Q3 2022 Helen of Troy Ltd Earnings Call
Greetings and welcome to the Helen of Troy third quarter 2022 earnings call. At this time, all participants are in a listen only mode.
Speaker 1: Greetings and welcome to the Helen of Troy third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow.
<unk> and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is
As a reminder, this conference is being recorded.
I would now like to turn the call over to Jack Hanson Senior Vice President of corporate business development. Thank you you may begin.
Speaker 1: I would now like to turn the call over to Jack Jansen, Senior Vice President of Corporate Business Development. Thank you.
Thank you operator, good morning, everyone and welcome to Helen of Troy's third quarter fiscal 'twenty two earnings conference call. The agenda for the call. This morning is as follows I'll begin with a brief discussion of forward looking statements Mister.
Speaker 2: Thank you, operator. Good morning, everyone, and welcome to Helena Troy's third quarter fiscal 22 earnings conference call. The agenda for the call this morning is as follows. I'll begin with a brief discussion of forward-looking statements.
Mr. Julien <unk>, the company's CEO will comment on the financial performance of the quarter and specific progress on our strategic initiatives.
Speaker 2: Mr. Julian Minnenberg, the company's CEO , will comment on the financial performance of the quarter and specific progress on our strategic initiative.
Then Mr. Matt Osborne, the company's CFO will review the financials in more detail and comment on the company's outlook for fiscal 'twenty two.
Speaker 2: Then, Mr. Matt Osberg, the company's CFO , will review the financials in more detail and comment on the company's outlook for fiscal 22. Following this, we will take questions.
Following this we will 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.
Speaker 2: 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 are words identifying forward-looking statements.
Generally the words anticipates believes expects and other words similar are words identifying forward looking statements forward looking statements or southern to number of risks and uncertainties that could cause anticipated results differ materially from the actual results.
Speaker 2: Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results differ materially from the actual result.
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 parties.
Speaker 2: 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 parties.
Company cautions listeners not to place undue reliance on forward looking statements or non-GAAP information.
Speaker 2: The company costs its listeners not to place undue reliance on forward-looking statements or non-GAAP information.
Before I turn the call over to Mr. <unk> I would like to inform all interested parties that a copy of today's earnings release has been posted to the Investor Relations section of the company's website at Www Dot Helen of Troy Dot Com.
Speaker 2: Before I turn the call over to Mr. Minnenberg, I would like to inform all interested parties that a copy of today's earnings release has been posted to the investor relations section of the company's website at www.helenatroy.com.
The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures.
Speaker 2: 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 press releases tab I will now turn the conference call over to Mr. <unk>.
Speaker 2: The release can be obtained by selecting the investor relations tab on the company's homepage and then press releases tab. I will now turn the conference call over to Mr. Minenburg.
Thank you Jack good morning, everyone and thank you for joining us I'd like to wish everyone, a happy healthy and prosperous 2022.
During today's call I will review, our third quarter results provide perspective on the higher revenue and EPS outlook, We announced earlier this morning and update you on how we plan to use our strengths our strategy and our operational playbook to continue creating value in the back half of phase II.
On a core basis for both the quarter and year to date. We are pleased to report that we grew our sales and adjusted diluted earnings per share compared to the prior year period, Despite that's especially difficult comparisons versus last year and this year's major headwinds from broad scale inflation supply chain disruptions and the EPA matter.
Or.
We see this result is a strong testament to the power of our transformation flywheel the quality of our diversified portfolio of leadership brands.
Speaker 1: We see this result as a strong testament to the power of our transformation flywheel, the quality of our diversified portfolio of leadership brands, the effectiveness of our inflation mitigation tactics, and the strength of our organization, as well as the power of our culture.
In fact, a miss of our inflation mitigation tactics and the strength of our organization as well as the power of our culture.
Looking specifically at our third quarter, all three business segments exceeded our expectations we.
Speaker 1: Looking specifically at our third quarter, all three business segments exceeded our expectations.
We delivered consolidated core net sales growth on top of last year's 37, 1% third quarter increase and delivered core adjusted earnings per share growth on top of last year's 21, 1% third quarter lift.
These results and the positive trends, we see for our business in the fourth quarter allow us to now raise our top and bottom line outlook for the full fiscal year.
Long consumer and retailer demand have helped drive double digit core sales growth in housewares and beauty.
And in the third quarter. This came on top of their double digit sales increases in the same period last year.
While health and home declined at two performed above our expectations due primarily to stronger than expected demand and faster than expected completion of rework for certain products impacted by the EPA matter.
Online sales declined approximately 7% in the quarter, reflecting similar channel trends to those we saw in the second quarter.
Key drivers were the impact of the EPA matter and a rebalancing of brick and mortar and online shopping habits compared to a year ago.
Even with more of our sales in the brick and mortar channel. This quarter online represented 23% of total sales in the third quarter.
Looking at our online sales on a two year stack.
Our sales in the channel have grown approximately 24% since the third quarter of fiscal 'twenty.
Now looking at bottom line performance core adjusted EPS grew 3% on top of last year's 21% increase despite the headwinds I mentioned.
I'm very pleased by the excellence of execution across our organization as we work to mitigate those headwinds and deliver growth over the particularly tough comparison period.
Key component of that work has been making the tactics in our operational playbook successful.
As discussed in prior calls those include a strict strategic increase in inventory.
Leveraging a pre negotiated sea freight container rates.
Several efficiency and cost control initiatives and price increases.
Our inventory position has proven to be important providing a competitive advantage in addressing inflation supply chain disruption and increased demand from consumers and retailers.
Looking at capital deployment on December 29, 2021, we acquired Osprey packs highly respected pillar in the outdoor industry and a global leader in technical and everyday packs.
We continue to put our balance sheet to work on selective and strategic M&A, which is important as a part of our phase II transformation strategy.
The Osprey deal marks yet another major capital transactions so far in phase two following the dry Barr acquisition at the beginning of 2020.
The Revlon license transaction at the end of 2020 and various opportunistic share repurchases.
With these in the previously announced new distribution center now under construction for Housewares, we have committed to deploy over $1 $2 billion of capital during the first three years of phase two.
That's more than what was deployed in all five years of phase one combined.
Osprey will amplify our outdoor offerings. It will add an iconic ninth leadership brand complements and Diversifies our world class portfolio.
And it will add more critical mass to our flywheel.
With more than half of its sales outside of the United States. The brand increases our international presence, especially in EMEA and Asia Pacific The two international regions, where we are most focused.
We believe this acquisition is a classic story of two companies that are better together.
Combining the talent capabilities authenticity and credibility of this proven outdoor pioneer with our global footprint and scalable global shared services creates opportunities for new efficiencies and new growth.
We also believe there are attractive sales and marketing opportunities between Osprey hydro flask and the growing outdoors lineup for OXXO, all of which serve like minded consumers with premium products.
On the financial side, we expect the osprey to be immediately accretive to nearly all of our key consolidated financial metrics.
I would now like to touch on the results of our business segments for the third quarter.
Housewares had a very strong quarter posting net sales growth of 10, 7% on top of 21, 4% growth in the third quarter of last year.
Both oxo and hydro flask delivered solid organic growth.
Both domestic and international spring.
Bath storage electrics and drink wear made healthy contributions to the quarterly growth.
Hydro flask, especially strong growth in the quarter sweeten the mix improving the margins for housewares.
The man for OXXO remains strong as the coronavirus pandemic endures consumers have settled into routines that continued to involve a lot more home cooking and a greater need to organize clean and supply their households.
We believe these habits are likely to remain sticky even after the pandemic.
I'm still continues to be a brand of choice for new and younger households, who discovered the joys of cooking and nesting during the pandemic as well as for more established households that have become familiar with even more of OXXO is exceptional products and the brands overall promise of better.
Retailers responded to the strong Pos strained by replenishing inventory and pulling forward buys in anticipation of supply chain delays.
That strategic inventory position I mentioned earlier allowed us to meet that demand and contributed to oxo has growth compared to some competitors, who face delivery constraints in out of stocks.
Depreciation of and the demand for the brand further improve boxes. The overall share performance as measured by third party syndicated data in many of the U S kitchen gadget categories that it competes in.
Internationally oxo also with particular strength in EMEA, and Latin America, and in Asia Pacific with New distribution in South Korea, and the Philippines.
Hydro flask saw share growth and broad based strength across brick and mortar as retailers increased orders after a much stronger back to school season.
The replenish P O S men momentum and to remain in stock ahead of the holiday season.
Robust online sales also contributed to hydro flask growth, particularly in the direct to consumer channel.
We are pleased to report that the investments we have been making in DTC are paying off by allowing us to meet the much higher traffic and improved year over year conversion.
Our improved online platform held up well for the pressure test of record sales on Black Friday.
Internationally Hydro flask saw growth in all geographic regions, particularly in Canada.
New product introductions beyond the bottle also contributed to growth, including hydro flask, mugs, and new sizes, and insulated food jars and child and adult sizes.
Concept of bringing the safety of home to offices in travel locations grow new demand for food storage and beverage bottle. Some consumers went back to offices and schools and some increased their travel.
Turning to beauty on a core basis sales grew 17, 4% in the third quarter, a remarkable achievement considering core beauty grew 77, 7% in the third quarter of last year.
Lam dry bar and hot tools again led the growth in beauty with demand increasing across all channels driven by more activities such as social gathering back to office back to school.
Our one step Volumize yours, and our waivers continued to see exceptional demand driven by increases in household penetration further new product innovation and expanded distribution.
As Testament to the continued popularity of Revlon, one step volume misers, Amazon called them out along with Apple Airpods and fire TV stick as among the best selling items driving their record sales during the critical period of Black Friday through cyber Monday.
Recent new product launches continue to extend the Volumize your franchise in Sweden, It's mix such as the recently launched Revlon, plus which brings new features at a higher price point.
Internationally beauty sales growth was even stronger outpacing the overall segment with strength across Latin America, Canada and EMEA.
As a result international market shares for beauty continued to grow in the markets, where we have visibility to that share gain.
<unk> continued its momentum driven by expanding product innovation improvement in our brick and mortar channel expanded distribution and the reopening of salons in retail stores compared to the year ago period.
New product launches continue to generate incremental sales and new distribution of popular destinations like the new ultra shops inside target and the new sephora shops inside kohl's or expanding the brands prestige position to a broader demographic.
Third party U S syndicated data confirmed the dry bar continues to gain share in both brick and mortar and online.
At tools also continued its momentum delighting consumers across the good better best spectrum and growing its market share with the expansion of hot tools from the professional channel to also include retail.
Turning to health and home I want to start by providing a brief update on the EPA matter.
As previously discussed we have largely resolved the epa's concerns since returning to normalized shipping levels on pure we continued to reduce out of stocks and I've seen major improvements in our U S market share, which is now approaching pre EPA levels.
I am pleased to report that as of the end of the third quarter.
Return to a more normalized level of shipping activity for key models and customers on our Honeywell Air filtration products pace of rework has been faster than expected. We are on track to largely complete the rework on the remainder of the more than 4 million originally impacted items by the end of February.
I'd like to once again, thank and acknowledge the hundreds of Helen of Troy Associates, who are working tirelessly to help our business recover as quickly as possible.
Health and home sales declined by 18, 5% in the third quarter again ahead of our expectations.
We faced a particularly tough comparison to the third quarter last year in which this segment grew approximately 35% behind Covid driven demand for health related products, such as the monitors and air filtration products.
Anticipated, we saw the adverse impact of air filtration products stemming from the impact of the EPA matter.
Given the ups and downs of these categories over the past two years. It is helpful to look at health and home sale on a two year stack.
First nine months of fiscal 'twenty, two which include the EPA impact grew 10% compared to the first nine months of fiscal 'twenty.
During the quarter several areas of health and home grew including Humidifiers Haitian water purification fans blood pressure monitors pulse oximeter sinus products.
As the traditional cough cold and flu season started to ramp up through the end of the third quarter. We saw incidents well ahead of last year's record low and above historical averages.
Too early to tell when or at what level of incidents. This year's cough cough cold and flu season will peak.
Current trends indicated is on track to be well above last year's highly depressed outcome, yet likely below historical pre COVID-19 averages.
The monitors the overall market continues to normalize after the highly elevated COVID-19 base of last year, but our U S. The monitor market share has grown as consumers continue to prefer our products.
Fortunately, our much stronger inventory position improved our ability to meet that preference.
Given the gyrations of the overall thermometer market thermometers are another area, where it is helpful to look at a two year stack that analysis shows our third quarter thermometer sales are up double digit versus the same period two years ago.
Important to keep in mind that our health and home products are winning with consumers and recognized for their excellence.
This shows up in our market shares in the appeal of our new products and in other measures such as design Awards.
Braun products were recently recognized by the influential 2022 German design Award.
One of our Braun no touch plus forehead thermometers, when an excellent product design Gold award and our Braun nasal aspirator earned an excellent product design award in that same category.
I would like to move now to international.
Doubling down on international is an important strategic choice in our phase II strategy.
We are on track for another strong year and remain ahead of the glide path, we outlined in our 2019 investor day to create at least $100 million of incremental organic sales outside of the United States by the end of fiscal 'twenty four.
Turning to our outlook, we are very pleased to be able to raise our top and bottom line expectations for the current fiscal year.
We now expect to grow core net sales, 2% to 3% over last year's 25, 1% increase.
Core adjusted diluted EPS for 7% to six 5% over last year's 26, 5% increase and expand margins.
I am proud of the hard work across our organization to put us in a position to deliver fiscal year 'twenty two results in line with our phase II average annual targets tremendous accomplishment.
I'm also pleased that our playbook for managing inflation and supply chain disruption has helped us to mitigate more than $2 25 per share of headwinds from these factors this fiscal year.
Looking ahead, we see these same headwinds in fiscal 'twenty. Three so we are continuing to deploy that mitigation playbook. Our plans include carrying elevated inventory levels, new pre negotiated sea freight container contracts.
Executing further efficiency improvements that we have identified.
And some additional price increases beyond those we implemented on certain products during the third quarter.
The benefit from the price increases we already implemented are being realized in the second half of this fiscal year and into fiscal 'twenty three.
We expect to release, our fiscal 'twenty three guidance in April as part of our fourth quarter increase.
Having concluded my remarks on the business I would like to close with important news on progress towards our ESG objectives.
As part of our efforts to minimize our impact on the environment, we finalized and submitted our companywide emissions reduction targets to SB team the science based targets organization.
This formalizes, our commitment to work with other companies towards a net zero economy.
We are committed to reducing absolute scope, one and two greenhouse gas emissions by 46, 2% and to reduce absolute scope three greenhouse gas emissions by 42% by fiscal 2013.
More than 90% of the greenhouse gas emissions occurs to our suppliers and do consumer usage of our products.
As such our environmental efforts continue to be focused on designing products that are intended to be energy and resource efficient, including aligning with standards like energy star, where applicable as well as continued collaboration with our suppliers to improve their energy and carbon efficiencies.
These targets have been accrue approved by SPT.
We'll now be reporting our progress against them on an annual basis in our ESG reporting.
This is important work and aligns with our purpose to elevate lives and sort together for all our stakeholders.
I'm also happy to report that our ESG scores from external evaluators continued to reflect our progress as one example, I S. S. Currently rates Helen of Troy in the third decile for environmental in the top decile for both social and governance.
As we head into the final two months of fiscal 'twenty, two and the back half of phase two in fiscal 'twenty, three and fiscal 'twenty four.
A lot of positive momentum looking at our balance sheet operational capability of the caliber of our organization. We are excited to continue driving our transformation.
For fiscal 'twenty, three and the remainder of the back half of phase two.
Plan to combine that mitigation playbook with the rest of our proven strategy, which includes investing in our leadership brands doubling down on international creating efficiencies and new capabilities through our global shared services platform deploying capital Accretively and harnessing the excellence of our organization and culture.
As we have demonstrated this fiscal year and also in the past Helen of Troy has a track record of delivering results in the face of obstacles we.
We have consistently performed in tough times like this fiscal year.
Like last year when Covid first impacted every household in institution.
And like the two years before that when terrorists first emerged as a major cost challenge.
So all of these challenges and many more we remain relentless in our focus on building our brands and executing our flywheel with excellent.
And further elevating our high performing organization and culture to deliver multi year result that could lead to superior shareholder outcomes.
That I will now turn the call over to Matt.
Thank you Julien good morning, everyone and happy new year.
Pleased with our third quarter results, which exceeded our expectations on both the top and bottom line.
During the third quarter of beauty and housewares businesses saw a number of positive trends, including strong consumer demand growth in international sales and earlier than typical customer purchases as retailers accelerated orders into the third quarter to try to avoid supply chain disruptions during the holiday season.
Celebrated orders had a favorable impact on the third quarter of approximately $15 million in sales.
And 20 of adjusted diluted EPS.
We also began.
The benefit from recent price increases, which are partially offsetting some of the inflationary cost impacts in the quarter.
Finally as of the end of the third quarter, we have completed a significant amount of rework on the EPA impacted inventory and have returned to more normalized levels of shipping activity for the vast majority of affected products.
As a reminder, the Osprey acquisition closed after the end of the third quarter. Therefore, there are no financial results related to that business included in our results.
Now turning to our third quarter.
Core business net sales increased <unk>, 4%, driven by higher brick and mortar and online channel growth in our beauty and houseware segment in.
In addition to strong consumer demand international growth and earlier than typical customer holiday orders. We also benefited from higher sales in the club and closeout channels and the favorable comparative impact of COVID-19 reduced store traffic and a soft back to school season in the prior year period.
Additionally, the pricing actions, we implemented at the beginning of the quarter to mitigate rising freight and product cost also began to benefit us with further positive impact expected in the fourth quarter and into fiscal 'twenty three.
These factors were partially offset by a decrease in sales in health and home segment due to stronger COVID-19, driven demand for health care and healthy living products in the prior year period, primarily in thermometry and air filtration and the unfavourable impact on air filtration product sales as a result.
A matter.
Looking at gross profit margin, even factoring in the benefit of customer price increases still.
Still felt.
The impact of higher inbound freight expense, which was the key driver of the 1.3 percentage point decrease for the quarter.
Our SG&A ratio was 29, 4%.
<unk>, one percentage points higher than the prior year period, reflecting higher personnel expense unfavorable operating leverage higher distribution expense additional EPA compliance costs and acquisition related expense in connection with the Osprey transaction Easter.
These factors were partially offset by lower royalty expense reduced annual incentive compensation expense lower marketing expense lower amortization expense a decrease in bad debt expense and the favorable leverage impact of customer price increases related to rising freight and product cost.
GAAP operating income was $90 million or 14, 4% of net sales revenue on an adjusted basis operating margin declined <unk> six percentage points to 17% primarily due to the lower gross profit margin in the current period.
Income tax expense as a percentage of income before income tax was 12, 9% compared to 14.0% for the same period last year.
Year over year decrease in the effective tax rate was primarily due to increases in liabilities related to uncertain tax positions in the prior year period, partially offset by shifts in the mix of income in a very tax jurisdictions.
Net income was $75 $7 million or $3.10 per diluted share.
non-GAAP core adjusted diluted EPS increased 3% to $3 72.
Due to higher operating income in the housewares and beauty segment, a decrease in the effective income tax rate and lower weighted average diluted shares outstanding.
Looking at the first nine months of our fiscal year, we are very pleased with our results.
On a core basis, we have been able to grow our net sales five 5%.
This is on top of growth of 27, 9% recorded in the first nine months of fiscal 'twenty, one and includes the unfavorable impact related to the EPA matter. We have also been able to increase core adjusted diluted EPS.
<unk>, 9% compared to fiscal 'twenty, one, which grew 37, 2% over fiscal 'twenty and includes the unfavorable impact simple higher inflationary costs and EPA matter.
We believe these are very healthy outcomes given the challenges we faced in fiscal 'twenty two.
Now moving onto our financial position and liquidity.
Net cash provided by operating activities for the third quarter of fiscal 'twenty, two was $53 $3 million for the nine months period of fiscal 'twenty to net cash used by operating activities was $5 $1 million.
Net cash provided by operating activities of $249 $7 million in the prior year.
A portion of the cash used by operating activities in the nine month period in fiscal 'twenty two was to increase inventory to help mitigate rising supply chain costs and purchased high demand product ahead of the holiday season.
We expect to further reduce our inventory levels by the end of fiscal 'twenty, two but with our current inventory projections and the incremental inventory from our acquisition of Osprey. We now expect year end inventory to be higher than where we ended fiscal 'twenty one.
As we continue to sell down inventory, we also expect to see sequential improvement in our operating cash flow in the fourth quarter.
Cash provided by investing activities for the first nine months of the fiscal year was $8 $5 million due to the proceeds received from the sale of the personal care business, partially offset by the capital investments in land and initial construction expenditures associated with our new distribution center for the Housewares segment.
Total short and long term debt was $447 $5 million, a sequential decrease from $472 $2 million at the end of the second quarter.
Our net leverage ratio as defined in our debt agreements, which net of cash and cash equivalents with their outstanding debt was one three times at the end of the third quarter compared to one four times at the end of the second quarter.
Now turning to our full year outlook for fiscal 'twenty two.
Consistent with what we have done in previous quarters. This fiscal year My comments will focus on our operations on a core basis, which exclude the results of the entire personal care business in all periods in order to provide the best comparability between historical and future period.
We are pleased to be able to increase our outlook for both sales and EPS for the fiscal year, reflecting stronger than expected third quarter results.
Maintaining our expectations for the fourth quarter in line with our prior outlook. Despite the impact of the retailer order pull forward into the third quarter and our current expectations of a lower than pre COVID-19 historical average cough cold and flu season.
We also saw continued momentum with strong sales in December.
Our revised fiscal year outlook also includes approximately two months contribution from the Osprey acquisition, which is included in both our consolidated and core business results. We estimate the expected impact of the acquisition for the period from December 29, 2021 closing date to the end of <unk>.
Fiscal 'twenty two to be approximately $20 million of net sales revenue and approximately seven of adjusted diluted EPS, which reflects the typically lower seasonal sales and earnings for the business. During this period.
Our revised outlook includes an improvement to the estimated unfavorable impact of the expected loss sales volume from the EPA matter. The sales revenue impact is now expected to be approximately $60 million and the adjusted diluted EPS impact is now expected to be approximately 30 cents.
The improvement versus our previous outlook is primarily due to higher than expected shipping activity from water purification products in the third quarter.
We do not expect immaterial impact from the EPA matter on our fourth quarter results.
We also continue to expect to be able to recover a portion of the fiscal 'twenty to lost sales and earnings in fiscal 'twenty three.
We now expect consolidated net sales revenue in the range of $2.10 billion to $2.12 billion, which implies growth of flat to 1%.
We also now expect core net sales revenue in the range of 2.06 to $2 $8 billion, which implies growth of 2% to 3% and includes 3% of unfavorable impacts related to the EPA matter.
Excluding the EPA matter, we expect core net sales revenue growth of 5% to 6%.
Our updated fiscal year net sales outlook reflects the following expectations by segment.
Housewares net sales growth of 15% to 16%.
Health and home net sales decline of 20% to 19%, including six 7% of decline related to the EPA matter.
Beauty net sales growth of 13% to 14% and beauty core net sales growth of 26% to 27%.
We expect consolidated GAAP diluted EPS of $8 25 to $8 59, and core diluted EPS of $8 eight.
To $8 42.
We expect consolidated non-GAAP adjusted diluted EPS in the range of $11 73.
To $11 93 and.
And core adjusted diluted EPS in the range of $11.55 to.
To $11 75.
Which excludes any acquisition related expenses EPA compliance costs asset impairment charges restructuring charges and tax reform share based compensation expense and intangible asset amortization expense.
Core adjusted diluted EPS expectation implies an increase of four 7% to six 5%, which includes two 7% of unfavorable impact due to the EPA matter, implying expected year over year growth of seven 4% to nine 2% not incur.
Adding the impact of the EPA matter.
This updated EPS outlook includes the estimated unfavorable impact of year over year inflationary cost pressures of approximately $55 million to $60 million or approximately $2 25 to $2 $22 45.
Adjusted diluted EPS.
We believe we have mitigated much of these costs through a combination of improved product mix price increases forward buying of inventory to delay cost impacts utilizing previously negotiated shipping contracts at rates below current market prices and implementing other cost reduction initiatives.
We expect a fiscal 'twenty two core GAAP effective tax rate range of 12, 8% to 13, 8% and a core adjusted effective tax rate range of 10, 6% to 11, 5%.
Consistent with prior expectations, we do not expect a meaningful impact from currently proposed tax legislation changes in fiscal 'twenty two.
We now expect capital asset expenditure of $85 million to $110 million for fiscal 'twenty, two which includes expected initial expenditures related to our new distribution facility for the Houseware segment. We continue to expect the total cost of the new distribution center and equipment to be in the range of 200 to two.
$225 million spread over fiscal year, 'twenty, two and 'twenty three.
Yeah.
In summary on a core basis, including the impact of the EPA matter, our revised full year outlook implies net sales growth of 2% to 3% on top of the 25, 1% growth in fiscal 'twenty one.
Our revised full year outlook for the Housewares segment implies net sales growth of 15% to 16% on top of 13, 5% growth in the prior year.
Our beauty segment core sales outlook implies net sales growth of 26% to 27% on top of 39, 5% growth in the prior year, and although health and home segment.
Forecasted to have a net sales decline of 20% to 19%.
<unk> the impact of the EPA matter. It grew 29, 9% in the prior year.
Our adjusted diluted EPS on a core basis, including the impact of the EPA matter a revised full year outlook.
Implies growth.
A four 7%.
It's six 5% on top of growth of 26, 5% in fiscal 'twenty one.
Excluding the expected contribution of Osprey, the implied growth at the high end of our outlook range on a core basis.
Is 2% for net sales and 6% for adjusted diluted EPS only slightly below our long term growth target. Additionally, we expect to be able to expand core adjusted operating margin for the fiscal year by 30 to 50 basis points ahead of our long term growth target.
These results are quite an accomplishment when we consider the high base in fiscal 'twenty, one and the fact that we will absorb over $2.50 of earnings per share related to inflationary cost increases and EPA matter in the current fiscal year.
In fiscal 'twenty two our team has done an amazing job of navigating the high cost environment by utilizing all the tactics in our playbook.
<unk> the forward buying of inventory, which helped us the first some of the higher input costs out of the first half of fiscal 'twenty two.
As we close in on the end of the fiscal year and look ahead to fiscal 'twenty. Three we are prepared to face the inflationary cost challenges ahead in fiscal 'twenty three we expect a full year of incremental inflationary cost pressures in excess of what we have estimated will impact us in fiscal 'twenty two.
We are currently in the middle of our fiscal 'twenty three budget process and are working hard to mitigate as much of the expected fiscal 'twenty three inflation as possible and to deliver core earnings growth.
We will also benefit in fiscal 'twenty three from the impact of the Osprey acquisition, and our strong balance sheet cash flow and low leverage provide further opportunities to strategically deploy capital with shareholder return as we head into fiscal 'twenty three and beyond.
And with that I'd like to turn it back to the operator for questions.
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Our first questions come from the line of Bob Leduc with C. J S. Securities. Please proceed with your questions.
Good morning, and congratulations on strong results and outlook.
Thanks, Good morning, Bob Great to hear from you and I used to be out of our quiet period, Yes, I always fun [laughter]. So you gave us some nice tons of details, but some nice details on international I was hoping to dig a little further as it relates to pockets of strength or maybe and if there is any lagging and.
First is your phase two goals and expectations.
And then also wrap that in with Osprey, how does the acquisition help your international growth in other brands I know how it impacts the percent of sales internationally, but how will it help other brands grow internationally as well.
Sure Yeah International was a big deal we've called it out a bunch of times is as strategic for us given the double down on international.
Focus for phase two there's two very large projects in the company one in Europe, one in Asia to drive that and I think everyone knows that structurally we put a president in place or almost two years ago to.
Overseas those regional markets on top of what we had before that's yielding some pretty significant results and answer your question about a little bit more color on what's happening is that beauty has.
Gone from a laggard internationally that frankly wasn't making money and didn't have much presence to.
Now.
A business that is on fire, it's making big growth big money big market share gains.
<unk> was the beginning of it but now it's expanded in all the same ways as the U S. So think of it as you know a year or so behind the U S. In terms of its trending and in the case of health <unk> home. It continues to demonstrate excellence in Europe, and it's always been strong in Asia that said, the sonometer ups and downs I make it tough since that's why we call.
That the two year stack to show that in total, but not just international health and home up 10%, even with all the EPA stuff just to give people some perspective because of all the volatility and then on the houseware side, the resurgence of housewares in Europe, including in the U K, a big deal and then like we called out.
The distribution this time in Asia, especially in the Philippines, and South Korea.
Housewares, which is really helping if you step back and look at the whole thing what you're getting as a business is adding significant margin on top of where it was many international.
Compared to the beginning of phase two and the result of that.
Ah is a big desire to further invest in kind of lean into the the strong feed the strong as they say.
So this is driving us to do more and we're already planning that for fiscal 'twenty three on top of what we did this year and remember in Q4 of last year, we put a big investment into Europe to prime the pump so to speak to get the results that we're now reporting and then lastly on international I would say that the acquisition stuff makes a big deal to your question.
And on the acquisition or everyone knows on the call already that half of Osprey is outside the United States plenty of that in Europe, and so what it'll do is it'll accelerate our footprint it outdoors and open the possibility of many more doors that Hydra.
The Osprey has already in hydro flask and Osprey, we believe are a natural together. It's one of these better together stories, and we think that the impact on.
Hydro flask, and Osprey, and frankly hydro flask also two osprey outdoors outside of the United States is an untapped synergy of the acquisition. We also think that OXXO as it makes its own advances outdoors has the potential to join that party because it's the same consumer and in some cases the same.
<unk>. So this is good news too we've seen that especially in <unk> in the United States and we intend to reapply them all in.
In the case of Ospreys capabilities, there's just a lot of great people that we're now meeting in person.
Steady as she goes with the acquisition closed and that gives us the chance to tap into their capabilities in Europe in particular and pool, England.
In Asia based out of their Vietnam organization and that Vietnam organization also has the capability to add soft goods knowhow and the southeast Asia beachhead for us faster across other parts of Helen of Troy in Latin America, We Havent turned the rock over quite as much yet so I don't have as much to say in that region.
And then Canada, we manage more collectively as part of North America.
Okay, Great. That's Super helpful. Thanks, and then just for my follow up question second question.
I was wondering if you could talk about.
What changes in consumer behavior or emerge from the pandemic and have created opportunities and new products for for Helen of Troy and for your brands and how does the fiscal 'twenty three new product development stack up versus prior years.
Yeah.
We're consumer centric so I love. This question and we spent a lot of time staying close to the consumer.
As we said in our prepared remarks, there is a nesting behavior that we've seen has been pretty sticky and I say that because even during the brief interlude between Delta and Army Kron you saw the results that we were able to put up during that period of time. So we've seen the consumer sort of rediscovered the joys of homes so to speak.
Even though everybody feels cooped up in restricted and all the bad stuff that goes with those sides of the behavior. We've also seen that people have no problem investing there.
Money I'm talking about their spendable income into improving the quality of their home world So whether it's storage.
Organization stuff cleaning stuff kitchen stuff and this has been very very good for us as the consumers households get penetrated that rabbit effect that we often talk about on OXXO gifts.
Multiplied so to speak just because the products are penetrating into new households, and they start feeling the drawers and remember plenty of people moved during the pandemic because they were getting out of some of the cities and those are bigger houses. So we see those kind of trends. We also see people super attentive to their health so.
Just everyone's radar is up a couple of clicks versus pre pandemic. So when you hear words like fever air quality.
Change your filters these kinds of things that it always.
Triggers people, but now more more than ever and that obviously affects our health and home business and then consumers.
I've never met a woman who doesn't want to look good.
And that has not changed despite people being more at home in the pandemic and.
And that reflects on our beauty business, regardless of Salon closures etcetera. So it makes a big deal.
And then lastly, I would say on the impact it has for the future.
We have product development in place to keep going in that area. So for example, the on the go line from OXXO rolled out just at the right time, because people want to take that safety of home or that comfort of home that I'm, describing with them, even if its back to the office or hybrid or whatever their model is back to school et cetera helps hydro flask II.
And all of that and in the case of the.
Channels, we just see a bit more balancing between online and brick and mortar and we called that out in our press release as well as in my prepared remarks today in order for people to understand that there's a balance there online is still huge for us it's 23% of the entire company. That's like a half a billion dollars worth of sales on the one hand on the.
The other hand, our brick and mortar is not that five years ago, everybody was talking about you know brick and mortar make it a brick and mortar is doing screamingly, well and that that channel rebalancing is occurring last point on channels of direct to consumer direct to consumer is taking off it's a major trend you've seen us invest in it frankly, we've been a little slow.
That said, we're coming up fast in our ability to customize and our ability to fulfill in the state of the art stuff that we're investing in that new housewares, whereas warehouse one that we are putting all the money into it's going to have the best of the best and that that will help us a lot on that direct to consumer channel and the customization.
Yeah.
Okay Super Thank you so much.
You bet, Bob Great questions.
Yeah.
Yeah.
Thank you. Our next question is coming from the line of free cash per each with Oppenheimer. Please proceed with your questions.
Good morning, Thanks for taking my question and also congrats on a really nice quarter.
Thanks I forget.
I guess my first question is you know as you look at your sales base exiting this year do you believe it's now a fair reflection of underlying demand or do you think there could still be some normalization in certain categories as we as we go into next year.
There's a it's a lot better down answer I would say real passion and the reason I say it is because as good as we are on having more inventory there is still some demand left on the table.
Out there because it's hard to have all the right things in all the right places all the time in such a surging environment and with the supply chain interruption. So theres believe it or not even still some unsatisfied demand in the marketplace. So there's hope another way that we could be selling even just a little bit more.
The good growth, we just put down and then in terms of the go forward. There's some rebalancing going on like the thermometers ups and downs that we were talking about and there is a reality right now which is the cough cold and flu season, while it's amazingly better than last year, because it was so poor last year probably will be below.
The pre Covid average and then lastly, there's some EPA rebalancing going on and what I mean by that is this year was rough because of all the ups and downs of that and now as we ship back into that section for our products, which we see benefit and into next year that'll that'll be a good guy so a lot of ups and downs.
Perhaps the best way to think about it just to step back from all of the chatter and just look at the Big picture in the Big picture is that we believe we're going to grow in fiscal 'twenty three our revenues on top of the base that we just gave outlook for today in line with the multi.
Your averages of our phase two goals. So it lets you just sort of cut through it all and say you know is this company going to grow next year.
Is our expectation.
Okay, Great. That's that's very very helpful color and then just I guess just one follow up question for the guidance. This year in health and home there was a reduction or a slight modification on the helping outside I think you guys know or to the low end of the range.
And that's even with the EPA as Youre, having a smaller impact so maybe just some more color there in terms of what changed on the helping them inside the guidance range.
Yeah, two things one you've already called out it's the lower half of what was a two point range.
So it's true that we said it was 18% to 20% decline in the Q2 release, when we gave that outlook and here in the Q3 release with our improved outlook, we're saying, it's 19% to 20% decline. So that's a two point range and we pick the lower half and you might think why would the EPA thing getting better why did you pick the lower.
And the reason is because the cough cold and flu season, and when we projected in Q2 was expected to be in line with historical averages. It's now likely to be below historical averages, but again importantly way better than year ago. So if you're comparing versus year ago, Youll see a tremendous gain but if you compare.
On a forecast basis, when we only saw historical averages in the in the front of US. It's a small decline and you say Wow, that's going to be a big deal and the answer is no. It's exactly within the range that we projected before it's just in the lower half of that range by a single percentage point.
Okay, great I'm going to sneak in one quick one just on the cost question as well your cost pressure headwind estimate went down versus last quarter, but then it sounds like next year you guys are expecting even higher cost pressures. So just curious if there's anything to call on terms of the reduction in terms of what you're expecting this year.
Yeah, Let me make sure I understand it you're saying that you can take on pressure I can tell you. This one yeah go ahead, Matt no real passion right and it's really just kind of moved around a little bit. We saw we moved the range down about $5 million and just as we kind of look at our inventory and costs and how it's going to play out I mean some of.
Those things to reflect you know Peter inflationary costs, and some wages and labor and things like that so just a little bit of a wiggle I would say nothing big in terms of our outlook for this year and then I think you read the right message into fiscal 'twenty three in terms of kind of our overall general expectations of where we see cost.
Trending for next year.
Okay, great. Thank you for all the color.
And one quick follow up repairs on the cold and flu stuff I want make sure everyone on the call has the right impression.
The incidence is growing it's growing considerably in fact, we've just seen most recent data as of this week and our sell through is looking quite good. Our reorders are looking good. So I don't know if it's omicron purchases when people need the humidifier thermometer or something like this but we like what we're seeing in the trade.
Good, but the only difference versus what we had in the Q2 what is the difference between average and below average total outcome.
Great. Thank you.
You bet.
Thank you. Our next question is come from the line of Linda Bolton Weiser with D. A Davidson. Please proceed with your questions.
Yeah, Linda Hello, Hi, How're you doing.
Good Hi, nice to talk to you.
Yeah same here.
So I think when you were talking about.
E P a impact on health and home you said you expect to recover.
And of those sales in FY 'twenty, three I guess, what I'm questioning why just portion why wouldn't you be able to kind of recover.
Like all of the sales and going along with that can you actually quantify for us the EPA impact on health and home sales in the second quarter and then the third quarter. Thank you.
Yep, Yeah, let me take the first one and I'll I'll take that Matt would be best for the second one in the case of the portion versus all there's kind of a.
Gadhelic thought on this in a real world thought on this that we've spoken about it in prior quarters too in the academic World you definitely would get up a on any any tests to saying, okay. If it was impacted.
Impacted in one year and you've gotten the clearance from the EPA to do the rework and you've largely done the rework and you've kept the customers. Then don't you get it all back just a year later, that's the academic cancer. The real world. The answer is that there's all kinds of shuffling going on.
Think of trade inventories that have moved around a lot. So theres a lot of replenishment going on right now I think of consumer demand that wiggles shelves that have been set and reset it now reset again as we've played into the mix with what we've been able to ship versus what we had to rework and then I think also of consume.
<unk> loyalty.
Filter repurchases competitive moves, etc. So in the real world that its not so black and white.
We think we'll get the vast majority of it back that's the good news, but there should be a year over year gap and we'll just work on closing it and in the case of spending we obviously reduced our spending during the period when we were not shipping and in some cases not on the shelf and competitors did not and so we have to spend to earn back our market.
Sure.
Like we did on pure and we've largely accomplished that on pure. So this now has to happen on air Purifiers and on the subject to the competitors are just an update because people always ask which as you know wouldn't others be affected by this in the future we have seen evidence in the marketplace.
Other companies and we wouldn't name any particular ones.
Are experiencing some inquiries from the EPA and going through their version of the same story, so that creates opportunity in the future should they have to run the gauntlet as well.
And Linda just to follow up on your second point in terms of the impact you.
You saw us kind of improve our overall impact for the year and while we haven't given out in the quarter. The specific impacts by quarter I think the best way to think about it is we said theres really get not gonna be a material impact to the EPA in Q4, and it wasn't really a Q1 issue just in terms of the timing.
One issue around so it's mainly a Q2 Q3 issue and if you remember in Q2, we had shipping restrictions on air and water.
By the end of Q2, we largely resolved water. So Q3 was mostly an air impact so I'd kind of take the $60 million and kind of you know roughly spread between Q2 and Q3.
Knowing where we had more shipping restrictions and lesser shipping restrictions and that's about the amount of guidance. We've given on it during the years I hope that helps.
Okay.
Thank you and then can I just slip in.
Yes on the gross margin you know, there's a lot of moving pieces here you have mitigation effects menu price increases going on.
If you have to adjust.
Qualitatively try to explain where you think the gross margin might bottom out on a sequential basis do.
Do you think it's in the fourth quarter or do you think that happens more in the first half of FY 'twenty three.
Yeah.
Hey, Matt Yeah, I can take a shot Julien it's a good question Linda.
Linda and unfortunately.
Unfortunately, it's probably one of those things that I'm not going to give you a super specific answer because it depends on you know.
Future trends of what's happening with freight.
Great and inflationary costs, what I can say is in Q3, we got a lot of price increases in place not all of the ones and so we will continue to benefit from those more in Q4 than in Q3 sequentially and then as we look into next year you know as we look at.
You know ways to continue to mitigate higher cost environment price increases it is still in our playbook and something that we'd be looking at again, so hopefully if we're able to continue to improve our price increases sequentially from Q3 to Q4 and the impact that would be more favorable and then into next year, we're looking at more.
Price increases that would help us I think that's the benefit side the tough side for us.
The Crystal ball on his next year's cost profile and what's happening as the year progresses with with inflationary rates. So I think improvement sequentially. As you look at this year and next year, we'll probably have more thoughts on that as we get through our budget process.
Okay, well, thank you very much I appreciate it.
Thanks, Pat Thanks, Linda happy New year.
Yeah.
Thank you our next questions come from the line of Steve Marotta with C. L. King. Please proceed with your questions.
Good morning, Steve.
Yeah. Good morning, Matt Good morning, Jack.
Thank you for taking my question most have been asked and answered although many are limit. This to one Julian maybe you can comment a little bit on current logistic challenges and where that stands at this moment in time, and where you see that in the improvement in the next calendar year. If that's you can quantitatively measure it.
Either weeks behind or none at all any sort of specificity there would be helpful. Thanks.
I'm not sure I understand it Steve can you just give me one more shot at the question itself.
Just the supply chain.
Issues that you're experiencing right now.
How many containers do you have off half the board I mean, obviously, you're not going to give that number specifically, but if you could talk a little bit about where it stands now and how you see improvement over the next three yeah now I got it yeah. Thanks. Thanks for the clarification, yes, I think that the short answer is we're not immune but we are better positioned than others. So we were.
<unk> to all the same factors, but the reason we're better positioned is because we have more inventory and because we have.
<unk> been able to pre negotiate those those sea freight contracts so the impact to us both in time and cost and out of stock and all of that is.
Is mitigated and it's been successful for US you heard us make a lot of comments about it.
In terms of the flow of products, it's it's fairly reasonable right now where we're able to bring in what we need we have enough of the right stuff almost everywhere. There's a few exceptions to that always and that's true now too.
And then in terms of the ability to.
Handle at all you know, it's a lot to do that in our warehouses. It's one of the reasons that we're building another warehouse and we will do some pretty significant shuffling over the next couple of years to optimize the entire footprint to the point, where we'll be on recognizably better by the end of phase two on this enable to handle not just what we have.
Also new stuff as we buy it like Osprey and integrated and in the case of the growth I mean, we're talking like this company is more than 40% bigger than it was four years ago, and that's before osprey and before the growth that we are you said on today's call that we expect to put down in fiscal 'twenty three so.
We're better shape and in the case of the specifics like right now to your question reasonable is the short answer and if you look forward.
For next year, we've as we said in our prepared remarks, what we have.
Pre negotiated new sea freight container contracts and will carry a bit more inventory next year to try to run that same playbook again, because there's more of this to come and so that's that's where we are so unless it gets a lot worse, we're gonna be okay, but it ain't easy out there in that playbook works.
Julien that's helpful. You know I do have one more question given the massive uptick in air filters and water filters and thermometers last year and the consumables that are associated with those product lines are you, where you want to be the higher margin consumables of course are you where you expect it to be at this point in time.
Those consumables on units that have already been purchased are you a little ahead or you're a little behind maybe you can comment.
Where you are currently on those consumables.
Yes, it's about right I think is the answer so in line I don't have a lot of specific data on it but I can say that in general is about right and what's driving it is a lot of different factors start with wildfires that there was a lot of that last year and what was available in the marketplace. When we were in the dark or part of the EPA.
A period was sold through and we're glad that consumers were able to get a hold of those filters because they needed them and we worked very hard to get those into the marketplace as quickly as we can rework them and.
So they were gobbled up I, even got personal appeals from consumers on emails like please. Please please I need I need they need and we did starplex founding our own closets to find them.
So we've found found ways, but only once they were rework would we put them into the marketplace and in the case of the.
Our next big driver, it's the cold and flu season, that's a big deal. We're in the kind of an indoor time there was the allergies. The fall allergies that just passed and then while we don't make any specific Covid claims you know everybody is trying to improve the quality of their indoor air. So these are the drivers and I'd say, we're in line and it is good and we like the loyalty.
We like serving people and we like making sure they buy our filters because they are the best ones for our products are the ones we recommend.
Super helpful. Thanks, I'll take the balance offline. Thank you again.
You bet. Thank you.
Yeah.
Thank you our next questions come from the line of Anthony <unk>. Please proceed with your questions.
Yes, Anthony happy new year to you.
Yes, Hey, good morning, and happy new year to all as well yeah. So.
This may be a difficult maybe question to answer but as far as the omicron variant.
Yeah.
What is really at the tail end of your third fiscal quarter now that we're a few weeks into it.
What is your sense as to how that's impacted your business how has that impacted the anything meaningfully or what is your expectation is for that.
Yeah, it's always tough to read because it's hard to tease things apart. So it's not so much about it in a short period of time, it's more just mix with a lot of other stuff. So short answer on this one as the Covid really sucks.
The time to get your head above water you you can find some other reason to.
Be afraid so nobody likes any of this in the case of what it's doing to the business. There's a couple of things happening that were it's hard to quantify any of it.
The sales that we just saw in December.
We're very strong.
Matt mentioned them in his prepared remarks, I can't say that they are directly linked to omicron I can just say that if anyone on the call is worried about the pull forward for the holiday.
<unk> chain stuff into Q3, they should not be and the reason is a sales were strong in December.
We like our prospects for January and February.
See we just raised our guidance and floated all through or said another way held our Q4 outlook. Despite the Q3 beat and despite the pull forward into Q3. So that's my confidence in the current environment I don't know what it is and then in terms of omicron itself on consumer behavior. It's hard to know you know people are back home a little more.
Sure.
Fewer kids in school and all that stuff on the one hand on the other hand people are now two years into this and they know how to navigate a little bit better all that nesting and home stickiness stuff will just be more so that's I guess good for us and then the cold and flu World I can't really say, what it's going to do maybe people have trouble distinguishing between the.
The omicron symptoms, which feel like that and the normal cold and flu stuff. So you might get some inflation in the data either way, we will keep providing the health related products that people want and as I said before to repurchase question.
We're just seeing good sell through things like humidifiers, right now, even with the cold and flu season picking up.
I can't tell you if its army ground or the or the others that are driving I, just think people want to be safe.
Got it understood and then as far as the just.
Just as a follow up about the pull forward was that in.
And in each segment or was there any one segment that you saw more than others as far as a pull forward of buying but retailers in the quarter.
What would you say Matt.
Anthony we saw mostly in beauty and in Housewares and I would say, it's kind of you know two thirds housewares, one third beauty kind of a thing.
Probably more gifting is involved especially you can think of all those hot here tools that people want and theirs.
All of the home.
Type of products that often end up under the <unk>.
Under the Christmas tree so that's.
That's probably what's driving it and retailers themselves.
They surprise themselves broadly that they did a good job of handling that issue and then spread out the purchases.
Black Friday and Christmas. So it was more of a month of it rather than two weeks of it and so we were able to supply a little bit better on the DTC side as I mentioned in the prepared remarks, we just saw really good business in all of those investments that we've been talking about in our flywheel for the last two to three years.
Keep paying off now as we are pressure tested by big searches like that in our websites and warehouses are able to handle it.
It's good news, so I wouldn't worry I wouldn't worry about the pull forward.
Got you Okay, and then last question if I could just sneak that in so obviously.
The cost side of the business, there's a lot of puts and takes with the inflationary cost pressures and you've quantified that but in terms of the cost reduction initiatives.
No.
And you look at the different buckets of the cost reductions I mean, which ones are kind of the most sustainable you think kind of going forward as we look forward to fiscal 'twenty three.
Yeah, Yeah, I Love this question and I'm glad it comes in.
Broad call here.
To put it right in the public record.
Attacking our.
Cost has been strategic for us and the transformation for years and years what's.
What's happened is we've pulled massive amounts of cost out by going to global shared services by investing in all of these capabilities and then right now in each of the three business units there is large.
Eight digit large.
Cost savings projects over multiple years, yet to come so think of the back half of phase III and each business unit, having big projects to take advantage of the opportunities that we've identified not all of it comes right away and some of those benefits, we'll just get sliced away as offsets to the rising inflation.
That we have to confront along with everybody else, but theres big savings ahead to get there and in terms of drivers automation is a big one.
Finding further optimization within our supply chain is another big one and then the labor cost because they've risen have made payouts of projects around D C or warehouse type of automation much more attractive than they would have been at much lower wages make only a few years ago and so.
All of these create new opportunities for the future some of that does require some capex as Matt pointed out, but it's worth it pays out and it delivers for us over a long period of time. So we're pretty excited about the cost savings opportunities with these don't get the idea that it means we magically gained ground. It just helps us further.
Offsetting and then we can put down some gains in fact this year is maybe a good testimony to it Matt mentioned in his remarks that we would put down roughly 50 bps of margin expansion. This fiscal year in the outlook. We just provided if you look at the 20 to 30 bps per year targets that we put out for phase.
That's two years' worth of gains in a single year and not just any year in the heavy year, where there was so much inflation and so much supply chain disruption doesn't mean, you get that in fiscal 'twenty, three and fiscal 'twenty four it just means at least in our view that there should be some confidence that these savings projects have the ability to deliver.
And if we can grow our revenues on top of that and get operating leverage, which we specifically said earlier in the call. It's our intention to grow revenues in fiscal 'twenty three at the average annual rate of the.
Phase two goes of course try to do better and then for fiscal 'twenty four while it's hard to project that far out it's our intention to do it again, so there's some operating leverage and all of that is before acquisition, which creates more operating leverage and new synergy opportunities with new cost savings projects. So that's the flywheel effect and we see it very much intact.
Got it okay, well, thank you and best of luck going forward.
Yeah. Thanks, Thanks Anthony.
Thank you there are no further questions at this time I would like to turn the call back over to management for any closing comments.
Yeah. Thanks, operator, and thank you everyone for joining us today and for your continued interest in Helen of Troy, We look forward to speaking with many of you later this week and next week at the virtual ICR conference as well as virtually in the coming weeks. During another conference is scheduled and several N D ours that had been planned so.
Glad to be out of the closed a quiet period and able to speak.
With you and we're looking forward to it thanks, very much and have a very nice day.
This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
A great day.