Helen of Troy Ltd (HELE) 2006 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen, to the Helen of Troy first quarter earnings conference call for fiscal 2006.

This call is being recorded.

At this time I would like to inform you that all participants are in a listen-only mode.

At the request of the Company we will open the conference up for questions and answers after the presentation.

Our speakers for this morning's conference call are Gerald Rubin, Chairman, Chief Executive Officer and President;

Christopher Carameros, Executive Vice President Thomas Benson, Senior Vice President and Chief Financial Officer; and Robert Spear, Senior Vice President and Chief Information Officer.

I will now turn the conference over to Robert Spear.

Please go ahead sir.

Good morning everyone and welcome to Helen of Troy's first quarter conference call for fiscal 2006.

The agenda for this morning's conference call is as follows.

We will have a brief forward-looking statement review followed by Mr. Rubin who will discuss our first quarter earnings release and the related results of operations for Helen of Troy.

Followed by a financial review of our income statement and balance sheet for the quarter by Tom Benson our Chief Financial Officer.

And finally an open question-and-answer session for those of you with any further questions.

First the Safe Harbor statement.

This conference call may contain certain forward-looking statements that are based on management's current expectations with respect to future events of financial performance.

A number of risks or uncertainties could cause actual results to differ materially from historical or anticipated results.

Currently the words anticipates, believes, expect or other similar words identify forward-looking statements.

The Company cautions listeners to not place undue reliance on forward-looking statements.

Forward-looking statements are subject to risk that could cause such statements to differ materially from actual results.

Factors that could cause actual results to differ from those anticipated are described in the Company's form 10-Q filed with the Securities and Exchange Commission for the first quarter of fiscal 2006 ended May 31, 2005.

Before I turn the conference call over to our Chairman Mr. Rubin, I would like to inform all interested parties that a copy of today's earning release has been posted to our website at www.HOTUS.com.

The release can be accessed by selecting the investor relations tab on our homepage and then the news tab.

I will now turn the conference over to Mr. Gerald Rubin, Chairman, CEO and President of Helen of Troy.

Thank you Bob and good morning to everyone.

Helen of Troy today reported sales and earnings for the first quarter ending May 31, 2005.

Our first quarter sales increased 19% to $127 million versus sales of $107 million in the same period of the prior year.

First quarter net earnings were $10,547,000 or $0.33 per diluted share compared with $14,483,000 or $0.44 per diluted share for the same period a year earlier, a decline of 27%.

Gross profit remained steady in the first quarter at 46.1% of sales compared with 46.9% of sales for the prior year first quarter.

Increases in selling, G&A expenses during the quarter were the primary reason for the net earnings decline for the first quarter.

The SG&A expense increases included additional personnel, warehousing, freight, depreciation, advertising, expenses for new product launches for the Brut and Sea Breeze skin care products, and costs associated with modifications operations and improvements of our worldwide information system.

As you'll recall in our earnings conference call which we had on May 12th, we discussed that our expectation of sales in our personal care line of business would be flat during the first half of fiscal 2006 with an improvement expected in the second half of the year.

Excluding the sales of the newly acquired OXO International business, personal care sales for the first quarter of fiscal 2006 which ended May 31, 2005 decreased approximately 6%.

While this is an improvement over the fourth quarter fiscal year 2005 decline in personal sales of 11%, we were disappointed that the improvement in our personal care sales from last year's fourth quarter was not as large as we had expected.

Our sales leaders during the first quarter were OXO International, the domestic Idelle Labs skin care products and Latin American sales of hair care appliances.

We are currently building a 1.2 million square foot distribution center in Southaven, Mississippi that will expand our eastern United States capacity to accommodate the distribution needs of OXO International and future business expansion and acquisitions.

The state-of-the-art warehouse and distribution center will increase the Company's presence in Southaven, Mississippi to 1.2 million square feet from the 619,000 square feet that we currently have.

This distribution center is expected to be fully operational by the first quarter of calendar 2006.

We are reiterating our fiscal year sales and net earning guidance that we provided last quarter with sales in the range of 615 to 640 million and net earnings in the range of $2.50 to $2.60 per diluted share.

I would like to give you the reasons why we believe sales will improve in the second half of this year.

In the professional personal care area we are introducing a complete new high-end product line of 23 SKUs for full-service beauty dealers.

In the retail personal care products area which consists of the Revlon, Vidal Sassoon, Sunbeam, Health o meter and Dr. Scholl's products we will be introducing a new line of Vidal Sassoon studio tools geared to the higher end user along with additional SKUs in each of the brands that I just mentioned.

Idelle Labs will have four new product introductions and Brut, and three new Sea Breeze products for domestic introductions along with a new repackaged line for our current SKUs.

We spent heavily on advertising in the first quarter and expect that to pay off during the year in increased sales.

In Mexico we are introducing 15 new Brut products and we expect higher sales in Latin America of our personal care electrical products as we will be introducing the Revlon line of products for the first time in Mexico.

Revlon is a well-known brand as you know in Mexico in cosmetics and we expect our line to do very well there.

We also expect to better in Brazil with all of our products and our new introductions.

OXO International had a 26% increase in sales for the first quarter over last year.

As you know, we didn't own the OXO brand for the first quarter last year.

We expect this 26% increase to continue for the balance of the year as we will have new SKU introductions to the market throughout the year.

We bought OXO because it's a great brand, has excellent management and truly innovative products that are unique and patented.

And our expectations for the brand have proven to be on target and was an excellent acquisition for Helen of Troy.

When our new warehouse in Southaven is finished we will be consolidating the OXO brand inventory along with our other products and expect savings in the millions of dollars next year due to the consolidation.

I would now like to turn this conference call over to Tom Benson our CFO for the financial highlights.

Thank you and good morning everyone.

First quarter net sales grew 19% year-over-year.

Our houseware segments which is OXO, had a strong quarter while the personal care segment sales were disappointing.

Quarter one fiscal 2006 sales, net sales were 127.4 million compared to 107 million in quarter one fiscal 2005.

This is an increase of 20.4 million or 19%.

Our first quarter operating income decreased by 19.1% year-over-year.

The operating income for quarter one fiscal 2006 was 15.3 million which is 12% of net sales compared to 18.9 million, 17.7% the prior year.

This represents a decrease of 3.6 million or 19.1%.

Operating income, the decrease in operating income is mostly due to increases in SG&A costs that I will discuss in a few minutes.

First quarter income from continuing operations in quarter one fiscal 2006, income from continuing operations was 10.5 million, 8.3% compared to 14.7 million, 13.7% of net sales in the prior year first fiscal quarter.

This represents a decrease of 4.2 million.

During the first quarter of fiscal 2005 we completed the sale of our 55% ownership interest in Tactica.

During that quarter we recorded an after-tax loss from discontinued operations of 222,000.

First quarter earnings from continuing operations per diluted share was $0.33 in the first quarter of fiscal 2006 compared to $0.45 in the first quarter of fiscal 2005.

This was a decrease of $0.12 per diluted share.

Now I will provide a more detailed review of various components of our financial performance.

The Company's quarterly net sales by segment were as follows.

Personal care net sales in the first quarter of fiscal 2006, $100.5 million compared to $107 million in quarter one of fiscal 2005.

This represents a decrease of 6.5 million or 6.1%.

Sales were down due to lower consumer demand, continued pressure to lower prices on certain of our products, expanded marketing programs that are recorded as reduction of gross sales, an increase in defectives and back to stocks and some out of stock items.

There will be continued pressure on sales in the second fiscal quarter for many of the same reasons.

We believe that our year-over-year sales performance will improve in the second half of the year as we roll out new products, revitalize some of our existing products and expand our distribution.

The housewares net sales which is the OXO segment in quarter one fiscal 2006 was 26.9 million.

We acquired OXO on June 1, 2004 so the results are not included in quarter one fiscal 2005.

The 26.9 million of quarter one fiscal 2006 sales represents a 26.4% increase over the sales OXO had under prior ownership for the quarter ended May 31, 2004.

Gross profits for the first quarter was 58.7 million, 46.1% of net sales compared to 50.2 million or 46.9% of net sales in quarter one fiscal 2005.

This represents an increase of $8.5 million or 16.8%.

The slight decrease in gross profit percentage of 0.8 percentage points is primarily due to increased allowances and price decreases which impact net sales.

Our cost of goods have not seen any meaningful price increases.

Selling, general administrative expenses, for the first quarter SG&A expenses increased in total and as a percentage of sales.

SG&A expenses for quarter one fiscal 2006 were $43.4 million which is 34.1% of net sales compared to 31.3 million or 29.3% of net sales in the prior year fiscal quarter.

This represents an increase of 12.1 million or 4.8 percentage points.

The 12.1 million increase in SG&A costs is due to the following, the housewares segments had 6.8 million of SG&A.

Since we did not own OXO which is the houseware segment in quarter one fiscal 2005 the comparable net increase year-over-year is 5.3 million consisting of the following.

Increase in outbound freight, 1.1 million.

Increase in personnel cost, 0.6 million -- I mean 600,000.

Depreciation 500,000.

Legal fees 500,000.

Consulting fees 1.2 million.

Increase in exchange rate loss 300,000.

Customer related cost 1.1 million.

That totals 5.3 million.

Outbound freight costs have increased due to fuel cost increases and other cost increases in the transportation sector.

Our personnel costs have increased due to recruiting additional top-quality personnel to manage our growing business, acquisition integrations, new product and brand revitalizations and personnel associated with our new internal audit department to comply with SOX.

We had higher depreciation costs in quarter one fiscal 2006 resulting from the placing into service in September, 2004, our new worldwide information system.

We should be able to leverage these costs as the business continues to grow both internally and through strategic acquisitions.

We incurred higher legal fees mostly due to a trademark dispute which has been settled.

We incurred higher consulting fees associated with our new worldwide information system and SOX compliance.

For the fiscal year 2006 we are forecasting SG&A expenses to be approximately 31% of net sales.

Operating income.

Operating income decreased to 12% of net sales, 15.3 million for quarter one fiscal 2006 compared to 17.7%, 18.9 million for quarter one fiscal 2005.

Operating income decreased as a result of higher SG&A expenses as already discussed.

Interest expense increased in the quarter.

Interest expense for quarter one fiscal 2006 was 3.3 million, 2.6% of net sales compared to 1 million, 0.9% of net sales in the prior year fiscal quarter.

The increase is due to additional debt resulting from acquisitions over the past year.

Our tax expense in quarter one fiscal 2006 was 1.4 million, 11.9% of income before taxes compared to 3.3 million, 18.4% of income before taxes in quarter one fiscal 2005.

The overall year-to-year decline in tax expense as a percent of pre-tax income is due to more of our income fiscal 2006 being taxed in lower tax jurisdictions and moving of certain operations out of Hong Kong to Macau which we believe have ended our tax exposure and tax accrual for Hong Kong taxes after fiscal 2005.

I will now discuss our financial position.

Our cash balance was 6.8 million at May 31, 2005 and we had 12 million of borrowings on our 75 million revolving line of credit.

Accounts receivable were 111.7 million at May 31, 2005 which is comparable to the February 28, 2005 balance.

Sales for the first quarter fiscal 2006 were basically the same as the fourth quarter of fiscal 2005.

Accounts receivable turnover days were 72.3 days at May 31, 2005 compared to 70 days at February 28, 2005.

Inventories at May 31, 2005 increased 36.4 million from February 29, 2005 and 68 million from May 31, 2004.

The inventory levels increased in the first quarter is part of our normal seasonal build to service the increased demand for product anticipated in the second and third fiscal quarters.

We have also built up inventory over historical levels due to new product introductions and in some product categories we increased our purchases to take advantage of favorable current prices which we expect may increase as a result of recent increases when the prices of raw materials such as copper, steel and plastics.

We are also bringing inventory in early to avoid dock congestion in late summer.

Please remember that the May 2004 inventory does not include any OXO inventory since we did not own OXO until June 1, 2004.

Shareholders equity increased 13.6 million to 434.1 million at May 31, 2005 compared to February 28, 2005.

I will now turn it over to Gerry for some additional comments.

Thank you Tom.

I would like to now operator open up the floor for questions.

(OPERATOR INSTRUCTIONS).

Gary Giblin with Brean Murray.

You have reiterated the annual guidance but the quarter came short of what the Street had and I realize that the Company wasn't giving quarterly guidance, so does that mean that things are -- that the tone of business is getting much better and could you be conservative in the sense of not allowing for Wal-Mart sales improvements which we have seen in June and indications for Wal-Mart in July?

I think that we are just trying to be realistic.

We have done all our projections for the rest of the year that we think we can hit and that is why we have reiterated the 250 to the 260.

Wal-Mart sales are increasing.

Hopefully that will help us, but we are trying to look ahead the next nine months and that's what we came up with.

And is the Company in a likely to buy back stock at these levels?

I mean the stock is off a bit this morning.

Is this a level where you do the other one and a half million shares on the buyback?

As we have discussed and I tell everybody on every conference call it is something of a priority to acquire the shares but our first priority is to increase the sales and the profits for the Company.

And that can almost always come if we have larger sales and larger profit and increasing our sales or through acquisitions.

And as in the past we were looking at acquisitions, we're currently looking at acquisitions; depending on how that falls out then we would see how much we want to spend on stock buybacks.

But our number one priority is acquisitions and our number two priority, if there is no acquisitions to buy is stock purchase buyback.

Just finally can you give us some color on the initial reception to let's say the new Brut and Sea Breeze line extensions?

This is Chris Carameros, as far as we kind of divide Brut in two different places, one in the U.S. and Canada which just has one line and really one fragrance.

We have as Gerry mentioned to you four new SKUs in the shaving category and we have some repackaging of all the Brut with one unified logo across the brand and packaging that now includes all our labels away from you Unilever going forward.

Brut sales have been very good.

A lot of our brands were in the decline.

We decided to spend money in advertising to do that.

If you look at the results just for one month we are actually in a positive mode of I guess up 4 to 5% on consumer retail.

Brut is part of that and we're very optimistic with Brut, we will continue to do well.

We're spending heavily.

We have our racecars.

We talked about last time to meet our customers and to be able to sample and provide an overall presence for retail every time that car goes to different cities.

Actually it's going to be in Denver this weekend; and it's good to be at King Supers at several different stores and we use the Brut promotions to tie into that and we are optimistic that it will do well.

As far as Brut in Mexico if you may recall as I mentioned last time Brut actually had three different scents in Mexico.

We have taken the original scent that we had with Brut and we have line extended it to actually four scents with AP and DOs (ph) in Mexico.

And actually have 21 SKUs sitting in on the shelf right now at Wal-Mart and going across the rest of retail in Mexico.

We're very excited about that and we think that's going to do very well for us.

And as Gerry mentioned we are going to take that same brand heritage which is very strong with Brut in Brazil and launch that in the fourth quarter of this next year with the expanded Mexico SKUs that we have.

We think that Brut is doing well for us.

Sea Breeze is doing well for us.

And those are the two biggest brands along with Skin Milk, is also doing well.

So we are spending most of our marketing dollars behind those three brands at this point in time; we will probably continue to do that in the second quarter.

In the third and fourth quarter we will have less impact in some of the marketing dollars we are spending (indiscernible) as we think we have done a pretty good job of making that launch in that period of time.

Thanks.

That's very helpful.

Dax Vlassis (ph) with Gates Capital Management.

I had two questions.

The first question relates to CapEx.

How much did you spend in the quarter?

And it seems like it was a little lighter than you're expecting from the back of the envelope numbers I am looking at.

Do you still expect to spend in the neighborhood of 50 million this year?

This is Chris again.

Tom will comment in a moment.

But as you -- we mentioned we're going to spend money on the warehouse that will be primarily in the third and fourth quarter (indiscernible) do that.

But the first quarter, Tom?

The first quarter we spent 3.7 million.

I think for the full year we have already mentioned that our new warehouse between the building and the equipment would be $45 million of capital expenditures, and we have mentioned before we have about 5 to $7 million of kind of ongoing.

So I would expect total capital expenditures to be at least $50 million.

We have also mentioned that we anticipate selling our old building which we should net at least $16 million out of, so that would be cash coming into the Company for the sale of that.

So between those two you can assume 50 million, you can take the 16 million away from that to get the net capital expenditures.

My next question was the tax rate for this quarter, is the guidance that you provided for EPS, does that assume that tax rate stays around 12%?

Yes it does.

This is Chris again.

In the Q that we released today we make a comment that we can anticipate a tax rate of 10 to 14% and that's where the range is depending on where we fall in the particular income throughout the different taxing jurisdictions.

But primarily as we have said to you several times in the past we had moved that operation as of September first from Hong Kong to Macau, and that was part of our implementation of Oracle, we actually took two or three years to investigate the situation in Macau.

We have gotten a very favorable status in Macau and that will hopefully continue going forward and it looks like Macau has recently changed some rules about what they're going to allow any other companies coming in to there and we're grandfathering those rules going forward.

So Macau will be a beneficial place for us to operate in.

And that is what is driving that overall rate down to a lower amount.

And as we mentioned in the fourth quarter we also settled with the U.S. tax jurisdictions for those years and we feel confident that we will be able to keep our tax rate in that area.

I have a comment I wanted to tell you about the CapEx on the buildings as Tom told him.

We're going to be spending around $50 million for our new Southaven warehouse and be selling our old warehouse which will leave around 33, $34 million.

We are looking into the sale of the Southaven warehouse and a leaseback so it's very possible for the year that our CapEx will be actually zero, and we will have all that extra money for acquisitions or stock buybacks.

So our free cash flow can increase dramatically if we do this sale leaseback.

Dmitri Pearlstein (ph) with Tanaka Capital Management.

This is (indiscernible).

I was just wondering if you can talk a little bit further about the advertising programs, the amount of spend say by quarter for the next few quarters and whether that would go up next year or tend to flatten out?

This is Chris Carameros speaking.

The advertising program will continue in the first, actually the second quarter and then tail off somewhat in the third and fourth.

We will have continued advertising to support the brands and what they're doing.

But we will not have new launches of that many products at this particular time because really we actually launched the SKUs and Brut as we mentioned before along with new Sea Breeze and also along with Skin Milk here in the U.S.

So to the extent that it is warranted by new product introductions you can advertise for advertising sake, but we need to have something to say in that particular piece and it has been positive and it has been a positive result for us.

And although you take a little bit of a hit in the advertising this quarter and a little bit in the second quarter we think it will be money well invested.

So we will continue to have an advertising program but not to the extent that we do have this particular quarter.

You've seen the results and you're happy with the results, that you have seen?

Again, a lot of these brands have been somewhat neglected.

Skin Milk wasn't but other brands had been neglected.

And I think if you look at just the last statistic I looked at last year, if you looked at where we were -- we were in the decline in the 10% to 12% decline in some of our brands in the U.S.

And actually last month we had a 4% increase which is a consumer demand, which really drives sales in the future.

Yes, we're seeing positive results from that.

So the plus 4% would have been in those three brands?

Actually it was across the board.

It was actually more in some of those brands.

Jack Salzman with Kings Point Partners.

I wonder if you folks can give us some guidance for the balance of the year?

You've earned about 20 odd million in cash for the quarter versus year end.

Assuming that the CapEx programs are neutral if you do a sale leaseback are you -- do you expect to build cash at the year end?

Are you going to start building cash by the second quarter?

I wonder if you can give us a feel for that.

And relative to that I guess is there any expectation that accounts receivable turn and inventory turn will begin to improve by the second quarter forward, or do you expect that the second half of the year?

I wonder if you can give us an indication of sort of where you see those ratios going.

This is Chris.

Again inventory we are building up early as Tom mentioned to you, primarily it was strategic reason to do that, price being one of the considerations, also bringing items in to avoid a dock congestion.

Also avoiding air freight.

So inventory will build.

Inventory turns and receivables and receivables will turn into cash.

That's how it follows on the balance sheet and Tom you expect to exit the year with --.

We are hoping that for the year we can get cash flows from operating income to be 80 million plus.

And what you are seeing in the first quarter of our inventory has built a little higher above historical seasonal trends.

We have explained that but we basically invest in inventory in the first and second quarter and it goes down in the third and fourth quarter.

And the receivables are going to build dramatically in the third quarter and they will decrease in the fourth quarter.

This is the seasonal pattern of the business.

It happens year after year.

We just have brought some inventory in early for very specific reasons this year and we are comfortable with our cash flow and what we're doing.

Does that mean you will end the year at around $20 odd million in cash or --

As Tom said, we will end up with 80 million before if we do a sale leaseback which would put us somewhere around probably 120 million in cash at the end of the year if we do a sale leaseback.

(multiple speakers) cash flow but then some of that cash flow will be chewed up by working capital.

I'm talking about cash flow from operations.

I am not talking about my cash line on the balance sheet.

Right.

I was talking about the balance sheet cash.

Balance of cash -- we have a lot of options with what we can do with it.

We can pay off debt early if we choose so we're really not, we are not giving out a projection of our cash balance at year-end at this time.

James Hogue (ph) with Wedbush Morgan.

This question is for Tom.

I didn't catch the total sales number for OXO -- I was wondering if he could repeat that.

The OXO number was 26.9 million for the quarter and even though we did not own them for the quarter last year that represents a 26.4 increase over the sales that the prior owner had during the quarter.

You mentioned that the personal care business generated about 105 million.

Is that correct?

100.5 million.

100.5.

Okay.

Good enough.

Now how about within Brut?

Were you able to disclose how much Brut did in the quarter?

We're not disclosing down to the brand level.

Okay.

I wanted to see if you guys could provide a little bit more color in regards to how raw material affected supply costs during the quarter.

Even though oil has gone up and plastics cost more, because of our volume and our associations with the factory, prices have been pretty steady.

I don't know what's going to happen in the future but that is one of the reasons why we decided that we would increase our inventory levels and have enough for the September October November period which is our big quarter.

Usually we sell probably approximately twice as much during that quarter then we do during the first quarter.

So right now we are in good shape because of our increased inventories and I can tell you next quarter what happens as far as pricing.

But right now it is stable.

And as far as on the Idelle business, the grooming and skin care piece we have had some increases in some items and actually decreases in other items that we have repositioned some of our production in different factories.

But as Gerry mentioned to you before we look forward to having a facility a little bit closer in in Mississippi and that should reduce the freight substantially for the Idelle SKU as they are being moved from El Paso to Mississippi.

And that should supply a substantial amount of savings in freight.

One of the things we're spending money on as Tom had mentioned to you in the IT section is a lot of different programs and initiatives there that will turn into a lot of freight savings as we have a new program called Red Prairie (ph) which basically maximizes load deficiencies and provides lots of other benefits for us.

We think we should have that turned on in the second quarter but really utilize that piece when we actually move the SKUs to Mississippi to get freight under control and maximize full freight load versus LTL.

Mimi Sokolowski with Sidoti and Company.

I just have a couple of question about assumptions.

Tom to make sure I understand you correctly did you say that the SG&A expense ratio should run about 31% for the full year?

Yes, for the full year.

Chris, you had said the tax rate should be in the range of 10 to 14% for the full year?

Yes.

That was somewhere in the press release today or no?

That 10 to 14% will be in the Q today.

It will be in the Q. Okay.

Also I wondered Gerry if the annual revenue assumption, the range was would you describe it as cautious?

Would you describe it as realistic and also with the November quarter specifically, I think I recall in the last conference call November quarter F '05 might provide for a difficult comparison?

We have given out our projection of 615 to 640 and that is kind of where we are at.

So as time goes on we will see how we do, whether it is going to be towards the higher end or exceed it or towards the lower end but right now we feel comfortable that that is the range that we are in.

Would you agree that the November quarter F '05 will be a difficult comparison?

Are you looking at it as such?

No.

We had a difficult September because we didn't ship for a couple of weeks due to the Oracle transformation that we had.

So we're looking for increased sales in September and getting it to the customer earlier.

I think we shipped very late and we had a big November which I think hurt the Christmas sales for us, as we just talked about the inventory.

By getting the inventory in earlier we are going to be able to ship in September and October and it will be in the stores in November and we're going to have better Christmas sales.

I think we will have better Christmas sales and more sell through for what we're doing.

So it wasn't the case last Christmas that a poor sell-through had anything to do with demand?

It had to do with the timing and logistics?

I think for both reasons getting shipping heavy in November is not something that we historically do but we did ship a lot in November because of all the things that were going on either in the Orient or in the U.S. as far as getting merchandise in.

And possibly some softness in the market.

So this year by getting it to the stores earlier we think we are going to do better.

Doug Lane with Avondale Partners.

Questions on the top line.

Personal care being down in the first quarter and it looks like you are cautious in your tone for the second quarter.

Can you give us a feel for a full year number?

Do you think personal care sales on a full year basis will be up this year?

I think they will be somewhat flat.

Flat.

So down in the first half, up in the second half, net net kind of flattish.

Yes.

Turning to OXO with the first quarter up 26% plus apples-to-apples, is that really sustainable or you already contributed I think somewhat to OXO's growth so --.

We are very excited about OXO; they have had some great products and great sales.

We have been forecasting a 13 to 15% increase to come in the '20s.

We believe that will continue because they have got a great mix of SKUs in what they are shipping and what they're doing.

They have a new retailer coming online August, September.

They have some different categories coming online August, September so we're somewhat optimistic they can beat that 13 to 15% which we were forecasting and being hopefully in the '20s.

As those products and shipments come about, we are optimistic we can hit those.

So we are excited about it.

Yes, I know, it sounds like it's doing very well.

Right.

Can you tell us who the retailer is?

No.

Back to personal care on the margins.

If my math is right and we will see it in the Q I guess later today, but it seems to me that this is the second quarter where personal care margins have retreated back to the single digits.

Is part of the second half pickup in performance here going to be a return of the personal care margins to double-digits?

Will we see that as soon as maybe the third quarter?

When you say margins you talking about gross margins or just percentage increase?

No.

Segment margins.

You're talking about operating income?

Yes, that's right.

The operating income you will see in the Q the personal care we are in single digits.

I think you're going to see 7.9% in the housewares.

You're going to see 27.5% as we have disclosed for the last few quarters, our overhead we're not currently allocating any of the overhead to the housewares segment.

They are still in a transition agreement and we are paying outside fees for that transition agreement.

So we are carrying some extra costs to prepare for when we bring them in in-house here.

It is being borne by the personal care segment.

So I think that we have disclosed that a few times, so I think if we really try to move some of those costs over you would see we probably be at double-digits already in the personal care area.

When do those costs get rebalanced?

You did disclose that in the K, would you expect personal care to go up and OXO to go down?

Correct.

Those costs are not going to get rebalanced or reallocated until next year when we are done with the transition agreement.

Then we're going to take a look at our costs and we are going to allocate our overheads between personal care and the housewares segment.

We don't feel it's appropriate to do because they are incurring a bunch of outside fees right now.

Doug, this is Chris.

We are paying a transition fee of 8% so we feel that we can probably operate in a 3 or 4% so that would tend to disappear.

It's being aggravated by the fact that we need to build up our own individual staff and personnel to take over that so we will have an increase and you're seeing that in that third and fourth, actually some of the results today.

And it will be a little bit worse but when you have that kind of in the third quarter when we have a volume that is masked by the volume but that is why we're looking forward to the improvement sometime in March of next year when that terminates.

Because you have to pay, then have to build, so you are only kind of incurring a double whammy until you make the transition.

Which should be sometime early '06?

We think it will be March -- February March of '06.

That's what we're pointing to.

Right, right, right.

And then also involved with that will be moving OXO onto your Oracle system, right?

It all happens at one time.

So I guess it remains to be seen how that impacts the P&L?

We have actually gone ahead and we have mapped completely all the differences.

We have already got the Oracle in line and all we are doing is downloading data at this point in time and we will be beginning tests for next month to test all of the implementation for that particular system and then get that done and plugged in and happen in February.

So other than operationally going from 8% to whatever you think, 3 or 4%, are there costs that you area bearing now in anticipation of that conversion that will go away next year?

Yes there is.

And again when you take a look at our overhead the way it is we can either cut back and cut some overhead at this point in time but you are really not wanting to do that because we think it will as Tom said to you being the 31% but we don't want to cut people and cut different pieces when we actually have to do an implementation of that and looking at two or three different acquisitions.

If you did it -- add it I guess -- we did the number a little bit yesterday -- 30 or $40 million of sales incrementally our overhead is somewhat fixed.

And we basically had built this enterprise system and some of our overhead systems to do an additional 200 or $300 million of business without incurring a whole lot more cost.

So we think that we can be a lot more efficient and that is why Gerry in his commenting to you that our priority is to do an acquisition.

You can always buy all your stock back but that's not going to maximize the overhead that we have.

So we like to do a little bit of both.

We want to be able to grow, do some acquisitions, get our overhead covered and at the same time if the opportunity is to buy our stock back.

So it is a little bit of both.

How would you describe the acquisition environment?

I think it's similar to -- we took a look at an acquisition in our first quarter and we decided not to proceed with it for a variety of reasons.

We think there is some opportunities for us that we are looking at right now.

It's a little bit pricey in certain areas but we feel if we can bring something to the table and if we can bring different pieces out there we can be successful.

As Gerry mentioned earlier if you take a look at the OXO acquisition it was a pricey acquisition, that was 24% increases and the opportunities we have with that going forward, we think it's a good acquisition for us.

Right, right.

And back on the cost front, how is it going -- how is the migration to your new warehouse in Mississippi going to play out on the cost front?

Are there going to be onetime costs associated with that in your February quarter?

There should be some one time costs but I would suggest to you that we are going to have some decent savings in some of those costs, i.e. when we move the first SKUs that we plan on moving are the Idelle SKUs over there and we really haven't forecast those cost decreases and some freight and different items.

But you are also going to have some transportation costs of moving the OXO from O'Neil, Illinois back down to Mississippi.

So those are going to be in there and we're determining those particular points at this point in time.

Well again it sounds like we have got several things near term that you are incurring that ultimately will result in more savings than costs.

We think by next March, by moving to Mississippi we can probably safe anywhere from 5 to $8 million a year net to the bottom line.

Now it's going to come in a variety of different forms.

It's going to come in the form of reduced fee from the 8 (ph) to the left.

We're going to have more obviously more interest expense or more clearing costs, a bit more depreciation but we're optimistic that we can do that and get it configured.

Part of that key is that's a 1.2 million square foot warehouse that we can put a lot more stuff through and strategically looking at we want to be able to incur that and we think it's a great place to be because of the location and the speed to market for our customers and delivery, and also for freight minimization.

Just one last thing, Chris I think you had thrown out some numbers if I am not mistaken about Idelle Labs.

You got cut off at the very end there.

I was talking about earlier in the call I think you had talked about some numbers for Idelle Labs.

Were those Nielsen numbers?

As far as percentage increases?

Yes they were.

Can you review that for me?

I sort of missed that.

I think you said it was up 3 or 4%?

All the SKUs we have for the last month within Idelle were up 4%.

Last month?

Yes.

I don't want to get into a whole exercise here but do you happen to have what maybe a three-month number would be or 12 weeks?

It's not really relevant right now because most of our marketing happened in March.

So we think going forward -- we actually if you want to look at the past year we were actually down significantly in double digits.

Reversed to a positive.

So we think that by doing the SKU introductions, by unifying the packaging, by having better products and those kind of things that we're actually going to have an increase for the year and we're forecasting a nice increase for the year both in the U.S. and in Mexico.

Kathleen Reed with Stanford Financial.

Can you comment, I think you said in your prepared remarks that in your personal care division or you saw some products that were experiencing pricing pressure, can you just elaborate on which of those categories?

The pricing pressure we get are normally on opening price points on personal care products, that is the only price pressure that we have.

As I mentioned most of our new products are now geared for the higher end where there seems to be a revitalization of higher end products.

Most stores are gearing up to selling higher priced goods.

We have retailers that would not sell anything above $20 that are now putting in $50 items.

And they found that 30 and 40 and $50 personal care products do sell and they can raise the amount of their sales by going to higher end.

So there is no pressure there.

It is only on opening price points.

But it's on your electricals, it is not on your Idelle Labs.

Right.

It is all electrical.

And we're trying to get away from not by moving a little higher in.

In fact on some of the Idelle SKUs in Mexico we repositioned the price points up to be able to take advantage of the different features we have.

Also, just to be clear all your -- it sounds like most all of your new products with Brut and Sea Breeze they all launched in your first quarter.

Is that accurate?

That's correct.

What was the product you mention that was going to launch in your fourth quarter?

You have one that you said was shipping somewhere in 4Q?

I guess professional products?

Your professional hair care, high-end appliances.

Right.

The new distribution you gained was that the one that you just mentioned for OXO or did you have any other new distribution for some of your other products?

No.

It's primarily that but the new distribution for the other products if you take a look at is international countries.

For instance we are looking forward to Revlon being a big brand not only in Mexico but also Brazil.

The Brazilian economy has been doing fairly well.

We want to be able to take our three or four years worth of history there and build upon that as the economy does better.

Our plan was to be successful in Mexico.

I think we've executed against that plan very well and the next market we want to move into is primarily is in the appliance category in Brazil.

Revlon has got a great brand name there and we want to expand on that and build on that along with Brut.

So really some of our market categories they really are countries that we have not focused on in the past.

So Mexico was 1Q for the appliance launch and Brazil is more a Q2 event?

We had a Revlon launch.

We had BS there before but a Revlon launch in Mexico in the first quarter and then we want to build upon and do more third and fourth Q launches upon appliances and also launch Brut as I mentioned to you before.

It's there in a limited way, it doesn't have all the new expanded SKUs that we have in Mexico, it has mostly U.S.

SKUs in Brazil today.

I know you have mentioned that your priorities for cash first to reinvest in your business, also a priority for acquisitions on the top line.

You mentioned share repurchase, it's like the third issue would be debt reduction and do you have any penalties for prepaying your fixed-rate debt or would the one you take out would be your newly issued one for OXO?

If you take a look at the Q that they show today you'll see the scheduled reductions that Prudential fixed-rate debt are $10 million over the next couple of years.

There is a schedule in there that you can refer to.

And that would be our schedule for debt reduction because that is a mandatory debt reduction going forward.

As far as the floating pieces we have after a year we can prepay significant amounts of debt without a significant amount of penalty (inaudible).

Also just quickly you mentioned that your big brands you're focusing on are Brut, Skin Milk and Sea Breeze.

The other one that you purchased last year I think was TimeBlock; can you just comment on what is happening with that one?

We haven't done much with TimeBlock because we didn't have the marketing dollars to spend on that.

The thing that is compelling about TimeBlock if you remember correctly when we announced it is the fact that it had clinical studies that had conclusive proof of line reduction within two to three weeks.

We either do a combination of taking TimeBlock and introducing that at an appropriate time if we have the marketing dollars to do so, along with potentially integrating some of that technology that we have and the different proprietary interests we have within TimeBlock into the other SKUs we have with Brut and potentially Sea Breeze.

And last, on the acquisition front you mentioned you looked at one in the first quarter, you passed on it.

Can you just tell us a little bit more what types of categories you are looking at?

Is it more to go into Idelle Labs?

Is it also to be on the electricals, what kind of -- is it more housewares?

We primarily looked at the electricals area that what we call the appliance area in that category to go into and then we are currently looking at some acquisition ideas for actually for Idelle.

We think there are some opportunities out there for Idelle that we've been made aware of.

But there is no concerted effort to change the product mix of the company away from electricals to say since your OXO division is growing so well, is there a conscious effort to look at --.

I think the opposite effect, one of the initiatives we have taken out there is to introduce electricals into OXO.

There is a huge opportunity for us to do small kitchen appliances in that category.

So one of the new methods of madness is not only grow the existing business at 25% but also take a look at doing small electrical appliances in the kitchen with OXO brand names.

Are those out now?

No, we are looking at those right now.

We have a large initiative to do that.

Gary Giblin with Brean Murray.

My question was actually just answered.

Thank you very much.

Charles Weissman with Lazard Asset Management.

I think you said in that call that you think working capital was going to be a negative for the year.

Can you just talk a little bit about why that is?

It looks like last year your GSO's were up about 20 days and inventory was up over 30 million.

I am just wondering why you can't do better with the working capital.

I don't think we said working capital would be a negative but Tom go ahead and comment.

This is Tom Benson.

What I said is that for the -- that we have a seasonal nature to our working capital and during the first and second quarter we always build up inventory and that decreases during the third and fourth quarter.

And our receivables peak at the end of the third quarter and decrease over the fourth quarter.

For the full fiscal year we are expecting cash flow from operations to be in the range of $80 million.

So we are in our seasonal period.

We go through this every year.

We're going to have negative cash flow for the second quarter and --

But for the year we are going to have a positive cash flow.

So maybe I don't understand your question, significant cash flows.

Well that's what we're talking about the 80 million, we were talking about before plus anything that we may get from the sale of the warehouse distribution center in Southaven.

So we are going to end up the year very positive.

(OPERATOR INSTRUCTIONS).

Dax Vlassis with Gates Capital Management.

I'm somewhat new to the Company and I was just wondering if the acquisition of the Netera (ph) brands was in the personal care segment.

It's in the personal care segment in the Idelle piece.

Were you, when you were saying that personal care would be sort of flattish for the year where you taking it into account?

We were talking about the appliance piece is probably going to be flat and the other piece which is in the Idelle, items will be up for the year.

And then my last question so as far as I was trying to follow the cash flow statement, when you say it's going to be 80 million from cash flow from operations and then you would subtract 50 million of CapEx and then add back the sale of the 16 or 15 million of the sale of the other facility, is that correct?

That's correct assuming that we don't do any type of sale leaseback or other type of financing on the facilities.

Dax Vlassis.

Understood.

Thank you very much.

It now appears there are no further questions.

I will now turn the conference back to Gerald Rubin to conclude.

Thank you to everyone for participating this morning and looking forward to talking to you at the end of our next quarterly report.

Thank you again.

Ladies and gentlemen, if you wish to access the repay for this call you may do so by dialing 1-888-203-1112 with a replay pass code of 301754. (OPERATOR INSTRUCTIONS) This does conclude our conference for today.

Thank you for participating and have a nice day.

All parties may disconnect now.