Q2 2024 Helen of Troy Limited Earnings Call
[music].
Greetings and welcome to Helen of Troy's second quarter 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Speaker 1: Greetings. Welcome to Helen of Troy's second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Jack Janssen, Senior Vice President of Corporate Development. Thank you.
Please note. This conference is being recorded I will now turn the conference over to Josh Chan since senior Vice President of corporate development.
You may begin.
Thank you operator, good morning, everyone and welcome to Helen of Troy second quarter fiscal 2024 earnings Conference call.
Speaker 2: Thank you, operator. Good morning, everyone, and welcome to Helen Detroit's second quarter fiscal 2024 earnings conference call. The agenda for the call this morning is as follows. I'll begin with a brief discussion of
The agenda for the call. This morning is as follows.
Begin with a brief discussion of forward looking statements.
Speaker 2: Mr. Julian Mindenburg, the company's CEO , and Ms. Noelle Givois, the company's COO, will comment on financial performance of the quarter and current trend.
Mr. Julian Ladenburg, the company's CEO and Michigan is no wells your floor. The company's CFO will comment on financial performance of the quarter and current trends then Mr. Brian grass the company's CFO will review the financials in more detail and our financial outlook for fiscal 2024 following.
Speaker 2: Then, Mr. Brian Grass, the company's CFO , will review the financials in more detail and our financial outlook for fiscal 2024. Following this, we will take questions you have for us today.
We will take questions you have for us today.
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.
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 where are you identifying forward looking statements forward looking statements are subject to a number of risks and.
Speaker 2: Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results.
Certainties 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.
Speaker 2: This conference call may also include information that may be considered non-GAAP financial information.
Speaker 2: 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.
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: The company cost its listeners not to place undue reliance on forward-looking statements or non-GAAP information.
The company cautions listeners not to place undue reliance on forward looking statements or non-GAAP information.
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.HelenofTroy.com.
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: The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measure.
The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures.
Speaker 2: The release can be obtained by selecting the investor relations tab on the company's home page.
The release can be obtained by selecting the investor relations tab on the company's homepage.
Speaker 2: and then the press releases tab. I will now turn the conference call over to Mr. Minnenberg.
And then the press releases tab I will now turn the conference call over to Mr. <unk>.
Speaker 3: Thank you, Jack. Good morning, everyone, and thank you for joining us. Starting with our second quarter results, today we reported net sales and adjusted earnings for share that came in at the high end of our expectation.
Thank you Jack good morning, everyone and thank you for joining us starting with our second quarter results. Today, We reported net sales and adjusted earnings per share that came in at the high end of our expectations.
Speaker 3: I'm pleased with the consistency of our results as we work toward returning to growth.
I'm pleased with the consistency of our results as we work towards returning to growth.
Speaker 3: I continue to be impressed with how well our organization is executing the ambitious set of initiatives we announced at the beginning of Fiscal 24.
Continue to be impressed with how well our organization is executing the ambitious set of initiatives, we announced at the beginning of fiscal 'twenty for this.
Speaker 3: This includes delivering our revenue expectations on the majority of our leadership brands and strong performance at International as well as advancing a wide range of efficiency improvement projects.
This includes delivering our revenue expectations on the majority of our leadership brands and strong performance in international as well as advancing a wide range of efficiency improvement projects.
During the quarter, we made further progress on gross margin improvement and cash flow generation, we significantly expanded gross margins as we realize the benefits of lower inbound freight costs and SKU rationalization.
Speaker 3: During the quarter, we made further progress on gross margin improvement and cash flow generation. We significantly expanded gross margins as we realized the benefits of lower inbound freight costs and SKU rationalization.
Speaker 3: We also generated positive free cash flow as we continue to diligently manage our inventory and deployed a portion of our cash to repurchase approximately $50 million of our share.
We also generated positive free cash flow as we continue to diligently manage our inventory and deployed a portion of our cash to repurchase approximately $50 million of our shares.
Speaker 3: For perspective, our initiative to streamline inventory over the past several quarters has resulted in a reduction of over $200 million compared to year ago.
For perspective, our initiative to streamline inventory over the past several quarters has resulted in a reduction of over $200 million compared to year ago levels.
Speaker 3: The progress on free cash flow has also been significant, delivering a $325 million improvement in the first half of this fiscal year versus the first half of fiscal 23.
The progress on free cash flow has also been significant delivering a $325 million improvement in the first half of this fiscal year versus the first half of fiscal 'twenty three.
Speaker 3: Our second quarter results not only demonstrate strong execution across our entire organization, they also demonstrate resiliency as we manage through the continued challenging macro consumer environment in which consumers are continuing to shift spending away from discretionary products and more towards discretionary experiences such as travel and entertainment.
Our second quarter results not only demonstrate strong execution across our entire organization. They also demonstrate resiliency as we manage through the continued challenging macro consumer environment in which consumers are continuing to shift spending away from discretionary products and more towards distress discretionary experiences such as travel and entertainment.
Speaker 3: That shift in consumer spending patterns has been exacerbated by persistent inflation It forces consumers to make tough choices on all types of spending
That shift in consumer spending patterns has been exacerbated by persistent inflation enforced as consumers to make tough choices on all types of spending.
Yeah.
Speaker 3: Subsequent to the end of the second quarter, we closed on the sale of our office and 400,000 square foot distribution facility in El Paso, Texas, as part of our previously announced initiative to improve the efficiency of our assets.
Sequent to the end of the second quarter, we closed on the sale of our office and 400000 square foot distribution facility in El Paso, Texas as part of our previously announced initiatives to improve the efficiency of our assets we.
Speaker 3: We intend to move to a new facility in El Paso to house our U.S. headquarters, which we expect will be a long-term rental property.
We intend to move to a new facility in El Paso to house, our U S headquarters, which we expect will be a long term rental property.
With El Paso, being our largest shared service hub, we expect it to continue to play an ongoing important role for the company and community.
Speaker 3: With El Paso being our largest shared service hub, we expect it to continue to play an ongoing important role for the company and community.
Speaker 3: We strongly value the work and passion of our dedicated associates in El Paso and are proud of our 55-year legacy in the area.
We strongly value of the work and passion of our dedicated associates in El Paso and are proud of our 55 year legacy in the area.
Speaker 3: In conjunction with the sale of the El Paso facility, we are also making some organizational moves as part of our ongoing efforts to operate more efficiently. Noel and Brian will provide more detail on these actions during their remarks.
In conjunction with the sale of the El Paso facility. We are also making some organizational moves as part of our ongoing efforts to operate more efficiently Noelle and Brian will provide more detail on these actions during their remarks.
Speaker 3: Turning to our outlook, we are maintaining our full year expectations, which include returning to net sales and adjusted earnings per share growth in the fourth quarter of this fiscal year, and significant improvements to our gross margin, cash flow, and net leverage ratio.
Turning to our outlook, we are maintaining our full year expectations, which include returning to net sales and adjusted earnings per share growth in the fourth quarter of this fiscal year and significant improvements to our gross margin cash flow and net leverage ratio.
Speaker 3: Our outlook includes our expectation of a continued slower economy and pressure on consumer spending levels and patterns, especially for some discretionary categories.
Our outlook includes our expectation of a continued slower economy and pressure on consumer spending levels and patterns, especially for some discretionary categories.
Speaker 3: During the quarter, we also made significant progress on planning for the future. This includes further progress executing Pegasus, finalizing our next strategic plan, and continuing a smooth transition to Noel as we prepare for her to become CEO and Mark.
During the quarter. We also made significant progress on planning for the future.
This includes further progress executing Pegasus finalizing our next strategic plan.
Ewing, a smooth transition to noelle as we prepare for her to become CEO in March.
Speaker 3: I am very pleased by the performance of our team on the Pegasus restructuring works.
I am very pleased by the performance of our team on the Pegasus restructuring work streams.
Speaker 3: Pegasus remains nicely on track as we continue executing and delivering its strategic and financial goals.
This remains nicely on track as we continue executing and delivering a strategic and financial goals.
Speaker 3: The work of the Pegasus teams reiterates the strength of Helen Troy's people and culture as we deliver the outcomes needed to help manage through the current challenging macro environment. And we believe Pegasus savings will provide significant additional fuel to fund our strategic investments.
The work of the Pegasus teams reiterates the strength of Helen of Troy's people and culture as we deliver the outcomes needed to help manage through the current challenging macro environment and we believe Pegasus savings will provide significant additional fuel to fund our strategic investments.
Speaker 3: During our October 17 Investor Day, we will discuss our next strategic plan in detail, which will guide the company's actions during the next era. It is designed to deliver sustainable, profitable growth, create value for our shareholders, and is grounded on our timeless purpose, vision, and values.
During our October 17th Investor Day, we will discuss our next strategic plan in detail.
Which will guide the company's actions during the next era.
It is designed to deliver sustainable profitable growth create value for our shareholders and is grounded on our timeless purpose vision and values.
Speaker 3: Before I turn the call over to Noel, I would like to comment on the outcome of our CFO search.
Before I turn the call over to Noel I would like to comment on the outcome of our CFO search.
Speaker 3: Today we announced that Brian Grass, who returned to Helen of Troy as interim CFO in April , has reached an agreement with the company to remain in the CFO position on an ongoing basis.
We announced that Brian grass, who returned to Helen of Troy as interim CFO . In April has reached an agreement with the company to remain in the CFO position on an ongoing basis.
Speaker 3: Noelle made a great selection, and I believe she and Brian will make a great team as the company embarks on its next chapter following my retirement. I will now turn the conversation over to Brian .
Noel made a great selection and I believe she and Bryan will make a great team as the company embarks on its next chapter following my retirement.
I will now turn the conversation over to Noel.
Thank you Julian and good morning, everyone I'm, so delighted to welcome Bryan back to Helen of Troy's leadership team on a more permanent basis, we conducted a national search and I concluded Brian is the ideal choice to partner with me now and when I assumed the CEO position last fiscal year.
Speaker 4: Thank you, Julian, and good morning, everyone. I'm so delighted to welcome Brian back to Helen Detroit's leadership team on a more permanent basis.
Speaker 4: We conducted a national search and I concluded Brian is the ideal choice to partner with me now and when I assume the CEO position next fiscal year.
Speaker 4: Brian and I have worked closely together since his return in April , and I greatly value his experience and perspective. He is a strategic business leader, a collaborative thought partner, and a proven public company CFO with an extraordinary record of delivering results and creating value throughout his career. We believe his results oriented mindset and deep company experience will help us deliver for all our stakeholders as we enter our next phase as a growth oriented company.
Ryan and I have worked closely together since his return in April and I greatly value his experience and perspective. He is a strategic business leader a collaborative thought partner and a proven public company CFO with an extraordinary record of delivering results and creating value throughout his career.
We believe his results oriented mindset and deep company experience will help us deliver for all our stakeholders as we enter our next phase as a growth oriented company.
Speaker 4: I know Brian shares my passion, energy, and enthusiasm for the opportunities we have ahead of us at Helen of Troy.
I know Bryan shares my passion energy and enthusiasm for the opportunities. We have ahead of us at Helen of Troy.
Speaker 4: As Julian mentioned, our Pegasus initiatives remain on track and have enabled improved efficiency and effectiveness in fiscal 24.
As Julian mentioned, our Pegasus initiatives remain on track and have enabled improved efficiency and effectiveness in fiscal 'twenty four.
Speaker 4: We also expect Pegasus savings will help fuel our brands in fiscal 25 and beyond.
We also expect Pegasus savings will help fuel our brands in fiscal 'twenty five and beyond.
Speaker 4: As you may recall, one of the seven major Pegasus workstreams is all about streamlining our organization. During the second quarter, we initiated a change that aligns with the creation of the Beauty and Wellness segment.
As you May recall, one of the seven major Pegasus work streams is all about streamlining our organization.
During the second quarter, we initiated a change that aligns with the creation of the beauty and wellness segment.
Speaker 4: With the sale of the El Paso facility, we determined that this is the right time to geographically consolidate our U.S. beauty business.
With the sale of the El Paso facility, we determined that this is the right time to geographically consolidate our U S beauty business.
Speaker 4: Effective in fiscal 25, our US beauty business, which is currently in El Paso, Texas and Irvine, California will move to the Boston, Massachusetts area to co-locate with our wellness.
In fiscal 'twenty five our U S beauty business, which is currently in El Paso, Texas, and Irvine, California will move to the Boston, Massachusetts area to co locate with our wellness business.
Speaker 4: This colocation is the next step in the company's initiative to streamline, simplify, and enable enhanced collaboration to deliver greater innovation and realize commercial and product platform synergies between beauty and wellness.
This co location is the next step in the company's initiatives to streamline simplify and enable enhanced collaboration to deliver greater innovation and realize commercial and product platform synergies between beauty and wellness.
Speaker 4: Now turning to our second quarter business results as Julian highlighted, our consolidated net sales and adjusted EPS were at the better end of our expectation.
Now turning to our second quarter business results as Julian highlighted our consolidated net sales and adjusted EPS were at the better end of our expectations and.
Speaker 4: In recent months, we achieved market share gains in core categories in a number of our brands, including OXO, Osprey, Pure, and VIX, as well as Braun and Revlon internationally, where we have visibility.
In recent months, we achieved market share gains in core categories, and a number of our brands, including OXXO Osprey pure and this as well as brown and Revlon internationally, where we have visibility.
Speaker 4: Taking a look at the performance of home and outdoor, net sales were essentially flat to the prior year period.
Taking a look at the performance of home and outdoor net sales were essentially flat to the prior year period.
Speaker 4: Starting with OXO, we are seeing signs that overall US point of sale is beginning to stabilize in key home categories. While the kitchen utensils category continued to decline compared to the pandemic peak, the...
Starting with off though we are seeing signs that overall U S point of sale is beginning to stabilize and key home categories, while the kitchen utensils category continued to decline compared to the pandemic Pete.
The rate of decline has slowed.
Speaker 4: Oxo showed strength in the quarter as the brand benefited from new distribution gains, in part due to key customers moving to capture market share from Bed Bath and Beyond after the retailers bank.
Also showed strength in the quarter as the brand benefited from new distribution gains in part due to key customers moving to capture market share from bed Bath and beyond after the retailers bankruptcy.
Speaker 4: OXO also benefited from new product introductions, such as the grilling, prep, and carry system. Our test of OXO softworks at Walmart is also continuing to perform ahead of expectations.
OXXO also benefited from new product introductions, such as the grilling common carrier system.
Our test of oxo Softworks at Walmart is also continuing to perform ahead of expectations.
Speaker 4: Overall, we expect OXA to perform well in the balance of the fiscal year, fueled by new product introductions, distribution gains, and select club programs.
Overall, we expect Oxford, it performed well in the balance of the fiscal year fueled by new product introductions distribution gains and select club programs.
Speaker 4: Consumers continue to turn to OXO as a trusted source of quality products that marries innovation with purpose.
Consumers continue to turn to OXXO as a trusted source of quality products that marries innovation with purpose. One example is in cooking, where the brand helps to bring consumers joy cooking twice from the everyday trucks to the gourmet chefs feeding consumers passion for cooking as our chefs and residents program a collaborative series featuring.
Speaker 4: One example is in cooking, where the brand helps to bring consumers joy of cooking to life, from the everyday cook to the gourmet chef. Feeding consumers passion for cooking is our chefs in residence program, a collaborative series featuring inspiring creators with one common goal, bring a better experience to your kitchen. We were thrilled to introduce the latest additions to this exceptional culinary series a few weeks ago.
[noise], an aspiring creators with one common goal bring a better experience to your kitchen.
We were thrilled to introduce the latest additions to this exceptional culinary series a few weeks ago.
Speaker 4: These new chefs are baked by Melissa's owner, Melissa Beneshe, and the celebrated James Beard award-winning chef, Joseph Johnson, also known as Chef JJ.
These new shaft are baked finalists owner, Melissa banner Shay and the celebrated James Beard Award winning chef Joseph Johnson also known as shaft J J.
Turning to hydro flask.
Speaker 4: The broader insulated beverage category continued to be skewed toward tumblers with the further decline in the insulated bottle subcategory. As we noted on our July call, we soft launched our new travel tumbler on June 21st exclusively on hydroflask.com to a strong reception. The launch drove traffic to the website and we benefited from a halo effect in our base business, including an increase in personalized orders.
The broader insulated beverage category continued to be skewed towards tumblers with a further decline in the insulated bottles sub category as.
As we noted on our July call, we soft launched our new travel Tumblr on June 21st exclusively on hydro flask dotcom to a strong reception.
The launch drove traffic to the website and we benefited from a halo effect in our base business, including an increase in personalized orders.
Speaker 4: We expanded online distribution of our Travel Tumblr in late August , and I'm pleased to say it continues to resonate well with consumers.
We expanded online distribution of our travel tumbler in late August and I'm pleased to say it continues to resonate well with consumers. The product was ranked number one new release and water bottles and number one new release and sport and outdoor on Amazon. We began further rollout to retailers and started to show up on shelf in September with continued ramp up in op.
Speaker 4: The product was ranked number one new release in water bottles and number one new release in sport and outdoor on Amazon. We began further rollout to retailers and started to show up on shelf in September with continued ramp up in October . We also recently launched our new insulated sport bottle with an ergonomic shape that fits as well in your hand at the gym as it does in the bottle cage of your bike. We believe the Hydro-Class Travel Tumbler, sport bottle and other innovations position us well for the upcoming holiday season.
Over.
We also recently launched our new insulated sport bottle with an ergonomic shaped the pits as well in your hand that to Jim as it does in the bottle case, if your bike.
We believe the hydro class travel Tumblr sport bottle and other innovations position us well for the upcoming holiday season.
Moving now to ask right.
Speaker 4: Moving now to Osprey. The brand achieved strong growth in the quarter compared to the prior year period fueled by accelerated travel demand and our improved inventory position compared to fiscal 2023 when COVID-related factory closures curtailed supply.
The brand achieved strong growth in the quarter compared to the prior year period fueled by accelerated travel demand and our improved inventory position compared to fiscal 'twenty two 'twenty three when COVID-19 related factory closures curtailed supply.
Speaker 4: Osprey was a standout in the quarter as greater supply coupled with new product introductions and engaging marketing contributed to strength in the US technical, travel and lifestyle categories, a strong endorsement of the brand's relevance to consumer...
[noise] Osprey was a standout in the quarter as greater supply, coupled with new product introductions and engaging marketing contributed to strength in the U S technical travel and lifestyle categories.
Throng endorsement of the brand's relevance to consumers.
Speaker 4: Internationally, the brand is also performing very well with growth in key regions of Great Britain and Germany. As a reminder, approximately half of Osprey's sales are outside the U.S.
Internationally. The brand is also performing very well with growth in key regions of Great Britain and Germany. As a reminder, approximately half of Osprey sales are outside the U S.
Speaker 4: At the recent outdoor magazine industry event in Germany, consumers awarded Osprey second place in the backpack category for the third year in a row. High praise in an important market with demanding consumers.
At the recent outdoor magazine industry events in Germany consumers awarded Osprey second place in the backpack category for the third year in a row high praise and an important market with demanding consumers.
Speaker 4: We continue to expect growth from Osprey in the back half of the fiscal year in both the backpack core and in the on-trend travel packages.
We continue to expect growth from Osprey in the back half of the fiscal year in both the backpack core and in the on trend travel package agency.
Speaker 4: Switching gears now to our beauty and wellness segment, net sales declined 10.4% driven primarily by few rationalization and softness and humidification heaters and fans but we're in line with our expectation.
Switching gears now to our beauty and wellness segment net sales declined 10, 4% driven primarily by SKU rationalization and softness in humidifier ration heaters and fan but were in line with our expectations.
And our beauty portfolio Revlon and hot tools appliances drove sales ahead of our expectations in the quarter. We are seeing revlon trends improved as the brand achieved incremental distribution within major brick and mortar retailers.
Speaker 4: In our beauty portfolio, Revlon and Hot Tools appliances drove sales ahead of our expectations in the quarter. We are seeing Revlon trends improve as the brand achieved incremental distribution within major brick and mortar retailers.
Speaker 4: in Prestige Liquids, our newest brand, Curlsmith, continued to grow strongly versus prior year, and our new Hot Tools liquid line is meeting expectations at Ulta with two additional SKUs and continued in-store support coming in the balance of the year.
In prestige liquids, our newest brand Karl Smith continued to grow strongly versus prior year and our new Hot tools lipid line is meeting expectations at Ulta with two additional Skus and continued in store support coming in the balance of the year.
The beauty portfolio continues to distinguish itself in delivering superior consumer benefits, earning an important industry recognition.
Speaker 4: The beauty portfolio continues to distinguish itself in delivering superior consumer benefits, earning important industry recognition. In September alone, both Drybar Crown Tonic and Revlon One Step Volumizer were recognized in Allure's Best of Beauty Awards, while Drybar Smooth Shot Hot Styling Brush was selected by People magazine as the best tool for delivering salon-like results.
In September alone, but it's dry bar Crown panic and Revlon, one step volumize are well recognized in the law is best of BD Awards, while dry bar Smoothie shop hostile in Nebraska was selected by people magazine as the best tool for delivering Salon like results.
Speaker 4: This adds to the four separate industry awards our brands have already received this year.
This adds to the four separate industry awards, our brands have already received this year.
And our wellness portfolio water purification was a standout in the quarter driven by both category growth as well as sequential market share improvement for pure faucet, Mount systems and picture systems.
Speaker 4: In our wellness portfolio, water purification was a standout in the quarter driven by both category growth as well as sequential market share improvement for pure faucet mount systems and pitcher systems.
Here also launched an exclusive picture and faucet Mount collaboration with beautiful by drew Barrymore available only at Walmart.
Speaker 4: Fuhrer also launched an exclusive picture and faucet mount collaboration with Beautiful by Drew Barrymore available only at Walmart.
Speaker 4: In addition, our North American RMO team secured new placement of one of our pure pitchers in Family Dollar. This is a promising opportunity and one of the fastest growing and relevant channels in this inflationary environment.
In addition, our north American the Arlo team secured new placement of one of our pure pitchers and family dollar. This is a promising opportunity in one of the fastest growing and relevant channels in this inflationary environment.
Speaker 4: As it relates to the International Trade Commission action BRITA filed against our PURE products, we are extremely pleased with the recent decision terminating the investigation in favor of PURE. The Commission found there was no violation by our company because the BRITA patent at issue is invalid. We look forward to continuing to serve American consumers need for lead contaminant reducing filter.
As it relates to the International Trade Commission action Britta filed against our care products. We are extremely pleased with the recent decision terminating the investigation in favor of pure the.
The Commission found there was no violations by our company because the bread of patents at issue is invalid. We look forward to continuing to serve the American consumers need for led contaminate reducing filters.
Speaker 4: Air purification was also a strong contributor to sales in the quarter. As we mentioned on our July call, the Canadian wildfires that impacted the US drove incremental air purification device and filter sales, as well as inventory improve.
Air Purification was also a strong contributor to sales in the quarter.
As we mentioned on our July call the Canadian wildfires that impacted the U S drove incremental air purification device and filter sales as well as inventory improvements.
Speaker 4: The humidification category was soft in the quarter compared to the prior year period when consumers experienced the summer of 2022 COVID surge of Omicron and its very own.
The humidifier patient category was soft in the quarter compared to the prior year period, when consumers experienced summer of 'twenty, two COVID-19 surge of one micron and its variance.
Speaker 4: Despite the softer category sales, VIX grew share in the quarter.
Despite the softer category sales mix grew share in the quarter.
Speaker 4: In thermometry, we continue to see post-COVID normalization in the US category, while international sales remain strong. We remain the branded market leader in the US with our Braun and Vicks thermometers, and Braun remains the strong branded market leader in ear thermometers in most of the countries where it is sold.
And thermometry, we continue to see post COVID-19 normalization in the U S category, while international sales remained strong we remain the branded market leader in the U S with our Braun index thermometers and brawn remains the strong branded market leader in ear thermometers and most of the countries where it is sold.
Speaker 4: More broadly on international sales growth was driven by Braun and Osprey as both brands did very well in both the UK and Germany.
More broadly on international sales growth was driven by brawn and Osprey as both brands did very well in both the UK and Germany.
Speaker 4: Revlon is also having success in major European markets.
Revlon is also having success in major European markets.
Speaker 4: We continue to strengthen our international operations and our new integrated and optimized sales and marketing organizational design and structure was implemented as of September 1st.
We continue to strengthen our international operations, and our new integrated and optimized sales and marketing organizational design and structure was implemented as of September 1st.
Speaker 4: International remains a strong growth avenue for us, and we are excited about the opportunities we see ahead of us outside the US.
International remains a strong growth Avenue for us and we are excited about the opportunities. We see ahead of us outside the U S.
Speaker 4: I'd like to close my prepared comments today with a few thoughts on the company's next strategic plan, which we will be discussing at our investor day plan for October 17 at the NASDAQ market site in New York.
I'd like to close my prepared comments today with a few thoughts on the company's next strategic plan, which we will be discussing at our Investor day planned for October 17th at the NASDAQ market site in New York.
Speaker 4: During our investor day, we'll also be outlining our specific long-term targets.
During our Investor day will also be outlining our specific long term targets we.
Speaker 4: We see considerable opportunity to deliver growth and profit improvements by focusing on delighting consumers with our outstanding family of brands and further increasing the efficiency and effectiveness of our business units, regional market organizations, and global shared services. We also see opportunity to continue setting the right capital priorities to help accelerate shareholder value creation.
We see considerable opportunity to deliver growth and profit improvements by focusing on delighting consumers with our outstanding family of brands and further increasing the efficiency and effectiveness of our business units regional market organizations and global shared services. We also see opportunity to continue setting the right capital priorities.
To help accelerate shareholder value creation.
Speaker 4: Our leadership team and I look forward to sharing our ambitious goals with you. We hope you can join either in person or online for the webcast. And with that, I'd like to hand the call over to Brian .
Our leadership team and I look forward to sharing our ambitious goals with you. We hope you can join either in person or online for the webcast and with that I'd like to hand, the call over to Brian .
Speaker 2: Good morning, everyone. Thank you, Noelle. I appreciate the kind words, but more importantly, your trust. And I echo your sentiments on our opportunity to deliver for all stakeholders.
Good morning, everyone. Thank you well I appreciate the kind words, but more importantly, your trust and I Echo your sentiments on our opportunity to deliver for all stakeholders.
Speaker 2: I'm excited to come out of retirement and partner with you in my role as CFO as we enter our next era.
I'm excited to come out of retirement and partner with you in my role as CFO as we enter our nextera.
Speaker 2: Looking forward to working alongside you, Julian, and the rest of the leadership team as we look to finish fiscal 24 strong and launch our next multi-year strategic plan.
Looking forward to working alongside you Julien and the rest of the leadership team as we look to finish fiscal 'twenty four strong and launch our next multiyear strategic plan.
Speaker 2: I hope to see everyone at our investor day in a couple of weeks, where we will share more of our plan to maximize the opportunities in front of the company and create long-term shareholder value.
I hope to see everyone at our Investor day in a couple of weeks, where we will share more of our of our plan to maximize the opportunities in front of the company and create long term shareholder value.
Moving on to the second quarter I'm pleased to report results at the better end of our expectations. We significantly improved gross margin generated strong cash flow and deployed capital to repurchase our shares while also taking steps to strengthen our balance sheet and further improve our asset efficiency.
Speaker 2: Moving on to the second quarter, I'm pleased to report results at the better end of our expectation.
Speaker 2: We significantly improved gross margin, generated strong cash flow, and deployed capital to repurchase our shares, while also taking steps to strengthen our balance sheet and further improve our asset efficiency.
Speaker 2: Consolidated net sales decreased 5.7% compared to growth of 9.7% in the same period last year, or growth of 3.4% on a two-year stat.
Consolidated net sales decreased five 7% compared to growth of nine 7% in the same period last year.
A growth of three 4% on a two year stack.
Speaker 2: Second quarter net sales were favorable to the 8 to 6% decline to be provided in our outlook in July .
Second quarter net sales were favorable to the 8% to 6% decline in be provided in our outlook in July .
Speaker 2: As a reminder, our outlook includes expected year-over-year declines from our ski rationalization efforts and the impact of the bed bath and beyond.
As a reminder, our outlook includes expected year over year declines from our SKU rationalization efforts and the impact of the bed Bath.
Beyond bankruptcy.
Speaker 2: Despite the impacts of higher inflation and interest rates, we are seeing signs that key categories are beginning to stabilize. We were pleased to drive point-of-sale growth with expanded distribution, new product introductions, and better supply of inventory.
Despite the impacts of higher inflation and interest rates. We are seeing signs of key categories are beginning to stabilize and we were pleased to drive pointing our sales growth with expanded distribution, new product introductions and better supply of inventory.
Gross profit margin improved 420 basis points to 46, 7% compared to 42, 5% in the same period last year in line with our expectations for the quarter.
Speaker 2: Gross profit margin improved 420 basis points, 46.7%, compared to 42.5% in the same period last year, in line with our expectations for the quarter.
Speaker 2: year over year improvement was due to lower inbound freight costs, the favorable impact of ski rationalization, lower inventory reserve expense, a more favorable customer mix in home and outdoor, and the favorable comparative impact of EPA compliance costs of 130 basis points incurred in the same period last year.
Year over year improvement was due to lower inbound freight costs, the favorable impact of SKU rationalization lower inventory reserve expense, a more favorable customer mix in home and outdoor and the favorable comparative impact of EPA compliance costs of 130 basis points incurred in the same period last year.
Speaker 5: Gap operating margin for the quarter was 9.5% compared to 9% in the same period last year.
GAAP operating margin for the quarter was nine 5% compared to 9% in the same period last year.
On an adjusted basis operating margin declined 120 basis points to 12, 7%.
Speaker 5: On an adjusted basis, operating margin declined 120 basis points to 12.7%.
Speaker 5: The decrease primarily reflects an increase in annual incentive compensation expense, higher marketing expense, and higher marketing expense.
The decrease primarily reflects an increase in annual incentive compensation expense higher marketing expense increased distribution and deep depreciation expense due to the opening up a new state of the art distribution facility in Tennessee unfair.
Speaker 5: increased distribution and depreciation expense due to the opening of our new state-of-the-art distribution facility in Tennessee, unfavorable operating leverage, and a less favorable product mix in beauty and well-being.
Unfavorable operating leverage and a less favorable product mix in beauty and wellness.
These factors were partially offset by lower inbound and outbound freight costs are.
Speaker 5: These factors were partially offset by lower inbound and outbound freight costs, a decrease in inventory.
The decrease in inventory reserve expense.
Speaker 5: the favorable impact of ski rationalization, in a more favorable customer mix than home and outdoor.
The favorable impact of SKU rationalization, and a more favorable customer mix in home and outdoor.
On a segment basis home and outdoor adjusted operating margin decreased 180 basis points to 17, 7%.
Speaker 5: On a segment basis, home and outdoor adjusted operating margin decreased 180 basis points to 17.7% driven by increased annual incentive compensation expense, higher distribution and depreciation expense due to the opening of the new distribution facility, and increased marketing.
Driven by increased annual incentive compensation expense higher distribution and depreciation expense due to the opening of the new distribution facility and increased marketing expense.
Speaker 5: These factors were partially offset by lower inbound freight costs and a more favorable customer miss.
These factors were partially offset by lower inbound freight costs and a more favorable customer mix.
Adjusted operating margin for beauty and wellness decreased 110 basis points to seven 9%, primarily due to an increase in annual incentive compensation expense higher marketing expense.
Speaker 5: adjusted operating margin for beauty and wellness decreased 110 basis points to 7.9%, primarily due to an increase in annual incentive compensation expense, higher marketing expense, and higher
Speaker 5: unfavorable operating leverage and a less favorable product.
Unfavorable operating leverage and a less favorable product mix.
Greetings.
Operator: Welcome to Helen of Troy's second quarter, 2024 earnings call. At this time, all participants are in a listen only mode.
These factors were partially offset by lower inbound and outbound freight costs reduced inventory reserve expense decreased distribution expense.
Speaker 5: These factors were partially offset by lower inbound and outbound freight costs, reduced inventory reserve expense, decreased distribution expense, and increased inventory reserve expense.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.
And the favorable impact of SKU rationalization.
Speaker 5: Net income was $27.4 million or $1.14 per diluted share.
Net income was $27 4 million or $1 14 per diluted share.
Jack Jancin: I will now turn the conference over to Jack Jancin, Senior Vice President, Corporate Development. Thank you. You may begin. Thank you, operator. Good morning, everyone, and welcome to Helen of Troy's second quarter fiscal 2024 earnings conference call. The agenda for the call this morning is as follows. I'll begin with a brief discussion of forward-looking statements.
Speaker 5: non-GAAP adjusted diluted EPS decreased 23.3% to $1.74 per share, primarily due to higher interest expense and lower adjusted operating impact.
non-GAAP adjusted diluted EPS decreased 23, 3% to $1 74 per share.
Primarily due to higher interest expense and lower adjusted operating income.
Julien Mininberg: Mr. Julien Mininberg, the company CEO and Ms. Noel Joffla, the company COO, will comment on financial performance of the quarter and current trends.
We continued to generate strong cash flow cash from operations of $36 7 million in the second quarter.
Speaker 5: We continue to generate strong cash flow, cash from operations of $36.7 million in the second quarter.
Speaker 5: Year-to-date cash flow from operations was 158 million, which is an improvement of 233 million year-over-year.
Year to date cash flow from operations was $158 million, which is an improvement of $233 million year over year.
Brian Grass: Then Mr. Brian Grass, the company COO, will review the financials in more detail and our financial album for fiscal 2024.
We ended the quarter with total debt of $845 million, which is a slight increase on a sequential basis. Despite the repurchase of $50 million of our stock in the quarter.
Speaker 5: We ended the quarter with total debt of 845 million, which is a slight increase on a sequential basis, despite the repurchase of $50 million of our stock in the quarter.
Speaker 5: Our net leverage ratio was 2.68 times compared to 2.56 times at the end of the first quarter and 3.16 times at the end of the first quarter.
Our net leverage ratio was two six to eight times compared to 2.56 times at the end of the first quarter and.
Unknown Executive: Following this, we will take questions you have for us today.
And 3.16 times at the same time last year.
Speaker 5: As Julian and Noel mentioned, subsequent to the end of the second quarter, we closed on the sale of our El Paso, Texas distribution and office facility for total proceeds of $51 million.
As Julian and Noel mentioned subsequent to the end of the second quarter, we closed on the sale of our El Paso, Texas distribution and office facility for total proceeds of $51 million concurrently we entered into an agreement to lease back the office facility for a period of up to 18 months substantially rent free.
Jack Jancin: 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. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results.
Speaker 5: Concurrently, we entered into an agreement to lease back the office facility for a period of up to 18 months substantially rent free.
Speaker 2: We expect to recognize the gain on the sale of approximately $34 million in SG&A during the third quarter of fiscal 24, of which approximately $18 million will be recognized in beauty and wellness, and $16 million in home and outdoor.
Jack Jancin: This conference call may also include information that may be considered non-gap financial information. These non-gap measures are not an alternative to gap financial information and may be calculated differently than the non-gap financial information disclosed by other parties. The company costs and listeners not to place undue reliance on forward-looking statements or non-gap information.
We expect to recognize a gain on the sale of approximately $34 million in SG&A during the third quarter of fiscal 'twenty four of which approximately 18 million will be recognized in beauty and wellness and $16 million in home and outdoor.
Turning to our outlook for fiscal 'twenty four we are maintaining our full year expectations for net sales adjusted EPS adjusted EBITDA free cash flow and ending net leverage ratio.
Speaker 5: Turning to our outlook for fiscal 24, we are maintaining our full year expectations for net sales, adjusted EPS, adjusted EBITDA, free cash flow, and ending net leverage ratio.
Jack Jancin: Before I turn the call over to Mr. Mininberg, 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.hellentobtroy.com. The earnings release contains tables that reconcile non-gap financial measures to their corresponding gap-based measures. The release can be obtained by selecting the Investor Relations tab on the company's homepage, and then the press releases tab.
Speaker 5: We still anticipate a continued slower economy and uncertainty in consumer spending patterns, especially for some discretionary categories.
We still anticipate a continued slower economy and uncertainty in consumer spending patterns, especially for some discretionary categories.
Speaker 5: Although we've seen a general decrease in retailer inventory, our outlook includes the expectation of cautious retail ordering patterns during the third quarter and a more normalized ordering in the fourth quarter.
Although we've seen a general decrease in retailer inventory our outlook includes the expectation of cautious retail ordering patterns during the third quarter.
And the more normalized ordering in the fourth quarter.
Speaker 5: We continue to expect consolidated net sales between $1.965 billion and $2.015 billion in fiscal 24, which continues to reflect the estimated unfavorable year-over-year impacts of SKU rationalization and the bankruptcy of Bed Bath & Beyond of approximately 3.4% combined.
We continue to expect consolidated net sales between $1 96, 5 billion and 2.015 billion in fiscal 'twenty, four which continues to reflect the estimated unfavorable year over year impacts of SKU rationalization and the bankruptcy of bed Bath and beyond of approximately three points.
Julien Mininberg: I will now turn the conference call over to Mr. Mininberg. Thank you, Jack.
Julien Mininberg: Good morning, everyone, and thank you for joining us. Starting with our second quarter results, today we reported net sales and adjusted earnings for share that came in at the high end of our expectations. I'm pleased with the consistency of our results as we work toward returning to growth. I continue to be impressed with how well our organization is executing the ambitious set of initiatives we announced at the beginning of fiscal 24.
4% combined.
In terms of our net sales outlook by segment, we expect our home and outdoor decline of one 7% to growth of 1% and.
Speaker 5: In terms of our net sales outlook by segment, we expect a home and outdoor decline of 1.7% to growth of 1% and a beauty and wellness decline of 8% to 5.8%.
Julien Mininberg: This includes delivering our revenue expectations on the majority of our leadership brands, and strong performance in international, as well as advancing a wide range of efficiency improvement projects. During the quarter, we made further progress on growth's margin improvement and cash flow generation. We significantly expanded growth margins as we realized the benefits of lower inbound freight costs and fuel rationalization. We also generated positive free cash flow as we continue to diligently manage our inventory and deployed a portion of our cash to repurchase approximately $50 million of our share.
And the beauty and wellness decline of 8% to five 8%.
Speaker 5: As noted in our earnings release this year this morning, we have updated our expectations regarding Project Pegasus charge.
As noted in our earnings release issued this morning, we have updated our expectations regarding project Pegasus charges.
Speaker 5: We now estimate lower total pre-tax restructuring charges over the duration of the plan of approximately $60 to $65 million, which we now expect to be completed during fiscal 25.
We now estimate lower total pretax restructuring charges over the duration of the plan of approximately $60 million to $65 million, which we now expect to be completed during fiscal 'twenty five.
Speaker 2: This compares favorably to our previous estimate of approximately $85 to $95 million, which was initially expected to be substantially completed by the end of fiscal 24.
This compares favorably to our previous estimate of approximately $85 million to $95 million, which was initially expected to be substantially completed by the end of fiscal 'twenty four.
Julien Mininberg: For perspective, our initiative to streamline inventory over the past several quarters has resulted in a reduction of over $200 million compared to year ago levels. The progress on free cash flow has also been significant, delivering a $325 million improvement in the first half of this fiscal year versus the first half of fiscal 23.
The reduction in estimated restructuring charges is due to a favorable revision in our assessment of the impact of a potential exit from one of our businesses.
Speaker 5: The reduction in estimated restructuring charges is due to a favorable revision in our assessment of the impact of a potential exit from one of our businesses.
Speaker 5: partially offset by an increase from the beauty and wellness geographic consolidation referred to on our earnings released issued this morning.
Partially offset by an increase from the beauty and wellness geographic consolidation referred to in our earnings release issued this morning.
Speaker 5: Factoring in the reduction in expected restructuring charges, as well as the gain on the sale of the Opasta facility, we expect to recognize in the third quarter. We now expect an increase in gap deluded EPS to $6.36 to $7.03 for the full year. Compared to our previous expectation of $3.81 to $4.67.
Factoring in the reduction in expected restructuring charges as well as the gain on the sale of El Paso facility, we expect to recognize in the third quarter.
Julien Mininberg: The continued challenging macro consumer environment in which consumers are continuing to shift spending away from discretionary products and more towards discretionary experiences such as travel and entertainment. That shift in consumer spending patterns has been exacerbated by persistent inflation that forces consumers to make tough choices on all types of spending.
We now expect an increase in GAAP diluted EPS to $6.36 to $7 three for the full year.
Compared to our previous expectation of $3.81 to $4.67.
Speaker 5: We continue to expect non-GAAP adjusted diluted EPS in the range of $8.50 to $9, which reflects additional year-over-year expense from the restoration of annual incentive compensation expense to target level.
We continue to expect non-GAAP adjusted diluted EPS in the range of $8 50 to $9, which reflects additional year over year expense from the restoration of annual incentive compensation expense to target levels as.
Julien Mininberg: Subsequent to the end of the second quarter, we closed on the sale of our office and 400,000 square foot distribution facility in El Paso, Texas as part of our previously announced initiative to improve the efficiency of our assets. We intend to move to a new facility in El Paso to house our US headquarters, which we expect will be a long term rental property. With El Paso being our largest shared service hub, we expect it to continue to play an ongoing, important role for the company and community.
Speaker 5: as well as higher interest and depreciation expense, totaling approximately $1.77 net of tax.
As well as higher interest and depreciation expense totaling approximately $1 77 net of tax.
Speaker 5: Moving on to our tax outlook, we now expect a gap effective tax rate range of 20 to 18% for the full fiscal year, and a non-gap adjusted effective tax rate range of 14.5 to 13.5% for the full fiscal year.
Moving onto our tax outlook, we now expect a GAAP effective tax rate range of 20% to 18% for the full fiscal year and a non-GAAP adjusted effective tax rate range of 14, and a half to 13, 5%.
Julien Mininberg: We strongly value the work and passion of our dedicated associates in El Paso and are proud of our 55 year legacy in the area. In conjunction with the sale of the El Paso facility, we are also making some organizational moves as part of our ongoing efforts to operate more efficiently.
Speaker 5: In terms of quarterly cadence, we now expect net sales growth to be concentrated in the fourth quarter of fiscal 24.
In terms of quarterly cadence, we now expect net sales growth to be concentrated in the fourth quarter of fiscal 'twenty four.
Speaker 5: and that decline in net sales were approximately 4 to 2% in the third quarter.
And the decline in net sales of approximately four 2% in the third quarter.
Julien Mininberg: Noel and Brian will provide more detail on these actions during their remarks. Turning to our outlook, we are maintaining our full year expectations, which include returning to net sales and adjust the earnings per share growth in the fourth quarter of this fiscal year and significant improvements to our gross margin, cash flow and net leverage ratio.
Speaker 5: We continue to expect to realize the benefits of debt deleveraging and lower inbound freight and product costs more fully in the second half of the year.
We continue to expect to realize the benefits of that deleveraging and lower inbound freight and product cost more fully in the second half of the year.
Speaker 5: Accordingly, we expect growth in adjusted diluted EPS in the range of 1.5 to 12% in the second half of fiscal 24. With that growth highly concentrated...
Accordingly, we expect growth in adjusted diluted EPS in the range of 1.5% to 12% in the second half of fiscal 'twenty four.
Julien Mininberg: Our outlook includes our expectation of a continued slower economy and pressure on consumer spending levels and patterns, especially for some discretionary categories.
With that growth highly concentrated in the fourth quarter.
The company now expects adjusted diluted EPS to be roughly flat in the third quarter, reflecting the expectation of more cautious retail order patterns in the short term.
Speaker 5: The company now expects adjusted diluted EPS to be roughly flat in the third quarter, reflecting the expectation of more cautious retail order patterns in the short term.
Julien Mininberg: During the quarter, we also made significant progress on planning for the future.
Julien Mininberg: This includes further progress executing Pegasus, finalizing our next strategic plan and continuing a smooth transition to Noel as we prepare for her to become CEO and March. I am very pleased by the performance of our team on the Pegasus restructuring workstreams. Pegasus remains nicely on track as we continue executing and delivering a strategic and financial goals. The work of the Pegasus teams reiterates the strength of Helen Troy's people and culture as we deliver the outcomes needed to help manage through the current challenging macro environment. And we believe Pegasus savings will provide significant additional fuel to fund our strategic investments.
The timing shift and the realization of some cost of goods sold savings into the full fourth quarter.
Speaker 5: timing shift in the realization of some cost of goods sold savings into the fourth quarter.
Speaker 2: and an expected increase in growth investments in the third quarter.
And an expected increase in growth investments in the third quarter.
Speaker 2: We continue to expect capital asset expenditures of between 45 and 50 million for fiscal 24, which includes approximately $25 million for the completion of our new distribution facility in the full installation of its state-of-the-art automation equipment.
We continue to expect capital asset expenditures of between 45, and 50 million for fiscal 'twenty four.
Which includes approximately $25 million for the completion of our new distribution facility and the full installation of its state of the art automation equipment.
We still expect that the final cost of the facility and its equipment will be largely in line with our original expectations.
Speaker 5: We still expect that the final cost of the facility and its equipment will be largely in line with our original expectation.
With lower Capex needs in fiscal 'twenty four we continue to expect free cash flow to be in the range of $250 million to $270 million.
Speaker 2: With lower cat-bex needs and fiscal 24, we continue to expect free cash flow to be in the range of 250 to 270 million.
Julien Mininberg: During our October 17th investor day, we will discuss our next strategic plan in detail, which will guide the company's actions during the next year. It is designed to deliver sustainable, profitable growth, create value for our shareholders and is grounded on our timeless purpose, vision and values.
Speaker 2: and our net leverage ratio to be between two times to 1.85 times by the end of fiscal 24.
And our net leverage ratio to be between two times to 1.85 times by the end of fiscal 'twenty four.
Speaker 5: In closing, I am pleased with our business performance year to date, which keeps us on track to achieve our full year financial object.
In closing I'm pleased with our business performance year to date, which keeps us on track to achieve our full year financial objectives I'm encouraged by our progress in advancing key initiatives, while navigating the pressured consumer environment as well as the structural headwinds of higher annual incentive compensation depreciation and interest.
Julien Mininberg: Before I turn the call over to Noel, I would like to comment on the outcome of our CFO search.
Speaker 5: I'm encouraged by our progress in advancing key initiatives while navigating the pressure of consumer environment as well as the structural headwinds of higher annual incentive compensation, depreciation and interest.
Julien Mininberg: Today, we announced that Brian Grass, who returned to Helen Troy as interim CFO in April, has reached an agreement with the company to remain in the CFO position on an ongoing basis, and I believe she and Brian will make a great team as the company embarks on its next chapter following my retirement.
Expense.
Speaker 5: Your to date, we've improved for gross profit margin by 410 basis points. Maintained are adjusted EBITDA margin despite structural headwinds and unfavorable operating leverage.
Year to date, we've improved our gross profit margin by 410 basis points maintained our adjusted EBITDA margin, despite structural headwinds and unfavorable operating leverage.
Noel Joffla: I will now turn the conversation over to Noel. Thank you, Julian and good morning, everyone. I'm so delighted to welcome Brian back to Helen of Troy's leadership team on a more permanent basis. We conducted a national search and I concluded Brian is the ideal choice to partner with me now and when I assume the CEO position next to me. Brian and I have worked closely together since his return in April and I greatly value his experience and perspective.
Generated a 137 million in free cash flow accelerated debt repayment and return capital to shareholders.
Speaker 5: Generated 137 million in free cash flow, accelerated debt repayment, and return capital to the shareholder.
Speaker 2: We also took steps to further strengthen our balance sheet and improve our asset efficiency, culminating with the fail of the Opassif facility after the end of the quarter.
We also took steps to further strengthen our balance sheet and improve our asset efficiency, culminating with the sale of the El Paso facility. After the end of the quarter.
Speaker 5: We remain excited about the opportunities that Pegasus provides to drive further performance improvement. We look forward to sharing our longer-term strategic initiatives and financial objectives with you during our investor day. With that, I'll turn to you.
We remain excited about the opportunities that <unk> provides to drive further performance improvement and look forward to sharing our longer term strategic initiatives and financial objectives with you during our Investor day.
Noel Joffla: He is a strategic business leader, a collaborative thought partner and a proven public company, CFO, with an extraordinary record of delivering results and creating value throughout his career. We believe his results oriented mindset and deep company experience will help us deliver for all our stakeholders as we enter our next phase as a growth oriented company. I know Brian shares my passion, energy and enthusiasm for the opportunities we have ahead of us at Helen of Troy.
And with that I'll turn it back to the operator for questions.
Speaker 1: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you would like to remove your question from the queue. And for a participant using speaker equipment and maybe necessary to pick up your handset before pressing the star keys.
Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the.
Noel Joffla: As Julian mentioned, our Pegasus initiatives remain on track and have enabled improved efficiency and effectiveness in fiscal 24. We also expect Pegasus savings will help fuel our brand in fiscal 25 and beyond. As you may recall, one of the seven major Pegasus work streams is all about streamlining our organization. During the second quarter, we initiated a change that aligns with the creation of the beauty and wellness segment. With the sale of the El Paso facility, we determined that this is the right time to geographically consolidate our US beauty business.
Dark he is.
Speaker 1: Our first question is from Bob Lebick with CJS Securities. Please proceed.
Our first question is from Bob Lebbek with C. J S Securities. Please proceed.
Good morning, Thanks for taking my questions and congratulations to Brian So glad to hear it and we're looking forward to continuing to work with you.
Speaker 6: Good morning, thanks for taking my questions. And congratulations to Brian . So glad to hear it, and we're looking forward to continuing to work with you.
Thanks, Bob Me too.
Speaker 6: Yeah, that's very exciting. And I can grasp it all on another solid quarter.
Yeah, no, it's very exciting and congrats on another solid quarter.
Speaker 6: I want to start with one of your last comments. They're probably about the change in the Pegasus costs. If I wrote it down quickly, as a result of the impact of a potential exit from one of your businesses, could you maybe elaborate on that comment or tell me if I heard it correctly?
I wanted to start with.
Your last comments, there about the changed and the Pegasus costs, if I wrote it down quickly.
Noel Joffla: Effective in fiscal 25, our US beauty business, which is currently in El Paso, Texas and Irvine, California, will move to the Boston, Massachusetts area to co-locate with our wellness business. This co-location is the next step in the company's initiative to streamline, simplify and enable enhanced collaboration to deliver greater innovation and realize commercial and product platform synergies between beauty and wellness.
As a result of the impact of a potential exit from one of your businesses could you maybe elaborate on that comment or tell me if I heard it correctly.
Speaker 2: That's correct. So in the original estimates of the restructuring charges, there was...
That's correct. So in the original estimates of the restructuring charges. There was an amount of designated for our consideration of a potential exit from a business. That's currently in the portfolio today, we were still considering that exit but we.
Speaker 2: And amounts designated for our consideration of a potential exit from a business that's currently in the portfolio today. We are still considering that exit that we have revised and updated our assessment. Doug.
Noel Joffla: Now turning to our second quarter business results, as Julian highlighted, our consolidated net sales and adjusted EPS were at the better end of our expectations. In recent months, we achieved market share gains in core categories in a number of our brands, including Oxo, Osprey, Pure and VIX, as well as Brown and Revlon internationally, where we have disability. Taking a look at the performance of Home and Outdoor, net sales were essentially flat to the prior year period.
We have revised and updated our assessment of the opportunities for that exit.
Speaker 2: you know, the opportunities for that exit.
Speaker 2: and have concluded that it would not result, our belief is it would not result in a restructuring charge, whereas the initial assessment that was performed is.
<unk> have concluded that it would not result, our belief is that would not result in a restructuring charge, whereas you know the initial assessment that was performed is that there was there was some likelihood that there could be a range of of disposal costs and exit cost as a result, but we again have updated and revised that and don't feel that.
Speaker 2: that there was there was some likelihood that there could be a range of disposal costs and exit costs as a result. But we again have updated and revised that and don't feel that we have that potential today. And so we.
Noel Joffla: Starting with Oxo, we are seeing signs that overall US point of sale is beginning to stabilize and key home categories. While the kitchen utensils category continued to decline compared to the pandemic peak, the rate of decline has slowed. Oxo showed strength in the quarter as the brand benefited from new distribution gains in part due to key customers moving to capture market share from bed, back and beyond after the retailers bankruptcy. Oxo also benefited from new product introductions, such as the grilling prep and carry system.
That we have that potential today and so we.
It was decided that we should take it out of the restructuring cost range.
Speaker 2: that we should take it out of the restructuring cost range.
Speaker 6: Got it, I think. Is that mean we might hear more about this? I'll drop this in a second. At the upcoming analyst day, or is this...
Got it I think so does that mean, when we might hear more about this all dropped this in a second.
Coming analyst day or is this.
No.
Speaker 6: I don't know what was the other change there might might we learn more soon or what's the timing on on when you guys will decide
You know I don't know what what's the other change there might we learn more soon or what's the timing on when you guys will decide I guess all that.
Speaker 5: Yeah, I mean, we continue to work on this project. We do not have anything to report at this point in time. I think it's more likely going to be in the first quarter of Disco 25 when we are able to share something with you.
But yeah, I mean were you.
Noel Joffla: Our test of Oxo's soft work at Walmart is also continuing to perform ahead of expectations. Overall, we expect Oxo to perform well in the balance of a fiscal year, fueled by new product introductions, distribution gains and select club programs. Williams. Consumers continue to turn to oxo as a trusted source of quality products that marries innovation with purpose. One example is in cooking where the brand helps to bring consumers' joy of cooking to life, from the everyday books to the gourmet chefs.
He will work, but we continue to work on this project, we do not have anything to report at this point in time.
I think it's it's more likely going to be in the first quarter of fiscal 25, when we are able to share.
Yeah.
Speaker 3: Within a year, we'll be on the other side of one way or the other. It's good news. It lowers the restructuring charges now. It's good news on a total portfolio basis and willing to have something to report. We definitely will.
Within a year.
On the other side of it one way or the other it's good news.
Or is the restructuring charges now its good news on a total portfolio basis, and when we have something we definitely will speak.
Noel Joffla: Feeding consumers' passion for cooking is our chefs and residents program, a collaborative series featuring inspiring creators with one common goal, bring a better experience to your kitchen. We were thrilled to introduce the latest additions to this exceptional culinary series a few weeks ago. These new chefs are baked by Melissa's owner, Melissa Beneshe, and the celebrated James Beard Award-winning chef Joseph Jancin, also known as Chef J.J.
Okay great.
Speaker 6: And then I just wanted to go back to my first question, was going to be really on the focus on Pegasus. Obviously you're making a lot of progress there. And on the sales front, the new regional marketing organization, I think you discussed in the press release some distribution gains already there. So maybe give us a sense of any progress, positive surprises, or anything that's turning out to be a little harder than you thought as a result of the new North American badae. I don't think you're making the right way because Christina Dogstrom did. Randall fixing voting, he did not go that way.
And then I just wanted to kind of go back to my first question was going to be really on the focus on Pegasus, obviously, you're making a lot of progress there and on the sales front you know the new regional marketing organization I think you've discussed in the in the <unk>.
Press release, some distribution gains you know already there so maybe give us a sense of any you know progress positive surprises or anything like that that's turning out to be a little harder than you thought as a result of the new North American a R. M O.
Noel Joffla: Turning to Hydroflask. The broader inflated beverage category continued to be skewed toward tumblers with a further decline in the insulated bottle subcategory. As we noted on our July call, we soft-launched our new travel tumbler on June 21, exclusively on Hydroflask.com to a strong reception. The launch took traffic to the website, and we benefited from a halo effect in our base business, including an increase in personalized orders. We expanded online distribution of our travel tumbler in late August, and I'm pleased to say it continues to resonate well with consumers.
Yeah sure Bob This is Noel I'll get the good to hear from you. This morning, I you know I would say as you indicated you know the North American regional market organizations was one of the biggest choices and changes that we made with a package that's restructuring and as you called out and I mentioned in my remarks, and we will actually speak more about this in investor.
Speaker 4: Yeah, sure Bob, this is Noel, good to hear from you this morning. You know, I would say as you indicated, you know, the North American regional market organizations was one of the biggest choices and changes that we made with the Pegasus restructuring. And as you called out, and I mentioned in my remarks, and we'll actually speak more about this in investor day, as we have our leader on Andrew scale with us that day. But we have, you know, we did this so that we could look for white space distribution opportunities across the portfolio, looking at either customers where we might play with some of our brands, but not all of them. And we, you know, we saw an opportunity to scale our presence with them or new customers, new distribution that we could, that we could go after with this organization kind of solely focused on that. So we have started to pick up some of those, those things, you know, we have talked about.
Today.
As we have our our leader Ron Andrew Scott with Us that day, but.
But we have you know we did that so that we could look for white space distribution opportunities across the portfolio looking at either customers, where we might play with some of our brands, but not all of them and we you know we saw an opportunity to scale, our presence with them or new customers new distribution that we can that we can.
Noel Joffla: The product was ranked number one new release in water bottles, and number one new release in sport and outdoor on Amazon. We began further roll out to retailers and started to show up on shelf in September with continued ramp up in October. We also recently launched our new insulated sport bottle with an ergonomic shape that fits as well in your hand at the gym as it does in the bottle cage of your bike. We believed the Hydroflask travel tumbler, sport bottle, and other innovations positioned as well for the upcoming holiday season.
To go after with this organization kind of solely focused on that so we have started to.
Pick up some of those those things we have talked about increasing some of our shelf space and beauty that's the.
Speaker 4: increasing some of our shelf space in beauty at some mass retails.
A mass retailers and we've talked about.
Speaker 4: We talked about dollar distribution, family dollar distribution on pure and mentioned that today. So we are getting some of those wins. And I think as we look at the back half of this year and in particular quarter four, you know, we'll continue to see some of those things layer in, which is part of what gives us confidence in what we're looking at.
Noel Joffla: Moving now to Osprey, the brand achieved strong growth in the order compared to the prior year period fueled by accelerated travel demand and are improved inventory positions compared to fiscal 2023 when COVID-related factory closures curtailed supply. Osprey was a standout in the order as greater supply coupled with new product introductions and engaging marketing contributed to strength in the US technical travel and lifestyle categories, a strong endorsement of the brand's relevance to consumers.
Dollar distribution family dollar distribution on pure I mentioned that today. So we are getting some of those wins and I think as we look at the back half of this year and in particular quarter. Four you know, we'll continue to see some of those things layer in which is part of what gives us confidence and what we're looking at and quarter for some of the results of that.
Speaker 4: in quarter four. Some of the results of that, of that.
That new.
Speaker 4: Challenges, why they don't, you know, I don't know, probably the biggest thing is just, you know, as always, when you're moving organization and people are, you know, reporting to different, different leaders, et cetera, just the settling in period. But I've actually been really delighted that how the teams come together. They were just, that leadership team was just together a week or so ago. We had a big national sales meeting a couple of months ago. So the, the energy and the enthusiasm of that team as a single organization has been really fantastic.
Challenge is why does it don't you know I don't know probably the biggest thing is just you know as always when you're when you're moving organization and people are reporting into different different leaders et cetera, just the settling in period, but I've actually been really delighted with how the teams come together. They were just that leadership team is just together a week or so ago, we had a big national sales meeting a couple of months ago.
Noel Joffla: Internationally, the brand is also performing very well with growth in key regions of Great Britain and Germany. As a reminder, approximately half of Osprey sales are outside the US. At the recent outdoor magazine industry event in Germany, consumers awarded Osprey second place in the backpack category for the third year in a row, high praise in an important market with demanding consumers. We continue to expect growth from Osprey in the back half of the fiscal year in both the backpack core and in the on-trend travel package agency.
So the the energy and the enthusiasm of that team as a single organization has has been really fantastic.
Speaker 3: Yeah, but by design it's continuity, even though it restructures and all the ways just said, that the people and the leadership, externally focusing to the teams is larger the same and I'm on purpose by design. So not only the way people adapt is no else, but what the market sees when we see.
But by design is continuity, even though it restructures in all the ways just said.
People and the leadership externally focusing to the teams is largely the same.
Perfect.
By design, so not only the way people adapted in the oil business.
Noel Joffla: Luching gears now to our beauty and wellness segment net sales declined 10.4% driven primarily by skew rationalization and softness in humidification, heaters and fans, but we're in line with our expectations. In our beauty portfolio, Revlon and Hot Tool appliances drove sales ahead of our expectations in the quarter. We are seeing Revlon trends improve as the brand achieved incremental distribution within major brick and mortar retailers. In prestige liquids, our newest brand, Carl Smith, continued to grow strongly, versus prior year, and our new hot-tooled lipid line is meeting expectations at ALTA with two additional skews and continued in-store support coming in the balance of the year.
The market sees when we sell.
Speaker 3: at the power of the scale and all the other benefits. There's a further side benefit to it that is the business units are even more focused on the consumer. So that obsession becomes even more innovation and more focused as opposed to handling the failed market-facing shopper-facing.
Howard the scale and all the other method is a further benefit to it that is the business units are even more focused on the consumer so that obsession becomes even more innovation and more focus as opposed to handling the.
Sales and marketing basically in shopper base anymore.
Okay Super.
Speaker 6: Super and last one I promised I'll jump back in Q and just I mean you were just you mentioned innovation there can you give us a sense of You know new product introductions
Last one I promise I'll jump back in queue and just I mean, you. Just you mentioned innovation. There can you give us a sense of you know new product introductions going forward versus how they've compared our you know.
Speaker 6: going forward versus how they've compared you know in the past because obviously we're kind of you know as you said poised to resume you know growth very shortly and i think that's probably a big part of it you know where do you stand on the innovation pipeline and expectations for new product introduction going forward versus
In the past because obviously, we're kind of you know as you said poised to resume.
Growth very shortly and I think that's probably a big part of it but you know where do you stand on the innovation pipeline and expectations for new product introductions going forward versus how they book.
Noel Joffla: The beauty portfolio continues to distinguish itself and delivering superior consumer benefits, earning important industry recognition. In September alone, both dry bar, crown tonics, and Revlon One Step Volumizer were recognized in the award's best of beauty awards, while dry bar, smooth shot, hot styling brush was selected by People Magazine as the best tool for delivering salon-like results. This adds to the four separate industry awards our brands have already received this year. In our wellness portfolio, water purification was a standout in the quarter driven by both category growth as well as sequential market share improvement for pure faucet mount systems and pitcher systems.
Speaker 4: Yeah, certainly we continue to feel innovation is very important in all of our segments, both new product innovation as well as what I call commercial innovation, new claims, new ways to position our brands and our products in the marketplace or new ways of breaching the consumer from a marketing standpoint. So I continue to see a lot of emphasis on that. In fact, as Julian just mentioned, that was one of the reasons we went with the organization structure we did, we've got business units now fully focused.
Yeah, certainly we continue to see how innovation is very important in all of our and all of our segments. Both you know new product innovation as well as what I call commercial innovation new claims in new ways.
New new ways to position, our brands and our products in the marketplace or new ways of reaching the consumer from a marketing standpoint.
Noel Joffla: Here also launched an exclusive pitcher and faucet mount collaboration with Beautiful by Drew Barrymore, available only at Walmart. In addition, our North American RMO team secured new placement of one of our pure pitchers in family dollar. This is a promising opportunity in one of the fastest growing and relevant channels in this inflationary environment.
So I I continue to see a lot of emphasis on that in fact this is Julian just mentioned that was one of the reasons. We went with the organization structure. We did we've got business units now fully focused on consumers brands innovation. So that we can take that to the next level and that is underway and we've got some great innovation in the market now.
Speaker 4: on consumers, brands, innovation so that we can
Speaker 4: take that to the next level and that is underway. We've got some great innovation in the market now. Also, as always, has some terrific innovation, the grilling prep and carry, the fridge organiser that have come out this year, continued coffee innovation has been strong. Ops, gray continues to
So I've always has had some terrific innovation the grilling prepcom carry the French organized organizers that have come out. This year continued coffee innovation has been strong osprey continues to hum.
Speaker 4: go into adjacent categories like travel. They've we've also put out in the market. It's not quite out for sale yet, but announced launches into bike for Osprey, which is a really interesting new vector for that brand. Hydroflash, of course, we launched the soft launch for the travel tumbler in the last quarter. We've now ramped up distribution there and just launched a new Hydroflash sport bottle that's a unique shape. And then across the BD and wellness portfolio, many new formulas on dry bar and growth, but the particular addressing a lot of consumer needs. So we continue to have really a lot of innovation across the portfolio. And I continue to anticipate more of that on both the product and the commercial side, going forward. And we'll talk more about that in our investor day on the 17th as well.
Noel Joffla: As it relates to the International Trade Commission action, Britafiled against our pure products, we are extremely pleased with the recent decision terminating the investigation in favor of pure. The commission found there was no violation by our company because the Britaf issue is invalid. We look forward to continuing to serve for American consumers need for lead contaminant reducing filters. Air purification was also a strong contributor to sales in the quarter. As we mentioned on our July call, the Canadian wildfires that impact the US drove incremental air purification device and filter sales as well as inventory improvements.
Go into adjacent categories like travel and they are we've also put out in the market and it's not quite out for sale, yet announced launches into bike for Osprey, which is a really interesting new Baxter for that brand Hydro flask of course, we have launched a soft launch for the travel Tumblr and the law.
Last quarter, we have now ramped up distribution, there and just launched a new hydro sport bottle on the unique shape and then across the beauty and wellness portfolio, many new formulas on drive aren't across Smith in particular.
Addressing a lot of consumer needs. So we continue to have a really a lot of innovation across the portfolio and I continue to anticipate more of that on both the product and the commercial side going forward and we'll talk more about that at our Investor day on the 17th as well.
Noel Joffla: The humidification category was soft in the quarter compared to the prior year period when consumers experienced the summer of 22 COVID surge of Omicron and its variants. Despite the softer category sales, VIX grew share in the quarter. In thermometry, we continue to see post-COVID normalization in the US category, while international sales remain strong. We remain the branded market leader in the US, with our brawn and VIX thermometers, and brawn remains the strong branded market leader in ear thermometers in most of the countries where it is sold. More broadly un-international, sales growth was driven by brawn and osprey as both brands did very well in both the UK and Germany. Revlon is also having success in major European markets.
Speaker 6: Thank you so much.
Super Thank you so much.
Yeah. Thanks, Paul.
Speaker 7: Our next question is from Roupesh Park with Oppenheimer. Please proceed. Good morning and thanks for taking my question. So I just wanted to go back to your comment to our inventory stocking. If you're curious if you can provide more color in terms of where you're seeing this category of class that trade and then your confidence in being getting back to more normalized inventory ordering in Q4.
Our next question is from <unk> Parikh with Oppenheimer. Please proceed.
Good morning, and thanks for taking my question. So I just wanted to go back to your commentary on inventory Destocking I was curious if you can provide more color in terms of where are you where are you seeing this categories class of trade and then your confidence in being getting back to a more normalized inventory ordering in Q4.
Speaker 2: So yeah, and in repression might be, you know,
So yeah I'm in Rupert she might be.
You know.
Speaker 2: focusing on our kind of honing of the quarterly cadence.
Focusing on our kind of holding of the quarterly cadence and as we get.
Speaker 2: And as we get basically greater visibility.
Noel Joffla: We continue to strengthen our international operations and our new integrated and optimized sales and marketing organizational design and structure was implemented as of September 1st. International remains a strong growth avenue for us, and we are excited about the opportunities we see ahead of us outside the US.
Basically greater visibility we have.
Speaker 2: We are seeing cost-assorting patterns in the short term as retailer's factor in things like student loan impact.
We're seeing cautious ordering patterns in the short term as reader retailers factor in things like student loan impact and keep in mind a lot of them are ending their fiscal years generally in December and January retail inventory and our view is.
Speaker 2: And keep in mind a lot of them are ending their fiscal years generally in December and January .
Speaker 2: Retail inventory and our view is at generally low level, which is why we are assuming Q4 ordering patterns, more in line with the first half of the year. I want to clarify that we said more normalized in the press release, and I think what we're really trying to say is more in line with the first half of the year, but we see Q3 being slightly below that.
Noel Joffla: I'd like to close my prepared comments today with a few thought on the company's next strategic plan, which we will be discussing at our investor day plan for October 17th at the NASDAQ market site in New York. Mark. During our investor day, we'll also be outlining our specific long-term targets. We see considerable opportunity to deliver growth and profit improvements by focusing on delighting consumers with our outstanding family of brands and further increasing the efficiency and effectiveness of our business units, regional market organizations and global shared services.
That generally low levels, which is why we are seeing in Q4 ordering patterns more in line with the first half of the year when it clarify that we said more normalized and in the press release and I think what we're really trying to say is more in line with the first half of the year, but we see Q3 being slightly below that I also kind of a point.
Speaker 2: I also kind of want to point out the Q3 comparison is a 10.6% decline in the prior year, whereas the Q4 comparison is a 16.7% decline. So that's...
The Q3 comparison is at 10, 6% decline in the prior year, whereas the Q4 comparison as a 16, 7% decline. So that's that's part of the explanation as to why you know, we expect Q4 to be stronger against that comparison, we also.
Speaker 2: That part of the explanation is to why, you know,
Noel Joffla: We also see opportunity to continue setting the right capital priorities to help accelerate shareholder value creation. Our leadership team and I look forward to sharing our ambitious goals with you. We hope you can join either in person or online for the webcast.
Speaker 2: We expect Q4 to be stronger against that comparison. We also have some isolated supply pinches on certain components that are going, we expect to hurt Q3, but will definitely benefit Q4s as we come out of those.
<unk> had some isolated supply pinschers on certain components that are going we expect to hurt Q3, but will definitely benefit Q4, as we come out of those and then we had secured distribution gains that we've talked about in the past and those were secured in the first half of the year, but those are going.
Brian Grass: And with that, I'd like to hand the call over to Brian. Good morning, everyone. Thank you, Noel. I appreciate the kind words but more importantly, your trust and I echo your sentiments on our opportunity to deliver for all stakeholders.
Speaker 2: And then, you know, we've had secured distribution games that we've, you know, talked about in the past. And those were secured in the first half of the year, but those are gonna layer into the back half of the year and be more fully weighted in the fourth quarter.
To layer into the back half of the year eat more fully weighted in in the fourth quarter.
Brian Grass: I'm excited to come out of retirement and partner with you in my role as CFO as we enter our next era. I'm looking forward to working alongside you, Julian and the rest of the leadership team as we look to finish fiscal 24 strong and launch our next multi-year strategic plan. I hope to see everyone at our investor day in a couple weeks where we will share more of our plan to maximize the opportunities in front of the company and create long-term shareholder value.
Speaker 2: We're also, and we called it out, we made more marketing investments in Q3. We expect to make even more marketing investments in Q3, which we also called out when we tried to shape kind of the view of our guidance for Q3. And we expect more drive from those marketing investments in Q4. And so we really kind of just see this as a honing of our core belief cadence as we get greater visibility and get halfway through the year. Hope that all makes sense.
We're also and we called it out.
We need more marketing investments since you.
That's making you more marketing investments in Q3, which we also called out when we tried to shape kind of the view of our guidance for Q, our EPS guidance for Q3, and we expect more drive from those marketing investments in Q4, and so we really kind of just see this as a holding of our quarterly cadence as we get greater visibility.
He didn't get halfway through your hope that that all makes sense, but no. That's helpful. So it sounds like the overall demand backdrop is fairly consistent with what you guys thought maybe last quarter for the full year is that a fair characterization.
Brian Grass: Moving on to the second quarter, I'm pleased to report results at the better end of our expectations. We significantly improved gross margin, generated strong cash flow, and deployed capital to repurchase our shares while also taking steps to strengthen our balance sheet and further improve our asset efficiency. Consolidated net sales decreased 5.7 percent compared to growth of 9.7 percent in the same period last year or growth of 3.4 percent on a two-year stack.
Speaker 7: No, it's helpful. So it sounds like the overall demand backdrop is fairly consistent with what you guys thought maybe last quarter for the full year is that a fair character is a
Speaker 2: I think it's fair. There's obviously puts and takes and a lot of shifting and moving around, but generally speaking, I'd say that's fair.
I think it's fair, there's obviously puts and takes in a lot of shifting and moving around but but generally speaking I would say that's fair yeah.
Speaker 4: Yeah, I think generally we see, you know, as we talk, I mean, consumers, consumers are making choices on where they spend their money and that's been the case and what we assume does we kind of came into this year. So we don't see major changes in kind of their, you know, they look at inflation as they look at the student loan repayment, some of the things that Brian mentioned, we don't see major changes in that as we go through the back half of the year.
Generally we see you know as we're talking to consumers consumers are making choices on where they spend their money and that's been the case and what we assumed as we kind of came into this year. So we don't see major changes and kind of there you know they look at inflation as they look at the student loan repayments some of the things that Brian mentioned.
Brian Grass: Second quarter net sales were favorable to the 8 to 6 percent decline and be provided in our outlook in July. As a reminder, our outlook includes expected year-over-year declines from our skeurationalization efforts and the impact of the bedbath from beyond bankruptcy. Despite the impacts of higher inflation and interest rates, we are seeing signs that key categories are beginning to stabilize. And we were pleased to drive pointless sale growth with expanded distribution, new product introductions, and better supply of inventory.
We don't see major changes in that as we go through the back half of the year.
Great. Thank you I'll pass it along.
Okay.
Our next question is from Susan Anderson with Canaccord Genuity. Please proceed.
Speaker 1: Our next question is from Susan Anderson, which can acclur to nudity, please proceed.
Hi, Good morning, and let me say my congrats to Brian too. It's nice to have you onboard them I guess, maybe just as it is you look at the beauty business. It sounded like hair tools are starting to rebound, particularly at masked with Revlon I'm curious, what you're seeing kind of in the prestige cat.
Speaker 8: Hi, good morning, and let me see my congrats to Brian too. It's nice to have you on board. I guess maybe just as you look at the beauty business, it sounded like hair tools are starting to rebound, particularly at mass with Revlon. I'm curious what you're seeing kind of in the prestige category, particularly dry bar, and if you're seeing any rebound there, and then what you're thinking about for new innovation and the category in the back half.
Brian Grass: Those profit margin improved 420 basis points to 46.7 percent compared to 42.5 percent in the same period last year in line with our expectations for the quarter. Year-over-year improvement was due to lower inbound freight costs, the favorable impact of skeurationalization, lower inventory reserve expense, a more favorable customer mix and home and outdoor. In the favorable comparative impact of EPA compliance costs of 130 basis points incurred in the same period last year.
Gory, particularly dry bar and if youre seeing them you know any rebound there and then what you were thinking about for new innovation in the category in the back half.
Speaker 4: Yes Susan, good to hear from you. So I would say and prestige, what we continue to see is
Yeah, Susan I could.
Good to hear from you. So I would say and you know prestige what we continue to see is.
Speaker 4: We see a lot of positive momentum in our liquid business. And I mentioned a couple of the innovations there that are doing particularly well. I would say our tool business is, we've got some innovation out there. It's not as...
Brian Grass: Gap operating margin for the quarter was 9.5 percent compared to 9 percent in the same period last year. On an adjusted basis, operating margin declined to 120 basis points to 12.7 percent. The decrease primarily reflects an increase in annual incentive compensation expense, higher marketing expense. James, increased distribution and deep depreciation expense due to the opening of our new spade-of-the-art distribution facility in Tennessee, unfavorable operating leverage, and a less favorable product mix of beauty and wellness.
We see a lot of positive momentum in our liquids business and I mentioned, a couple of the innovations there that are doing particularly well I would say or.
Our tool business is yeah, we've got some innovation out there it's not as it's not as strong right now as the liquid business I would say that you know that the consumer is looking to make some choices on where to spend money. The liquids is is where we're seeing more and more action. We've got thickening spray that's doing quite well for us <unk>.
Speaker 4: It's not as strong right now as the liquid business. I would say the consumers looking to make some choices on where to spend money, the liquid is where we're seeing more action. We've got a thickening spray that's doing quite well, a frisk control spray, these sorts of things, other things that are performing. I see a lot more innovation on tools coming in the...
<unk> spread these sorts of things are the things that are performing.
I see a lot more innovation on tools coming in.
And.
Speaker 4: in the future as we look forward, but those liquids are what are performing best for us right now.
In the future as we look forward, but those those liquids are what are performing best for us right now.
Speaker 8: And then maybe just follow up on just kind of the cadence of the cells and inventory levels. I'm curious just how comfortable you're filling about inventory levels at retail. And last year obviously we had a lot of consolidation. I guess, how are you feeling going into the holiday season just in the channel in general?
Okay, Great and then maybe just a follow up on just kind of a cadence of the cells and inventory levels. I'm curious if you know how comfortable youre feeling about inventory levels at retail and yet last year. Obviously, we had a lot of consolidation I guess you know how are you feeling going into the holiday season.
Brian Grass: On a pregnant basis, home and outdoor adjusted operating margin decreased 180 basis points to 17.7%, driven by increased annual incentive compensation expense, higher distribution and depreciation expense due to the opening of the new distribution facility, an increased marketing expense. These factors were partially offset by lower inbound freight costs and a more favorable customer mix. Adjusted operating margin for beauty and wellness decreased 110 basis points to 7.9%, primarily due to an increased annual incentive compensation expense, higher marketing expense, unfavorable operating leverage, and a less favorable product mix.
Just in the channel in general.
Speaker 8: just a general holiday outlook about about to ask it. Yeah, just in terms of inventory levels out there. I mean, with the sales getting shifted into fourth quarter, I mean, do you feel like there's still kind of pockets of higher inventory? Do you guys feel pretty comfortable with where you're at and then just also the industry in general?
Just a general holiday outlook is that is that what you're asking yeah. Just in terms of inventory levels out there I mean with the cells getting shifted in the fourth quarter. I mean, do you feel like Theres still kind of pockets of higher inventory do you guys feel pretty comfortable with where you're at and then just also the industry in general.
Yeah, I, you know I would say inventory levels, Brian mentioned arent at very high levels and in retail right. Now there are you know relatively low end and somewhat in line with Ah.
Speaker 4: Yeah, I would say Invin Boyle, the Brian mentioned, aren't at very high levels in retail right now. They're relatively low and somewhat in line with...
Brian Grass: These factors were partially offset by lower inbound and outbound freight costs, reduced inventory reserve expense, decreased distribution expense, and the favorable impact of skeurationalization. That income was 27.4 million or $1.14 per deluded share. Non-gap adjusted deluded EPS decreased 23.3% to $1.74 per share, primarily due to higher interest expense and lower adjusted operating income. We continue to generate strong cash flow with cash from operations of 36.7 million in the second quarter. Year-to-date cash flow from operations was 158 million, which is an improvement of 233 million year-over-year.
Speaker 4: Someone in line with consumer consumption. We've seen in a couple of places, I would say more in the seasonal businesses like cough cold, we're retailing a couple of retailers of.
Somebody in line with consumer consumption, we've seen in a couple of places I would say more and the seasonal businesses like cough cold where retail a couple of retailers have done less of a quarter or two load in and what want to do more of a quarter three quarter four replenishment model them on some of those items like you know vicks humidifier than our consumables.
Speaker 4: done less of a quarter two load in and want to do more of a quarter three quarter four refunishment model on some of those items like you know, VIX cement a buyer than are consumables with VIX.
The facts and the good news is we're we've got ample supply. This here more supply this year than we had in the prior year. So we're already in.
<unk>, we're ready for that when those when those orders come I think holiday. We you know we continue to see good interest in coming to your prior question. We think good interest in dry bar and Karl Smith kits, you know kit always do very well during the holiday season. So the combination of a tool and a and some of these new liquids that are doing well.
Speaker 8: very well during the holiday season. So the combination of a tool and some of these new liquids that are doing well, those sorts of things are what we're preparing and getting strong traction on from retailers on the parts of our business that are more gift holiday in nature. Okay, great, that's helpful. And then I guess this last just on kind of the imminent A environment and as you guys get closer to that two times leverage target, how are you feeling about potentially being able to buy something again and just curious if you're seeing any attractive opportunities out there?
Brian Grass: We ended the quarter with total debt of 845 million, which is a slight increase on a sequential basis despite the repurchase of $50 million of our stock in the quarter. Our net leverage ratio was 2.68 times compared to 2.56 times at the end of the first quarter and 3.16 times at the same time last year. As Julian and Noel mentioned, subsequent to the end of the second quarter, we closed on the sale of our Alpaca Texas distribution and office facility for total proceeds of $51 million.
Things are what we're preparing.
And getting strong traction on from retailers on the parts of our business that are more gift holiday Inn in nature.
Okay, Great. That's helpful. And then I guess, just lastly, just on kind of the M&A environment and you know as you guys get closer to that two times leverage target. How are you feeling about potentially being able to buy something again and just curious if you're seeing any attractive opportunities out there.
Speaker 8: Okay, great, that's helpful. And then I guess this last just on kind of the imminent A environment and you know as you guys get closer to that two times leverage target, how are you feeling about you know potentially being able to buy something again and just curious if you're seeing any attractive opportunities out there.
Brian Grass: Concurrently, we entered into an agreement to lease back the office facility for a period of up to 18 months substantially rent-free. We expect to recognize again on the sale of approximately $34 million in SGNA during the third quarter of fiscal 24, of which approximately 18 million will be recognized in beauty and wellness and 16 million in home and outdoor.
Speaker 2: I mean, our leverage is coming down in line or maybe even slightly ahead of our expectations. So that's positive and puts us in a good position. I think as we end the year and get below two times.
I think that our leverage is coming down.
In line or maybe even slightly ahead of our expectations. So that's so that's positive and puts us in a good position I think as we end the year in and get below two times.
Speaker 2: We're definitely in a position to be able to make an acquisition. But the other part of your question is, what are we seeing out there? I would say there is a flow of
We're definitely are in a position to be able to make an acquisition, but the other part of your question is what are we seeing out there I would say there there is a flow of of assets being available, but not a lot that meet our criteria were I would say it at the the market is.
Brian Grass: Turning to our outlook for fiscal 24, we are maintaining our full year expectations for net sales, adjusted EPS, adjusted EBITDA, free cash flow, and ending net leverage ratio. We still anticipate a continued slower economy and uncertainty in consumer spending patterns, especially for some discretionary categories. Chris. Although we've seen a general decrease in retail or inventory, our outlook includes the expectation of cautious retail ordering patterns during the third quarter and a more normalized ordering in the fourth quarter.
Speaker 5: assets being available, but not a lot that need our criteria. I would say the market is not strong in that regard currently in terms of quality assets that we would seriously consider that need our criteria. I don't know, Jack is here as well. Maybe you want to add something, Jack? I think Brian's got it just right. There is more flow that is starting to come in versus what it's been like.
Not strong in that regard currently in terms of quality assets that we would we would seriously consider that meet our criteria I don't know Jack is here as well maybe you want to add something Jack I think Brian got it just right. There is more flow there is starting to come in versus what it's been in the last six months.
But.
Brian Grass: We continue to expect consolidated net sales between 1.965 billion and 2.015 billion in fiscal 24, which continues to reflect the estimated unfavorable year-over-year impacts of skewer rationalization and the bankruptcy of bedbath and beyond of approximately 3.4 percent combined. In terms of our net sales outlook by segment, we expect a home and outdoor decline of 1.7 percent to growth of 1 percent and a beauty and wellness decline of 8 percent to 5.8 percent.
Speaker 2: But items or assets that fit the criteria, things that we are looking for, we're not seeing those yet, but we're going to continue to look from what we find is we would certainly lean into one of one of the timings right, and it's elementary is ready.
Items were assets that fit the criteria and things that we are looking for where we're not seeing those yet, but we're going to continue to look to move we find it we would certainly lean into one when the time is right to sell inventory is ready.
Speaker 3: You've seen us before, Susan is doing here in high. We're picky. So as prices come down in the market, it will celebrate all that you just heard. We're not eager to bounce on the wrong asset. We're excited to find the right one. We're quite picky on.
You've seen us before Susan it's Julian here right now.
We're picky, so as prices come down and the market to equilibrate.
Sure.
Not eager depends on the wrong asset or excited to find the right one big deal.
Speaker 8: Okay, great. Thanks so much, everyone. That's really helpful. Good luck, thanks, Carter.
Okay, great. Thanks, so much everyone. That's really helpful. Good luck next quarter.
Thank you.
Brian Grass: As noted in our earnings release issued this morning, we have updated our expectations regarding Project Pegasus charges. We now estimate lower total pre-tax restructuring charges over the duration of the plan of approximately 60 to 65 million dollars, which we now expect to be completed during fiscal 25. This compares favorably to our previous estimate of approximately 85 to 95 million dollars, which was initially expected to be substantially completed by the end of fiscal 24.
Our next question is from Olivia Tong with Raymond James. Please proceed.
Speaker 9: Great, thanks, good morning. A couple of clarification questions first. Just on the supplements out through, I just wanna understand on the Q3 versus Q4, is the declining Q3 due to retailers expecting lower sales and they were just in their orders appropriately, but the recent inventory on hand doesn't change? Or are they actually looking to hold less inventory because it's more of a forward indicator that they think that they don't need as much inventory to drive the sale?
Great. Thanks, Good morning, a couple of clarification questions first just on the selling and sell through I just wanted to understand on the Q3 versus Q4 is this is a decline in Q3s into retailers expecting lower sales and they were testing the waters appropriately, but the weeks of inventory on hand hasn't changed or are they actually looking to hold less inventory because they don't.
It's more of a forward indicators that they think that they don't need as much inventory to drive the sales.
Brian Grass: The reduction in estimated restructuring charges is due to a favorable revision in our assessment of the impact of a potential exit from one of our businesses. Partially offset by an increase from the beauty and wellness geographic consolidation referred to on our earnings release issued this morning. Factoring in the reduction in expected restructuring charges, as well as the gain on the sale of passive facility, we expect to recognize in the third quarter.
Speaker 5: Yeah, I think it could be a combination of the two. I think they're definitely forming an expectation of what they're expecting for demand. And then maybe being cautious in their ordering, reflecting what they are seeing, I also see a general trend of them wanting to generally hold less inventory. And I'm not talking about.
Yeah, and I think it could be a combination of the two I think they're definitely for me an expectation of what they're expecting for demand and then you know maybe being cautious in their ordering reflecting what they are seeing I also see a general trend of them wanting to.
Generally hold less inventory and I'm not talking about huge weeks on hand adjustments, but I am you know on the margin they would like to expose themselves to a little bit less risk as they end their fiscal years. So I would say, it's a combination of those two things, but also want to make the point that we're not talking about wild.
Speaker 2: Huge weeks on hand adjustments, but I am, you know, on the margin, they would like to expose themselves to a little bit less risk as they end their fiscal year. So I would say it's a combination of those two things, but also want to make the point that we're not talking about wild inventory adjustments and things like that that would have occurred last year. I think it's more on the margin, but that those marginal adjustments do have an impact enough.
Brian Grass: We now expect an increase in gap deluded EPS to $6.36 to $7.03 for the full year compared to our previous expectation of $3.81 to $4.67. We continue to expect non-gap but just deluded EPS in the range of $8.50 to $9, which reflects additional year-over-year expense from the restoration of annual incentive compensation expense to target levels, as well as higher interest and depreciation expense, totaling approximately $1.77 net of tax. Moving on to our tax outlook, we now expect a gap effective tax rate range of 20 to 18 percent for the full fiscal year and a non-gap adjusted effective tax rate range of 14.5 to 13.5 percent.
Inventory adjustments and things like that that would have occurred last year I think it's more on the margin, but that those marginal adjustments do have an impact enough for us to you know need to adjust our revenue guidance.
Speaker 2: for us to, you know, need to adjust our revenue guidance for the third quarter. So it's, you know, not hugely meaningful, but enough to change, you know, two or three percentage points in terms of our revenue for the quarter.
Guidance for the third quarter, so, it's not hugely meaningful but enough to to change you know two or three percentage points in terms of our revenue for the quarter.
Speaker 3: And yet, I maintain your guidance, which means that the back half will produce exactly what we said, including the good news that we brought up today on Q2. So I think people just even looking at the stock price early reaction may be hung up on this idea of is there pressure in the back half and what we're saying is exactly what Brian just said. There's a re-jagering of the cadence between Q3 and Q4 and then reaffirmation of the full year results.
Uh huh.
Saying that your guidance, which means that the back half will.
We will produce exactly what we said and including the good news that we brought up today on Q2. So I think people just even looking at the stock price early reaction may be hung up on this idea of is there pressure in the back half and what we're saying is exactly what Brian just said there's a.
Brian Grass: In terms of quarterly cadence, we now expect net sales growth to be concentrated in the fourth quarter of fiscal 24 and to decline in net sales approximately 4 to 2 percent in the third quarter. We continue to expect to realize the benefits of debt deleveraging and lower inbound freight and product costs more fully in the second half of the year. Accordingly, we expect growth in adjusted deluded EPS in the range of 1.5 to 12 percent in the second half of fiscal 24, with that growth highly concentrated in the fourth quarter.
The jiggering up the cadence between Q3, and Q4 and the reaffirmation of our full year results.
Yeah.
Got it.
Speaker 9: got it. And then just sticking on the outlook, you know, the full year outlook is still pretty wide range considering we're past the midpoint of the year, you've historically tried to to narrow that a bit by this time. And you've already, you know, obviously talked about the line of sight on Q3 versus Q4 cadence. So perhaps can you put it by
And then just sticking on the outlook.
The full year outlook is still pretty wide range, considering we're past the midpoint of the year, you've historically tried to narrow that a bit by this time and anybody you know obviously you talked about the line of sight on Q3 versus Q4 cadence. So perhaps can you provide.
Brian Grass: The company now expects adjusted deluded EPS to be roughly flat in the third quarter, reflecting the expectation of more cautious retail order patterns in the short term. Durham, a timing shift in the realization of some cost of goods sold savings into the fourth quarter and an expected increase in growth investments in the third quarter. We continue to expect capital asset expenditures of between 45 and 50 million for fiscal 24, which includes approximately $25 million for the completion of our new distribution facility in the full installation of its state of the art automation equipment.
Maybe some goalpost on what's embedded in that the low end versus the.
Speaker 9: Maybe some goal posts on what's embedded at the low end versus the initiatives, potentially, if you could, the high end of the range.
The initiatives that potentially get you to the high end of the range.
Speaker 2: Yeah, I mean, I think it's a good call out me, you know, something considered narrowing. I think, you know, you would hopefully agree that there's a lot going on in the macro environment that could have an impact and I think weighing all of that.
Yeah, I mean, I think it's a good callout, we you know something considered narrowing I think you know you you would hopefully agree that there's a lot going on in the macro environment that that could have an impact and I think weighing all of that including very recent things.
Speaker 2: including very recent things. We felt like let's go ahead and maintain the range, even though it does result in a wide range, especially for Q4. I think hopefully you've seen from our history, at least, you know.
Brian Grass: We still expect that the final cost of the facility and its equipment will be largely in line with our original expectations. With lower CAPEX needs in fiscal 24, we continue to expect free cash flow to be in the range of 250 to 270 million and our net leverage ratio to be between two times to 1.85 times by the end of fiscal 24.
We felt like let's go ahead and maintain the range, even though it does result in a wide range, especially for Q4, you know I think hopefully you've seen from our history at least you know.
Speaker 2: The history I know I've been a part of, you know, we're always focused on the high end of our ranges and that's where, you know, we like to steer towards and we like to have conversations around. But felt like with all the uncertainty in the environment, it made sense to keep a wide range to account for.
The history I know I've been a part of.
We're always focused on the high end of our ranges and in and that's where we like to steer towards an end, we like to have conversations around but felt like with all the uncertainty in the environment. It made sense to keep a wide range to account for ever.
Brian Grass: In closing, I am pleased with our business performance year to date, which keeps us on track to achieve our full year financial objectives. I'm encouraged by our progress in advancing key initiatives while navigating the pressure of consumer environment, as well as the structural headwinds of higher annual incentive compensation, depreciation and interest expense. Year to date, we've improved for gross profit margin by 410 basis points, maintained or adjusted EBITDA margin despite structural headwinds and unfavorable operating leverage generated 137 million and free cash flow accelerated debt repayment and return capital of shareholders. We also took steps to further strengthen our balance sheet and improve our asset efficiency, culminating with the fail of the old passive facility after the end of the quarter.
Speaker 2: every, you know, a lot of different variables that could change over the course of the second half of the year. You know, but we feel very good about our forecast. We feel like we factored in a lot of, you know, potential downside impact and less a lot of room for upside. On top of our forecast if we're able to.
You know a lot of different variables that could change over the course of the second half of the year, but we feel very good about our forecast we felt like we factored in.
A lot of of you know potential downside impact and left a lot of room for upside.
On top of our forecast if we're able to.
Speaker 2: you know, hit on all our teaching initiatives. I don't know if you want to add anything there about. We, I call that, or I answered a previous question about some of the things in versus Q3 and Q4 that are going to drive that and give us confidence in that. I don't know if you've got follow up questions on those items, I would call those items out. It's being the primary drivers of, you know, kind of the Q3, Q4 cadence.
You know hit on all our strategic initiatives I don't know if you want to add anything there about.
I called out I answered a previous question about some of the things in versus Q3, and Q4 that are going to drive that and give us confidence in that I don't know if you've got follow up questions on those items I would call those items out as being the primary drivers of of you know.
Brian Grass: We remain excited about the opportunities that Pegasus provides to drive further performance improvement and look forward to sharing our longer term strategic initiatives and financial objectives with you during our investor day.
Kind of the Q3 Q4 cadence.
Operator: And with that, I'll turn it back to the operator for questions. Thank you.
Got it thank you.
Our next question is from Peter Grom with UBS. Please proceed.
Speaker 1: Our next question is from Peter Graham with UBS. Please proceed.
Operator: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker 10: Thanks operator, good morning everyone. And so I apologize if I missed this Brian in your remarks.
Thanks, operator, good morning, everyone. So I apologize if I missed this Brian in your remarks, but is your expectation for full year gross margin to still be around this 48%.
Speaker 10: But is the expectation for full year growth margin to still be around this 48% and if so, can you maybe speak to the stasings from a growth margin perspective given the more challenged 3Q outlook? And I guess I'm really trying to get at the errors.
And if so can you maybe speak to the to the phasing from a gross margin perspective, given the more challenged to requeue out okay, and I guess, what I'm really trying to get to get actually Arizona.
Bob Lubick: Our first question is from Bob Lubick with CJS Securities. Please proceed.
Speaker 10: You know, if that's still the expectation, it's more waiting for the fourth quarter, which seems to be the case given the change in the element in terms of phasing. But how does that inform your view on the gross margin potential for further business as you look at the fiscal 25, particularly as Pegasus savings continue to build?
Brian Grass: Good morning. Thanks for taking my questions. And congratulations to Brian. I'm so glad to hear it and we're looking forward to continuing to work with you. Thanks, Bob. Me too. Yeah, no, it's very exciting and congrats to all on another solid quarter. I want to start one of your your last comments to Brian about the change in the Pegasus costs. If I wrote it down quickly, as a result of the impact of a potential exit from one of your businesses, could you maybe elaborate on that comment or tell me if I heard it correctly?
That's still the expectation that it's more weighted to the fourth quarter, which seems to be the case given the change in the outlook in terms of phasing like how does that inform your view on the gross margin potential for further business as you look out to fiscal 'twenty, five, particularly as Pegasus savings continue to build.
Speaker 2: Yep, good, good question. We are seeing that the
Yeah. Good good question, we are seeing.
The.
Speaker 2: that will end the year with the slightly lower gross profit margin implied in our original guidance. And but that's really just from shifts.
That will end the year with with a slightly lower gross profit margin implied in our original guidance and but that's really just from shift margin mix shift in revenue impacts that are going on so you know nothing structural that we're concerned about and no concerns about fiscal year 'twenty five.
Brian Grass: That's correct. So in the original estimates of the restructuring charges, there was an amount designated for our consideration of a potential exit from a business that's currently in the portfolio today. We are still considering that exit that we have revised an update that our assessment does, you know, the opportunities for that exit and have concluded that it would not results. Our belief is it would not result in a restructuring charge, whereas, you know, the initial assessment that was performed is that there was there was some likelihood that there could be a range of disposal costs and exit costs as a result.
Speaker 2: Margin mixed shift in revenue impacts that are going on. So nothing structural that we're concerned about and no concerns about fiscal year 25. So structurally, we still have the ability to elevate our growth profit margin and achieve kind of what we've talked about through Pegasus.
Structurally we still have the ability to elevate our gross profit margin and achieve kind of what we've talked about through Pegasus in and see that impacts through into fiscal year 'twenty five and were still realizing the freight and commodity savings in the second half of fiscal year 'twenty for the al.
Speaker 2: and see that impact through into fiscal year 25 and we're still realizing the
Speaker 2: Freight and commodity savings in the second half of this year 24.
Speaker 2: The I'll call it 1 percentage point decrease in our full year gross profit margin expectation is really due to shifts in margin mix within our point.
Call. It one percentage point decrease in our full year gross profit margin expectation is really due to shifts in in margin mix within our portfolio.
Speaker 3: Peter, no impact on our continued confidence that we can build it from there. Because of your comment about Pegasus. So, as Pegasus ramps, remember 60% of the Pegasus savings are coming from cost of goods related work-free project. As Noel, we enforce in her comments about Pegasus nicely on track. So, with 50% of such a big number, which is Pegasus's published targets, falling into COBS, was seven million plants. That was a significant business. There were s?r vorkey about that.
Peter No impact on our continued confidence that we can build it from there because of your comment about Pegasus as big as this ramps remember 60% of the Pegasus savings are coming from cost of goods related work stream project as Noel and it reinforced in her comments about peg it sets up nicely.
Brian Grass: But we again have updated and revised that and don't feel that we have that potential today. And so we.., decided that we should take it out of the restructuring cost range? Got it, I think. Does that mean we might hear more about this? I'll drop this in a second. We need a work on this project. We do not have anything to report at this point in time. I think it's more likely going to be in the first quarter of fiscal 25 when we are able to share something with you.
Jack.
So with 60% of such a big number just Pegasus as published targets are falling into Cogs.
Speaker 3: we feel confident to say that not only will we keep the big rose margin gains that are.
We feel confident to say that not only are we keep the big gross margin gains that are.
Speaker 3: reiterated now or not be able to have said now for gross margin fiscal 24 but feels from there in fiscal 2526, etc. And still have reinvestment opportunity. Yeah, in fact, even more reinvestment opportunity because of the fuel from Pegasus and not to get into our investor day now that there's a very positive dynamic imagine more dollars coming in.
Reiterate it now or reiterate what I've said now for gross margin in fiscal 'twenty, four but build from there in fiscal 'twenty five 'twenty, six et cetera, and still have reinvestment opportunity. Yeah. In fact, even more reinvestment opportunity because of the fuel from Pegasus and not to get into our Investor day, now, but theres, a very positive dynamic imagine more.
More dollars coming in.
Brian Grass: Within a year, we'll be on the other side of the one way or the other. It's good news. It lowers the restructuring charges now. It's good news on a total portfolio basis and we're going to have something to report. We definitely will speak well.
Speaker 2: resulting in a higher growth margin than even the gains for this fiscal year fueled by Pegasus, which also fuels the further reinvestment, which also fuels more growth. You start to get the idea, not only of a flywheel, but of a higher sustained growth margin going forward. Peter, you asked the question about Caden, so I would say, you know, roughly speaking, if you want to platform off of Q2, you know, maybe half a percentage point around that in Q3 and then, you know, one and a half.
Resulting in a higher gross margin than even the games for this fiscal year fueled by Pegasus, which also fuels. The further reinvestment with Joseph feels more growth you start to get the idea of not only of a flywheel, but of a higher sustained gross margin going forward. Peter you asked the question about cadence. So I would say you know roughly speaking if you want to.
Noel Joffla: Okay, great. And then I just wanted to go back to my first question was going to be really on the focus on Pegasus. Obviously you're making a lot of progress there. And on the sales front, the new regional marketing organization. I think you discussed in the press release some distribution gains already there. So maybe give us a sense of any progress positive surprises or anything that's turning out to be a little harder than you thought.
Platform off of Q2, no maybe half a percentage point around that in Q3, and then you know one and a half.
Speaker 2: maybe a little bit higher in Q4, that's kind of the cadence of the increase in growth profit for the remainder of the year.
Maybe a little bit higher in Q4, that's kind of the cadence of the increase in gross profit for the remainder of the year.
Noel Joffla: But as a result of the new North American RMO. Yeah, sure Bob, this is not well good to hear from you this morning. You know, I would say as you indicated, you know, the North American regional market organizations was one of the biggest choices and changes that we made with the Pegasus restructuring. And as you called out and I mentioned in my remarks and we'll actually speak more about this and investor day as we have our leader on under scale with us that day.
Speaker 10: Thanks, but I'm just in one clarification on that. For the 50 basis points versus Q2, so call it, you know, low 47th, is the 150 basis point relative to Q3, or is it relative to the Q2 number, just to some clear?
Thanks, Brian just one clarification on that so the 50 basis points versus Q2, so call it 47% as the 150 basis points relative to Q3 or is it relative to the Q2 number just so it's unclear.
Speaker 2: So the 50 basis points is relative to Q2. So like you said, most 47, and then think of pointing a half on top of that for Q4.
So the 50 basis points as relative to Q2, so like you said low 47 and then.
You know St to point and a half on top of that for Q4.
Speaker 10: Okay. Yeah, I was just making sure it was the 47. We're building the point half of the low 47, not off of the Q2 number. Yeah, I'm very sorry.
Noel Joffla: But we have, you know, we did this so that we could look for white space distribution opportunities across the portfolio, looking at either customers where we might play with some of our brands, but not all of them. And we, you know, we saw an opportunity to scale our presence with them. Not all new customers, new distribution that we could, that we could go after with this organization kind of solely focused on that.
Okay. Yeah, I was just making sure. It was the 47, we're building the pointed out from a low of 47 not off of the Q2 number yeah.
Okay.
Speaker 10: I mean, just like last question for me, just like more bigger picture. I mean, you know, Brian , you're pretty clear that you've embedded enough cushion in your guidance. But, you know, I would just be curious, you know, it's been a pretty challenging environment to kind of predict what is going to happen.
No I I mean, just like last picture last question from me just like more bigger picture I mean, you know, Brian you were pretty clear that you've embedded enough cushion in your guidance, but you know I would just be curious you know it's been a pretty challenging environment to kind of predict what is going to happen.
Noel Joffla: So we have started to pick up some of those those things, you know, we have talked about increasing some of our shelf space in beauty at some mass retailers. We talked about dollar distribution, family dollar distribution on pure and mentioned that today. So we are getting some of those wins. And I think as we look at the back half of this year and in particular quarter four, you know, we'll continue to see some of those things layer in, which part of what gives us confidence in what we're looking at.
Speaker 10: How would you characterize your visibility? I mean, we're not that long ago where you were kind of expecting a return to revenue growth in 3G and that kind of didn't play out. So I guess that was just bigger picture question. How much visibility do you think you have at this stage as you look out for Q and into next year?
How would you characterize your visibility right I mean, we're not that long ago, where you were kind of expecting a return to revenue growth and three junior and that's kind of it didn't play out and so I guess I would just you know just.
Bigger picture question, you know how.
How much visibility visibility do you think you have at this stage as you look out for carry on into next year.
But I'd say overall, it's good I mean I get your point about we did make a change in in Q3, you know that I think is a reflection reflection of us staying close to our retailers and listening to what they're having to say and that's reflecting that adjustment as soon as we can.
Speaker 2: I'd say overall is good. I mean, I get your point about we did make a change in Q3.
Noel Joffla: In quarter four, some of the results of that, of that move challenges. Why they don't, you know, I don't know, probably the biggest thing is just, you know, as always, when you're when you're moving organization and people are, you know, reporting to different, different leaders, et cetera, just the settling in period, but I've actually been really delighted at how the teams come together. They were just that leadership team was just together a week or so ago.
Speaker 2: You know, that I think is a reflection of us staying close to our retailers and listening to what they're having to say. And us reflecting that adjustment as soon as we kind of get that visibility. And look, we can't perfectly predict retailer adjustments, you know, at the beginning of a year. So hopefully what it shows is us being very responsive to talking to our retailers and some of them are very focused on student loan repayment. Others aren't as focused.
Kind of get that visibility and look we can't perfectly predict retailer adjustments are you know at the beginning of the year. So hopefully what it shows is us being very responsive to talking to our retailers and some of them are very focused on student loan repayment and others aren't as focused and so you know that.
Noel Joffla: We had a big national sales meeting a couple of months ago. So the the energy and the enthusiasm of that team as a single organization has, has been really fantastic. O'Connor. Yeah, but by design it's continuity even though it restructures and all the ways just said that the people and the leadership act internally focusing to the teams is larger the same and I'm focused by design. So not only the way people adapt to Noel, but what the market sees when we sell at the power scale and all the other benefit is a further side benefit to it that is the business units are even more focused on the consumer.
Speaker 2: And so, you know, that's even another layer that we have to get in and understand because you can't make a blanket statement that all of them are adjusting to that, that some of them are. And I would say we're, it's a reflection of us staying close to our market and reflecting that visibility as soon as we have that opportunity. And hopefully that gives you some confidence because like I said, at the beginning of the year,
It's even another layer that we have to get in and understand because you can't make a blanket statement that all of them are adjusting to that but some of them are in and I would say, we're it's a reflection of us staying close to our market and reflecting that visibility as soon as we have that opportunity and hopefully that gives you some confidence because like I said at the beginning of the year.
Speaker 2: You can't have predicted that this would come up and the retailers some adjusting to it and some not adjusting to it in which ones and all of the puts and takes.
You can't have predict predicted that this would come up and the retailers some adjusting to it and some not adjusting to it and which ones and all of the puts and takes so I mean based on kind of the heap of macro puts and takes some things going on right now I think we're manner.
Noel Joffla: So that obsession becomes even more innovation and more focused. As opposed to handling the sales market facing shopper facing more. Okay, super and last one I promised I'll jump back in queue and just I mean you were just you mentioned innovation there. Can you give us a sense of, you know, new product introductions, you know, going forward versus how they've compared, you know, in the past because obviously we're kind of, you know, as you said, poised to resume, you know, growth very shortly.
Speaker 3: So, I mean, based on kind of the, the chief of macro, hooks and takes and things going on right now, I think we're managing our forecast and our visibility as well as we can.
<unk>, our forecast and our visibility as well as we can.
Yeah.
Got it thank you so much Brian .
Our final question is from Linda Bolton Weiser with D. A Davidson. Please proceed.
Speaker 1: Our final question is from Linda Bull and Wiser with the A.D. Visin, please proceed.
Noel Joffla: And I think that's probably a big part of it. But, you know, where do you stand on the innovation pipeline and expectations for new products and introductions going forward versus how they've looked. Yeah, certainly we continue to feel innovation is very important in all of our in all of our segments, both, you know, new product innovation as well as what I call commercial innovation, new claims, new ways, you know, new new ways to position our brands and our products in the marketplace or new ways of reaching the consumer from a marketing standpoint.
Yes, hi, So I was curious about your view on you know, putting some cash towards share repurchase versus further debt repayment and and knowing the in.
Speaker 11: Yes, hi. So I was curious about your view on, you know, putting some cash towards sharey purchase versus further debt repayment and knowing the macro environment and some of these things going on that you just talked about, it's a little surprising that you did the sharey purchase already, 50 million. I guess I'm just kind of wondering, have you used all your ammunition?
The macro environment and some of these things going on that you just talked about it's a little surprising that you did.
Did the share repurchase already 50 million I guess I'm just kind of wondering have your blood have you used all your ammunition, you know or is there some ability to do more here with the stock down 9%, maybe you could just comment on your thoughts there.
Speaker 11: You know, or if there's some ability to do more here with the stock down 9%, maybe you could just come in on your thoughts there.
Noel Joffla: So I continue to see a lot of emphasis on that. In fact, as Julian just mentioned, that was one of the reasons we went with the organization structure we did, we've got business units now fully focused on consumers brands innovation so that we can take that to the next level and that is underway. We've got some great innovation in the market now. Also, as always, has had some terrific innovation, the grilling prep and carry, the fridge organizers that have come out this year, continued coffee innovation has been strong osprey continues to go into adjacent categories like travel, we've also put out in the market, it's not quite out for sale yet, but announced launches into bike for osprey, which is a really interesting news.
No I don't think we'd use dollar ammunition and you know we think that the share repurchase was a good investment and in the primary thinking is that even with the repurchase of our shares we were still able to get to the better end of our leverage target by the end of the year of 185 times and so we.
Speaker 2: I don't think we'd use all our ammunition and we think the sharey purchase was a good investment and the primary thinking is that is even with the repurchase of our shares.
Speaker 2: We were still able to get to the better end of our leverage target by the end of the year of 1.85 times. And so we thought it was a great thing to do to return some capital to share.
Thought it was a great thing to do to return some capital to shareholders. We also had a reasonable view on the sale of our El Paso facility and the proceeds of that would generate which was also factored into the thinking and helps us be in a very strong balance sheet position are to be.
Speaker 5: We also had a reasonable view on the sale of our opus of facility and the proceeds that that would generate, which was also factored into the thinking and helps us be in a very strong, balance sheet position to be able to do it. So I do it as a win-win. We're able to get at the very low end of our leverage target for the year and we're able to refer to shares to me, those are both pods.
Noel Joffla: The investor for that brand hydro flat, of course, we launched the soft launch for the travel tumbler in the last quarter, we've now ramped up distribution there and just launched a new hydro flat sport bottle that's the unique shape, and then across the beauty and wellness portfolio, many new formulas on dry bar and Christmas, a particular addressing a lot of consumer needs, so we continue to have really a lot of innovation across the portfolio and I continue to anticipate more of that on both the product and the commercial side going forward, and we'll talk more about that in our investor day on the 17th as well.
We're able to do it so I view it as a win win where we're able to get at the very low end of our leverage target for the year and we were able to repurchase shares to need those are both positives in terms of timing I Couldnt agree more remember we're in it for the long game and I know a lot of people on this call are too we like our prospects a lot.
Speaker 3: In terms of timing, I couldn't agree more. Remember, we're in for the long game. I know a lot of people on this call are two. We like our prospect a lot. The thing is, the thick of the basics. Distribution is growing. Investment fuel from the Pegasus savings gives us the ability to not only expand margin, but also to invest in further drive from innovation and the other basic flywheel drivers in the country.
Think of the basics our distribution is growing investment in fuel from the Pegasus savings gives us the ability to not only expand margin, but also to invest in further drive from innovation and the other basic flywheel drivers in the company that has the ability to expand not just profitability.
Speaker 3: that has the ability to expand, not just profitability, but revenue, which creates operating leverage. Do that in a higher gross margin. Do it all at a...
Bob Lubick: Super, thank you so much. Yeah, thanks, Bob.
But revenue, which creates operating leverage do that at a higher gross margin do it all at a sweeter.
Rupesh Parikh: Our next question is from Rupesh Park with Oppenheimer, please proceed. Good morning, and thanks for taking my question, so I just wanted to go back to your comment here on inventory stocking. I'm curious if you can provide more color in terms of where you're seeing this category's classified trade, and then your confidence in being getting back to more normalized inventory ordering in Q4.
Speaker 3: sweeter mix, so to speak, from a profit standpoint, give room for acquisition and ask, should you see growth in the company and more until there's no supply will we believe the answer is yes.
Weaker mix so to speak from a profit standpoint.
<unk> room for acquisition and as you know should you see growth in the company and more acceleration. That's why we believe the answer is yes. So the short term that Brian described it creates opportunity the lower leverage ratio below two times, but he is talking about it certainly means that we haven't spent our our allocation for this.
Speaker 3: So the short term that Brian described creates opportunity. The lower leverage ratio, the low two times that he's talking about, certainly means that we haven't spent our allocation for this.
Brian Grass: So, yeah, and Rupesh, you know, focusing on our kind of honing of the quarterly cadence. And as we get basically greater visibility, we are seeing cautious ordering patterns in the short term as retailer's factor in things like student loan, you know, impact and keep in mind a lot of them are ending their fiscal years generally in December and January. Retail inventory and our view is at generally low level, which is why we are assuming Q4 ordering patterns more in line with the first half of the year when it clarified that we said more normalize in the press release and I think what we're really trying to say is more in line with the first half of the year, but we see Q3 being slightly below that I also kind of want to point out the Q3 comparison is a 10.6% decline in the prior year.
Speaker 3: and depending with the market, the market is skittish right now, and yet that long-term proposition is fundamentally sound, and exactly our expectation and plan makes you want to buy this stock. Police for us.
And depending what the market the market is skittish right now and yet that long term proposition is fundamentally sound and exactly our expectation and plan makes you want to buy the stock at least for us.
Okay. That's it for me thank you.
Speaker 1: Thanks Linda. We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing comes.
Thanks Linda.
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.
Speaker 3: Yeah, well, thank you, operator, and thank you everybody for joining us today. We're very pleased with the quarter and debris in a position to reiterate our guidance for the full year outlook for fiscal 24. We look forward to speaking with many of you later this week as we make our various calls and also providing detail on our longer term strategy during our investor day on the 17th of this month. So with that, I'll simply say thanks very much and have a wonderful day.
Yeah, well. Thank you operator, and thank you everybody for joining US today, we're very pleased with the quarter and debris in a position to reiterate our guidance for the full year outlook for fiscal 'twenty four and we look forward to speaking with me any of you later this week as we make our various calls and also providing detail on our longer term strategy during our investor day on the 17th.
<unk> of this month, so with that I'll simply say, thanks, very much and have a wonderful day.
Brian Grass: Whereas the Q4 comparison is a 16.7% decline, so that's that part of the explanation is to why, you know, we expect Q4 to be stronger against that comparison. We also have some isolated supply pinches on certain components that are going we expect to hurt Q3, but will definitely benefit Q4 as we come out of those. And then, you know, we've had secured distribution gains that we've, you know, talked about in the past and those were secured in the first half of the year, but those are going to layer into the back half of the year and be more fully weighted in the fourth quarter.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker 1: Thank you. This will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.
Speaker 12: Thanks for watching.
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Brian Grass: We're also, and we called it out, we made more marketing investments in Q3. We expect to make even more marketing investments in Q3, which we also called out when we tried to shape kind of the view of our guidance for Q3 or EPS guidance for Q3, and we expect more drive from those marketing investments in Q4. And so we really kind of just see this as a honing of our core belief cadence as we get greater visibility and get halfway through the year. Hope that all makes sense.
Brian Grass: No, that's helpful. So it sounds like the overall demand backdrop is fairly consistent with what you guys thought maybe last quarter for the full year. Is that a fair characterization? I think it's fair. There's obviously books and takes and a lot of shifting and moving around, but generally speaking, I say that's fair. Yeah, I think generally we see, you know, as we talk, I mean, consumers, consumers are making choices on where they spend their money and that's been the case and what we assumed as we kind of came into this year.
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Brian Grass: So we don't see major changes in kind of their, you know, they look at inflation as they look at the student loan repayment, some of the things that Brian mentioned, we don't see major changes in that as we go through the back half of the year.
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Rupesh Parikh: Great. Thank you.
Susan Anderson: I'll pass it along.
Susan Anderson: Our next question is from Susan Anderson. We can encourage you to do it. Please proceed. Hi. Good morning. And let me see my congrats to Brian too. It's nice to have you on board. I guess maybe just as it is you look at the beauty business, it sounded like hair tools are starting to rebound, particularly at mass with Revlon.
Yeah.
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Noel Joffla: I'm curious what you're seeing kind of in the prestige category, particularly dry bar and if you're seeing, you know, any rebound there and then what you're thinking about for new innovation and the category in the back half. Yes, Susan, good to hear from you. So I would say in prestige, what we continue to see is we see a lot of positive momentum in our liquid business, and I mentioned a couple of the innovations there that are doing particularly well.
Noel Joffla: I would say our tool business is, you know, we've got some innovation out there. It's not as strong right now as the liquid business. I would say the consumers looking to make some choices on where to spend money. The liquid is where we're seeing more action. We've got the thickening spray that's doing quite well, a frisk control spray, these sorts of things are the things that are performing.
Susan Anderson: I see a lot more innovation on tools coming in, you know, in the in the future as we look forward, but those those liquids are what are performing best for us right now. Okay, great.
Noel Joffla: And then maybe just to follow up on just kind of the cadence of the sales and inventory levels. I'm curious just, you know, how comfortable you're filling about inventory levels at retail last year. Obviously, we had a lot of consolidation. I guess, you know, how are you feeling going into the holiday season just in the channel in general. Just a general holiday outlook. Is that about to ask you? Yeah, just in terms of inventory levels out there.
Noel Joffla: I mean, with the sales getting shifted into fourth quarter. I mean, do you feel like there's still kind of pockets of higher inventory? Do you guys feel pretty comfortable with where you're at and then just also the industry in general? Yeah, you know, I would say inventory levels as Brian mentioned aren't at very high level in retail right now. They're, you know, relatively low and somewhat in line with someone in line with consumer consumption.
Noel Joffla: We've seen in a couple of places. I would say more in the seasonal businesses like cough cold, we're retail at a couple of retailers have done less of a quarter to load in and want to do more of a quarter three quarter four replenishment model. On some of those items like, you know, VIX humidifiers and our consumables with VIX. The good news is where we've got ample supply this year more supply this year than we had in the prior year.
Noel Joffla: So we're ready, we're ready for that when those when those orders come. I think holiday, we, you know, we continue to see good interest in coming to your prior question. We see good interest in dry bar and Christmas kits, you know, kits always do very well during the holiday season. So the combination of a tool and some of these new liquids that are doing well, those sorts of things are what we're preparing and getting strong traction on from retailers on the parts of our business that are more gift holiday in nature.
Susan Anderson: Okay, great, that's helpful.
Linda Bolton: And then I guess this last just on kind of the imminent a environment and, you know, as you guys get closer to that two times leverage target, how are you feeling about, you know, potentially being able to buy something again and just curious if you're seeing any attractive opportunities out there? I mean, our leverage is coming down in line or maybe even slightly ahead of our expectations. So that's positive and puts us in a good position.
Linda Bolton: I think as we end the year and get, you know, below two times, we're definitely in a position to be able to make an acquisition. But the other part of your question is, you know, what are we seeing out there? I would say there, there is a flow of assets being available, but not a lot that need our criteria. I would say it, the market is not strong in that regard currently in terms of quality assets that we would, we would seriously consider that need our criteria.
Linda Bolton: I don't know, Jack is here as well. Maybe you want to add something Jack? I think Brian's got it just right. There is more flow that is starting to come in versus what what it's been the last six months, but items or assets that fit the criteria things that we are looking for. We're not seeing those yet, but we're going to continue to look and we find that we would certainly lean into one of the time is right and it's elementary is ready.
Jack Jancin: You've seen us before Susan is doing here and hi, we're picky. So as prices come down in the market, it equilibrates all that you just heard. We're not easier to bounce on the wrong asset. We're excited to find the right one is quite picky on.
Linda Bolton: Okay, great. Thanks so much, everyone. That's really helpful.
Operator: Good luck, next quarter.
Olivia Tongue: Our next question is from Olivia Tongue with Raymond James. Please proceed. Great. Thanks. Good morning. A couple of clarification questions for us.
Olivia Tongue: Just on the elements out through, I just want to understand on the Q3 versus Q4 is the declining Q3 due to retailers expecting lower sales and they were just in their orders appropriately, but the recent inventory on hand doesn't change. Or they actually looking to hold less inventory because it's more of a forward indicator that they think that they don't need as much inventory to drive the sales. Yeah, I think it could be a combination of the two.
Olivia Tongue: I think they're definitely forming an expectation of what they're expecting for demand. And then, you know, maybe being cautious in their ordering, reflecting what they are seeing. I also see a general trend of them wanting to generally hold less inventory. And I'm not talking about huge weeks on hand adjustments, but I am on the margin. They would like to expose themselves to a little bit less risk and they end their fiscal year.
Olivia Tongue: So I would say it's a combination of those two things, but also want to make the point that we're not talking about wild inventory adjustments and things like that that would have occurred last year. I think it's more on the margin, but that those marginal adjustments do have an impact enough for us to, you know, need to adjust our revenue guidance for the third quarter. So it's not hugely meaningful, but enough to change, you know, two or three percentage points in terms of our revenue for the quarter.
Olivia Tongue: And yet, I maintain your guidance, which means that the back half will produce exactly what we said, including the good news that we brought out today on Q2. So I think people just even looking at the stock price early reaction may be hung up on this idea of, is there a pressure in the back half and what we're saying is exactly what Brian just said. There's a re-jagering of the case between Q3 and Q4, and then reaffirmation of the full year results.
Brian Grass: Got it. And then just sticking on the outlook, you know, the full year outlook is still pretty wide range considering we're past the midpoint of the year, you've historically tried to narrow that a bit by this time. And you've already, you know, obviously talked about the line of sight on Q3 versus Q4 cadence. So perhaps can you put it by just maybe some goalposts on what's embedded at the low end versus the initiatives that potentially get you to the high end of the range?
Brian Grass: Yeah, I mean, I think it's a good call out. We, you know, something considered narrowing. I think, you know, you would hopefully agree that there's a lot going on in the macro environment that could have an impact. And I think weighing all of that, including very recent things. We felt like let's go ahead and maintain the range, even though it does result in a wide range, especially for Q4. You know, I think hopefully you've seen from our history, at least, you know, The history, I know I've been a part of, we're always focused on the high end of our ranges and that's where we like to steer towards and we like to have conversations around but felt like with all the uncertainty in the environment, it made sense to keep a wide range to account for a lot of different variables that could change over the course of the second half of the day.
Brian Grass: The year, but we feel very good about our forecast, we feel like we factored in a lot of potential downside impact and left a lot of room for upside on top of our forecast if we're able to hit on all our teaching initiatives. I don't know if you want to add anything there about, I call that, or I answered a previous question about some of the things in versus Q3 and Q4 that are going to drive that and give us confidence in that. I don't know if you've got follow up questions on those items, I would call those items out, it's being the primary drivers of, you know, kind of the Q3, Q4 cadence.
Brian Grass: Thank you.
Peter Graham: Our next question is from Peter Graham with UBS, please proceed. Thanks operator, good morning everyone and so I also, if I miss this Brian in your remarks, but is the expectation for full year gross margins is still be around this 48%. You know, and if so, can you maybe speak to the, to the staging from a gross margin perspective, given the more challenge, 3, Q outlook and I guess I'm really trying to get to get at yours.
Brian Grass: You know, if that's still the expectation that it's more waiting for the fourth quarter, which seems to be the case given the change in the outlook in terms of phasing, but how does that inform your view on the gross margin potential for further business as you look at the fiscal 25. Particularly as Pegasus savings continue to build. Yep, good good question. We, we are seeing the, that will end the year with with the slightly lower gross profit margin implied in our original guidance and, but that's really just from shift margin mix, shift in revenue impacts that are going on.
Brian Grass: So, you know, nothing structural that we're concerned about and no concerns about fiscal year 25. So structurally we still have the ability to elevate our gross profit margin and achieve kind of what we've talked about through Pegasus and see that impact through into fiscal year 25 and we're still realizing the freight and commodity savings in the second half of fiscal year 24 the, I'll call it 1 percentage point decrease in our full year gross profit margin expectation is really due to shifts in in margin mix within our portfolio.
Brian Grass: Peter, no impact on our continued confidence that we can build it from there because of your comment about Pegasus so Pegasus ramps remember 60% of the Pegasus savings are coming from cost of goods related work free project as Noel and reinforcing her comments about Pegasus nicely on track. So with 50% of such a big number which is Pegasus is published targets falling into cobs. We feel confident to say that not only will we keep the big gross margin gains that are reiterated now, or not reiterated that set now for gross margin fiscal 24 but filled from there in fiscal 25, 26, etc.
Brian Grass: And still have reinvestment opportunity. Yeah, in fact, even more reinvestment opportunity because of the fuel from Pegasus and not to get into our investor day now, but there's a very positive dynamic. Imagine more dollars coming in. Resulting in a higher gross margin than even the gains for this fiscal year fueled by Pegasus, which also fuels the further reinvestment, which also feels more growth, you start to get the idea not only of a flywheel, but of a higher sustained gross margin going forward.
Brian Grass: Peter, you asked the question about cadence, so I would say, you know, roughly speaking, if you want to platform off of Q2, you know, maybe half a percentage point around that in Q3 and then, you know, one and a half, maybe a little bit higher and Q4, that's kind of the cadence of the increase in gross profit for the remainder of the year. Thanks, but just a one clarification on that for the 50 basis points versus Q2, so call it, you know, low 47 is the 150 basis point relative to Q3, or is it relative to the Q2 number, just some clear.
Brian Grass: So the 50 basis points is relative to Q2, so like you said, low 47, and then, you know, think of point and a half on top of that for Q4. Okay, yeah, I was just making sure it was the 47 we're building the point half of the low 47 not off of the Q2 number. Yeah, yeah.
Brian Grass: No, I mean, just like last picture last question for me, just like more bigger picture, I mean, you know, Brian, you're pretty clear that you've embedded enough cushion in your guidance, but you know, I would just be curious, you know, it's been a pretty challenging environment to kind of predict what is going to happen. How would you characterize your visibility, right? I mean, we're not that long ago where you were kind of expecting, you know, a return to revenue growth in 3,000.
Brian Grass: I kind of didn't play out so I guess I was just, you know, just bigger picture question, you know, how much visibility visibility do you think you have at this stage as you look out for Q1 into next year. I say overall is good. I mean, I get your point about we did make a change in Q3, you know, that I think is a reflection of us staying close to our retailers and listening to what they're having to say and us reflecting that adjustment as soon as we kind of get that visibility.
Brian Grass: And look, we can't perfectly predict retailer adjustments, you know, at the beginning of a year. So hopefully what it shows is us being very responsive to talking to our retailers and some of them are very focused on student loan repayment. Others aren't as focused. And so, you know, that's even another layer that we have to get in and understand because you can't make a blanket statement that all of them are adjusting to that some of them are.
Brian Grass: And I would say we're it's a reflection of us staying close to our market and reflecting that visibility as soon as we have that opportunity. And hopefully that gives you some confidence because like I said at the beginning of the year, you can't have predicted that this would come up and the retailers some adjusting to it and some not adjusting to it in which ones and all of the puts and takes. So, I mean, based on kind of the the chief of macro hooks and takes and things going on right now, I think we're managing our forecast and our visibility as well as we can.
Brian Grass: John, thanks so much, Brian.
Linda Bolton: Our final question is from Linda Bolton, why is there with the A.D, is in, please proceed. Yes, hi. So I was curious about your view on, you know, putting some cash towards share repurchase versus further debt repayment and knowing the macro environment and some of these things going on that you just talked about, it's a little surprising that you did the share repurchase already, 50 million, I guess, I'm just kind of wondering, have you, have you used all your ammunition, you know, or is there some ability to do more here with the stock down 9%, maybe you could just come in on your stock there.
Linda Bolton: Yeah, I don't think we'd use all our ammunition and you know, we think that the share repurchase was a good investment and the primary thinking is that is even with the repurchase of our shares, we were still able to get to the better end of our leverage target by the end of the year of 1.85 times and so we thought it was a great thing to do to return some capital to shareholders. We also had a reasonable view on the sale of our passive facility and the proceeds that that would generate, which was also factored into the thinking and helps us be in a very strong, balance sheet position to be able to do it.
Linda Bolton: So I do it as a win-win. We're able to get at the very low end of our leverage target for the year and we're able to repurchase shares to me, those are both positives. Yeah, in terms of timing, I couldn't agree more. Remember, we're going for the long game. I know a lot of people on this call are two. We like our prospect a lot. The thing is the thick of the basics.
Linda Bolton: Distribution is growing. Investment fuel from the Pegasus saving gives us the ability to not only expand margin, but also to invest in further drive from innovation and the other basic flywheel drivers in the company. That has the ability to expand, not just profitability, but revenue, which creates operating leverage. Do that in a higher gross margin. Do it all at a sweeter mix, so to speak, from a profit standpoint, give room for acquisition and ask, should you see growth in the company and more sellers in the flywheel?
Linda Bolton: We believe the answer is yes. So the short term that Brian described, it creates opportunity. The lower leverage ratio, the low two times that he's talking about certainly means that we haven't spent our allocation for this and depending with the market, the market is skittish right now and yet that long term proposition is fundamentally sound and exactly our expectation and plan makes you want to buy the stock, at least for us.
Linda Bolton: Okay, that's it for me. Thank you. Thanks, Linda.
Operator: We have reached the end of our question and answer session.
Julien Mininberg: I would like to turn the conference back over to management for closing comments. Yeah, well, thank you, operator. And thank you, everybody, for joining us today. We're very pleased with the quarter and debris in a position to reiterate our guidance for the full year outlook for fiscal 24. We look forward to speaking with many of you later this week as we make our various calls and also providing detail on our longer term strategy during our investor day on the 17th of this month.
Operator: So with that, I'll simply say thanks very much and have a wonderful day. Thank you.
Operator: This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation Thank you very much.