Q1 2025 Hamilton Beach Brands Holding Co Earnings Call
Operator: Thank you for standing by.
Thank you for standing by.
Operator: At this time, I would like to welcome everyone to today's Hamilton Beach Brands first quarter 2025 earning All lines have been placed on mute to prevent any background After the speaker's remarks, there will be a Q&A session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again.
Speaker Change: At this time I would like to welcome everyone to today's Hamilton Beach Brands' first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Q&A session.
Speaker Change: If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad once again, the star one and if you'd like to withdraw your question simply press Star one again.
Brendan Frey: So without further ado, I would like to turn the call over to Brendan Frey, partner with ICR. Brendan, you have the floor. Thank you, Greg. Good afternoon, everyone, and welcome to the first quarter 2025 earnings conference call and webcast for Hamilton Beach. Earlier today, after the stock market closed, we issued our first quarter 2025 earnings release, which is available on our corporate website.
Speaker Change: So without further Ado I would like to turn the call over to Brendon Frey partner with ICR Brendan you have the floor.
Brendon Frey: Thank you Greg Good afternoon, everyone and welcome to the first quarter 2025 earnings conference call and webcast for Hamilton Beach brands.
Brendon Frey: Earlier today after the stock market closed we issued our first quarter 2025 earnings release, which is available on our corporate website.
Brendan Frey: Our speakers for today are Scott Tiety, President and CEO, and Sally Cunningham, Senior Vice President, Chief Financial Officer, and Treasurer. Our presentation today includes four looking statements. These statements are subject to risk and uncertainty that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in our 10-Q, our earnings release, and our annual report on Form 10-K for the year ended December 31st, 2024. The company disclaims any obligation to update these forward-looking which may not be updated until our next quarterly conference call, if at all.
Brendon Frey: Our speakers for today are Scott <unk>, President and CEO and salary cut again, senior Vice President Chief Financial Officer and Treasurer.
Brendon Frey: Our presentation today includes forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A.
Additional information regarding these risks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31 2024.
Brendon Frey: The company disclaims any obligation to update these forward looking statements.
Brendon Frey: Which may not be updated until our quarterly conference call. Our next quarterly conference call if at all.
Brendan Frey: The company will also discuss certain non-GAP Reconciliation for Regulation G purposes can be found in our website at www.reconciliation.org. Thank you.
Brendon Frey: The company will also discuss certain non-GAAP measures reconcile.
Brendon Frey: A reconciliation for regulation G purposes can be found in our earnings release and.
Scott Tiety: And I'll now turn the call over to Scott. Thank you, Brendan. And good afternoon, everyone. Thank you for joining us today. The year got off to a good start with first quarter sales and operating profit, both showing solid improvement despite increasing macroeconomic headwinds. We entered 2025 with good momentum following a successful holiday season and we were able to maintain our positive trajectory over the first three months. Our top-line performance was led by our North America consumer business, driven by demand for our mass-market brand. Increased penetration from higher margin businesses such as premium and health care helped fuel another healthy gain in gross margins year over year, which along with lower operating costs resulted in a $3.2 million improvement in operating profit.
Scott: And I'll now turn the call over to Scott Scott.
Scott: Thank you Brendan and good afternoon, everyone. Thank you for joining us today.
Scott: The year got off to a good start with first quarter sales and operating profit both showing solid improvement despite increasing macroeconomic headwinds.
Scott: We entered 2025 with good momentum following a successful holiday season, and we were able to maintain our positive to direct trajectory over the first three months.
Scott: Our topline performance was led by our North America consumer business driven by demand for our mass market brands, Inc.
Scott: Increased penetration from higher margin businesses, such as premium and health care helped fuel another healthy gain in gross margins year over year, which along with lower operating costs resulted in a $3 2 million improvement in operating profit.
Scott Tiety: We are pleased with our overall first quarter results. As we exited March, we were on track to achieve the full year guidance we provided on our Q4 call in late February, even as the U.S. imposed 20% tariffs on all Chinese imports. With the reciprocal tariffs levied against all trade partners in April and the increase in China tariffs to 145%, visibility into near-term trends has become much more challenging. We are taking actions to mitigate the impact of higher tariffs, which Sally and I will speak to later in the call, but these will take time to flow through our supply chain and income statement.
Scott: We are pleased with our overall first quarter results as we exited March we were on track to achieve the full year guidance. We provided on our Q4 call in late February even as the U S imposed 20% tariffs on all Chinese imports.
Scott: With the reciprocal tariffs levied against us.
Scott: <unk> got limited levied against all trade partners in April and the increase in China tariffs to 2% to 145% visibility into near term trends has become much more challenging.
We are taking actions to mitigate the impact of higher tariffs, which Sally and I will speak to later in the call, but these will take time to flow through our supply chain and income statement.
Scott Tiety: While expect the next few quarters to be difficult for the industry, we are confident in our ability to navigate these headwinds and emerge with our leading market position intact.
Scott: I expect the next few quarters to be difficult for the industry. We are confident in our ability to navigate these headwinds and emerge with our leading market position intact.
Scott Tiety: In the meantime, we continue to execute against our six strategic initiatives, which serve as the blueprint for driving long-term growth and shareholder value for Hamilton Beach Brands. These strategies include driving core growth, gaining share in the premium market, leading in the global commercial market, accelerating growth of Hamilton Beach Health, Accelerating our digital transformation and leveraging partnerships and acquisitions.
Scott: In the meantime, we continue to execute against our six strategic initiatives, which serve as a blueprint blueprint for driving long term growth and shareholder value for Hamilton Beach brands.
Scott: These strategies include driving core growth gaining share in the premium market, leading in the global commercial market.
Scott: Accelerating growth of Hamilton Beach health, accelerating our digital transformation and leveraging partnerships and acquisitions.
Scott Tiety: I'll now take a few minutes to highlight some of the recent drivers behind the advancements of these strategies, starting with the drivers of core brand growth in the first quarter. Hamilton Beach brand sales were up modestly compared to the first quarter of 2024 as we take advantage of positive eating and entertaining at home trends. Our success was driven largely by the growth of our U.S. consumer and Latin America businesses. We were also pleased to see continued market share gain of the Hamilton Beach brand in Mexico this quarter. In the U.S. we continue to make progress expanding our reach and expect to benefit from key big box store placement wins in the back half of the year, which should help drive further penetration of our core business in 2020.
Scott: I'll now take a few minutes to highlight some of the recent drivers behind the advancements of these strategies starting with the drivers of core brand growth in the first quarter.
Scott: Hamilton Beach brand sales were up modestly compared to the first quarter of 2024, as we take advantage of positive eating and entertaining at home trends. Our success was driven largely by the growth of our U S consumer and Latin America businesses. We were also pleased to see continued market share gain.
Scott: Of the Hamilton Beach brand in Mexico in Mexico This quarter.
Scott: In the U S. We continue to make progress expanding our reach and expect to benefit from key big box store placement wins in the back half of the year, which should help drive further penetration of our core business in 2020.
Scott Tiety: Turning to our premium business, our powerful portfolio of premium-owned and licensed small appliance brands collectively delivered mid-single-digit growth in Q1, driven largely by exceptional growth in both our new Milk and Qi brand products as consumers continue to react positively to our new products introduced over the past year. New milk plant-based milk makers continue to gain traction among health-conscious consumers who value creating fresh, preservative-free alternatives on demand, aligning perfectly with current trends towards healthier and more sustainable options. We also saw continued success with our Qi Iron in the first quarter, highlighted by a successful partnership with one of the largest club stores in North America.
Scott: Turning to our premium business, our powerful portfolio of premium owned and licensed small appliance brands collectively delivered mid single digit growth in Q1, driven largely by exceptional growth in both our new milk and cheese brand products as consumers continued to react positively to our new <unk>.
Scott: <unk> introduced over the past year.
Scott: New milk plant based milk makers continue to gain traction among health conscious consumers, who value, creating fresh preservative free alternatives on demand aligning perfectly with current trends towards healthier and more sustainable options.
Scott: We also saw continued success with our Chi iron in the first quarter highlighted by a successful partnership with one of the largest club stores in North America.
Scott Tiety: These performances were partially offset by the planned wind-down of our license agreement with Wolf Gourmet. While this will be a temporary drag on results, we are excited about the launch of Lotus, our new owned premium brand in the back half of this year. Lotus will be the premium small kitchen appliance brand for home cooks with big culinary ambitions. At launch, the brand will introduce seven new Lotus Professional products including the Perfectionist Air Fry and Convection Oven, the Top Drip Coffee Maker and Ground Scale, and the Four Slice Precision Toaster. This full range will position us to take share in the nearly $4 billion total addressable premium market.
Scott: These performances were partially offset by the planned wind down of our licensing agreement with Wolf Gourmet.
Scott: While this will be a temporary drag on results. We are excited about the launch of Lotus, our new owned premium brand in the back half of this year.
Scott: <unk> will be the premium small kitchen appliance brand for home cooks with big culinary ambition.
Scott: At launch the brand will introduce seven new Lotus professional products, including the perfectionist Air Fry and convection oven, the top drip coffee maker and ground scale and the four slides precision toaster.
Scott: This full range will position us to take share in the nearly $4 billion total addressable premium market the.
Scott Tiety: The response from specialty retailers to this new line of sleek, innovative, small appliances has been very positive so far. Looking ahead, we plan to expand offerings under Lotus in 2026 with three new introductions under the Signature line.
Scott: The response from specialty retailers to this new line of sleek innovative small appliances has been very positive so far looking.
Scott: Looking ahead, we plan to expand offerings under Lotus in 2026 with three new introductions under the signature line.
Scott Tiety: Turning now to our commercial business, along with the strong demand for our signature products like the Summit Edge Blender, we continue to evaluate new opportunities for potential partnerships in the global commercial market. To this end, we signed a new agreement with Sunkist to develop and market Sunkist-branded commercial juicers and sectionizers, which are used in leading restaurants, schools, and a large restaurant chain throughout the U.S. As we look to leverage this new opportunity, we are excited about the potential future partnership with a whole new customer base.
Scott: Turning now to our commercial business, along with a strong demand for our signature products like the summit edge Blender, we continue to evaluate new opportunities for potential partnerships in the global commercial market.
Scott: To this end, we signed a new agreement with sunkist to develop and market Sunkist branded commercial juicers in <unk>.
<unk> used in leading restaurants schools and a large restaurant chain throughout the U S.
Scott: We look to leverage this new opportunity we are excited about the potential future partnership with a whole new customer base.
Scott Tiety: And lastly, regarding our newest business segment, Hamilton Beach Health, we were pleased with the segment's first quarter performance, which marked its third consecutive quarter of increasing patient subscriptions. Since acquiring HealthBeacon early last year, we've been developing healthcare management tools, including remote therapeutic monitoring systems. As part of our goal to grow our patient subscription base by over 50% this year, we're excited to launch with our newest specialty pharma partner, OptumHealth, later this quarter. As we look forward, we remain excited about this high-margin business and the untapped potential that lies ahead. Across each of our positions, we are focused on growing through our existing distribution, while also selectively expanding our physical reach and growing our digital presence through our digital transformation efforts.
Scott: And lastly regarding our newest business segment Hamilton Beach Health, we were pleased with the segment's first quarter performance, which marked its third consecutive quarter of increasing patient subscriptions since acquiring help beacon early last year, we've been developing healthcare management tools, including remote therapeutic monitoring systems.
Scott: As part of our goal to grow our patient subscription base by over 50%. This year, we're excited to launch with our newest specialty pharma partner Optum Health later this quarter.
Scott: As we look forward, we remain excited about this high margin business and the untapped potential that lies ahead.
Scott: Across each of our businesses, we are focused on growing through our existing distribution, while also selectively expanding our physical reach and grown our digital presence through our digital transformation efforts. This has allowed us to capitalize on the consumer shift to online shopping.
Scott Tiety: This has allowed us to capitalize on the consumer shift to online shopping, with roughly 40 percent of the U.S. consumer sales now coming via e-commerce. I'm pleased to report that we delivered mid-single-digit e-commerce growth in the first quarter with gains across leading e-commerce retailers, our brick-and-mortar partner digital platforms, and our branded website. Following a solid first quarter, trends have slowed in April as our retail customers and consumers digest the tariff increases and weigh the potential impacts from ongoing negotiations. As I said earlier, we are taking actions to mitigate the impact to our costs. First, we are implementing a round of price increases in Q2 to address the first round of IEPPA tariffs.
Scott: With roughly 40% of the U S consumer sales now coming via E. Commerce I'm pleased to report that we delivered mid single digit e-commerce growth in the first quarter with gains across leading E. Commerce retailers are brick and mortar brick and mortar partner digital platforms and our branded websites.
Scott: Following a solid first quarter trends have slowed in April as our retail customers and consumers digest, the tariff increases and weigh the potential impacts from ongoing negotiations.
Scott: As I said earlier, we are taking actions to mitigate the impact to our cost first.
Scott: First we are implementing a round of price increases in Q2 to address the first round of Ie PPA tariffs, we enjoy strong relationships with our retail partners are maintaining open dialogue as we navigate global tariff implications together.
Scott Tiety: We enjoy strong relationships with our retail partners on our maintaining open dialogue as we navigate global tariff implications together. Second, we have taken proactive sourcing actions, including a pull forward inventory purchases from suppliers in Q1 to minimize tariff impact. We have also recently certified our main distribution center as a foreign trade zone to help manage cash flow and tariff impact. Lastly, we are accelerating our sourcing diversification, prioritizing the movement of product manufacturing based on volume and profitability. Historically, 25% of our sales have originated outside of the U.S. and are not subject to recent tariff action.
Scott: Second we have taken proactive sourcing actions, including it pull forward inventory purchases from suppliers in Q1 to minimize tariff impact.
Scott: We have also recently certified our main distribution center as a foreign trade zone to help manage cash flow and tariff impacts.
Scott: Lastly, we are accelerating our sourcing diversification prioritizing the movement of product manufacturing based on volume and profitability.
Scott: Historically, 25% of our sales have originated outside of the U S and are not subject to recent tariff actions for the remaining 75% of sales at our U S. Based we have already transitioned approximately 15% of our manufacturing out of China and expect to have two thirds of our U S sales coming from outside of China by the end of.
Scott Tiety: For the remaining 75% of sales that are U.S.-based, we have already transitioned approximately 15% of our manufacturing out of China and expect to have two-thirds of our U.S. sales coming from outside of China by the end of 2025, with the remainder to be moved in the first half of next year. We are confident that these actions will positively benefit our margin profile in 2026.
Scott: 2025, with the remainder to be moved in the first half of next year. We are confident that these actions will positively benefit our margin profile in 2026.
Sally Cunningham: With that, I'll turn it over to Sally. Great. Thank you, Scott.
Sally: With that ill turn it over to Sally.
Sally: That's great. Thank you Scott good afternoon, everyone to Echo Scott's comments, we are pleased with our start to 2025 marked by positive sales and operating profit momentum even as macroeconomic headwinds began to strengthen in the first quarter.
Sally Cunningham: Good afternoon, everyone. To echo Scott's comments, we are pleased with our start to 2025, marked by positive sales and operating profit momentum, even as macroeconomic headwinds began to strengthen in the first quarter. Starting with revenue, total revenue in the first quarter was $133.4 million, a 4% increase over last year's first quarter. The increase was driven primarily by favorable product mix as well as higher volume, partially offset by expected average price decreases and foreign currency impact. Regionally, our North American consumer markets delivered solid growth, with the majority of the contribution coming from the U.S. market. These gains were partially offset by slight revenue declines internationally.
Speaker Change: Starting with revenue total revenue in the first quarter was $133 $4 million, a 4% increase over last year's first quarter.
Speaker Change: The increase was driven primarily by favorable product mix as well as higher volumes, partially offset by expected average price decreases and foreign currency impacts.
Speaker Change: Regionally, our north American consumer markets delivered solid grass, but the majority of the contribution coming from the U S. Market. These gains are partially offset by slight revenue declines internationally.
Sally Cunningham: Also included in the first quarter was $1.5 million of revenue from our HealthSeekin business. Turning to gross profit and margin, gross profit was $32.8 million in the first quarter compared to $30.1 million in the year-ago period. Gross profit margin was 24.6% compared to 23.4% in last year's first quarter. The increase in gross profit margin in the current quarter was primarily due to favorable product mix in the period, highlighted by the addition of our higher margin HealthBeacon business plan. Selling, general, and administrative expenses decreased slightly to $30.4 million compared to $30.9 million in the first quarter of 2024.
Speaker Change: Also included in the first quarter was $1 $5 million of revenue from our housekeeping business.
Speaker Change: Turning to gross profit and margin gross profit was $32 $8 million in the first quarter compared to $30 $1 million in the year ago period.
Gross profit margin was 24, 6% compared to 23, 4% in last year's first quarter.
Speaker Change: The increase in gross profit margin in the current quarter was primarily due to favorable product mix in the period highlighted by the addition of our higher margin halfbeak in business.
Speaker Change: Selling general and administrative expenses decreased slightly to $34 million compared to $30 $9 million in the first quarter of 2024.
Sally Cunningham: The decrease was primarily driven by health beacon transaction costs that did not recur in the current year period. Operating profit was $2.3 million compared to an operating loss of $943,000 in the first quarter of 2024. Net interest income in the first quarter was $72,000 compared to net interest expense of $156,000 a year ago due to investment of increased cash on hand compared to the year-ago period. Income tax expense was $729,000 in the first quarter compared to an income tax benefit of $110,000 a year ago. Net income was $1.8 million, or $0.13 per diluted share, compared to a net loss of $1.2 million, or $0.08 per diluted share, a year ago.
Speaker Change: Decrease was primarily driven by health Beacon transaction costs that did not recur in the current year period.
Speaker Change: Operating profit was $2 $3 million compared to an operating loss of $943000 in the first quarter of 2024.
Speaker Change: Net interest income in the first quarter was $72000 compared to net interest expense of $156000 a year ago.
Speaker Change: Due to investment of increased cash on hand, compared to the year at that period.
Speaker Change: Income tax expense was $729000 in the first quarter compared to an income tax benefit of $110000 a year ago.
Net income was $1 8 million or <unk> 13 per diluted share compared to a net loss of $1 $2 million or eight cents per diluted share a year ago.
Speaker Change: Yes.
Sally Cunningham: Now turning to our balance sheet and cash flow. For the quarter ended March 31, 2025, net cash provided by operating activities was $6.6 million, compared to $19.7 million for the quarter ended March 31, 2024. Networking capital provided $16.3 million of cash compared to $33.5 million in the year-ago period. The decrease was primarily due to improvements in trade receivable collections that benefited the year-ago period, combined with a notable level of inventory pulled forward ahead of recent tariff-related uncertainty in the current year period. Capital expenditures were $516,000 in the first quarter of 2025, compared to $942,000 in the first quarter of 2024.
Speaker Change: Now turning to our balance sheet and cash flows.
Speaker Change: For the quarter ended March 31 2025.
Speaker Change: Net cash provided by operating activities was $6 $6 million compared to $19 $7 million for the quarter ended March 31 2024.
Speaker Change: Net working capital provided $16 $3 million of cash compared to $33 $5 million and a year ago period the.
Speaker Change: The decrease was primarily due to improvements in trade receivable collections that benefited the year ago period.
Bind with a notable level of inventory pulled forward at a recent tariff related uncertainty in the current year period.
Speaker Change: Capital expenditures were $516000 in the first quarter of 2025 compared to $942000 in the first quarter of 2024.
Sally Cunningham: We continue to follow our disciplined capital allocation strategy of reinvesting in the business and rewarding shareholders in the first quarter. During the three months ended March 31, 2025, we returned value to our shareholders through the repurchase of 141,435 shares, totaling $2.7 million. and paid a total of $1.6 million in dividends. Over the last few years, we have allocated much of our free cash flow to significantly reducing debt, returning shareholder values through cash dividends and stock buybacks, and last year to fund our HealthBeacon acquisition. Looking ahead, we will continue our prudent approach, prioritizing the most impactful allocation of capital in the current operating environment.
Speaker Change: We continue to follow our disciplined capital allocation strategy of reinvesting in the business and rewarding shareholders in the first quarter.
Speaker Change: During the three months ended March 31, 2025, we returned value to our shareholders through the repurchase of 141435 shares totaling $2 $7 million.
Speaker Change: And paid a total of $1 $6 million in dividends.
Speaker Change: Over the last few years, we've allocated much of our free cash flow to significantly reducing debt.
Speaker Change: Turning to returning shareholder value through cash dividends and stock buybacks and last year to fund our <unk> acquisition.
Speaker Change: Looking ahead, we will continue our prudent approach prioritizing the most impactful allocation of capital and the current operating environment.
Sally Cunningham: On March 31, 2025, our net debt position, or total debt minus cash and cash equivalents and highly liquid short term investments, was $1.7 million. compared to a net debt position of $23.7 million at the end of the prior year period.
Speaker Change: On March 31, 2025, our net debt position or total debt minus cash and cash equivalents in highly liquid short term investments was $1 $1.7 million.
Speaker Change: <unk> to our net debt position of $23 $7 million at the end of the period at the end of the prior year period.
Sally Cunningham: Now turning to our Outlook. As Scott mentioned, our first quarter performance had us on track to achieve the full year guidance we outlined in our fourth quarter earnings call. We were confident in offsetting the impact of the additional 20 percent tariffs imposed by the U.S. on China in late February and early March through select price increases. with the reciprocal tariffs announced in April and the subsequent escalation tariffs on Chinese imports.
Speaker Change: Now turning to our outlook.
Scott: As Scott mentioned.
Scott: Our first quarter performance has us on track to achieve the full year guidance, we outlined in our fourth quarter earnings call. We were confident in offsetting the impact of the additional 20% tariffs imposed by the U S. On China in late February and early March through select price increases.
Scott: But there are cyclical tariffs announced in April and the subsequent escalation of tariffs on Chinese imports.
Sally Cunningham: Visibility at this moment into how the remainder of the year unfolds has become more difficult. We are monitoring the situation closely and taking actions to mitigate the impact on our business. including price increases, pre-buying inventory, and accelerated diversification efforts. while we await what we hope is a positive outcome from current and future negotiations.
Scott: Visibility at this moment into how the remainder of the year unfolds has become more difficult.
Scott: We are monitoring the situation closely and taking actions to mitigate the impact on our business, including price increases pre buying inventory and accelerated diversification effort, while we await what we hope is a positive outcome from current and future negotiations.
Sally Cunningham: Given the unpredictability of trade negotiations and responses that may occur, we think it is prudent to temporarily suspend our practice at providing guidance until conditions stabilize and visibility improves.
Scott: Given the unpredictability of trade negotiations and responses that may occur. We think it is prudent to temporarily suspend our practice of providing guidance and call until conditions stabilize and visibility improves.
Sally Cunningham: We look forward to updating you on our progress on our second quarter earnings call in late July.
Scott: We look forward to updating you on our progress on our second quarter earnings call in late July.
Sally Cunningham: That concludes our prepared remarks.
Scott: That concludes our prepared remarks, we will now turn the line back to the operator for Q&A.
Operator: We will now turn the lines back to the operator for Q&A.
Scott: Exactly.
Operator: And ladies and gentlemen, if you'd like to ask a question, remember, press star one on your telephone keypad. Once again, star and the number. All right, we will take a moment to compile the Q&A roster, and it looks like we do have a question.
Scott: And ladies and gentlemen, if you'd like to ask a question I remember a press star one on your telephone keypad once again star and the number one.
Scott: Alright, we will take a moment to compile the Q&A roster and it looks like we do have a question. Our first question comes from the line of Adam Bradley with HEB Cabot.
Adam Bradley: Our first question comes from the line of Adam Bradley with AGBU. Adam, your line is live. Hi, great job, Sally and, and, and Scott and another another good, good quarter. I think I, I think everyone understands, given the current environment, the lack of clarity on outlook outlook. So, my questions are more of, could you provide some clarity on your own comments? Specifically, your gross margin outlook now with the tariffs, you said in your earnings release that you expect a benefit from that in the fiscal year. Can you clarify if you mean beyond the roughly 26% gross margin you've experienced last year and were forecasting for this year?
Scott: Excuse me capital Adam Your line is live.
Speaker Change: Hi, great job Sally Anne.
Scott: Sure.
Scott: And Scott and another another good good quarter.
Scott: Thank you.
Scott: Thank everyone understands given the current environment, the lack of clarity on outlook outlook. So.
Scott: My questions are more of <unk>.
Scott: Provide some clarity on your own comments.
Scott: Specifically your gross margin outlook now with the tariffs.
Scott: Set in your earnings release that you expect a benefit from that in the fiscal year.
Scott: Can you clarify if you mean.
Scott: Beyond the roughly 26% gross margin you've experienced last year and we're forecasting for this year do you do you expect these actions even with tariffs to benefit beyond that or if not can you. Please clarify what you meant.
Adam Bradley: Do you expect these actions, even with tariffs, to benefit beyond that? Or if not, can you please clarify?
Sally Cunningham: Hey, hey, Adam, this is Sally. I'm not sure that we we said that our margins we're gonna we're gonna benefit in the upcoming year. I do think that, you know, we're certainly working the levers to mitigate tariffs. And we're accelerating our supplier diversification. And we're, you know, working really closely with retailers as we navigate this. But, you know, at this point, kind of, as we said, in our prepared remarks, we really don't have visibility that we want to share an outlook about gross margins going forward. Okay, well, that may clarify, but I'm referring to in your in your earnings release, where you said, and expect these actions to benefit our margin profile in 2026.
Sally: Hey, Hey, Adam this is Sally.
Speaker Change: I'm not sure that we said that our margins, we're going to we're going to benefit and that in the upcoming year.
Speaker Change: I do think that you know, we're certainly working the levers to mitigate tariffs and we're accelerating our supplier to diversification.
Speaker Change: And we're working really closely with retailers as we navigate this but yeah at this point kind of as we said in our prepared remarks.
Speaker Change: We really don't have visibility that we want to share your outlet about gross margins going forward.
Speaker Change: Okay, well, let me clarify that I'm, referring to in your in your earnings release, where you said and expect these actions to benefit our margin profile in 2026. So that's what I was asking for clarity.
Adam Bradley: So that's what I was asking for clarity. Yeah. Yeah, so Adam, I think, you know, there, you know, we're sitting there saying our diversification efforts, you know, as we move our production into other countries with lower tariffs, we feel like that that's going to benefit our margins as things settle out in 2026. Okay, if we if without without asking you specifics, can you can you help investors generally, as you your your initiative to move sourcing outside of China has been a multi year, that's what you've said publicly. And I think that's great, right? And, and now you're in a better position had you not waited, as you look to source the same products for the rest of the world, in general, right?
Speaker Change: Yeah.
Speaker Change: Yes, so Adam I think there we're sitting there, saying our diversification efforts.
Speaker Change: As we move our production into other countries with lower <unk>.
Speaker Change: Tariffs, we feel like that that's going to benefit our margins as things settle out in 2026.
Speaker Change: Okay.
Speaker Change: Without without asking you specifics can you can you help investors generally as you your initiative to move sourcing outside of China has been a multiyear I guess, what you've said publicly and I think thats, great and now youre in a better position had you not weighted as you look to source the same products for the rest of the world in general.
Sally Cunningham: Yeah. Thank you. are those costs or margins better or worse than what you've done in China over the last one or two years if you normalize for tariffs? Meaning like if you move out of China and you go somewhere else. Is it more expensive, or is it cheaper, or is it about the same? Now, I really think, you know, kind of, as you know, we got a very broad portfolio. And as you indicated, we started this, you know, endeavor two years ago. So we've learned a lot from doing that. I will tell you each, you know, each product platform is a little bit different, and the locations a little bit different.
Speaker Change: Are those.
Speaker Change: Costs or margins better or worse than what you've done in China over the last one or two years. If you. If you normalize for tariffs, meaning like if you move out of China and you go somewhere else is it.
Speaker Change: More expensive or is it cheaper or is it about the same.
Speaker Change: I really think kind of as you know we've got a very broad portfolio and as you indicated we started this endeavor two years ago. So we've learned a lot from doing that I would tell you each each product platform is a little bit different in the locations a little bit different.
Scott Tiety: I think what we feel confident in saying is that, regardless of what the cost impact is, as we diversify, we feel like we can negotiate the right It appears we lost Scott. Scott, are you back? Yeah, I'm still here. Is Adam here? Okay, great. I'm here. Can you hear me? So did you hear my response, Adam? No. I think we all lost you for about, I don't know, 15 seconds. All right. So what I was saying was, as we continue to diversify our production outside of China, whether the cost is up or down or neutral, we feel like that when that product lands here in the US, we are able to maintain our margins as we take pricing activities with our retail partners.
Speaker Change: Think what we feel confident in saying is is that regardless of what the cost impact is as we diversify we feel like we can negotiate the right.
Speaker Change: It appears we lost Scott Scott are you back I'm still here.
Scott: Okay great.
Speaker Change: Hi, I'm here.
Can you hear me. So did you hear my response Adam.
Speaker Change: No.
Speaker Change: I think we all last year for Bob I don't know, Okay alright.
Speaker Change: Alright, so so what I was saying was as we continue to diversify our production outside of China.
Speaker Change: Whether the cost is up or down or neutral, we feel like that when that product lands here in the U S. We were able to maintain our margins as we take pricing activities with our retail partners.
Adam Bradley: Okay, I have some follow ups to that, but I'll, I'll take one step back. And if, if there's someone else wants to ask a question, I'll yield. And if not, I'd like to follow up on that. There are no further questions, Adam, if you'd like to continue. Yeah, I'll keep rolling, thanks. you know, you we all learned a lot in COVID and then with the other tariffs, and I'm sure you all learned a lot. So far, we are hearing with other general news that retailers, the large retailers may be pushing back on price increases. Without being specific, it sounds like you're saying you're not experiencing that because you're referencing specifically to raise prices where tariffs are impacting you.
Speaker Change: Okay.
Speaker Change: Have some follow ups to that but ill.
Speaker Change: I'll take one step back.
Speaker Change: If there's someone else wants to ask a question I'll yield and if not I'd like to follow up on that.
Speaker Change: There are no further questions Adam if you'd like to continue yeah I'll keep rolling.
Speaker Change: So.
Speaker Change: We all learned a lot in Covid and then what's the other tariffs I'm sure you all learned a lot.
Speaker Change: So far.
Speaker Change: We are hearing with other general news that retailer the large retailers may be pushing back on price increases.
Speaker Change: Without being specific are you it sounds like youre, saying youre not experiencing that because youre referencing specifically to raise prices where tariffs are impacting you. So what is the response of the major retailers out there are they accommodating price increases in general are you receiving kind of some pushback on that.
Scott Tiety: So what is the response of the major retailers out there? Are they accommodating price increases in general, or are you receiving some pushback on that? Yeah, I'm not gonna you know, I think, Adam, I'm not gonna go to that in a lot of specifics. I will tell you right now that, you know, we're kind of in week four, since the retaliatory tariffs have come into play. And if you look at our inventory on hand and the number of months that we have on hand, and most of our retailers have anywhere from five to eight weeks of inventory as well on hand, you know, we're really both kind of sitting there and just doing a lot of communication as to what's the best way to move forward, right?
Speaker Change: Yeah, I'm not going to I think.
Speaker Change: Adam and I could go into that in a lot of specifics I will tell you right now that we're kind of in week four since the retaliatory tariffs have come into play.
Speaker Change: And if you look at our inventory on hand, and the number of months that we have on hand, and most of our retailers have anywhere from five to eight weeks of inventory as well one hand, we're really both kind of sitting there and just doing a lot of communication as to what's the best way to move forward right and so one we're trying to maximize the inventory that we've got on hand.
Scott Tiety: And so one, we're trying to maximize the inventory that we've got on hand. We're working very hard to diversify our product into other countries, talking through those transitions and timelines and what those costs would be. And then, you know, as things get closer for those products that we don't have diversification plans, those will be different conversations, but those haven't had to happen yet. And so, you know, we're being very open with our retailers and there's a lot of understanding back and forth. As you know, many of our retailers source their own products from these markets.
Speaker Change: We're working very hard to diversify our product and other countries talking through those transitions and timelines and what those costs would be.
Speaker Change: Then as things get closer for those products that we don't have diversification plans those will be different conversations, but those haven't had to happen yet and so we're being very open with our retailers and and there's a lot of understanding back and forth as you know many of our retailers source their own products from these markets.
Scott Tiety: So these types of challenges are something that they're facing as well. And it's also something that we really believe, you know, the majority of our competition is dealing with. And so it's not like we're not the only ones in the room and the only ones having this conversation. So we feel like we're, you know, we're all trying to figure it out together. We've got a little bit of cushion right now. We feel very good about our diversification efforts, and we're just trying to move as quickly as possible. Okay, well, thanks for for clarifying that. I think that that's that's pretty helpful.
Speaker Change: So these types of challenges are something that they are facing as well and it's also something that we really believe the majority of our competition is dealing with and so it is not myself and we're not the only ones in the room and the only ones having this conversation. So we feel like we're you know we're all trying to figure it out together.
Speaker Change: A little bit of cushion right now we feel very good about our diversification efforts and we're just trying to move as quickly as possible.
Speaker Change: Okay, well, thanks for clarifying that I think.
Speaker Change: That's pretty helpful.
Adam Bradley: You did pull forward. It looks like about a $32 million. If we compare inventory levels of Q125 to Q124, there's about a $32 million pull forward as of the end of the quarter. That was pre-retaliatory. Have you, are you willing to share, have you can continue to do that through April or? you know, what's your inventory status now? Yeah, I don't think we're going to spend a lot of time on that. As you know, the, you know, kind of one of the critical dates that occurred out there was April 10, for when things could ship before they received the retaliatory percentage of 145%.
Speaker Change: You did pull forward it looks like about a $32 million, we compare inventory levels of Q1, 'twenty five to Q1 'twenty four.
Speaker Change: There's about a $32 million pulled forward.
Speaker Change: As of the end of the quarter.
Speaker Change: That was <unk>.
Speaker Change: <unk> sorry.
Speaker Change: Sure.
Speaker Change: Tariffs.
Speaker Change: Amounts.
Speaker Change: Have you are you willing to share I have you can continue to do that.
Speaker Change: Through April our.
Speaker Change:
Speaker Change: Whats your inventory status now.
Speaker Change: Yes, I don't think were going to spend a lot of time on that as you know the kind of one of the critical dates that occurred out there was April 10th.
Speaker Change: For when things could ship before they received the.
Speaker Change: The retaliatory percentage of 145% and so after that date again, we feel like we've we've got a good inventory position in the short term.
Scott Tiety: And so, you know, after that date, again, we, we feel like we've, we've got a good inventory position in the short term, as we get closer to the holiday season, and we need to start building inventory. That's when we're, you know, we're going to really lean on our diversification efforts, or try to, you know, work out an understanding with our retail partners on, you know, what we would do with the inventory that would be coming at the higher tariff percentage. Okay, thank you.
Speaker Change: As we get closer to the holiday season, and we need to start building inventory, that's when where you know we're going to really lean on our diversification efforts.
Speaker Change: Or try to work out an understanding with our retail partners on what we would do with the inventory that would be coming at the higher tariff percentage.
Speaker Change: Okay. Thank you so I'll move on from inventory and tariffs and all that and talk about some of the other parts of the business So health Beacon.
Adam Bradley: So I'm going to move on from inventory and tariffs and all that and talk about some of the other parts of the business. So HealthBeacon, you've given us kind of a basic understanding of its not only of the business strategy, but its revenue, it's been about one and a half million on a quarter run rate basis. Will you begin to break out its performance or what maybe say differently? Yeah. Do you have a plan to break out its performance longer term? And what should we expect from that? Yes, I mean, I think you will continue to see a break out of the performance.
Speaker Change: You've given us kind of a basic understanding of its not only that.
Speaker Change: The business strategy, but it's revenue it's been about $1 5 million on our quarter run rate basis will you begin to break out its performance or maybe say differently. Yes, do you have a plan to breakout hits performance longer term and what should we expect from that.
Speaker Change: Yes, I mean, I think you will continue to see a break it out of the performance I mean, certainly if you refer to our 10-Q and it is a segment.
Sally Cunningham: I mean, certainly, if you refer to our 10Q, it is a segment. And so you'll see it in the segment disclosures. And then as it as it makes sense, we'll obviously continue to include it in our earnings release as well. But we're, we remain very excited about the business. It continues to grow at a better than expected rate. And so we're excited to see where it takes us in the Great.
Speaker Change: You'll see it in the segment disclosures and then as it as it makes sense. We'll obviously continue to include it in our earnings release as well, but.
Speaker Change: We remain very excited about the business and that continues to grow at a better than expected rate.
Speaker Change: And so we're excited to see where it takes us in the future.
Adam Bradley: All right.
Speaker Change: Great Alright, and then I've got one housekeeping item on an.
Sally Cunningham: And then I got a housekeeping item on on accounting, if you could clarify Sally. Your release said your share repurchases, I have to go back and look. I think it's something along the lines of in the body of the release. and then the statement of cash flows has 3.4 million of share repurchase. Is he easy enough for you to walk me through the difference in those two numbers? Yeah, I mean, I think that we have two different pieces for the share repurchase. One is through our share repurchase program that was approved and governed by the board.
Sally: An accounting if you could clarify Sally.
Sally: Your release said your share repurchases I have to go back and look I think it is coming along.
Sally: And the body of the release.
Sally: And then the statement of cash flows has $3 4 million of share repurchases.
Speaker Change: As is easy enough for you to walk me through the difference in those two numbers.
Speaker Change: Yeah, I mean, I think that we have two different pieces for the for the share repurchase one is through our share repurchase program that was approved and governed by the board and then our second piece of the repurchasing in the first quarter is associated with kind of tax withholdings associated with <unk> and.
Sally Cunningham: And then our second piece of the repurchase in first quarter is associated with kind of tax withholdings associated with incentive compensation. So it's a sum of those two pieces. And as they're governed under two different plans, we break them out separately.
Speaker Change: Incentive compensation. So it says it's a sum of those two pieces and as our government under two different plans basically break them out separately.
Adam Bradley: All right. Well, thank you for the questions, Adam.
Speaker Change: Alright, well thank you for the question Adam.
Operator: And ladies and gentlemen, that does conclude today's poll, so thank you all for joining and you may now Have a great day, everyone.
Speaker Change: And ladies and gentlemen that does conclude today's call. So thank you all for joining and you may now disconnect have a great day everyone.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Thank you.
Speaker Change: [music].