This is also expected to be a significant factor for schools and universities and.

They we opened this fall.

It's important to keep in mind that health and home operates across a diverse set of categories. As an example of heat waves and some parts of the United States and Europe. This summer have been accelerating recent fan sales demand has also been elevated for air filtration devices and severe drought conditions and much of the western United States increase the risk of wild.

Fire.

Our ability to serve that demand will depend on how quickly we can resume shipments of our air filtration products.

Rounding out the business results I would like to touch on international.

Doubling down on international is an important strategic choice and our phase II strategy.

<unk> stay at home orders and many markets our international business grew faster than the company in the quarter.

We grew and all 3 business segments with housewares and beauty, leading the way the.

And the international business continues to benefit from the stepped up investments, we made and the second half of fiscal 'twenty, 1 that supported new distribution and Continental Europe added further support to our U K businesses and increased awareness of our bra and no touch their monitors and Asia.

As we now start our third year of Phase 2 we remain ahead of the glide path for international growth that we announced at our 2019 Investor day to create at least $100 million of incremental organic sales outside of the United States by the end of phase 2 with.

With the operating margin improvements, we have made and the international markets. So far and phase II, we can continue making new investments with attractive rois to accelerate growth outside of the U S.

Looking ahead, we are now and are positioned to provide our outlook for fiscal 'twenty, 2 which Matt will walk you through shortly.

As expected, our housewares and beauty segments are each projecting healthy growth and revenue and profitability on top of the elevated base. They laid down last year, we expect to use this revenue growth and the plans to mitigate the cost inflation discussed earlier to feed the reinvestment flywheel for these segments.

Sustained their momentum and to expand their margins for the full fiscal year.

Our projection and health and home includes the estimated impact related to the EPA matter.

As mentioned earlier, we are working with all speed on that front.

I do want to emphasize that excluding the impact of the EP by EPA matter, we were on track to achieve growth in both core net sales and core adjusted earnings per share of this fiscal year in line with the thinking we communicated in April I.

I would also like to note that we have faced tough times before in the past 3 years alone terrorists COVID-19, and the current environment of cost inflation and of supply chain disruption had been major challenges in each case, our high performance organization has stayed with lent Leslie focused on problem solving and have worked together to.

Protect our business and brands and we have stayed the course to deliver compelling multi year results.

Looking at the longer term, we remain committed to our phase II transformation plan. It has delivered excellent results and we believe it still has considerable opportunity to drive the sales and profitability growth that can create significant additional long term shareholder value.

We expect to return to our phase II average annual organic revenue and adjusted EPS growth targets in fiscal 'twenty, 3 and in fiscal 'twenty 4 and we remain actively focused on acquisition opportunities as a major part of the transformation plan that can further accelerate long term value creation.

Turning now to other matters. Many of you have told US you are highly interested in hearing more about ESG at Helen of Troy.

And I'm pleased to announce that last month, we published our first ever ESG report.

It is available on our corporate website at.

As discussed in the past, we see ESG is of strategic priority for our company sustained success in fiscal 2019, we began to embedded into the broader phase II strategic transformation plan that drives all we do with Helen of Troy.

We believe this approach best allows us to make a difference and our business brands and organization and closely reflects our purpose to elevate lives and sort of together.

We also believe that and integrated approach to ESG within our overall transformation plan and best serves all of our key stakeholders. We are pleased that our ESG efforts and the new disclosures and the report of being acknowledged externally.

1 example is institutional shareholder services.

Our I S S environmental score improved significantly over the past year now, placing us in the top 30% of firms they compare us to.

Our social score is now and the top 20% and our governance score has consistently remained and the top 10% for the past several years.

While we still have many miles to go we are very proud of the progress we have made so far.

Before finishing up my remarks, I would like to update you on a few key areas, including how we are handling back to office. How we are further rewarding on motivating our people and on CFO succession.

Starting with back to the office.

Are there many Helen of Troy Associates, who have been working from home since last April we will begin operating under a new hybrid model beginning in September.

Our goal is to utilize the learnings from the past year that have had a positive impact on productivity and wellness for some associates and also address gaps seen during the 100% work from home era.

And we'll continue to focus on safety on honoring the principles that make our culture, so powerful and on advancing our strategy, which is to attract retain and unify include and train the best people.

With the safety of our people is our first priority early last quarter, Helen of Troy rolled out cash payments and additional vacation time to incentivize vaccination.

So far over 70% of our worldwide associates are now fully vaccinated.

And the United States that percentage is higher and several of our largest sites are approaching 90%.

The main feature of the 2.3 hybrid model, our optional work from home on Mondays and Tuesdays and mandatory work from office Wednesday's through Fridays.

Having all of associate scheduled for the same work from home and office days worldwide avoids of productivity drag from mismatched individual remote days and ensures collaboration which is so important to how we work.

Frontline essential workers will continue to work and sites such as distribution centers and test labs in person all 5 days.

With regard to further rewarding and motivating our people and I'm very pleased to announce that in May we awarded associates worldwide with a grant of 30 shares of Helen of Troy stock that vest over the remaining 3 years of phase II.

We call. These awards transformation shares as they are designed to recognize the tremendous success, so far and phase II and provide motivation to execute the initiatives that will drive the back half of phase 2 with excellence.

The phase II transformation share grant was made to associates at all levels and all tenures.

We made a similar grant and towards the end of phase 1 and saw its power to help unify our people and further recognize their hard work and to provide of currency that align aligns them. Even further with the interest of our long term shareholders.

On CFO succession, I would like to share some news on our progress since Brian's previous announcement that he plans to retire on November 1.

I am very pleased to announce that effective November 1st Matt Osborne will be appointed CFO of Helen of Troy.

Most of you have had exposure to Matt over the past year. He has done an outstanding job over 5 years and his role as senior Vice President of corporate Finance and has distinguished himself as an important contributor to many of the results during both phase 1 and phase 2.

And that has been the primary architect of the transformation of the finance department into and even more capable global shared services team.

He has upgraded the team and brought them together under our strategic plan.

And he was central to the culture work, we undertook several years ago and has earned a reputation as a constructive collaborator.

And that has also been of central driver of system and process improvements as we standardized and simplified to drive efficiency through the transformation into a much larger much more profitable and much more global company as we are today.

Over the past year or so he has been working extremely closely with me and our global leadership team as we build and execute phase 2 he is been battle tested many times as we worked through major challenges such as tariffs. The recent input cost inflation structuring the build out of our DTC business and developing better reporting for international.

Has led the budget forecasting and strategic review processes that are now part of the basic fabric of the company he.

And he begin he brings significant public accounting and international experience at major firms, such as Ernst and young and best 5 bestbuy before joining Helen of Troy.

And is ready to take on the CFO with my strong support and with the unanimous backing of our board.

Brian will remain CFO until November and will be instrumental and the rest of the transition we.

We will celebrate Brian much more when his retirement gets closer Meanwhile, and I hope, you'll join me and congratulating, Matt and and thanking Bryan for his excellent work across all aspects of Helen of Troy for over 15 years with that I will now turn the call over to both of them starting with Brian.

Thank you Julien good morning, everyone and thank you for joining us I'd like to make some high level comments before handing it over to Matt Osborne, who will review the first quarter's results and our outlook for the full fiscal year 'twenty, 2 and more detail.

It was an excellent quarter with consolidated sales growth of almost 29% on a base that grew almost 12% and the same period last year.

Our first quarter growth benefited from robust consumer demand for our products brick and mortar strength international expansion healthy levels of supply of shift and timing of Amazon Prime day, and shipments that spilled into the first quarter due to winter storm you're already at the end of the fourth quarter.

First quarter sales growth also benefited from incremental investments made in the fourth quarter of fiscal 'twenty 1.

And accelerating the investments into the prior year, we were also able to drive greater profitability and the first quarter of this year.

We expanded adjusted operating margin by 60 basis points and increased adjusted diluted EPS by over 37% on a base that grew almost 23% and the same period last year and included significant temporary cost reductions due to COVID-19.

The first quarter was not without its challenges, especially the unprecedented global supply chain disruption and inflationary cost pressures.

Although the EPA matter of presents another challenge to overcome we've made considerable progress towards this being a transitory event and resuming our phase II growth trajectory.

We were pleased to initiate our fiscal 'twenty 2 full year outlook after deferring last quarter to allow supply chain and cost inflation trends to more fully develop.

Prior to the EPA stop shipment action, we initiated on May 27, we were and are positioned to provide a fiscal 'twenty 2 outlook with core net sales and adjusted diluted EPS growth off of the highly elevated base of fiscal 'twenty, 1 despite approximately $55 million to $60 million of estimated inflationary cost increase.

Yes.

Alright, and accomplishment in light of the circumstances with only the estimated impact of the EPA matter holding us back from core net sales and adjusted EPS growth.

We believe this is an indication of the underlying strength of our business and the power of our diversified portfolio.

Finally, the Julien announcement today regarding that succession and to the CFO role upon my retirement on November 1.

I'd like to take a moment to congratulate Matt and express my gratitude for all of that he has done and support me and the company over the last 5 years and.

His promotion into the CFO position is well deserved and the company couldn't be in better hands.

Matt I'm really proud of you and I'm thrilled for you and your family.

And with that and then hand, it over to you to take us through the first quarter and fiscal 'twenty, 2 outlook and more detail.

Thank you Brian I appreciate the kind words and the tremendous support that you and many others and the organization has given me along the way.

And leaving very big shoes to fill in November and I'm looking forward to the opportunity to continue to build on your success.

I also want to thank Julian and the board of directors for Entrusting me with this leadership role and the financial stewardship of the company.

And I'm excited to be part of the global leadership team that will help the company continue its successful progress from phase 2 and beyond.

Before reviewing our results and outlook I'd like to give a little more color on the EPA matter of that impacted our GAAP gross profit operating income and diluted EPS during the quarter.

And stopped shipment action did not have a material impact on our first quarter sales. However, we recorded a $13.1 million charge to write off of the obsolete packaging for the impacted products and inventory on hand and in transit as of the end of the first quarter of fiscal 'twenty to.

And the charges recognized in cost of goods sold and has referred to and the earnings release of EPA compliance costs.

We are implementing a number of cost control measures in health and home segment to offset a portion of the impact from the anticipated revenue decline.

Later in my remarks regarding our fiscal 'twenty 2 outlook and we'll expand on how we estimate this matter will impact the rest of the fiscal year.

Now turning to our first quarter results.

Consolidated organic sales growth of 2027, 3% was driven by our beauty and housewares segment.

Our sales benefited from higher consolidated break and motor sales due to the favorable comparative impact of store closures and reduced store traffic and the prior year period.

And increase in international sales higher sales and a club and closeout channels growth and online sales and the favorable impact of approximately $15 million from orders that were not able to be shipped at the end of the fourth quarter of fiscal 'twenty, 1 due to winter storm Yuri the impact of these orders was roughly spread evenly across each.

Each of the segments.

Gross profit margin declined 1.8 percentage points in the first quarter, primarily due to higher inbound freight expense and EPA compliance costs. These items were partially offset by a more favorable product mix within the beauty segment.

Our SG&A ratio decreased <unk>, 2 percentage points to 28, 8%.

As we benefited from operating leverage on higher sales reduced royalty expense lower amortization and a decrease and bad debt expense.

These items were partially offset by the unfavorable impact more normalized levels of personnel and advertising expenses compared to the first quarter of fiscal 'twenty, 1 and levels of spending in these areas were restricted due to temporary COVID-19 related cost reduction initiatives.

GAAP operating income was $64.8 million or 12% of net sales on.

On an adjusted basis operating margin improved 60 basis points to 17, 5%.

This increase primarily reflects a more favorable product mix and the beauty segment operating leverage reduced royalty expense and a decrease and bad debt expense. These.

These factors were partially offset by higher inbound freight expense and less favorable channel mix and the housewares segment and higher personnel and advertising expenses.

Income tax expense as a percentage of income before tax was 8% compared to an income tax benefit of 13% for the same period last year, primarily due to the benefit of the cares Act and fiscal 'twenty 1.

Net income was $57 million or $2.31 per diluted share non.

Non-GAAP adjusted diluted EPS increased 37, 5% to $3.48.

This includes a positive impact from winter storm Yuri of approximately <unk> 20 per share.

Now moving on to our financial position and liquidity.

Net cash used by operating activities was $63.4 million compared to cash provided by operations of $92.8 million in the prior year.

The change and cash flow was primarily due to continued investment and inventory to help mitigate supply chain disruptions and the timing of working capital changes.

We received proceeds related to the sale of our personal care business of $44.7 million at the beginning of the second quarter and we intend to use the net cash proceeds to pay down debt or capital expenditures.

Total short and long term debt was $511 million compared to $324.9 million.

This is a sequential increase from the $343.6 million at the end of the fourth quarter.

Our leverage ratio as defined in our debt agreements was 1.4 times compared to 1.1 times at the same time last year and 1.0 times at the end of the fourth quarter.

Our net leverage ratio, which net to our cash and cash equivalents with our outstanding debt was 1.3 times at the end of the first quarter compared to 0.9 times at the end of the fourth quarter.

Now turning to our full year outlook for fiscal 'twenty 2.

Due to the sale of and the majority of the personal care business during the second quarter of fiscal 'twenty, 2 and the expected continued classification of the remaining Latin America, and Caribbean personal care business as non core for fiscal 'twenty to.

The outlook, we are providing is on bolt and consolidated and core business basis.

We believe the core outlook provides the best comparability between historical and future periods and I will therefore focus on core and my following remarks.

Our outlook includes the current estimated impact of the duration of the EPA related stop shipment action previously discussed which is based on estimated timing of approval and implementation of our compliance plan.

And our outlook includes an estimated unfavorable sales revenue impact of $110 million to $135 million and and unfavorable adjusted diluted EPS impact of <unk> 70.

2 of dollar related to the expected loss sales volume and earnings into the EPA matter.

Adjusted diluted EPS impact is net of the favorable impact of cost reduction actions being taken and the health and home segment, which include reductions in personnel marketing and select new product development costs with a goal of preserving key long term growth initiatives. It.

It is important to note that the vast majority of our cost reduction actions will be within our health and home segment. So that we can continue to support the expected growth and both the beauty and houseware segments.

We incurred $13.1 million of EPA compliance costs, and the first quarter of fiscal 'twenty, 2 and conjunction with the implementation of our compliance plans.

These costs are included in our GAAP operating results are excluded from our non-GAAP adjusted operating results, we expect to incur additional EPA compliance costs, which may include costs to reap package existing inventory as well as incremental freight and storage costs among other things we.

We expect to continue to exclude these costs from our non-GAAP adjusted operating results.

And they have been excluded from the annual outlook for non-GAAP adjusted diluted EPS.

We expect consolidated net sales revenue in the range of $1.93 to $1.98 billion, which implies a decline of 8% to 5.5%.

We expect core net sales revenue and the range of 1.9 to $1.95 billion, which implies a decline of 6% to 3.5% and includes 6.7% to 5.4% of unfavorable impact related to the EPA matter.

Our net sales outlook reflects the following expectations by segment.

Housewares net sales growth of 7% to 9%.

Often home net sales decline of 27% to 24%, including 15, 2% to 12, 4% of decline related to the EPA matter.

Beauty consolidated net sales growth of 4.2% to 6.3% and beauty core net sales growth of 17% to 19%.

We expect consolidated GAAP diluted EPS of $6.80 to $7.49.

And core diluted EPS of $6.60.

The $7 and 28 zone.

We expect consolidated non-GAAP adjusted diluted EPS in the range of $10.46.

To $10.97.

And core adjusted diluted EPS, and the range of $10 and 25.

To $10.75, which.

<unk> and EPA compliance costs asset impairment charges restructuring charges and tax reform share based compensation expense and intangible asset amortization expense.

Our core adjusted diluted EPS outlook implies a decline of 7% to 2.5%, which includes 9.1% to 6.3% of impact due to the EPA matter.

Not including the EPA matter, our outlook implies year over year, adjusted EPS growth of 2.1% to 3.8%.

Our outlook also includes year over year inflationary cost pressures of approximately $55 million to $60 million or approximately $2.25 to $2.45 of adjusted diluted EPS.

Much of which we believe we have mitigated through a combination of improved product mix and price increases and we're buying of inventory to delay cost impacts utilizing previously negotiated shipping contracts at rates below current market prices and implementing other cost reduction initiatives.

Our consolidated and core net sales and.

And EPS outlook to reflect the following.

The assumption that the severity of the cough cold flu season will be in line with pre Covid historical averages.

Sanction that June 2021, and foreign currency exchange rates will remain constant for the remainder of the fiscal year and and estimated weighted average diluted shares outstanding of $24.4 million.

We expect a reported core GAAP effective tax rate range of $12.8 to 13, 8% and core adjusted effective tax rate range of $9.9 to 10, 9%. This.

And this range incorporates the previously disclosed adverse impact of 1.5 to 2 percentage points due to changes and tax law impacting our metallic sourcing operation.

Even though we expect the tax plan outlined by the Biden and administration to continue to evolve and will make some comments based on the current interpretations.

Although there is of proposed increase to the U S. Corporate tax rate, we 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 any of the proposed changes related to the global intangible low taxed income often referred to of guilty to have a meaningful impact on our consolidated tax expense as many of our foreign subsidiaries are not directly or indirectly owned by a U S parent and are not subject to guilty or U S. Taxation.

Yeah.

The G..7 recently announced a commitment to pursue at 15% global minimum tax last week. The OECD gained further support for these changes and their proposal will be brought to the <unk> 20 of this week.

If the OECD successfully gained consensus on a global minimum tax day.

Have discussed potential implementation of changes as early as 2023 and.

And the event any changes become law that are meaningful to us, but cannot be mitigated and you would expect any impact beginning in our fiscal 'twenty 4.

At this stage and it's still unclear what tax law will be passed and and what form as well as when they would take effect net.

The less we are not expecting a meaningful impact from tax legislation changes and fiscal 'twenty 2.

And we'll continue to assess the impact of that proposed legislation is considered and provide updates and the future.

We expect the capital asset expenditures of $100 million to $125 million from fiscal 'twenty, 2 which includes expected initial expenditures related to our new 2 million square foot distribution facility with state of the art automation for the Housewares segment.

Preliminary estimates of the total cost of the new distribution center and equipment are in the range of $200 million to $225 million spread over fiscal years, 'twenty, 2 and 'twenty 3 assuming construction and equipment costs remain at current levels.

Due to the strong growth comparison, and COVID-19 related events and fiscal 'twenty, 1 and the timing of the estimated impacts of the shipping restrictions related to EPA matter, we expect.

Consolidated core net sales growth.

For fiscal 'twenty, 2 to be concentrated entirely and the first quarter of the fiscal year.

We also expect of core adjusted EPS growth for fiscal 'twenty 2 to be concentrated in the first and fourth quarters of the fiscal year with the second quarter being the most impacted by the shipping restrictions as well as having the most challenging growth comparison to the prior fiscal year.

Although although our outlook calls for an overall net sales decline. We are proud of the results we were able to deliver on the first quarter and all 3 segments and are excited about the expected growth and beauty and houseware segment in fiscal 'twenty 2.

For perspective, excluding the forecasted unfavorable impact of the EPA stopped shipping action our outlook would imply.

<unk>, 7% to 1.9% of core sales growth in line with our initial goal of growing from our elevated fiscal 'twenty 1 base.

From a core adjusted diluted EPS perspective, although we are forecasting a decline in fiscal 'twenty..2 our outlook includes unfavorable impacts of $2.95 to $3.45.

Related to inflationary cost pressures and the EPA matter.

We expect our mitigation plans to offset much of the cost inflation. However, we do not expect to fully mitigate the estimated sales volume impact of the EPA matter through cost reductions and health and home or other segments as doing so would significantly impact the attractive longer term growth prospects of the company.

Excluding the estimated impact of the EPA matter our outlook implies core adjusted diluted EPS growth of 2.1% to 3.8% and.

Brian mentioned, we believe that this outlook is quite an accomplishment in light of day circumstances with only the estimated impact of the EPA matter of holding us back from core net sales and adjusted EPS growth.

We believe we can return to our average annual long term growth rate targets of 2.5% of 3.5% organic sales growth and adjusted EPS growth of at least 8% and fiscal 'twenty 3 and fiscal 'twenty 4.

We are able to deliver of fiscal 'twenty, 2 outlook and returned to our long term growth rates for fiscal 'twenty, 3 and 24 that would equate to phase II compound annual growth rates for sales of approximately 6% and adjusted EPS of approximately 10%, which are well ahead of the phase 2 targets. We first presented during our Investor day in May.

2019.

And closing despite the challenges we've seen we believe we have a set of strategies capabilities and competitive advantages that have allowed Helen of Troy to perform and tough times and in good times and.

And I believe we are well positioned to return to our stated long term targets and deliver continued value for our consumers associates customers and communities and shareholders. During the remainder of phase 2 the foundation of our business is strong.

And with our diversified portfolio of bowl scalable operating platform and strong balance sheet. We believe we can continue to be successful, even and the most challenging external environment.

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

Thank you we will now be conducting a question and answer session. He would like to ask a question. Please press star 1 on your telephone keypad.

Information on will indicate your line is and the question queue from.

And for participants using speaker equipment and may be necessary to pick up of your handset before pressing the star keys..1 moment. Please while we poll for your questions.

Our first questions come from the line of Bob <unk> with C. J F. C. J S. Securities. Please proceed with your questions.

Good morning, and first I'd, just like to start with my congratulations to Matt on the announcement of his new role starting in November and to Brian again on his announced retirement.

Thanks, Bob and thanks, Bob I appreciate it.

Absolutely.

Maybe hopefully you can expand a little bit can you tell us what claims are in question and are these claims and of the labeling issues specific to Helen of Troy or other companies.

Having similar issues with similar products.

Yeah, Hi, Bob Good morning, its Julien.

Yeah on your question there, it's our understanding that the EPA in recent years has had and we're on inquiry on some areas of claims and there are rules and then only recently and think and the Covid era. They.

And they have been investigating even further we have anecdotal evidence from various sources that there are multiple companies affected but we don't have specifics and certainly wouldn't name not name them in.

In our case on the subject of claims.

It depends by product, they're actually quite minor and the reason I say this is.

Is because our products are well labeled and water as an example, and the EPA. Nonetheless asked us to clarify that the pure products don't filter microbes for clarity, we never claimed that they did and that has already been corrected Nonetheless, we're going to be sticky and those boxes and those of the ones that have already resumed shipping and the case of air.

Purifiers Theres, a combination of claims which are accurate, but nonetheless, the combination of them.

Is by the EPA is a strict interpretation of their rules not in compliance and we expect feedback from them shortly on that and we'll begin the rework as well as resume shipping clams and.

And in the case of Humidifiers, and there's really just 1 specific group of humidifiers and that's.

Affected and it's again, a strict interpretation of the rule that they've asked us to clarify we have of submission into them and we hope they'll approve and shortly.

Okay, Great. That's helpful. Thanks, and then.

Do you view this as an isolated fiscal 'twenty 2 event do you expect this to have an impact on 'twenty, 3 and beyond or how should we.

Think about this event over medium or longer term.

Yeah, It's a great question and I know 1 or 2 of the other analysts have it as well we're focused on fiscal 'twenty 2 as I mentioned, we're already resumed shipping on the water purifiers and we believe that will be isolated it's a little too soon to sales still and how quickly all of the recovery will be on air just because we don't have the final clearance yet and the humidifier 1.

And I emphasize is small and in the case of the air 1.

Hope to be able to contain it within fiscal 'twenty, 2 as well and therefore be able to grow from the on net recovered of base as opposed to from the.

And reduced base and see how that turns out on air but it is our hope and it's also our plants.

And just for absolute clarity I know it was mentioned more than once and our press release and on our call, but I couldnt imagine anyone walking away from this call or hearing of according to think that there's anything and all round with the products of the EPA has given no indication of concerned in that regard. These are outstanding products, they've been serving the consumers for for years, we've been in.

<unk> all along the way so theres no safety, there's number of liability. This is of labeling thing.

Okay, Great and then kind of shifting gears, a little bit you've been very clear before last quarter and the.

And last quarter et cetera that you've been strategically using your balance sheet to increase your inventory you know obviously you did again this quarter and mentioned it can you just give us a sense of.

And how this is kind of play out going forward, how much inventory would you expect at yearend and you know how does where do you see working capital going.

Going forward, Yeah, Yeah, a couple of things here and Matt May have some color on this as well.

We're glad to be and are positioned to use our balance sheet to take advantage of the environment that we're in so we have increased our inventory we did it last quarter. We did it again this quarter. It was a strategic move and what it gets US is a couple of really big things..1 is it gives us the ability to have product on hand, the demand is high.

Not the case for all of our competitors and as a result, and we're in a good position. It also gives us a chance to buy ahead of some of the inflationary peaks that we are seeing put down on the record books now I don't think anyone knows what the word transitory is really going to turn out to mean, so owning the stuff at lower cost and what's available to buy from today is.

Helpful to us and it's good for our customers and <unk>.

And the cash flow it's of short term bad, but remember all of that inventory turns into cash when it sells and we own and already so it's a net positive going forward and in terms of ending inventory. It gives us an opportunity to have.

A lower position and where we are today, which puts us back to healthy levels of some people on the call may have the question of Oh boy more inventory means and a bed for ROIC.

And it also means a risk of excess or obsolete on these are not fashion products. These are not shoes or bathing suits. These are things that don't go out of style and they don't have expiration dates and so temporary and that the use of balance sheet for this but inventories should come down by the end of the year and certainly our expectation that said and.

And we're getting on the call and our.

Position to predict how long some of the supply chain disruptions will last.

Yeah, and I might just add to that Julien and I agree with everything you said I think we'd see inventory potentially increasing in Q2, but getting down to the end of the year like Julien talked about and maybe even getting close to where we ended and FY 'twenty, 1, but theres still a lot of moving parts with what's happening from global.

Supply chain, so definitely we view it as an asset and.

We expect to be able to decrease our positions from where we are now to the end of the year.

Okay, Great and then last 1 from me and I'll jump back in queue on.

On the houseware side.

You've obviously.

And on tremendous growth you've been reinvesting our investing behind the strength of investing for.

And for growth and there's a lot of moving parts. In addition, with the pandemic but.

You know using round numbers and math over the last 6 quarters due to this reinvestment for growth margins have been and the 15% range versus the prior 6 quarters before that and a 21% range and so and my questions like what's the right margin over the medium to long term and why and how are you contemplating reinvesting.

For incremental growth and and the balance of fiscal 'twenty, 2 and the margin profile of expected for the balance of the year.

Matter of it would be great for you to handle that especially on the sort of run rate and the.

We invest and part sure sure Yeah. Good question, Bob So Youll remember, if you're kind of looking over the past 6 quarters or so is the time, where we kind of we have less mix of hydro flask and more mix of OXXO and as.

As we look forward 1 of the things that we look at from an operating margin perspective, and we think even with the impacts of where we're seeing we can hold operating margins flat year over year in fiscal 'twenty, 2 and kind of flattish.

As a company.

And we expect we can grow and housewares segment and a lot of that's being driven by mix improvements and getting back more mix of hydro flask as well as being able to offset a lot of the cost inflationary pressures. We're seeing so to your point, we've also been making a lot of strategic investments there.

And I think that we'll be able to to get closer to where we used to run closer to the 20 and 15, but there are some things that we want to continue to invest in and that segment a lot of DTC opportunities there and a lot more continued growth and a lot of competitive.

Environment, especially with hydro flask that we want to make sure we can protect and grow what we have and and I think that there'll be continued investment but opportunities to improve margins from the 6 quarter run rate that you are quoting.

Got it Super Alright, Thank you so much.

Thank you our next questions come from the line of group Cash Creek with Oppenheimer. Please proceed with your question.

Good morning, Thanks for taking my question and also congrats on the promotion.

Thanks <unk>.

So I guess I guess, the first question I wanted to start out with and then sort of longer term guidance sort of commentary for 3% organic sales growth and 8% EPS growth on average and FY 'twenty 3 and FY 'twenty 4 what is the earnings base and we should be thinking about the growth growth off of is it off of the.

10, and 25 to $10.75 core EPS number so maybe just some more clarity there in terms of how to think about the base.

And I can tell you like to start that.

I'll dig of Julien and then feel free to jump and yet repurchase good question.

Right now I'd like Julien spoke.

Want to make this EPA impact as transitory as possible and you spoke to the maybe more short term nature of human vacation and and water, but areas of little bit on more uncertain. At this point in terms of how we're going to resolve it and recover it so and we've done our calculations you heard me.

On the prepared remarks quotes from long term CAGR of 6% on the top line and 10% of on the bottom that was based off of the $10.25 to 10.75, but we really want to focus on FY 'twenty, 2 and we want to make the impacts that were you know assuming now and a very dynamic situation we're working.

Really hard to try and make our outcome better than that but you know we've got.

Another group of working with and we're going to try and do the best we can to decrease the impact on that and then we'll once we get 22 to a place where we feel like we've got our arms around it we definitely look at 'twenty 3 to figure out how we can build that back and make a transitory right now the calculations.

We've done our on the $10.25 to 10.75, but we're trying to make that better and and be able to build on it.

Yeah, Theres, some indications already and a positive direction on this because of the water purification and like we said a couple of times it started to ship already and.

And we're looking to accelerate the rework plan and recover there as quickly as possible. The trade inventories are quite good and both of these categories actually think more and more or less 2 months worth so consumers won't be harmed, it's our intention and it gives us a chance to preserve distribution and the case of water were less concerned and the case of air.

And once we get the clarity from the EPA will be worked just as fast and it may take just a little bit longer on the air products, depending on what feedback we receive on those boxes are bigger and there's more material on a more information from them. So we'll see we'll see how that goes but it's our intent to do right by customers not to harm consumers and that should help.

<unk> solved for what matts talking about which is to be able to keep this transitory and then move forward from a base that's better than the ones and the guidance and see how it turns out. This is our guidance for now and if we can do better and we'll let you know.

Okay. Great. That's helpful color and then just just I guess, a little more clarity on the guidance. So what does the guidance and assume in terms of the timeline for shipping the impact of the air filtration and humidifiers and does that any more clarity there and just in terms of how we should think about.

No go ahead.

Yeah, Yeah. Good good question refresh so what we've assumed as we've given our high and low end of the guidance think on the high end of the guidance is there is.

No expected shipping during the second quarter for the effect of products in air and water and committed to case and <unk>.

And then no.

Expected shipping and the third quarter for the air product set or affected the only difference then on below and is the all of those same situations, except air shipments extend into the fourth quarter.

So we've got that's really how we've kind of drawn up.

The high and the low end and like we said, we're working and dynamic situation, we're working with the EPA to try and make it better than all of those assumptions, but theres a lot of a lot of things at play here.

Okay, great. Thank you I'll pass it along.

Thank you. Our next question is coming from the line of Anthony <unk> with Sidoti and company. Please proceed with your question.

Yes, good morning, and thanks for taking the questions congratulations as well and that you're on your.

Promotion here.

So just wanted to.

Ask about inventories. So obviously you touched on this a little bit, but just wanted to get a little more clarity. So it is up versus year end and versus last year.

Do you think you have adequate and amount of inventories for housewares and beauty and and also just wanted to just gets maybe a little bit more specifics as to your inventory situations for the health and home segment and.

How much of that would need to be we labeled of repackaged.

Yep, Yeah, let's just go through the segments.

And Theres a broader point here about growth I'm sure you saw it and the outlook. So let me try to get my arms around this with you on.

And just start with the beauty you might remember a year ago, we were hamstrung by lack of inventory we were pleasantly surprised by the extreme demand for the volume is your franchise and so much. So that we were going as fast as we could even in the original days of the China.

Reactions of Corona virus, so think of back of the Wuhan days and in those days there was a lot of shutdown of supply coming out of China.

And those days, we majorly ramped up as quickly as we could production, we satisfied that last year, and we had a brilliant year and beauty. Despite COVID-19 not because of it this year with less COVID-19, we have much better supply because of that work and now we've added the inventory you've seen the result of it and the first quarter of beauty grew 79%.

And the first quarter, that's not too shabby, it's not only because of the inventories, but how having the product available gives us a completely unconstrained ability to meet the market demands.

It also allows us to have in inventory, what we need for some other products like waivers as an example, and some of our new innovations on dry bars that are doing beautifully. So it's played to our advantage as I mentioned, but now put a little more specificity and the case of housewares and we've also increased the inventory because we created a belief and the belief that we could grow from the elevated base there too.

<unk> not just in beauty and you see that we're leaning into that and our forecast projecting houseware housewares growth and the high teens for the full fiscal year of lot of that growth has already occurred in the first quarter of actually for both beauty and housewares and we believe we have the right amount of inventory to satisfy the elevated base for last year.

As we go through the back 9 months of our fiscal year and that should and does with a lower total inventories and we started as Matt mentioned earlier in the case of health and home. We also ramped up our production because of Corona virus and because of the inability to meet demand. We now have that inventory I mentioned that in the first quarter on the monitor.

We're actually flat versus year ago, which is amazing given that everybody thought that market was saturated. He was really Europe that was the biggest part of it and at some point there is some saturation, but and.

Nevertheless, the demand is there and air Purifiers and demand is there and a big way and that said, we're constrained at the moment because of the EPA matter you've heard before work and resolve that as quickly as possible as it does we will ship into that demand and.

We will also do the same with water purifiers, which we're doing right now so I guess that gives you a sense category by category and international which is growing even faster and we don't face any of those constraints, we have the inventory and we will meet demand.

Got it. Thank you very much for the Julien So on your last conference call in April you talked about having 3 attractive acquisition targets that you were looking at.

Just wanted to see if you have and update on that and whether this EPA is true that those that perhaps slowdown.

M&A activity or is that on some issue.

Yeah zero correlation between EPA and M&A, it's 2 completely different areas and nothing to do with each other and we are eager on the M&A front to do the right deal for the business in the case of the 3 specific ones on 2 of them actually had slowdowns in their own processes, and they've now restarted and and.

We are.

And at the table in the case of the other 1 that we're pursuing we're still in talks and yet another 1 and surfaced Jack you might want to put a little more color on the M&A front.

Yes, I think I would say just overall, what we're seeing of debris active market out there and we've been as Julian mentioned and touch with several businesses there was debt.

Slowdown but.

For us you've seen our criteria and he and it's.

We've got high marks and what we're what we're looking to.

To achieve and there are some intriguing matches that are out there right now. So we're encouraged from that standpoint. Some of these processes that are Julien as mentioned that have restarted the diligence has begun and will continue probably through the summer and sometimes these things take through the fall of it just depends.

But if they look as good from.

Of close then.

We're going to be very active and if they're not we'll continue to look to the rest of the market.

Just know that we're very active out there right now.

And then 1 build Anthony just to come full circle on this with regard to the EPA matter you might think of them of balance sheet standpoint, if we have more inventory than we won't be able to afford something like this it.

Matt mentioned, our debt levels and we've been trying to emphasize on this call that the inventory that we have is not only right, but good and saleable. So it gets turned into cash it takes down our debt and it gives us the opportunity to take on debt for something else that we think is of great use of shareholders capital. It is also true.

And our leverage level and the absolute is still low even now so if you're worried about firepower.

And we suggest that we're not worried about it.

Okay. Yeah. Thank you for that and just a couple of quick questions here. So in terms of the full supply chain issues are out there for you and everybody else. It seems like you have you seen any.

Improvements since the quarter ended or is it just more of the same is just dealing with the container issues and everything else out there.

And largely more of the same it's 1 of these things where I know the market hates uncertainty, but just for anyone who is trading this is not our uncertainty it's general uncertainty.

Which is that the.

The market sorry that the supply chain disruptions are still fairly consistent so think of what's really happening there aren't container shortages. There are some COVID-19 outbreaks of certain courts. For example, theres a well documented 1 and south East China, It's nothing uniquely to do with us.

So obviously companies like ours of rerouting some of those shipments to go to some of the northern ports. So think of more of a nimble and.

MTN as an example, and then when we bring them into United States, bringing them into the ports that have the least congestion.

And using those contracted rates to beat the spot market, which is multiples of of both of our contracted rates and our historical rates. So the more of that we can do the better and so far and we've been doing fairly well as of batting average. So we're muddling through just like everyone else I think we're doing better than most for a couple of reasons..1 we got ahead of it.

The other is that we have the inventory and pick up the lower prices and the versus today and then the last 1 is that we have.

On the price increases and in the market now and so far so good on that front and so I think the mitigation plans are winners and we've come a very long way since April when we Couldnt give guidance just because of the situation was so.

Every day of evolving now we think we have not only clarity, but arms around it and that said I can't tell you that it's peaked or that it's over and 3 months or something like that because I don't think anyone really loans.

Got it okay and the last question I think Brian you mentioned that there was.

And of some benefit from the shift of Amazon Prime day was that anything meaningful to call out on.

Just wanted to get more clarity about that thanks.

Good question Anthony.

Good I'm going to hand, it over to Matt to answer.

Yeah, Anthony we called it out I would say it was 1 of the drivers. It wasn't 1 of the main drivers, but it definitely contributed I mean like like we said the growth we had and was broad and broad based and that was 1 of the drivers, but I wouldn't put it in front of the list and I just.

Anthony.

Isolated mostly and beauty. So it was really of beauty driver not for the whole company now couple of amount of box. Even if you took that off of 79% you would still be on the seventies.

Got it alright, well, thank you and best of luck.

Thanks.

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

Yes, hi, and thank you hi, so with regard to these stopping of shipments of these products I'm just wondering.

And what are retailers' reactions to this because they have to fulfill their demand from their orders from some supplier. So the business of shifting to somebody else. So I'm just wondering.

How do you intend to handle getting back in with our retailers and once you are able to reshape and then how do you kind of combine that with the need to take price increases and you know it.

Is that going to inhibit you in those categories from from taking price and then my second question on the pricing too is.

With the tariff. So you had some pushback from retailers and some categories and the price increases can you remind us what categories. Those were and are you anticipating similar issues as you try to take pricing now or do you think of pricing is going to go a little bit smoother than it did with of tariffs. Thanks yeah.

Good all good questions Linda let me take them since their 3 and they aren't going to a chunk of them up into the 3 first is this concept of getting back in with retailers and we're not out with retailers I think I mentioned earlier, our retailers who have on average about 2 months of inventory.

Go on Amazon today type of and Honeywell Air Purifier, and you can buy 1 and go to.

Walmart the same the same thing with the water purifiers, especially.

At the brick and mortar where a lot of that sales and so this makes a huge.

On differences this idea of in versus out you're suggesting that we've been taken out where we're not what we're trying to avoid is getting taken out and that's where the 8 weeks of inventory becomes so important you might also think of consumer out of stocks. It's important that a consumer can buy the product regardless of what the retailer has we've taken a good hard look at that.

Just for clarity our data indicates that the top 5 customers, making up more than 70% of the volume have about 2 months of inventory on hand, now and the shelf level out of stocks on average are and the mid single digits kind of varies by item and also by customer, but theres not a crisis yet in that regard because we're now shipping water again, we don't expect that crisis of 2.

To materialize in the case of air Purifiers, and it really depends how quickly the EPA feeds back and how quickly we can rework and start shipping again, so as far as the back end and I hope that helps in terms of the reaction. It's the 1 that you described and retailers are of concern.

And some of them are strongly concerned and that said as we've demonstrated our ability to move quickly with the EPA. So far those concerns have reduced.

And they get what they want and they should and they're our customers I'd also say that the customers are.

Our sympathetic and frankly, there is nobody enjoys this kind of situation they've seen the movie too and there.

And they are sympathetic and working with US we have very long trusting relationships with these retailers and these are generally market leading products. We've been at this for decades as I mentioned before and they know us They trust us and they know and people do right by them and we.

We respect their patients in that regard and are working as hard for them as fast as we possibly can.

In terms of the price increases so far so good is my response on our customers realize that we're in an inflationary environment.

<unk> half of cash and this is graph to price for the underlying costs and only after we ourselves do all of our mitigation efforts, which we have done and we've been very clear with our customers that we have taken out of our cost before sticking on a handout from a price increase so theyre generally sticking and we have not seen the kind of pushback that you mentioned.

And in the case of the tariff situation, it's true that in.

Air and in water and and just a couple of customers. There was some resistance we worked through it and the tariff times and those price increases were accepted and Theres a lot of noise and the stock market on that topic, we would not have been clear at the time and they're now of those prices were accepted in the case of now so far so good that said, we are slowing down a little bit on.

The health and home increases just to work through the EPA part to make sure. We've got it clear before we go back to the customers and take those prices up just to make sure that we don't pour gas on on fire.

Okay. Thanks, Julien and then can I just ask 2 just because we we got some questions from investors about your.

The valuation of the sale of the personal care of business. It did seem rather low I think it was <unk> 6 times of revenue something like that even for our declining business that seems sort of low what's your view on valuation there and why not just hey, hang on to the business and allow it to generate cash for you.

To fund some of these other initiatives that you have going.

Yeah, Let me say a little here and then I'd appreciate if Matt might add on to this and Jack you may have some views just to make sure everybody's Super clear first of all we'd conducted of broad market process, we actually did it about a year and of half of 2 years ago as well and we're confident.

And that we sold for the price that the market would pay in terms of whether it was right to sell at this price given the multiple comment that you make.

We believe that we did this right. This is about 3 times EBITDA and we already harvested the fat part of the cash flow just for perspective.

And last.

5.6 years, we've taken more than a quarter of a $1 billion of EBITDA out of that business in terms of cash flow. So this idea of harvesting out.

We concur and we've done so it's declining and as it declines.

You might look and then.

And it and say Oh, but there's still cash left and here and the answer is yes, and the buyer recognizes that and they paid for it. So we've received those next couple of years worth and that 3 X multiple as you fast forward 3 years at that rate of decline.

It becomes less and less valuable to US also I'd like to point out that some of the earnings that were in the base year, and which we sold worried harvest levels. So where we did normalize we would put money back into there and if that money went back and there versus the other alternatives. We had it would be of worse on ROI and therefore, not right for shareholders My very last.

And his focus I know that folks on the call are generally not the operators, but I can tell you as of 30 year operator of the more you have your ability to focus on the thing that you're going to grow the mowry grows and you've seen that and of our leadership brand focus of those have grown beautifully but the distraction of feeding the last bits of cash flow out of.

Personal care is not the right use of from a focus standpoint.

Yeah, and just add maybe a little bit of of color onto what Julien said.

The declines we were seeing especially on the topline and they were accelerating and when you're when you're looking at those kind of products and those kind of of market, you're seeing and plated cogs, you're less able to take pricing. So even more challenges ahead and as we look at our portfolio when you've got brands like.

That that are declining and we're trying to expand our operating margins on an annual basis.

And then you've got kind of a crew that creates a hole. So you've got a GAAP to bill against that margin expansion and you're actually having to solve a couple of million dollars from that could go to another segment to fuel growth there and so getting back to what Julien said this helps us from an overall ROI perspective and it takes.

Some drag from you know.

Topline and bottom line, so something that we think is going to help us reinvest back in the business better ROI.

Yeah and on that drag.

We've published all of the numbers. So you can easily do the math, there's a half a point or so of just pick up from the fact that you don't have to overcome the down the decline.

Okay.

Thanks, and then finally can I just ask you I know that you guys don't really look too much of the IRI P. O S data because it's not really representative of your whole business, but nevertheless them. When we look at that it actually shows in recent weeks.

Right of big decline year over year.

And most of your categories versus very strong growth in the prior year during the Covid surge.

So how how does that I'm, just trying to kind of align that with the strong sales growth that you reported in the quarter why is there such a difference is it just the hydro flask is making the difference and that's not and the IRI or is it well and replenishment of inventory at retail that really drove yourself.

Or can you just kind of 1 of them.

Sure, let me take a stab at this.

The number that comes to mind and my mind is 70.30, meaning about 70% of what we sell is not captured and IRI only the 30.

So as I mentioned in a prior call and that's why we don't buy the IRI data just it doesn't doesn't crack well enough and we rely on sources like.

Nielsen for brick and mortar.

NPD for broad view of a broader set of brick and mortar, including sports and outdoor which captures a bunch of the retail for hydro flask and we use.

On our part.

And are of Nielsen's called Profiterole for.

Amazon is a good tracking tool so it gets us much further the other big variable and there Linda is international which is and none of those databases non IRI or any of the ones I just mentioned and remember of international is something like 20% of our sales and growing faster than the rest of the company, even though we just put pretty big growth up on the board on a consolidated basis.

And that's why there's such a mismatch and in the tracking so when we look at the IRI data that you published week, frankly take it and square and against the day to that I, just talked about and look for the differences and that's how we use that information when you when you publish it and our conclusions as what I just told you and in terms of the Big result in Q1.

You heard where it came from and in the prepared remarks, and brick and mortar, which is where IRI and strongest searched for us during the quarter did not decline and you've heard us talk about market shares which made a big difference in the case of housewares. The numbers is even lower it's probably quote for IRI, it's probably closer to about 15.

And 1.5.

And as a result of misses out on most of I think of the.

Internet is a big 1 on all of international and all of those things like bed Bath and beyond which are a big deal. When it comes to beauty things like Ulta huge customer for us are not in there and then we sell and things like dry bar and stores like Sephora and Ulta and the dry Barcelona, and fact, they make up 80% or something like that of dry bar sales.

And none of that is and any of the databases and that we're talking about so that's why it's so different so.

Hope that helps.

Yes, thank you very much.

Sure Yeah. Thanks, I appreciate it and just please don't get the idea that somehow it's all just replenishment or something we shipped of demand and retailers debt.

Jennifer generally repurchase demand, sometimes their inventories strategies move things around a little bit but over the course of like a year.

And the retailer orders and the demand generally square up pretty well.

Thank you our next questions come from the line of Steve Marotta with C. L. King. Please proceed with your question.

Good morning, Julien and Brian, Matt and Jack Julien There 2 quick questions I know, we're running a little late the first is regarding the P..8 products and domestic packaging be repurposed for international and considering that this is of domestic issue.

Is that a potential solution to minimize inventory obsolescence.

It's possible, but it's not preferer, it's not preferred and the reason is because of the voltage and the plugs and some of the UL type regulations, where ETF overseas are different so it's better to stop it at the manufacturer level and repurpose.

And the internal components or the sub components towards international products at that level and that's what we've done. So for example, air purifiers of doing beautifully and Europe and we've diverted some of the production there to help on this matter and Meanwhile, on the packaging front just for absolute clarity and some of the 1 on the call walks away with anything different on none of the Prada.

And we'll be scrap there will be some old packaging that'll be remove probably in the case of air Purifiers, We're stickered over and in the case of water purifiers. The changes are so minor that there'll be zero scrap of packaging just the addition of stickers.

And in the case of the inventory it'll come down once we're able to ship again, that's already happening on pure and we hope soon enough on the air Purifier. So that'll help a ton on the inventory matter and we did mentioned and our press release, we've also been able to moves of inventory with the EPA as agreement from 1 of our warehouses to another which will help with the congestion.

And help with the space to do the rework and also make US go faster on the rework stuff and of course ensure safety and our warehouses. Meanwhile.

Excellent. Thank you and my final question.

And a comprehensive review of other of packaging across categories and an effort to minimize the risk of this occurring in the future.

On a product line, yes, yes strong yes, we've taken a hard look I don't know how to emphasize that these are strict.

Interpretations by the EPA of their regulations.

So far the changes have been very modest.

See how it turns out in the air area, but we've taken that review across all of the areas that this type of agency overseas just to make sure.

Everything stays just where where it should be.

Thank you there are no further questions at this time I would like to turn the call back over to management for any closing remarks.

Yes. Thank you operator, and thank you everyone for joining us today and for your continued interest and Helen of Troy, We had nothing short of spectacular first quarter I know nobody asked about that but we did and we really look forward to speaking with you and many of you in the coming days some over the course of and a couple of next couple of weeks and we will share further progress.

And if something big comes out and between we'll tell you, but otherwise when we report our second quarter results in October. So thank you very much and have a great day.

Thank you for your participation and this does conclude today's teleconference. You may disconnect your lines at this time.

Have a great day.

And.