Q4 2025 Helen of Troy Ltd Earnings Call
Speaker Change: Greetings and welcome to the Helen of Troy 4th quarter fiscal 2025 earnings conference call. At this time all participants are in a listen only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad As a reminder, this conference is being recorded
Speaker Change: It is now my pleasure to introduce your host, Sabrina McKee, Senior Vice President and Best Relations and Business Development. Thank you, you may begin.
Speaker Change: Thank you operator. Good morning, everyone. Welcome to Helen of Troy's fourth quarter of fiscal 2025 earnings conference call. The agenda for the call this morning is as follows. I will begin with a brief discussion of forward looking statement.
Speaker Change: Ms. Noel of Jofla, the company CEO will provide comments on the current operating environment and the steps we have taken to navigate the volatile macro landscape.
Speaker Change: She will give an overview of our fourth quarter results and accomplishments in fiscal 2025 and highlight our areas of focus in fiscal 2026.
Speaker Change: Brian Grass, our CFO will then detail the steps we've already taken to diversify our supply chain, give an overview of our financial performance in the fourth quarter, and provide commentary on our expectations for fiscal 2026.
Following this, we will open up the call for Q and A.
Speaker Change: This conference call may contain certain forward-looking statements that are based on management's current expectation with respect to future events or financial performance.
Speaker Change: This conference call may also include information that may be considered non-GAF financial information.
Speaker Change: These non-GAAP measures are not an alternative to GAAP financial information, it may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.
Speaker Change: Before I turn the call over to Ms. Yafwa, I would like to inform all interested parties that a copy of today's earnings release and related investment debt has been posted to the company's website at www.helenoftroy.com and can be found by navigating to the Investor Relations section of the site or by scrolling to the bottom of the homepage.
Speaker Change: The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding gap-based measures. I will now turn the conference call over to Ms.
Geoffroy: Thank you, Sabrina. Welcome everyone and thank you for joining us. Before discussing our business performance, I'd like to start by acknowledging the volatile environment we currently find ourselves in.
Geoffroy: The scope, severity, speed, and daily changes to global trade policy are creating significant uncertainty and disruption to our business, and all indicators suggest we will see a meaningful impact to consumer behavior.
Geoffroy: As a result, until we have more clarity, we are not in a position to provide fiscal 26 guidance at this time, and we are also stepping back from the long term algorithm we laid out at our investor day in October 2023.
Geoffroy: We face uncertainty at the onset of COVID, of course, for very different reasons. Our organization faced that crisis head on with agility, taking steps to protect our people while meeting the increased COVID demand for some of our products, including kitchen and homes, their armometry and air purification.
Geoffroy: As we descend, we will navigate this moment by continuing to stay true to our purpose, vision, and values by working collaboratively on our tariff mitigation plans and by saying centered on our consumers and our beloved brand.
Geoffroy: We are proud to have many brands that hold leadership positions across multiple categories and that continue to earn consumer and industry recognition for their outstanding quality and performance.
Geoffroy: As a result of our recent actions to reset and revitalize our business, we strengthened our brand fundamentals, increased our growth investment, and expanded our brand's distribution.
Geoffroy: Further, as we have seen in prior recessionary periods, many of our brands resonate well during economic downturns that they offer value to consumers who are looking to stretch their budgets more on this in a moment.
Geoffroy: First, let me start with the actions we've already taken in response to the tariff as they stand today.
Geoffroy: We are focusing on controlling our controllable while continuing to monitor the landscape closely.
Geoffroy: For the moment, we have paused certain purchases from China that were destined for the US market and will rely on our current inventory to meet short-term demand.
Geoffroy: We'll call. We purchased targeted additional inventory in late fiscal 25 and early fiscal 26 ahead of Tara. That will help us now.
Geoffroy: We accelerated our multi-year risk mitigation plan to further diversify our supply chain outside of China and expect to make meaningful progress by the end of fiscal 26
Geoffroy: We refreshed our skew prioritization with the latest data so that we allocate our purchases and efforts towards the most promising and profitable opportunities.
Geoffroy: We are evaluating pricing and promotional plans across the portfolio in close partnership with our retailers.
Geoffroy: We are also evaluating our marketing spend and will leverage our marketing mix modeling capability to optimize investment in brands and programs with the highest ROI and the highest relevance in this environment.
Geoffroy: We made targeted organizational changes to both managed costs and improved focus in key areas including strengthening our innovation capability and beauty and wellness and aligning our supply chain and IT organizations to support our current priorities.
Geoffroy: We have increased our focus on controlling costs and capital expenditures across the organization.
Geoffroy: Importantly, as a result of Project Pegasus, we are now operating with a more efficient foundation, both through reduced cost of goods and a more centralized data driven organizational structure.
Geoffroy: Finally, we are leaning into areas of opportunity, including International, which is not subject to tariff, as well as value reframing across our portfolio.
Geoffroy: We believe that consumers will become even more cautious with their spending and many of our leading brands are well positioned to offer consumers benefits they seek at a great value.
Geoffroy: For example, as consumers choose to eat out less, OXO is a go-to for at-home cooking and coffee.
Geoffroy: Pure can save consumers up to $75 every month when they switch from bottle of water to a pure system.
Geoffroy: and our Revlon Hair Tools deliver great salon styles compared to other brands that can cost up to ten times a more.
Geoffroy: We see, Olive and June , Dry Bar, Hot Tools, and Revlon as ideal DIY alternatives to price-eat-ill-on-services.
Now, turning to our business performance.
Geoffroy: Today, we recorded fourth quarter nut sales and adjusted EPS that were in line with our expectations with strengths in wellness, Oxo, Osprey, and International, and better than expected contribution from all of in June .
Geoffroy: As we have discussed, fiscal 25 continues to be a challenging year as consumers continue to be financially stretched and further prioritize essential of our discretionary items. The competitive environment intensified and retailers closely managed their inventory.
Geoffroy: During the fiscal year, we took necessary and focused actions to reset and revitalize our brands and business.
Geoffroy: We deliver the largest year of Project Pegasus Savings and we acquire the innovative nail-care company, Olive & Jude. Following are the key actions we executed as part of our reset and revitalized plan.
Geoffroy: We implemented revitalized consumer and data centric brand strategy, invested incremental fuel in full funnel experience plans, and expanded our distribution footprint globally.
Geoffroy: We launch new brain content to enhance brain relevance and improve our innovation processes and pipeline.
Geoffroy: We continue to invest in infrastructure, core capabilities and talent, and we fully operationalized our Tennessee distribution facility [inaudible]
Geoffroy: We elevated our operational rigor and accountability across the organization and we added significant new talent and capability to help take our performance to the next level.
Geoffroy: As a result of these actions in fiscal 25, we saw encouraging improvement in the following key performance metrics.
Geoffroy: continued execution against Project Pegasus that contributed to a 60 basis point increase in gross margin and helped generate fuel to increase our growth investments by approximately 160 basis points.
Geoffroy: Over the past three years, Pegasus has enabled us to increase our growth investments by over 40%
Geoffroy: Drew or maintained market share in five of our key categories in our U.S. measure channel were seven of our brands called number one or number two positions in their respective categories. [inaudible]
Geoffroy: Gru International Net Sales by 5.3% reflecting its expanded distribution, greater collaboration between Brandon Sales Team and incremental investments in our most promising opportunities.
Geoffroy: increased our U.S. weighted distribution by approximately 12% year over year making our brands increasingly available where our shoppers shop.
Geoffroy: We are encouraged by the progress we've made and believe these steps have strengthened our position to navigate fiscal 26 and beyond.
Geoffroy: Now I will turn to a closer review of the key drivers and trends in the fourth quarter and the fiscal year.
Geoffroy: Our wellness business performed better than we expected the fourth quarter driven by a late spike include that resulted in stronger POFs for Gron and Vic in North America.
Geoffroy: Sales for our Honeywell air purification products were also stronger than expected, driven by demand in the areas affected by the Los Angeles wildfires.
Geoffroy: In both cases, the primary impact was to draw down existing retailer inventory. However, we did see some for punishment orders laid in the corner.
Geoffroy: On a full-year basis, we were pleased with meaningful stabilization in our wellness business, despite an overall softer, cop-could-inclusive season, as well as the headwinds from the exploration of the out-licens discussed previously.
Geoffroy: In thermometry, Bronn and Vicks remain the number one and number two brands in the U.S. respectively.
Geoffroy: Braun, Gru, Revenue, and Chair of Thermometry, to fight the overall category decline.
Geoffroy: Grom's growth was driven by commercial innovation that highlights Grom's point of difference, accuracy made easy, and US distribution gains.
Geoffroy: This also gains share in U.S. pheromometry and remains the market leader and R.A.G. humidifiers with particular strengths in steam inhalers.
Geoffroy: Pure remain the number two water filtration brand in the US and is the only national brand that grew market share for the year of brick and mortar gaining across all segments despite the decline in the water filtration category.
Geoffroy: As we've previously outlined, Beauty has had a very challenging year driven by soft POS and category declines from many of our key brands.
Geoffroy: There were some bright thoughts and learnings that informed our go-forward plans.
Geoffroy: Revlon is our largest beauty brand with our hero-volumizer skew that remains the number one of the top-air styling tool in units.
Geoffroy: Revlon should sequential improvement driven by highly relevant value reframing content and strength in Walmart. We believe the brand's value proposition will resonate well with consumers in the current economic environment. We are also encouraged by signs of strength in our international level. I'm different.
Geoffroy: During fiscal 25, we were specially focused on refining dry bars, positioning, and reinvigorating
Geoffroy: We are pleased to be launching the Need Drive Our Our Inclusive Multi-Syler Tool along with a below-out percent system.
Geoffroy: The blowout to fund system is available now and addresses a major consumer need extending the life of a blowout.
Geoffroy: This new regiment delivers salon quality style for up to 96 hours.
Geoffroy: The all-inclusive tool builds on that regimen and launched earlier this month with influencer
Geoffroy: It will be available on our DTC size later this month and in retail stores in early May.
Geoffroy: The all-inclusive tool combines eight styling tools into one revolutionary product, giving the consumer unlimited ways to achieve her desired gorgeous hair. It combines both heated airflow and heated ceramic plates so consumers can take their hair from wet to dry to styled.
Geoffroy: It is unique, and that all signs of captures can be used without air for second-day heated only silence
Geoffroy: This new tool simplifies the blowout routine with its innovative design and delivers on driver's promise of signature high-quality salon-worthy long-lasting blowouts at home.
Speaker Change: Subsequent to the end of the quarter, Carl Smith launched three new liquid innovations, including a fragrance-free line, a detox shampoo, and a multi-benefit curl shield, heat-protected cream.
Speaker Change: Curl Smith also launched an innovative new tool, the D for John , Curl Reviving Wond, designed for enhanced styling to refresh, enhance and define curl with blood heat. It comes with interchangeable barrels to match the varying consumer curl patterns.
Speaker Change: Hot Tools performed below expectations, but we believe it has meaningful upside potential.
Speaker Change: Our focus going forward is to return to the Graham's roots, styling tools that are inspired and developed by hair professional
Speaker Change: A key priority for the brand will be emphasizing its hallmark curling tools with the unique 24k gold styling surface, which helps conduct heat evenly and lock and style for up to 70% longer while minimizing damage.
Speaker Change: The newest addition to our beauty portfolio, Olive and June , out-forformed our expectations with growth driven by the strong gel system launch at Target and DTC and strong overall performance at Walmart.
Speaker Change: Subsequent to the end of the quarter, the brand expanded its retail footprint with an initial test launched into approximately 150 CVS stores in March and launched the gel system in Walmart in April .
Speaker Change: Oliver June continued to receive industry accolades and was included in the 2025 Bane Insurgent Grand list for the second year in a row, as well as four vetted best products for instant mani press on, and a lures one to watch for the gel mani system.
Speaker Change: Through February , Olive and June is now the fastest growing and number one nail branded target driven by artificial
Speaker Change: More broadly, Olive and June is growing well above the nail care category and is number two in the U.S. and the artificial nail category These are impressive accomplishments for this young grand which we believe has significant growth potential
Turning to our women outdoors segment
Speaker Change: Oxford grew in the quarter, driven by continued strong performance at Walmart and on Amazon.
Speaker Change: OXO's product quality and functionality continue to attract new consumers to the grant with nearly 90% of Walmart OXO's kitchen utensil consumers being first-time buyers of the brand.
Speaker Change: expanded distribution and continued strong philosophy helped drive POS and market share with oxen increasing its leading share of the kitchen utensils category for the full fiscal year.
Speaker Change: While the food storage category continues to normalize after strong growth during COVID, OXO continues to be the leading national brand in the category and is over two times the size of the next largest national brand.
Speaker Change: OXO continues to innovate in food stores with the new twist and stack containers which launched in January . True to OXO's heritage, the twist and stack containers are long lasting, weak proof, stain resistant containers that can safely go from freezer to microwaves to dishwasher.
Speaker Change: They come in a range of convenient sizes, are great for many attations, and offer uniquely stackable and storeable components, but easily naps with interchangeable lists.
Speaker Change: Osprey also grew in the quarter with performance driven by strong growth in international and DTC.
Speaker Change: While the US Tech-Tack category remains soft, Osprey continues to hold a strong number one position over two times the size of the next national brand.
Speaker Change: Osprey also continued to gain share in the adjacent everyday lifestyle pack and kid carrier pack categories
Speaker Change: Turning to Hydroflap, we continue to see the overall insulated beverage category slowing with some shift away from travelers and back into bottles. The brand continued to expand its presence and target into the sporting good section with an assortment of drinkware, soft coolers, and lunch boxes.
Speaker Change: The brand did an initial U.S. DTC launch of the 7.6-ounce micro-hydro that captured buzz subsequent to quarter-end.
Speaker Change: That launch included three DTC only drops that sold out within hours with eager consumers waiting for the next drop.
Speaker Change: The micro hydro was initially designed for the Japanese market primarily to carry hot water for tea or on the go-soup, while also tapping into the fashion trend setting consumer.
Speaker Change: We launched in Japan in February to strong reception, more than doubling our initial forecast.
Speaker Change: We are pleased that Microhider class can now also successfully capture the interest of U.S. consumers who love it for both its functionality and its irresistible aesthetic. It even showed up as an accessory in New York Fashion Week. [inaudible]
Speaker Change: Looking at the fiscal year for home and outdoor as a whole, we are pleased with the performance of OXO, particularly the distribution gains and strong performance at Walmart, as well as whereas online and in international.
Speaker Change: Hydroflest continued to broaden its appeal and relevance with size and form innovation, like travel model and now microhydro to meet different use of occasion and delivered share growth in the travel Tumblr segment.
Speaker Change: We continue to introduce on transitional colors and designs that desired by consumers. The latest is our vibrant, limited edition jelly collection launched in March.
Speaker Change: International was also a bright spot where the brand leveraged our home and outdoor channel distribution strength.
Speaker Change: International is also a bright spot for Ospreay in CIS-25, particularly in APAC in Amia.
Speaker Change: Osprey continues to earn high praise for great quality and design, including Osprey Daylight being named when it forms 2025, that is best product awards, and a top 12 must have for hiking by travel and leisure.
Speaker Change: Osprey's Daylight Sling was named as one of Blammer's 12 Best Facts for Men and the Ospre A.O. brief Facts was selected as the Best Workback Pack in the Reader's Choice Caryology Carrier Awards.
Speaker Change: As I touched on a bit earlier, international was again a standout in the quarter with sales outperforming our expectations. Growth was broad-based across all key geographic markets and segments, with particular strengths and offspring and hydroflap.
Speaker Change: This caps off a strong year for our international business, which grew 5.3% in fiscal 25.
Speaker Change: As mentioned, we intend to lead into international opportunities even more in fiscal 26th.
Speaker Change: Setting back, fiscal 25 was a year of both internal and external challenges, but we feel good about the choices we've made and the actions we have taken to improve the strengths of our brand and position them for improved performance.
We remain committed to our strategic choices.
Speaker Change: of growing our brands through consumer obsessions, being in winning where our shop or shop, fully leveraging our scale and assets, shaping our portfolios through opportunistic M&A and embracing next level data and analytics in everything we do.
Speaker Change: As we continue to navigate the dynamic macro landscape, we will remain agile and in different ways while building on the actions which have been difficult 25.
Speaker Change: More than ever, we are focused on controlling our controllables as I outlined earlier, leveraging key initiatives to further improve the health, appeal, and availability of our brand, and executing as a collaborative team with excellence and agility.
Brian: Before handing it over to Brian , I would like to acknowledge and thank our associates around the globe, who are being dedicated and resilient during these challenging times.
Brian: Thank you, Noel. Good morning, everyone. Thank you for joining us.
Brian: We're pleased to report 4-quarter net sales and adjust the details as well in line with our expectations, despite unfavorable foreign currency that was not included in our outlook.
Brian: Well, fiscal 25 was not the year we'd hoped for. Our results in business fundamentals steadily improved throughout the year and put us in a position to navigate in an environment that has quickly become more challenging and uncertain as we enter fiscal 26.
Brian: Given constantly evolving global trade policies and the related business and macroeconomic disruption, we are not providing an outlook for fiscal 26 this time.
Brian: We are in the process of assessing the incremental terror impact in light of continual changes in policy, the full expense of our mitigation plans, as well as the associated timing and capacity to fully execute these plans in a rapidly changing environment.
Brian: In addition to the uncertainty from evolving trade policies, we believe there is a high probability of unfavorable ripple effects on inflation, consumer confidence, employment, and overall macro economic conditions that are impossible to predict and are outside of our control.
Brian: That said, we've been here before. We face a similar degree of uncertainty going into the pandemic, which gives me confidence that our organization can successfully adapt to the current environment. [inaudible]
Brian: We learned then that success or failure is less about what happens to us and more about how we respond to it.
Brian: Our leadership and associates are responding with the same level of commitment and find a way attitude as we face the current challenge ahead of us
Brian: Over the course of the past few years, we've made meaningful improvements in our supply chain to better prepare us for this moment.
Brian: We took out significant sourcing costs for Project Pegasus, and we consolidated down the fewer, more strategic suppliers.
Brian: We are now partnering with those strategic suppliers to diversify the new geographies that we believe will be less exposed to trade disruption with the goal of achieving a lower overall cost. Thank you very much.
Brian: We also began dual sourcing more of our production and are now intensifying those efforts even further.
Brian: We purchased additional inventory several months ahead of tariff implementation and we are using this as an opportunity to move through existing lower velocity inventory, not subject to tariff.
Brian: These actions will allow us more time to complete supplier transitions before the tariff impacts are felt and will allow us to offer a more favorable value proposition to our retailers and consumers in a time of economic uncertainty.
Brian: An expected slowdown in consumer demand, while unfavorable, will further extend the time to complete the diversification initiatives, and mitigate as much of the tariff impact as possible.
Brian: Finally, with our additional inventory buffer, we are pausing all China purchases in the short term with a few exceptions.
Brian: This will allow us to evaluate and adapt to further trade policy developments and minimize the overall tariff impact in the event there is a reversion back to a more normalized global trade posture in the near future.
Brian: The light of the size of current China-Jeris, the estimated tariff impact that we will not be able to directly mitigate
Brian: in the expectation of cascading impacts on the economy and consumer.
Brian: We are taking additional actions to reduce other operating costs, optimize the balance sheet, maximize cash flow, and accelerate debt paydown.
Brian: With these actions and the tariff mitigation strategies referred to earlier, we believe we can offset 70-80% of the tariff impact in FY26 based on tariffs currently in place.
All outlining the specific actions we were taking shortly.
Brian: Turning now to our fourth quarter results, consolidated net sales decreased 0.7%, which is at the higher end of the range implied in our full-year outlook provided in January , despite an unfavorable foreign currency impact, a 0.5% that was not included in our outlook.
Brian: All in June , out the form of expectations will fail the $23 million.
Brian: Homan Outdoors on Organic Business Decline of 1.2% driven by Hydroflask, partially offset by growth in both offspring and oxo.
Brian: Consolidated gross profit margin decreased 40 basis points to 48.6%, primarily due to a less favorable product mix within the segments, a less favorable customer mix within home and outdoor, and the unfavorable foreign currency impact on net sales.
Brian: These factors were partially offset by favorable inventory obsolescence in lower commodity and product costs.
Brian: SGNA ratio increased 120 basis points to 35.9%, primarily due to acquisition related expenses related to the following June , an incremental growth investment of approximately 90 basis points.
Brian: These factors are partially offset by lower overall personnel expense driven by lower annual incentive and share based compensation expense.
Brian: The app operating margin for the quarter was 0.4% compared to 13.5% in the same period last year. Primarily due to non-cash asset impairment charges, a 51.5 million with respect to the drive art business.
Higher Restructuring Charges, and an increased MSG NA ratio.
Brian: As it relates to the dry bar impairment charges, during the fourth quarter we concluded a good well impairment triggering event had occurred primarily due to a continued sustained decline
Brian: After performing quantitative impairment just work, we concluded that the impairment charges were necessary with respect to the drive of our business.
Brian: Despite the impairment charges, we continue to believe in the longer-term prospects for the drive-up of business and continue to make progress on improving its fundamentals.
Thank you very much.
Brian: On an adjusted basis, operating margin decreased 160 basis points to 15.4%.
Brian: The decrease was primarily driven by incremental growth investment of 90 basis points, less favorable product mix within the segments, and less favorable customer mix within home and outdoor and unfavorable foreign currency.
Brian: These factors were partially offset by favorable inventory obsolescent expense, lower commodity and product costs, and lower annual incentive compensation expense.
Brian: On a segment basis, Home and Outdoor Adjusted Operating Margin decreased 80 basis points to 17.9% driven by a less favorable product and customer mix [inaudible]
Brian: These factors were partially offset by lower commodity and product costs, favorable inventory of sluts with expense and lower annual income compensation expense.
Brian: The juxtaposed operating margin for beauty and wellness declined 220 basis points to 13.4% primarily due to incremental growth investments and a less favorable product mix
Brian: These factors were partially offset by the favorable inventory off the left of the expense, lower annual incentive compensation expense, and lower commodity and product cost.
Brian: Income Tax was a benefit of $62.5 million, primarily due to a favorable transitional tax impact of $64.6 million, resulting from the intangible asset reorganization we completed during the fourth quarter, as we adapt to global minimum tax rules and final phases until or two tax changes.
Yet income was $50.9 million or $2.22 per diluted share.
non-GAAP Adjusted EPS was $2.33 3 cents.
Brian: which includes non-favorable impact from foreign currency or approximately 11 cents not included in our outlook.
Brian: compared to $2.45 in the same period last year. The year over your decrease in the diluted ETS was primarily due to lower adjusted operating income and higher interest expense.
Brian: Partially upset by a decrease in the adjusted effective tax rate in lower-weighted average diluted shares outstanding.
Brian: The end of the fourth quarter was total debt of 917 million, a sequential increase of 183 million compared to the third quarter, which primarily reflects the acquisition of all of them June and December 2024.
Brian: Our net leverage ratio was just under three times at the end of fiscal 25, which reflects capital deployment of almost 330 million for the all of the June acquisition and open market share repurchases during the year, compared to two times at the end of fiscal 24.
Brian: Looking ahead to fiscal 26, while we are not providing a formal outlook, I do want to share with you how we are thinking about expected tariff impacts, further mitigation initiatives, and expectations for ongoing China exposure, past fiscal 26.
Brian: I also want to share some early consumer and retailer trends we are seeing in additional actions we are taking in response to the challenges we see ahead of us.
Brian: First, related to expected tariff impacts. There are direct impacts from the tariff themselves and there is incremental cost associated with our ongoing efforts to burst by our exposure.
Peter Grom, Susan Anderson, Robert Labick,
Brian: Based on tariffs currently in place, current inventory levels, and pre-tariff consumer demand trends, we expect the vast majority of direct tariff cost impact will fall in a second half of our fiscal year.
Brian: The consumer demand begins to slow the weighted impact will be pushed out even further. With respect to diversification, we intensify our efforts in fiscal 25 and early 25th to 26th to further diversify our turf exposure.
Brian: We began to build out our internal Southeast Asia sourcing capabilities to accelerate supplier transitions out of China and in many cases dual sourcing production.
Brian: We also began making capital investments in equipment needed to replicate legacy China production.
Brian: As the terrorists became more imminent, we doubled our investment in Southeast Asia sourcing capabilities, increased the number of projects and accelerated their timing where possible.
Brian: Finally, as I referred to earlier, we pulled forward select inventory purchases in advance of tariff implementation.
Brian: We continue to believe that diversification and dual sourcing are the best strategies to mitigate supply risks now and in the future, but they come at a cost of higher operating and interest expense in FY26.
Brian: In some cases, the diversification benefits won't be realized until the end of fiscal 26 or an early fiscal 27, while some of the director direct tariff impacts will begin to be realized sooner.
Brian: As a result of our extensive diversification efforts, we estimate that we will reduce our ongoing purchasing exposure to China to less than 20% of consolidated
Brian: In the Investor presentation post to our website, we've included a slide that illustrates the estimated composition of our ongoing purchasing exposure by the end of fiscal 26 as compared to fiscal 25.
Brian: We also expect that over 40% of our U.S. bound purchases sourced from China will be available from other regions by the end of fiscal 26 and over 60% will be available from other regions by the end of fiscal 27.
Brian: This gives us increased ability to adapt if the trade and cost environment continues to evolve.
Brian: We continue to assess and implement other mitigation actions, including cost reduction from suppliers.
Brian: and the evaluation of pricing and promotional plans across the portfolio in close partnership with other retailers.
Brian: Well, we have not yet made all of our pricing and promotional decisions, pricing actions will be considered with tariffs at current levels.
Brian: We believe we can over-index towards goods produced in the U.S. or in lower tariff geographies, and we believe we can further feed international sales for which product is not subject to US tariffs.
Brian: Finally, we believe we can take advantage of higher inventory levels and existing lower velocity inventory to avoid tariff compression and create value propositions that resonate with our retailers and consumers in a difficult economic environment.
Thank you. Thank you.
Brian: With respect to early consumer and retailer trends, we are beginning to see softer demand given the deterioration in consumer confidence in uncertain macro environment and as retailers adjust to the expectation of higher prices and a consumer slowdown.
Brian: Finally, out of an abundance of caution and in the expectation of a difficult and uncertain environment, we are implementing a number of measures to reduce costs and preserve cash flow that will remain in place until there's greater certainty and less variability, which includes the following.
Brian: A suspension of projects and capital expenditures that are not critical or in support of fire diversification or dual sourcing initiatives.
Brian: A reduction in deferral marketing, promotional, and new product development events, actions to reduce overall personnel costs and pause most project and travel expenses.
Brian: A freeze on inventory purchases from China in the short term with the exception of purchases supporting key launches already underway.
Brian: An overall reduction in inventory purchases to optimize inventory and expectation of software consumer demand in the short to intermediate terms.
and Actions to Optimize Accounts Receivable and Payable Days Outstanding.
Brian: As mentioned through the combination of tariff mitigation actions and cost reduction measures, we believe we can offset 70 to 80 percent of the currently expected tariff impact in fiscal 26.
Brian: As of April 21st, the borrowing availability on our revolving credit facility is $423 million. The limitation on our ability to borrow based on leverage is $407 million, and we have over $85 million in cash and investments.
Brian: With the catchable preservation measures I just mentioned, we expect to further improve our financial position and liquidity during the first half of fiscal 26 [inaudible]
Brian: We believe this position was well, navigated downturn in the economy, should it occur?
Brian: We now expect to have an estimated average at the 81% of our outstanding debt swap that picks over 3.7% for fiscal 26 and an estimated average of 56% swap that picks over 3.3% for fiscal 27.
Brian: The fiscal 26 and 27 fixed rates are favorable to current floating rates by 60 and a 105 basis points respectively and give a certainty with respect to our interest costs going forward.
Brian: Lastly, to help with modeling, I want to remind everyone that our first quarter is typically our lowest revenue quarter. The seasonality of our portfolio and retailer ordering patterns have evolved over the past few years, which has caused even more contraction in the first quarter.
We expect this trend to further exacerbate the fiscal 26th.
Brian: We're also expecting an unfavorable impact from retailers with positive direct import shipments from China to avoid the current level of tariff, which we expect to have an impact on our first quarter revenue.
Brian: Finally, we are expecting that decline in international revenue in the first quarter due to lower revenue from China, driven primarily by trade tensions.
Brian: In closing, while trade tensions and pressure on the macro environment have led to considerable uncertainty, we believe we have a strong set of tariff mitigation actions and cost reduction measures that we expect to offset a high percentage of the estimated tariff impact and preserve cash for a further downturn in the economy.
Brian: We see many opportunities to create value for our retailers and consumers which we believe would be favored in the environment we are facing.
Brian: Many of our products in our diversified portfolio have performed well in past economic downturns that we will look to leverage those strengths in fiscal 26.
Brian: We're excited about the potential of the Olive and June acquisition, which we believe will perform even better in a cost-conscious environment.
Brian: with our resilient associates, efficient operating platform, solid financial position, ample liquidity and robust action plan to control the controllables.
Brian: I believe we are a well-positioned to successfully navigate the current environment and a projected economic downturn if that should occur
And with that, I'll turn it back to the operator
Speaker Change: Thank you. You will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participating speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. When moment, please, Wally Poll for questions.
and others.
Speaker Change: Thank you. Our first question comes from a line of Bob Labick with CJS Securities. Please proceed with your question.
Good morning. Thanks for taking our questions.
Hey, Bob.
You're qualifying them and getting them up to speed [inaudible]
Speaker Change: Hey, Bob, thanks for the question. Yes, as you know, we've been working on supplier diversification, you know, over the past several years and I would say it is a blend of the two. We've got some of the opportunities where we're working with current suppliers in areas outside of China and then in a few cases there are some new suppliers. So it's a combination of the two as we look at our mitigation efforts. [inaudible]
Bob Labick: Brian , anything you want to build? Yeah, I'd say the larger percentage is with existing suppliers, a smaller percentage with new suppliers.
Bob Labick: Okay, great. And then, you know, excluding Tara's for a moment, I know it's impossible but
Bob Labick: What do you see as the potential cost increase of the new manufacturing locations?
Bob Labick: You know, versus if there weren't tariffs and you could have left them in China trying to think of like what level of tariffs as you mentioned changing daily is break even for you moving what is it, you know, how do you think about it in that?
Bob Labick: Jackson, so how much is the higher cost, no matter what, if you have to move everything to save the inanimate cost 10% more, or what excluding tariffs is kind of the thing I'm trying to think about.
Bob Labick: Capex in some cases, we're kind of funding it with holding higher inventory, yes, we have a buffer as we kind of navigate the trade environment, we've had to build capability southeast Asia in particular kind of the the.
Bob Labick: Capability internally.
Bob Labick: <unk> works with the manufacturers to.
Bob Labick: To make the moves into it as you say you know qualify the inventory and do all the things that are necessary when.
Bob Labick: When you change from a sourcing partner so that I'd say, there's less of a cost coming from you know the cost impact of the product itself and more of a cost impact coming from having to build the capability fund the capex in some cases and.
Bob Labick: Fund holding more inventory right now than we probably normally would but navigating such extensive changes in your supply chain you need it as a buffer.
Bob Labick: Got it okay. Thank you that makes sense and last one I'll jump back in queue, but you said, you're contemplating potential price increases.
Bob Labick: Hum.
Bob Labick: Can you talk about like I guess, which areas you know roughly how much is just like 5% to 10% and 15% more or less and is it across the board or is it you know more specific in certain brands, because others I think offerings like mostly.
Bob Labick: In Vietnam. So you know I guess, we're waiting to find out what those tariffs are but you know not not made in China.
Bob Labick: Yeah, Yeah, Bob I would say you know we're still.
Bob Labick: Well in the process of contemplating and evaluating the various different scenarios.
Bob Labick: And doing that in conjunction with our with our retail partners and so we talked about in the past you know we this isn't an environment, where we want to have to raise prices a significant amount you know based on where the consumer is and you know these are discretionary categories. We as you said we are evaluating it across the portfolio.
Bob Labick: So we've got some parts of the portfolio that are more exposed to China and more exposed to the tariffs and others. As you mentioned you know osprey for right now that the reciprocal tariffs are on pause. So we're at the 10% now with the reciprocal tariffs come back into play at some point in the future you know that changes the environment. So these are all of the.
Bob Labick: As we mentioned and you reiterated the daily changes that we're navigating which is why we're not locking in at this point on pricing, we're partnering with our retailers looking at the various options as you do with pricing we like a threshold you know we look at where the tariffs are we look at them you know I'll take all of those things into account as we look.
Bob Labick: The scenarios that we think are going to make them assets and just your point is that you know across the board or were more targeted I'd say, it's very much more.
Bob Labick: Target it we're looking at almost item by item price thresholds.
Bob Labick: Being very choice swollen careful with you know the pricing decisions kind of almost on an item by item basis. It is not something that we're just doing it across the board we're in and so the last point you you have to work with the retailers as well as to what makes sense given their assortment the competitive set that.
Bob Labick: That type of thing as well.
Bob Labick: So taking all that into consideration in trying to be as thoughtful and targeted as possible.
Bob Labick: Okay Super Thank you very much.
Speaker Change: Our next question comes from the line of her pets Perique with Oppenheimer. Please proceed with your question.
Speaker Change: And thanks for taking my questions. So I, just I guess, just starting out with the tower of commentary as we think about the 20% to 30% of towers that are not mitigate another cost savings is there a way to quantify the dollar amount in terms of what that could be for the year.
Speaker Change: Yeah, I'll give you some directional numbers I think the we don't want to get too specific with the D assessed the impact of the tariff because.
Speaker Change: Timing plays a big factor in into that you know changes in tariffs plays a big factor in to that and in what's demand going to do because demand dictates how much inventory that we currently have will work through and wind tariffs could potentially impact us currently where we're pausing all our China purchase.
Speaker Change: So we don't even have that coming into our inventory when we toggle that off is something that we still have to work through so there's a lot of variables in terms of when the tariff impact will be felt.
Speaker Change: So what I would say is as you know at current rates.
Speaker Change: <unk>, China out of 145%.
Speaker Change: And the step up in reciprocal tariffs after the 90 day pause, it's over $200 million of impacts from fiscal year 'twenty six.
Speaker Change: Okay. That's helpful. And then 20 to 30 per size, if that's what's up not mitigated at this point neither cost savings, but that's all correct.
Speaker Change: Okay and then just just on you know I guess, just you know clearly your team as you're growing a more defensive mode near term do you expect positive free cash flow for the full year.
Speaker Change: Absolutely.
Speaker Change: Okay, Great and then maybe my my last.
Speaker Change: Question. So I appreciate some of the commentary in terms of what you guys are seeing a near term from from retail or consumer perspective is there any directional commentary you know versus at.
Speaker Change: The organic sales growth decline in Q4, whether you expect you wanted to be worse or I don't know if there's anything you can share in terms of it sounds like it won't be worse than Q4, but I don't know if there's any additional color you can provide and it turns out Q1 top line dynamics.
Speaker Change: Well, we've talked in my remarks, I talked about pressure on Q1, we did make it a point to call out pressure that we see in some of it is tariff related we have retailer we have a pretty sizeable direct import business. So those were shipments where the retailers pick up our product.
Speaker Change: Hmm.
Speaker Change: Where it's sourced and basically they turn that off at this point and so we expect that to have a unfavorable impact on Q1, and the year and we'll see how that evolves.
Speaker Change: But but yeah, where we're expecting softness in Q1 and as you know it is the lowest kind of quarter in our seasonal cycle and we kind of see just the confluence of things with retail ordering patterns and that kind of exacerbating this year and it actually.
Speaker Change: You know even weaker.
Speaker Change: For all those reasons and then later on the direct import impact and then also in our international business, where we're seeing headwinds due to the kind of nationalism.
Speaker Change: In China related to how they view their brands and U S brands and that's we expect that to have an impact on our international revenue, which is growing but we do not expect it to grow in Q1.
Speaker Change: Okay, great. Thank you I'll pass along I appreciate all the color.
Speaker Change: Our next question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.
Speaker Change: Hi, good morning, Thanks for taking my questions I guess, maybe just a follow up one more question on the tariff front. The 70 to 80 per cent mitigation did you could you maybe give some color on you know what percent of that is coming from price increases versus pushing back on suppliers for additional cost savings and then.
Speaker Change: Also do you have an exposure number once you include all of in June.
Speaker Change: Well just that answered all of the June question.
Speaker Change: They have a plan, where we think we can.
Speaker Change: Mitigate their costs, so that they they've got a plan where they would be neutral and maybe even slightly ahead. So not a concern with respect to all of the gym.
Speaker Change: You know as where we were trying to convey.
Speaker Change: Convey theres a lot of variables here and we've got a range of outcomes on multiple areas. So it you know don't want to lock into what our pricing scenario would look like because there's a range of outcomes just for a pricing scenario, then theres a range of outcomes for cost reductions from suppliers.
Speaker Change: There is you know.
Speaker Change: A range of outcomes and the choices that we make in terms of spending adjustments and things of that nature. There's we're making tough choices currently with the tariffs that are in place now that we would adjust most likely if there's a change in the tariff posture or a reduction in the amount of tariffs. So.
Speaker Change: I would hesitate to give you I would say we are pulling all the levers and there's a meaningful amounts of cost mitigation with respect to all of the levers that we're pulling so hopefully that gives you some dimensionality I mean, there's.
Speaker Change: Or six levers that we're doing and you know there.
Speaker Change: The size of them does not.
Speaker Change: Well the only other build I would have.
Speaker Change: There's also variability on the supplier diversification moves you know we are we.
Speaker Change: We had a lot of these in place we're working to accelerate as many of them as we can to the extent we can lose.
Speaker Change: Move more more quickly and mitigate some of the tariffs.
Speaker Change: Accelerating the news that will also put us in a better position. So we are really working to pull all the levers across the organism organization multi functionally and I would just add you know all of you have heard me talk about the importance of investing in our brands.
Speaker Change: And we've increased that investment by 40% over the last three years from a growth investment standpoint. It continues to be a critical part of how we'll go forward and in our long term health and so where do you think any marketing or innovation expense will be one of the last lever is that that I want to pull and as we do that.
Speaker Change: If we get to a point that we need to do that we will leverage all of the new marketing mix capability that we built to optimize that investment in areas, where we've got the highest star why the highest relevant in this environment, where the value of a framework that we think will really resonate and will maintain the key innovation that we think is critical for the future.
Speaker Change: Health of the brands, so I just want to emphasize that point.
Speaker Change: Okay. Great. Thanks that was really helpful. And then I guess, maybe if you could just give some color on I mean, it sounds like maybe you're expecting consumer weakness and maybe there's been a little bit so far but you know not to the extent that.
Speaker Change: That we're in a recessionary environment I guess, if you could maybe just elaborate a little bit on what you're seeing so far in this quarter and then from the consumer's perspective, both in the U S. And then I guess the international ex China and then what you're also seeing from retailer orders, if you're already seeing them pull back on.
Speaker Change: Thanks.
Speaker Change: Yeah sure. So here's what I would say I mean, as we've talked even you know in fiscal 'twenty. Five we saw you know some consumer softness, especially as they were prioritizing kind of been necessities over over discretionary I would say you know right now with all of the the potential tariffs that are that are.
Speaker Change: Out there you know all indicators would say that that will get softer yeah. Now if there was a change in that posture that you know that.
Speaker Change: You know well will likely change where the consumer is headed but I think you know all of the different indicators surveys you know.
Speaker Change: Right that we see on consumers indicate that.
Speaker Change: They're looking to make choices pull back eat out last travel last you know pull back on their discretionary spend et cetera. So we're anticipating that.
Speaker Change: That sort of environment as.
Speaker Change: As we look forward again as as the tariff posture changes that that could change the consumer sentiment and where the consumers are in terms of so far in quarter. One I would say it's fairly early on the retailer patterns that we see Brian touched on a bit earlier like we are pausing our current purchases from China, we're seeing the retailers pause.
Speaker Change: The direct import.
Speaker Change: Orders from China, So that has a meaningful impact on us in the first quarter I would say, we probably don't have enough data yet to see a lot of consumer impact in quarter, one quite yet I would just add that demand changes and potentially demand.
Speaker Change: Softness actually helps the terrorists impacts algorithm, because if demand softens advised us more time to work through existing inventory incomplete diversification moves that we expect to occur towards the end of this year and in early fiscal 'twenty seven and so it would.
Speaker Change: You know reduce the tariff impact that we actually see in fiscal 'twenty six of demand sources, so I'm not calling that a positive obviously, but it does help.
Speaker Change: The tariff algorithm and as Noel said, we're trying to accelerate things and do them as quickly as possible. So we have those moves in place.
Speaker Change: While we worked through our inventory buffer.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thanks, so much for all the details.
Speaker Change: Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.
Peter Grom: Thanks, operator, good morning, everyone. So I guess I wanted to ask a few just.
Peter Grom: Building block question for fiscal 'twenty six I know there are a lot of variables a huge range of outcomes here, but maybe just a few follow ups to some of the prior lines of questions first just the Pegasus are the cost savings I mean, I guess are those.
Peter Grom: Are you, including those.
Peter Grom: The mitigation efforts or is that kind of incremental to other efforts. That's first and then I guess, the 70% to 80% that you would expect to mitigate is that.
Peter Grom: Fiscal 'twenty six number or is that something you would expect to kind of mitigate over time and I guess, what I'm just trying to get out here is if you were to take them.
Peter Grom: Brian Your response to <unk> question on $200 million and then you said, you've mitigated 75% that would.
Peter Grom: Is that $50 million number like that does.
Peter Grom: Is that the direct impact to the bottom line, we should be expecting as things stand today. So I know, you're not giving guidance, but do you think it would be helpful. But kind of just give us some guardrails in terms of maybe where we should be kind of.
Peter Grom: And tanks for fiscal 'twenty six.
Peter Grom: Yeah, what I would say cost savings is that.
Peter Grom: The intention of the cost savings that we already knew that we had was to fund our gross investment and so you know that.
Peter Grom: That was the the benefit that we get to the P&L, but we're gonna put it back into investment.
Peter Grom: So I would not count that that savings is incremental to what we're framing up for you today that.
Peter Grom: That was kind of already embedded in our plans now what we are having to adjust at some level.
Peter Grom: Of marketing expense.
Peter Grom: With the focus on non working marketing.
Peter Grom: Achieved the 70% to 80% cost mitigation that we have along with all the other levers that we talked about so and I just want to be clear too that we said it's over $200 million you.
Peter Grom: You can use $200 million, if you want but the amount is over 200 million and then I forgot the second part of your question.
Peter Grom: No. It was just like is that mitigation that you mentioned, 70% to 80% as we do the math on fiscal 'twenty is that what you would expect to mitigate this year alone or is that something that over time, we would expect to mitigate 70% to 80%.
Speaker Change: That is specific to fiscal 'twenty six.
Peter Grom: I wish that vision.
Speaker Change: And tariffs are kind of rolling in on a half year basis.
Speaker Change: There's another path that has a full year impact that has to be realized now the benefit that we get in fiscal 'twenty. Seven is we will have all our supplier diversification in place by very early in fiscal 'twenty seven so we get those diversification benefits in 2007 to offset more of the tariff impact we all.
Speaker Change: So have to incur less cost to do this diversification work that I mentioned on one of the previous questions. There's a cost the diversification comes out of cost in fiscal 'twenty six.
Speaker Change: Will largely be out of the system and 27. So there's two benefits in 2007, we have the diversification in place and we're exposed to less tourists and we don't have to incur the cost to continue to do our extensive diversification that we're doing currently now we could choose to do more diversification later, we'll have to see how that goes in there.
Speaker Change: There could be some costs associated with that but but much smaller in scale I would imagine.
Speaker Change: Okay. That's super helpful. And then I guess just following up on the <unk> commentary I mean, we're kind of I know, it's still a little early to have visibility on consumer demand and the retail commentary was super helpful. But you're right anything that you would say just as we think about earnings at this point in time, you know margins I am just trying to think through the parameters.
Speaker Change: As you know at this point I totally get that for the year, it's very hard to have visibility, but I would imagine you have some line of sight in terms of how things are trending from a from a cost perspective or margin perspective at this point for the first quarter.
Speaker Change: Yeah, I would say, we called out the softness that we see potentially in Q1 revenue I would say, we're being very cautious with spending in this environment. You know both based on the revenue trends that we're seeing for Q1 and the potentially broader impact that results from all of this and so I would say.
Speaker Change: We're being very cautious with respect to spending if.
Speaker Change: That helps yeah. Many of the measures that we talked about we're implementing it now you know in terms of you know.
Speaker Change: Teeny and I'm being very cautious with our marketing spend and really making sure. We're spending on things that you know we feel have great return in a really relevant right now so being very choice along on those things and you know if if the environment changes then we're able to turn some of those things back on we will.
Speaker Change: That's a good point a lot of the choices that we're making where we're doing it in a way that allows us to very easily and quickly turn them off and turn them back on again. So there is least disruptive to the business as possible it's almost across.
Speaker Change: Across the board with every lever that we have we have.
Speaker Change: It's not a choice that that locks us into anything its choices, where we can we can pause evaluate and then turn things back on.
Speaker Change: Got it. Thank you so much I'll pass it on.
Speaker Change: We have reached the end of the question and answer session I would now like to turn the floor back over to management for closing comments.
Speaker Change: Thank you everyone.
Speaker Change: I appreciate it.
Speaker Change: And we look forward to speaking with many of you.
Speaker Change: And at.
Speaker Change: At what pace.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Speaker Change: Yeah.