Q2 2020 Earnings Call
Greetings and welcome to Helen of Troy Second quarter 2020 earnings call. At this time all participants are in listen only mode. A question answer session will follow the formal presentation.
Once you acquire operator systems during the conference. Please press Star Zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Jeff Johnson Senior Vice President corporate business development. Thank you may begin.
Thank you operator.
Turning everyone and welcome to Helen of Troy second quarter fiscal 2020 earnings Conference call.
The agenda for the call. This morning is as follows I'll begin with a brief discussion of forward looking statements.
Mr. Julien Mininberg, the company's CEO will comment on the financial performance at the quarter and specific progress on our strategic initiatives.
Then mr., Brian grass the company CFO .
I'll review the financials in more detail and comment on the company's outlook for fiscal 2020.
Following this Mr. Mininberg Mr., Brad will take your question do you have for us today.
This conference call may contain certain forward looking statements that are based on management's current expectations with respect to future events for financial performance generally the words anticipates believes expects in other words similar our words identifying forward looking statements forward looking statements or so.
To a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results.
This conference call May also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and maybe calculated differently than the non-GAAP financial information disclosed by other company.
The company cautions listeners not to place undue reliance on forward looking statements were non-GAAP information.
Before I turn the call over Mr. minute, Bert I'd like to inform all interested parties that a copy of today's earnings release has been posted to the Investor Relations section of the company's website at Www dot.
I want to Detroit Dotcom.
Earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP based measures.
There were leased can be obtained by selecting the investor Relations tab on the company called page and then the news tab.
I'll now turn the conference call over to Mr. Mininberg.
Thank you Jack and good morning, everyone. Thank you for joining us today before discussing our business I'd like to extend my gratitude for the Outreaching concerned that many of you offered after the mass shooting in El Paso in August .
While the city is still morning, we're very proud of its resilience and how the citizens and leaders from El Paso and across the nation came together to support victims and their families in the face of senseless and hateful violence I'm also proud that Helen of Troy as a company and so many of our associates around the world stepped up immediately emotionally financially with their time.
To help the victims and their families and to support the community. We are proud to call home for over 50 years.
Now turning to a discussion of our business performance in the second quarter fiscal 2020. This morning, we reported another healthy quarter, which featured a 5.7% increase in our core business sales against a very strong year ago comparison, and an increase in adjusted diluted EPS of 13.1%.
Quarterly results Speaker, then featured benefits from a diversified portfolio brands margin expansion beyond improving our mix.
I wouldn't incremental investment spending an operating efficiency within our business units and also in our shared service platforms.
The results underscore the flywheel effect from continuing to execute the strategies underlying phase two of our transformational glass.
Our sales growth was led by an online increase of approximately 25% product innovation and growth in international sales online sales represented approximately 24% of our total sales in the quarter.
The overall strong result for the company feature 3.8% growth in leadership brands, driven by substantial broken how housewares, which more than offset the difficult comparison for the health in hone leadership brands that grew 22.3% in the same period last year.
Beyond our leadership brands, we're especially pleased with the performance of our beauty appliance business, which we believe is now on pace to deliver a third consecutive year of growth behind meaningful consumer centric innovation.
For the first half of the fiscal year total net sales grew by 5.6% sales to the online channel increased by 26% to represent approximately 23% of our total fiscal year to date sales.
This accomplishment was fueled by our incremental digital growth investments.
Leadership brands sales are up 5.5% year to date and adjusted diluted EPS increased by 11.7% for the first half of the fiscal year.
These operating results give us fuel to further invest behind attractive opportunities for the balance of the year, while raising our revenue and EPS outlook for the full fiscal year.
As outlined during our recent Investor day Phase two built on the accomplishments of phase one by focusing on eight core strategic priorities.
With a focus on executing our strategic our strategies of doubling down on international and accelerating shared service excellence. We're pleased to announce that we are adding new seen senior leadership internationally and in IP.
To help achieve our international growth goals for all three of the company's segments. We are delighted that Nicholas Lahanas is joining Helen of Troy in the newly created role of International President. He will serve on our global leadership team and report directly to me Nicholas will be located in Europe , focusing primarily on our business and expansion plans in EMEA.
And Asia Pacific.
He will work with the business unit, President and shared service leaders as he designs and implement next level capabilities in our chosen markets across categories countries and channels.
Nicolas brings the perfect combination of internationally consumer products industry experience and is more than 20 years in the consumer products industry. He has led major businesses in EMEA Asia Pacific in Latin America, and spent significant time living and working in these regions.
He has proven himself and progressively senior roles and strategy execution BNL responsibility building in managing organizations and working with corporate leadership teams.
Additionally, as we implement the phase two strategic choice of accelerating shared service excellence I am pleased to announce that have reached Rahmani joined Helen of Troy as Chief Information Officer. This past August Harris will be located in El Paso will also join the company's global leadership team and will report directly to me I reach has been has deep experience.
As a CIO at several large multinational public companies, where he played a crucial role and transformations working across business units branded regions as building top quality IP organizations, both Nicolas and her each other REIT additions to our leadership team income at just the right time for Helen of Troys base to transformation.
Shifting now to our business units.
Sales growth in the quarter was led by our Houseware segment, which increased net sales by over 22%.
Housewares grew in brick and mortar online and internationally as we gain distribution launch new products and benefited benefited from very strong point of sale in store traffic at key retailers.
Dinnerware and food storage were standout categories across the business segment during the quarter.
Hydro flask popularity continues to climb with outdoor enthusiasm retailers alike. During the quarter. The brand added further to its leading market position and continued to be a significant contributor to the high performance insulated beverage bottle category.
We made even more strides growing sales in the U.S., particularly the east and also internationally. We also grew sales in brick and mortar online and with new products, including products that take hydro flask beyond the bottle, we're seeing strong point of sale results as well as inventory replenishment offered our orders that are in line with a robust sell through rates for those guys.
Tumors, where we have visibility.
Additional drivers this quarter were hydro flask back to school purchases back to campus sales across the collegiate channel and growing popularity among younger consumers in both online and outdoor retailers.
Health at home, we experienced just over a 9% declining core business net sales was which is was slightly below our plan as we faced a particularly strong comparison in which the segment grew 20.3% than the last period same period last year, if you'll recall in the summer of 2018 the segment benefited from a confluence.
The business drivers, including a U.S. heatwave some of the largest west coast wildfires on record new shelf placements in seasonal categories and inventory replenishment following the strong prior cold and flu season.
Stepping back to look at the segment is longer term track record net sales in the second quarter fiscal 2020 were 8.7% greater than two years ago in the second quarter fiscal year 2018.
Over the past four years ending fiscal 2019. The segment has grown at a healthy compound annual growth rate of 3.4%. We continue to be excited about health in homes prospects behind product innovations like the one showcased at our recent Investor day commercial innovation and its international expansion plans, we expect helping.
To return to growth in the second half of this fiscal year.
Beauty consumer centric appliance innovation continues to lead the segment driving beauty core business sales growth of 9.3% during the quarter beauty grew both domestically and internationally. We're pleased to now project growth for beauty in our revised fiscal 20 outlook introduced today.
Bleeding that growth is beauty appliances, which have been growing share in both brick and mortar and online as the appeal of our Revlon Volumizer continues to build earning over 10500 online reviews with an average rating of 4.3 stars out of fire.
Strong consumer and retail demand continued to be above expectations. During the quarter. This high demand contributed to higher logistics costs and lower operating efficiency and beauty. We expect short term compression of beauty segment margins as we increase our supply chain throughput and return to peak operating efficiency.
As we look at our long term trajectory in beauty appliances, we are hard at work on its pipeline of new products on international expansion at our marketing efforts.
Turning to other parts of our phase two strategy, we're diligently focused on maintaining a strong balance sheet with our low leverage we are as strong position to deploy capital towards accretive acquisition, that's more critical mass to our flywheel or opportunistic share purchases repurchases.
We're also focused on optimizing our cash flow through a combination of improving inventory management, extending our payment terms and growing our operating earnings.
We are highly focused on managing the complexities of currency volatility tariffs rising commodity in logistics costs intense competition in the marketplace and continued evolution of the global retail channel landscape as we've discussed in private prior call and Brian will address in his comments, we continue to deploy a variety of levers to.
Mitigate the business impact of tariffs.
I remain confident about the power of our phase two choices to position our company for continued long term profitable growth. Additionally, we continue to invest in our associates, who come to work with a passion for excellence as we delivered value to consumers and customers as we deal ethically with suppliers and as we support our communities focusing on delivering for all stakeholders.
Has been a hallmark of Helen of Troy throughout its transformation and we are proud to continue that work I will now turn the call over to Brian .
Thank you Julie and good morning, everyone. We're pleased with our second quarter results and to be in a position to raise our full year consolidated outlook.
Before discussing the quarter in more detail I'd like to further discuss the impact of tariffs since I know it is an important topic for many of you additives for us.
As you probably know US announced list for terrorists of an additional 15% on a broad range of consumer goods list for a became effective on September 1st and lists for B is scheduled to become effective on December 15th absent any new developments.
The great majority of increases that will impact our product categories are lift for be tariffs.
Based on the scheduled effective date, we expect minimal impact on our cost goods sold in fiscal 20 with most of the impact in fiscal 2001.
If ultimately implemented we anticipate taking the same approach that we've taken in the past the goal would be to offset the gross profit dollar impact with pricing cost reductions supplier consolidation other sourcing changes exclusions and other mitigation efforts. We also expect the for forward by some inventory.
Three and selected categories during the third quarter in order to defer the impact on our cost of goods sold as long as possible.
I'd also like to briefly explain the various impacts foreign currency fluctuations that I will be discussing during the call average foreign exchange rates were generally unfavorable compared to the same period last year, which negatively impacts the year over year comparison of net sales and gross profit.
You also hear me referred to a favorable impact from foreign currency and SGN, a which primarily relates to the settlement of favorable currency hedges that are intended to offset the impact of unfavorable currency fluctuations on net sales and gross profit.
Turning to review of the quarter, we achieved strong results with adjusted diluted EPS above our expectations largely due to stronger than expected net sales in housewares and beauty, partially offset by health and home, which was slight slightly below our expectations.
EPS also benefited from tariff exclusion refunds received in Q2 related to certain duties paid in prior quarters.
Exclusions for granted for several categories of markets, primarily concentrated in our health and home segment.
At this time exclusions are being granted for one year period of time.
The increase tariffs will become effective for these product categories at the end of that year. If the exclusion has not granted again.
As such we believe it prudent to consider the exclusion refunds as onetime in nature.
Furthermore, we expect that much of the refund benefit will be reinvested for the benefit of our brands and our retail customers. We believe that reinvestment is the best way to mitigate any potential declines in consumer demand that may result from tariffs and related consumer price inflation.
Consolidated sales revenue was 414 million a 5.2% increase over the prior year driven by a core business increase of 5.7%, reflecting strong demand in houseware segment growth and consolidated online sales an increase in appliance sales in the.
In the beauty segment.
Core business growth came on top of 14.2% growth in the same period last year.
Sales in the online channel grew approximately 25% year over year to comprised approximately 24% of our consolidated net sales in the second quarter.
These factors were partially offset by lower sales in the health and home segment a decline in personal care care sales within the beauty segment and the unfavorable impact from foreign currency of approximately 1.9 million or 0.5%.
This was a very strong quarter for houseware segment, which posted a core business increase of 22.4% on top of 19.4% growth in the same period last year. The segment continues to see strong demand for both OXXO and hydro flask brands online and in store.
Health and home core business net sales declined, 9.1%, which was slightly below our expectations.
A decline reflects an especially difficult comparison, the core business growth of 20.3% in the same period last year, the timing of seasonal shipments less wildfire activity this quarter and net distribution changes year over year.
Beauty core business net sales increased 9.3%, primarily due to growth in the appliance category, especially online in growth and international.
These factors were partially offset by decrease in brick and mortar and a decline in personal care.
Consolidated gross profit margin was 43% compared to 39.4%.
3.6% percentage point increase is primarily due to a higher mix of housewares revenue at a higher overall gross profit margin.
The benefit of tariff exclusion refunds, I mentioned earlier and a lower mix of shipments made on a direct import basis.
These factors were partially offset by the net margin dilutive impact from tariffs and related pricing actions unfavorable foreign currency, a lower mix of personal care sales and higher inbound freight to meet high demand in beauty appliances.
S. DNA was 29.8% of net sales compared to 26.3%.
The 3.5 percentage point increase is primarily due to higher incentive compensation expense related to short and long term performance the unfavorable impact of a lower mix of shipments made on a direct import basis higher outbound freight expense higher advertising and new product development expense and higher amateurs that amortization expense.
These factors were partially offset by the impact from tariff related pricing actions taken with retail customers greater operating leverage in the favorable impact from foreign currency hedges.
GAAP operating income grew to $54.5 million or 13.2% of net sales. This compares to 50.7 million or 12.9% of net sales in the same period last year.
Consolidated adjusted operating income increased 10.4% to 65.8 million were 15.9% of net sales compared to 59.6 million or 15.1% of net sales in the same period last year.
Housewares adjusted operating margin was flat at 22.4%.
The quarter benefited from a more favorable product and channel mix in greater operating leverage.
These factors were offset by higher incentive compensation expense higher new product development expense and higher freight and distribution center expense to support integration activity and higher retail and direct to consumer demand.
Health and home adjusted operating margin was 11.2% compared to 10.5% to.
The 0.7 percentage point increase primarily reflects the tariff exclusion refunds and the impact of favorable currency hedges.
These factors were partially offset by higher media advertising expense unfavorable operating leverage the margin impact of a less favorable channel mix and the impact of unfavorable currency on net sales and operating margin.
Beauty adjusted operating margin was 11.9% compared to 12.8%. The 0.9 percentage point decrease is primarily due to the impact of higher freight expense to meet strong demand in the appliance category higher incentive compensation expense the margin impact of a less favorable product in China.
I will mix and the impact of unfavorable unfavorable currency on net sales and operating margin.
These factors were partially offset by lower advertising.
Our effective tax rate was 10.3% compared to 8.3%.
Every or increase in the effective tax rate is primarily due to shifts in the mix of taxable income in our various tax jurisdictions and increases in certain statutory tax rates.
Income from continuing operations was 46.1 million or $1.83 per diluted share compared to 44 million or a $1.66 per diluted share.
non-GAAP adjusted income from continuing operations grew to 56.5 million or $2.24 per diluted share compared to 52.5 million or $1.98 per diluted share.
This represents a 13.1% increase in adjusted diluted EPS, a strong result on top of 20% growth in the same period last year and 10.2% growth in the first quarter fiscal 20.
We believe our second quarter results demonstrate the benefits of our diversified portfolio and our reinvestment formula which targets the healthy balance between growth investments and margin expansion.
Now moving on to our financial position.
Accounts receivable turnover increased to 68.4 days for the second quarter compared to 65.4 days in the same period last year.
Turnover as an average average trailing 12 month calculation and the increased primarily reflects the timing of revenue growth in cash collections period over period.
Our accounts receivable balance at the end of the second quarter was 310.4 million compared to 313.6 million at the same time last year.
Trailing 12 month inventory turnover was 2.9 times compared to 3.3 times in the prior year period inventory was 370.9 million compared to 284.8 million at the same time last year.
This includes approximately $12 million of additional inventory value related to higher tariff rates as well as higher inventory levels due to lower direct import sales in the first half fiscal 2000.
The remaining increase largely reflects additional inventory to support strong demand and distribution center volume as well as for risk management as we progress with supplier consolidation complete and optimize integration activities and implement systems and processes to increase capacity and throughput for future growth.
Even as we plan for tariff related forward buying of inventory in the third quarter, we continue to expect to improve our inventory levels over the remainder of the year and believe we remain on track to meet our cash flow objectives for the full fiscal year.
Net cash provided by operating activities from continuing operations for the six months of fiscal 20 increased point 9 million compared to the same period last year.
The increase was primarily driven by an increase in income from continuing operations higher noncash expense.
The collection of a $10.8 million supplemental payment in the second quarter related to the divestiture of our former nutritional supplement segment.
And the comparative impact of a $15 million dispute settlement payment made in the same period last year.
These factors were offset by an increase in cash used for inventory.
Total short and long term debt was 301.2 million compared to 301.1 million our leverage ratio was 1.2 times for both periods.
Turning now to our outlook our strong business performance in the first half the year gives us the opportunity to raise our full year sales and earnings outlook, while further increasing our growth investments consistent with our stated objective of maintaining a healthy balance of margin expansion and growth investment.
For fiscal 20, we now expect consolidated net sales revenue to be in the range of 1.61 to 1.64 billion, which implies consolidated sales growth of 2.9% to 4.8%.
This compares to our prior expectation of 1.7% to 3.6%.
Our net sales outlook reflects an increase in housewares net sales growth to 13% to 15% compared to our prior expectation of 6% to 8%.
We are lowering our outlook for health and home net sales to a decline in the low single digits compared to our prior expectation of net sales growth of 2% to 3%.
This reflects second quarter performance and the lower expected growth in the second half of the year due to net retail distribution changes and the unfavorable impact of foreign exchange rates year over year.
We continue to model on average cough cold flu season, but our position to meet the demand a strong season, if one should occur.
We're increasing our outlook for beauty and now expect sales to grow in the low single digits compared to our prior expectation of a decline in the low single digits.
We now expect consolidated GAAP diluted EPS from continuing operations of $6.84 to $7.04 and non-GAAP adjusted diluted EPS from continuing operations in the range of 850 to 875, which excludes any asset impairment charges restructuring charges.
Share based compensation expense and intangible asset amortization expense.
Our net sales and diluted EPS outlook continues to assume the severity of the upcoming cough cold flu season will be in line with historical averages and that September 2019, foreign currency exchange rates will remain constant for the remainder of the fiscal year.
The year over year comparison of adjusted diluted EPS from continuing operations is now expected to be impacted by an increase in growth investments of 13% to 18% in fiscal 20.
Our diluted EPS outlook is based on estimated diluted shares outstanding of $25.3 million.
The increase in adjusted diluted EPS outlook for fiscal 2008 reflects the company's strong performance in the second quarter, partially offset by an expected increase in growth investments higher expected incentive compensation expense and higher expected freight and distribution costs.
The higher freight and distribution costs are expected in order to support strong demand in our houseware segment and beauty appliances business as well as integration activity and increases in capacity and throughput of our operations for future growth.
We expect to reported GAAP effective tax rate range of 9.6% to 10.7% and an adjusted effective tax rate range of 9% to 10% for the full fiscal year 2020.
The likelihood of potential impact of any fiscal 20 acquisitions and divestitures future asset impairment charges future foreign currency fluctuations further tariff increases or future share repurchases are unknown and cannot be reasonably estimated therefore, they are not included in our sales and earnings outlook.
And now I'd like to turn it back to the operator for questions.
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Our first question is from Bob Labick CJS Securities. Please proceed.
Good morning regulations on another great quarter.
Thanks, Bob went to you. Thank you.
Yeah. So wanted to start with the tariff exclusion refund just to get a little more information appreciate where you've told us so far but.
You just tell us.
Is there more to follow it sounds like maybe there's another quarter can you quantify it and wasn't in revenue and in health and home or how should we think about that hitting.
This quarter.
Yes, Bob I. Appreciate the question I think we believe it best not to disclose in individual tariff impact in isolation.
I think.
First of all its misleading because we have so many impact now the tariffs flowing through our PNM out of the tariffs themselves. There's pricing changes. We've made there is demand impact potentially from pricing their sourcing changes cost savings RMB impact and now Terra tariff exclusion refunds all flowing into the PNM.
All in all really on different timing and cadence Tonight, and we really just think to focus on one impact would not provide a complete picture. We also and we tried to say it in the prepared remarks believed that the the best use of the refunds is to invest them for the benefit of our brands in our retail partners.
We expect the vast majority of the refunds to be reinvested in fiscal 2008, which would make the remaining amount falling to profit insignificant.
And what we are doing is where we've raised our sales and earnings outlook twice in a tariff environment, which is not easy by the way, but we're committing to that outlook, which includes our best estimates of all the various tariffs impact so.
We don't believe that we at this point should be disclosing the dollar amounts given the all the moving parts. It would hit cost of goods sold the basically the impact hits cost of goods sold in gross profit margin. It doesnt hit sales that hits cost of goods sold.
Got it and very fair I understand thanks for that additional color.
As it relates obviously, another nice quarter up a tough comp.
Core.
Sales of 5.7% can you give us a sense.
Quantify this down to the basis point for sure.
But given all the moving parts with tariffs and everything else how much of the growth is price versus volume or is that even a fair way to think about it because I think prices, obviously changed a little bit in this new environment.
Yes, I mean, there's there's definitely some price impact there I think you should recognize that the majority of where weve taken price increases just because that's where the majority of the tariffs have come into play. So far is in health and home there are some in housewares, but but less than housewares and more.
And in health and home. So there is a price impact there, but the part that's very difficult to quantify and we haven't really seen.
That that we can get our arms around is that demand impact. So you could say there is a price impact, but but we know that theres, probably also a demand impact it's just very hard to quantify.
Yes, we grew internationally North America impact there and then in categories that didn't have much tariff impact. We've also seen significant growth. So it's a combination of the two is there's no question mathematically if a price goes up and you. So the same volume of products that theres revenue benefit.
Got it Okay last one for me and I mean, it sounds like it's almost in all the above but just wanted to drill down a little bit in housewares. The growth has tremendous and so I guess my question is what caused the.
Revenue expectation increase where is the primary changed there as I've been greater success in international Us distribution wins.
I, just give us a sense because obviously.
Performing extremely well just trying to break it down a little.
Yes, thanks, Bob, but big quarter in housewares, and another big quarter and over a big base. So a lot to like there and definitely higher than we were thinking at the beginning of the year. So low love the forward progress there.
Theres a lot of factors.
Really made a big difference the anniversary of that hydro flask planner Graham expansion.
At Dick's so that helps us.
East growth in Hydro flask made a big difference you, probably remember about year and a half ago, we made a big deal about building the east being a core direction a big player. It turned out to be Dick's at leaned into the category in general and Hydro flask in particular, and we've benefited a lot from that and we're growing continuing to grow even as we add.
The bursary some of the early pipeline DTC has really come on strong.
In in housewares and between the two brands even more so in hydro flat. So much. So that you heard Brian's comments that were amping up the throughput and capacity in our warehouse, which requires some bigger investments in the back half than than we were originally planning we're very happy to make them. This is the way of the world. This were consumer centric. This is.
What the consumer wants and our warehouses as doing amazing things to to satisfy all that demand.
So this has made a big difference for us and Brian do you have some bill gas one I just felt a little bit Julian mentioned, the Dick's plan of Graham expansion I just want to point out that this Q2 is the last quarter, where the comparison is comparing against a period, where that had not been done in the same period last year.
So beginning in Q3 will anniversary the planet Graham expansion that that hydro flask had at Dick's and that will make the comparison much tougher in the second half of the year than it was in the first half of the year and that includes initial pipeline fill in that happened in Q3 of last year as well as the ongoing.
Distribution comparison year over year. So appreciate the comments in the question on the strong growth.
Some people might ask why isn't the growth going to continue to be as high in the second half a year and Thats one of the primary reasons.
Got it okay Super Thanks, so much.
Yes.
Our next question is from Olivia Tong with Bank of America Merrill Lynch. Please proceed.
Thanks, Good morning, first just a follow up on the.
Carefree find first kind of what drove that refined wasn't Justin overpayment and.
Rates are now settled so Gulf going forward, you won't see as much as an eye as much of an episodic change or is there going to be continued volatility in terms of the tariff refunds.
We don't expect that much continued volatility in what what happened is all importers have the ability to apply for.
Exclusions, and and refunds, depending on their situation or the case that they were able to make to the U.S.T.R., we happen to file exclusions with the help of our third party advisers and were successful in getting some exclusions and various categories. So it's really.
Based on.
How active you are in filing your exclusions and stating the case for your exclusions and then what that you STR is willing to grant for various reasons now I just want to make sure. It's clear they grab these for a year of a period of time from the date of the exclusion there's no guarantee that they will be granted again in fact.
You got to believe that it's in their interest not to continue to grant the exclusions because I think the motivation is to get manufacturers to move their sourcing.
The us and so to continue to grant exclusions wouldn't incentivize the behavior that they're looking for.
So we don't expect huge meaningful amounts of activity on a go forward basis.
There could be some and we're going to try to get some where we can but it's not.
The the the main lever that we're pursuing in terms of of how to mitigate all the duty impact.
Just.
So it may clear, it's what the amount we received as a recapture of duties that we had paid over like the last three quarters. So starting in the second half of last year and in the first quarter of this year, we paid duties because the exclusion had not been granted and then once the exclusion was granted we got a refund of all those past dues.
These paid.
Yes, as Brian mentioned before were largely reinvesting.
So the impact.
On the bottom line is actually very small well for the quarter. It it's big because obviously total well, yes, we don't have the ability to reinvest so quickly, but our plan is to reinvest the majority of it by the end of the fiscal year, you can see that in our outlook in fact, and the outlook. It's a well just mathematically this was above the wall Street expectations.
So it shouldnt more of a show up in the outlook in this and foreign exchange and some other things as Brian mentioned are things that we're spending back into the business with that algorithm of of running our flywheel invest in the growth expand margin and if we can get a better result, we will deliver it. So it just means way to to keep the machine working as oppose.
Is it just cashing in some short term win.
That's super helpful. Just a follow up there.
Relative to the 13% to 18% increase in growth investments that you're planning for the full year, what was that number for the first half.
Sorry, sorry, Oh, good growth in investment I would say it's in the range. It's it might be closer to the bottom of the range, whereas we expect to be at the higher end of the range in the back half of the year, we'll look it up for you Olivia as a couple of points lower and we've actually.
Done it twice now we raised at the beginning sorry in the last call. When we when we reported Q1 and we said that this algorithm of investing back we would put some growth investments we're doing it again here so that numbers ratcheting up a point or so each time, while we've talked about this in the past I'd love to be able to tell you there is a steady Kate.
Thanks to our growth investment spend but theres, just not a way to do that because it's so dependent on each of the individual businesses, what theyre opportunities are what categories, which is in our emotions and seasons and all that sort of stuff. So there is no I know you may feel like it's hard to get your arms around what's spending for.
Sales into what quarters and can you predictive regular cadence I wish I could tell you that you keep could but it's too difficult a suggestion there that might help to look just at a full year basis and think.
As we said in the Investor day. This as a company Thats set written targets of climbing the staircase of supporting our business to the tune of about 10% every year and as long as we can continue to find good opportunities with good ROI as it will stick to that target.
If we don't see good our eyes, obviously, we would change our thinking we are seeing good opportunities as Brian said, whether its seasons, new product introductions competitive activity promotion is a lot of moving parts and we're nimble and we would rather stay spry.
And to get into a dogmatic thing of 2.5% increase every quarter and we double check that number while we were talking and we are at the bottom of the range for the growth investment increased and we expect to be in the higher end of the range in the second half of the year.
Got it that's super helpful.
In terms of turning over to the different product segments, we talked a little bit about housewares and beauty already but on health and home.
You talked about the weakness this quarter in the call down for the full year I know you had relatively uneventful season, you called out a couple different things as wells tough comp.
Related to the wildfires last year, but can you talk about so lost distribution that you mentioned the competitive environment.
And why things should start to return to growth in the second half what you're seeing to that gives you the confidence that you'll get back to growth.
In Q3. Thank you, yes, yes, great question, there's a couple of things there that are pretty important.
Right remember we had some some nice win on the.
Distribution side in the year ago base, and if you look at the seasons or the categories that held at home plays in whether its humidifiers thermometers bugs Zappers water filters air filters. So many different parts of the health them.
Home World.
There's constant category line reviews going on and there's wins and even some losses.
Each time, and sometimes you get a series of perfection I'd happened last year. This year was more of a sort of normal win loss, our total and it's just common well drilling sorry, I wouldn't call. It nor I would say the segments been winning in the net distribution game over the last three or four years and that is not so.
Stena bulk forever you can't win every single year and I would say this is a year, where maybe the net distribution.
Exchange was down a little bit, yes, but it's important to understand that the.
This happens all the time and while we've been on a winning streak and actually continue to largely win over multiyear period.
The 3.4% four year CAGR that I mentioned in my mind takes like 12 quarters of results or in that could actually 16 quarters of result, and nets out all the wins and losses in the if you sort of say, we'll watch I count on at least based on that history. The answer is 3.4% and if you look at this year, we said that will be.
Turn to growth in the third and fourth quarter for the back half of the year and there's two things going on there. One is we had a weaker compare in the year ago season, and the other is there is strength in the business to significant strength as new products. There is international expansion, we'd like very much how things are going in Asia now.
Now and you might remember in Q4 of last year, we had called down a short term thermometer inventory overage in Asia. During the fourth quarter of last year that played through perfectly I think we mentioned in the last quarterly call and now we're in a good run rate and seen growth. So there is an example of how these things go up and down so.
All of these things will help and this should bring health at home back to growth for the back half. Unfortunately for the year, we did call down the guidance and you did see that change, but remember that K guar. So that you can understand that over a multiyear period and as I mentioned in my prepared remarks versus the year before said another way fiscal 18.
We had significant growth even in this second quarter in health at home versus that base. So there's a little bit of sort of chatter between quarters, it's better to look on a multi year basis and see the net wins.
Thanks, guys appreciate it.
Surely the question is from Frank.
With Sidoti. Please proceed.
Good morning, guys, how you doing.
Yes, good Frank I hear from you.
Hey, could you just a little bit clarification on the demand side.
Okay sounds like you're tariffs and you're maybe that's not the right way to look at it but it sounds like the terrorists are largely on the on the health at home and maybe that's where the exclusions where as well.
So in theory is that sort of your leased.
From a consumer standpoint.
Area that has less to city for pricing I would think I mean, given this is not really a discretionary.
A lot of those items are not discretionary im just kind of forgiveness for macro.
Yes standpoint, yes, I concur Frank people do have options in those categories I would not say that there are great substitution, where the overwhelming market leader in things like pharmacy, humidifiers and year thermometers.
Air Purifiers to give three examples so if you have a family or child suffering from things like allergy asthma fever cough congestion codes for most consumers given that market share they have spoken and their answer if they want the best they want the leader they want the reliable product. They want the features in our case, we've had a lot of innovation. So they also want the.
Differentiation that we've put into the market to make our products exceptional and delight those consumers they want that in they're willing to pay for it and they show. These are excellent products and that's probably not going to be there driver as to why they buy it right. I mean, you don't go out so I want to buy this thermometer because as 10 now as cheap today as wholesale.
So I mean people are price sensitive and there are alternatives as even private label in the retailers, who largely stay close to some of the best innovations in the category. So there are alternatives, but those drivers that I listed.
Certainly drive people to our products and we are seeing that you can see it in the shares as well our shares generally look good.
This is also go up and down a little bit overtime. They tend to go up for all the reasons I just mentioned.
That's where I will go what this is is I would've thought you were so I mean, we talk about sort of demand impact are you not seeing any demand impact on your more discretionary lines like.
$30 Tumbler for example, where people would be more price conscious if you're going to see some early signs it sounds like no as stance or I mean, given yes, just generally know and I'm largely agreeing with you just for clarity and especially in the non discretionary areas, where the products you have that kind of reputation feature skills.
That a premium etcetera that these things are holding and we like what we see on the demand there are ups and downs and there are substitutes. So that is not this idea that we just can charge any pride, that's not true competitive environment and we're extremely careful we're attacking our cost et cetera, and then in the case I'd like you mentioned the $30 tumbler idea remember at least one through three.
We didnt see tariffs in the in that area. So there wasn't pricing action. So it wouldn't be a good test of demand elasticity. What we have seen is big demand surges at those prices in all the areas that were mentioned earlier, we're very pleased to be able to satisfy those and and grow that market share grow that business grow our profits.
Okay, and you talked on the house or is about the new disk or distribution, specifically talked about fixed but can you talk at all about how much new products added two or product lines I guess added to sales roughly.
Yes.
Yes, I'm going to I'll give you I know you probably want to quantitative answer, but I'm going to give you a qualitative one because I think it's the right way to go on this week, which is on every year, we innovate across our main platforms and you can actually see it in all of the.
All of the categories, including the ones you are mentioning so.
For example in housewares, specifically on OXXO, a large number of new products hit in Q2, there is more new products to come in Q3, and Q4 2.0 containers being a big example of this turned out actually ended up timing a little bit later in the year. So that's good for for whats yet to come so thats good news for the market I hope.
And in terms of the innovation pipeline, it's significant so the pressure, helping and is not just pop. It's just that was an example, and there's lots of other new products on the OXXO side on the hydro flask side tons of new stuff, including plenty beyond the bottle. So last call we called out hydro flask.
Hydro packs as an example, even with especially Taylor designs for the body shape of women. We also this quarter, we're able to launch for this year, we're able to launch the lunch box type of products new versions of our totes, new colors of our soft backs and then lots of new varieties of bottles and cans.
Yes, and shapes colors sizes special variance.
So the new product machine is alive, and well and then in beauty, we specifically called it out in our prepared remarks, the consumer centric innovations on appliances are getting tons attraction, even hard to keep up with the demand in some case, which is putting some pressure on the supply chain. As a result, we had to invest in some logistics this year and were even investing in the back half the build out our.
Capability and throughput okay fun.
Just lesser real quick.
The UK intangible tax in the quarter and this Janet.
Yes, there was this.
I mean, it we called it out last quarter, because it was a big change compared to our forecast now we've got an embedded into our forecast. So we didnt give it as it as much attention, but yes. It is there in the us DNA. Okay and then if you could just quickly on capital allocation.
So.
You did pay down I guess some debt for the six months is this where we should expect.
Your excess cash flow to go barring that obviously in the acquisition.
I mean.
Obviously, you Havent bought back stock recently, given I assume one of the valuation as if you can make a comment on that.
Yes, I think so I mean, I think if we didnt feel like the a share no Penn without an acquisition and then the idea that we didnt see an opportunity with respect to share repurchases, yes, we would pay down debt and we will have strong cash flow in the second half of.
This fiscal year, where we're working hard on the M&A front, and we'll see what shakes out of that okay. Thanks, guys.
Thanks, a lot Frank.
Our next question is from Lisa Bowen Wiser with D.A. Davidson. Please proceed.
Yeah, Linda I, Linda Yes, hi.
Please go ahead.
So.
I know the.
Hi, IRI data doesn't at all tell the whole story about your Pls performance, but it did look like I mean your growth was very very strong in certain areas. But then it did look like at slowed a little bit in the month on September .
Specifically in the hair appliances.
And I think maybe thermometers, but can you talk about did things just generally slow down a little bit kind of in the post back to school season or.
Can you just comment on.
Cadence yeah.
Sure and saw your note on the on the topic in great that you're seeing that data. So it's great. We actually see a fair amount of Nielsen data, we're not seeing that these things go up and down and as you. Your so called out in the note that the coverage of our world is.
Less than 50%, probably more like 30, 40% depends what part you're talking about and in a specific categories by care appliances. As we mentioned our prepared remarks, we're seeing growth in brick and mortar so that will help and brick and mortar generally in the hair appliances is not a growth category. So whoever is growing in that category is taking share.
For up from others and that has been the case, especially behind the strength of Volumizer and in the case of online. We've seen is explosive growth in a very positive way and very large share gains that wouldn't be measured in Nielsen I don't think they are captured in IRA.
Either and then turn to September specifically it in my view, it's hard to talk in a Q2 call about a Q3 month let.
I'll give the most generic comment I can which is we're not seeing a slowdown.
Okay, Great and then.
Can you comment we've heard from some companies that they feel that the whole tariff situation in the uncertainties related to tariff have just generally slowed down some of that decision, making in the M&A world. What could you comment on that does it make it harder for you to make decisions or does that make you more.
Conservative in terms of how you're looking at certain M&A targets. Thanks.
Yes, Great question I think the say two things about it won't one is that I think the tariff refund comment earlier question earlier. This question. They are great. Examples of the short term ups and downs from tariffs.
That in many ways are largely a distraction theyre not long term strategic drivers there not long term strategic vectors likely expecting the world to go in some new direction where tariffs.
Ever ever climb that said there are also unpredictable so they do create uncertainty to your point about M&A, it's not stopping us from pursuing M&A opportunities as Brian mentioned, we're working hard in that area and in the case of.
Specific decisions that we would make in M&A. It just ends up getting factored into the valuation because we can see what the products are we know whether they are on the list or not we know what the tariff rates are planned to be based on the announcements of this four as an example, and unless things changed it's simply effects what it's worth.
So we know the profitability is reduced by the terrorists like Frank is suggesting we can make some assumption about demand elasticity. If we think there would be an impact and therefore, maybe growth rates and then decide what we think it asset could be worth what its growth rate might be so we see it more like that rather than a general paralysis about deploying capital.
With that so I think it's right what would not be right is to ignore it and just pretend like Blue skies ahead and.
Assuming that there is a normal environment on the other side of this and pay accordingly or act as if terrorists don't matter because in the short term. They do I would just Linda it's Brian I would just maybe changed slightly Julian mentioned it would alter the profit purse perception of an acquisition target that may not necessarily be true.
Drew I think in some cases, we would evaluate whether we could.
Use the same playbook that we've been using which is due is their ability to raise prices to offset the gross profit of course all of our negotiating we would negotiate that the profit was lost but we would also be evaluating whether we could raise prices once the asset was in our hands to offset the tariff impact. So I would say we were exploring all.
All scenarios and options as we're looking at acquisition targets and I would say no. It hasn't it hasn't stopped us from considering targets I think we we're we're open to taking on the risk in either feeling that we can offset the risks through pricing or.
Maybe going back with the reduced valuation because we feel like we can't offset the turf than that.
Okay. Thank you very much.
Yeah, great. Thanks Lynn.
Our next question is from Steve Marotta with CL King and Associates. Please proceed.
Good morning, Julian Brian and Jack Congratulations on the second quarter as well drilling can you think you speak to international growth specifically in the second quarter on a consolidated basis can you remind us what the current penetration is for international where the largest opportunities are I know in the Investor day regarding phase two you talked a lot.
About.
International being source of focus and at the coming year.
Anything would be a little bit more planting seeds then.
Then showing if you will but it seems like you're getting.
Early indications of demand pull for you just speaking a little bit more specifics about international growth currently and where you are from infrastructure standpoint would be helpful.
Yes, great Great question, it's very much strategic for us as we chose it on the subject of international.
And we did see some growth this quarter, the company's roughly 20% penetrated.
Internationally.
So it will give you base to work from in Europe , and Asia are the biggest parts. So okay give you the sense of where we are deployed if you look at those organizations.
You'll see a significant infrastructure in Europe , and a moderate in Perth infrastructure in Asia, and we have some additional go to market capability outside of those.
Regional.
Mark market.
Regional market organizations are our imos as we call them, where we go to market for example in housewares in places like Japan, and even some of the online activity.
We did see growth slightly higher than the average growth rate for the company on a consolidated basis. So international is punching a little bit above its weight and in certain parts, especially in Asia. It punches above its weight from a profitability standpoint. So as we then make choices about what we will do.
Sure Nickel has led US who I mentioned earlier, we're very pleased to act on our own strategic choice around international bring that President We said an international start Investor Day, We would do so we were working on it and we're very pleased now to act and Nicholas's focus primarily is Europe and Asia, especially in the beginning and in terms of infrastructure. It's.
Good early for what we might change in fact, there will be a strategic review in the company in December on our normal annual cycle as we look out over the next three years and we will hear of changes we might make in that area to amp up that growth and you heard us, saying investor day that on a long term basis, we saw about 100 million dollar organic opportunity there.
Which would just mathematically on that 20% base be a higher growth rate than the whole company over the course of phase II. So if you take the two and a half the 3.5%.
Organic growth that we targeted in phase two on a total company basis, you take 20% of the company and grow it by about $100 million hopefully a little more over the course of phase two you'll see that we're expecting more from international and these are the places where it'll come from and then on specific investments there's lots of stuff going on I talked about the health and home in Asia.
The the beauty business, especially those value misers are just doing well internationally and so they're helping to drive growth that slightly higher than average.
In this quarter that I, just spoke of and in terms of international choice, making I can tell you with great confidence that it's an enormous source of focus for all four of our presidents. The three sector presidents are divisional presidents and Nicholas and in the December strategy reviews will get a good look at what their fiscal 21.
Two and 23 choices are they will know about infrastructure and investment decisions and Steve just a little adjustment there at slightly higher without the impact of currency. If you put currency in there it's not but we sometimes look at it both ways.
Sure I understand that's very helpful. My second question as I understand at the Australian flu season was particularly acute this year do you find that that's often a leading indicator for North America and what your internal research shows.
It's quite mix. So the short answer is not really and the reason I say that and there is no tongue in cheek involved it's very early in the season. So everyone's looking for tea leaves to understand what kind of season is going to be theres, a great logical debate of weather, what Australia because of its location.
Compared to North America experiences is their version of the season that the western Hemisphere, just add or their prediction of the season at the Western Hemisphere is soon to have with northern Hemisphere, maybe is better was a northern and southern so theres, the chicken and egg of feeling around world.
Who was first the southern hemisphere or the northern Hemisphere I don't local one of the question for the ages and not for US to now I can say that strains of virus matter more than the chicken and egg thing and that's why it's not really answer because the strains that mutate over the course of year, whether they started in the south.
And move to the north of part in the started in the north and move to the south of the strains do mutate. So whether you get H one into H. do in three et cetera. These things change from period of time to period time, regardless of hemispheres, and then you get into the effectiveness of the flu shots and then the reality that the Rhino virus, which was the one that causes things.
Like colds as opposed to the influenza virus, which is the ones that costs things like flu.
It gets a little murky then you throw the flu shot itself, meaning which strains are in there and at some point you throw up your hands and you realize that.
Got it is great and he will decide what the flu season is going to be like.
Julien that's very helpful. I don't anticipate that you would answer the chicken and egg on an open line, but I will certainly press you on.
Yes, I don't know and I wasn't trying to acute in the comment I'm simply saying, it's not really a leading indicator. It's also not clear if it's a trailing indicator. It's just another hemisphere on the planet and they have flew to I can say that's for sure. There was an article by CNN yesterday.
They've helped us to take out of the context of any one person's opinion and I think it was in the CDC might have been in whr, but neither leader case are both cases, a world authority on the topic of virus.
And they themselves I think gave an explanation and at the end of their own quote said so as you can see as clear as mud and if in their own quote in him up and aligning the person I'm acknowledging that it's just true that I don't think science and Thats why I sort of invoked a higher authority has gotten to the bottom of how all this works because I don't think sciences.
As lift this one yet and what we don't prey on sickness or want people to be sick, we're very proud to make things that make them better and when they're sick. We're very pleased to be there first choice and go to products.
We have reached end of our question and answer session I would like to turn the call back over to Mr. Mininberg for closing remarks.
Yes, well, thank you and thank you again to everyone for joining us we're very proud to see phase two continuing to start off very strong.
We look forward to speaking to many of you in the coming weeks and updating you on our progress and we'll report report our next results for the third quarter in early January .
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Before.