Helen of Troy Ltd (HELE) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Helen of Troy Limited fourth quarter conference call. [OPERATOR INSTRUCTIONS]

At this time I'd like to turn the call over to your host today, Mr. Gerald Rubin. Please go ahead, sir.

Good morning, everyone, and welcome to Helen of Troy's fourth quarter and year-end conference call for fiscal 2006. The agenda for this morning's conference call will be as follows. We will have a brief forward-looking statement review followed by Mr. Rubin, who will discuss our fourth quarter earnings release and related results of operations for Helen of Troy, followed by a financial review of our income statement and balance sheet for the quarter and year by Tom Benson, our Chief Financial Officer. And, finally, we'll open up for a question and answer session for those of you with any further questions.

Safe Harbor statement. This conference call may contain certain forward-looking statements that are based on managements current expectations with respect to future events or financial performance. A number of risks or uncertainties could cause actual results to differ materially from historical or anticipated results. Generally the words anticipates, believes, expects and 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 risks 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-K filed with the Securities and Exchange Commission for the fourth quarter fiscal year end February 28, 2006. Before we turn the conference call over to our Chairman, Mr. Rubin, I would like to inform all interested parties that a copy of today's earnings release has been posted on our website at www.hotus.com. The release can be accessed by selecting the Investor Relations tab on our home page and then the news tab.

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

Thank you, Bob, and good morning to everybody. Helen of Troy Limited today reported sales and earnings for the fourth quarter and fiscal year ended February 28, 2006. Fourth quarter sales increased 5.4% to $134.508 million from $127.6 million in the same period of the prior year. Net earnings for the fourth quarter were $6.645 million or $0.21 per diluted share, versus $11.984 million or $0.37 per diluted share for the prior year quarter. Fourth quarter sales were led by increased sales from OXO, Personal Care and Latin America sales.

Full year net sales increased to $589.747 million from $581.549 million in the prior year. Net earnings for the year were $49.310 million or $1.56 per diluted share, compared with $76.450 or $2.35 per diluted share in the prior year year. For the full year, sales were led by increase sales from OXO, Latin America and Canada. As reported on March 1, 2006, the Company completed a repatriation of foreign earnings during the fiscal fourth quarter, incurring a one-time tax charge of approximately $2.8 million or $0.09 per fully diluted share. Excluding this one-time charge, net earnings for the fourth quarter was approximately $0.30 per diluted share compared with our guidance provided on January 9, 2006, of net earnings for the fiscal quarter of $0.15 to $0.25 per fully diluted share. Full year fiscal year net earnings, excluding the one-time tax charge, was $1.65 per fully diluted share versus guidance of -- the guidance of net earnings for the year of approximately $1.49 to $1.59 per diluted share.

We are expecting to see improvements in overall financial results for fiscal year 2007. We anticipate that those improvements will occur in the second half of the fiscal year, as we continue to believe that Personal Care sales will be flat to slightly higher, with higher selling, general and administrative expenses during the first half of our 2007 fiscal year. We believe sales in the first quarter will be negatively impacted by the transition of OXO to our new distribution center. As we recently announced, Helen of Troy completed its 1.2 million square foot distribution center in South Haven, Mississippi. We expanded its eastern United States distribution capacity to accommodate the distribution needs of the OXO business. This new distribution center will replace our existing facility and increase our presence in South Haven, Mississippi, from 619,000 square feet to the 1.2 million square feet. The OXO inventory transfers from Monee, Illinois, to our new distribution center [NOISE ON LINE] during the current quarter and customer shipments are now being processed from the new facility. We anticipate that the new distribution center will reach normal shipping capacity of the transitioned OXO inventory during the second fiscal quarter.

We have secured various additional product placements at certain major customers for the coming year. These additional product placements should assist in achieving improved financial performance in the current fiscal year. As a result, we believe that the current year financial results will exceed last year's results, but the first quarter may lag slightly behind that of last year's first quarter due, primarily, to the first quarter distribution center transition issues. Full year sales guidance for the fiscal year ending February 28, 2007 is, therefore, expected to be in the range of $600 to $620 million, or an increase in sales of 1.7 [NOISE ON LINE] to over the prior year. Full year earnings per diluted share are expected to be in the range of $1.70 to $1.80 or an increase of 9% to 11% over the prior year earnings per diluted share.

-- to be 15.

9% to 15% per diluted share. I would now like to turn the conference call over to Tom Benson, our CFO.

Thank you, Gerry, and good morning, everyone. First I will talk about fourth quarter results and then I will make comments about our financial position. We had a 5.4% sales increase in the fourth quarter. Net sales for the fourth quarter fiscal 2006 were $134.5 million, compared to $127.6 million in the fourth quarter of 2005. This represents an increase of $6.9 million or 5.4%. Our net earnings decreased 45%. Net earnings for the fourth quarter of fiscal 2006 were $6.6 million compared to $12 million in the prior year quarter. This is a decrease of $5.3 million.

Let me address the key question that everyone has. Why did sales increase 5.4% and net earnings decrease 45%? There are four key items, each of which will be discussed in more detail during my presentation. Gross profit percent decreased to 45.8% for the fourth quarter of 2006, compared to 46% in quarter four, 2005. Selling, general and administrative expenses increased to 35.9% of net sales in quarter four, 2006, compared to 34.2% of net sales in quarter four, 2005. Interest expense was $2.4 million higher in quarter four, 2006 compared to quarter four, 2005, due to higher interest rates on variable ret -- rate debt and interest on IRS taxes payments. Income tax expense was a $2.7 million expense for quarter four, 2006, compared to $400,000 benefit in quarter four, 2005. During the fourth quarter of fiscal 2006 we repatriated $48.6 million in foreign earnings, including a one-time -- incurring a one-time tax charge of $2.8 million. In the fourth quarter of fiscal 2005 we had a tax benefit of $400,000 because we decreased our tax accruals $2 million due to the favorable settlement reached with the Internal Revenue Service for fiscal years 2000 to 2002. Diluted EPS decreased 43% to $0.21 compared to $0.37 in the fourth quarter of 2005.

Now I will provide a more detailed review of very com -- various components of our financial performance. On June 1, 2004, we acquired certain assets and liabilities of OXO International for $273 million. OXO is a leader in providing innovative consumer product tools in a variety of areas, including kitchen, cleaning, barbecue, bar ware, garden, automotive, hardware, storage and organization. Brands that we sell include OXO Good Grips, OXO Steel and OXO Soft Works. This business will be referred to as our Houseware segment. Our other segment is our Personal Care segment and includes the following product lines. Appliances. Products in this group include curling irons, thermal brushes, hair straighteners, hair dryers, massagers, spa products, foot baths and electric clippers and trimmers. Key brands in appliances include Revlon, Sunbeam, Health-o-Meter, Vidal Sassoon, Hot Tools, Wigo and Dr. Scholls. Grooming, skin care and hair products are included in the Personal Care segments and consist of the following brands; Brut®, Sea Breeze®, Skin Milk®, Vitalis®, [Amends], Condition® 3-in-1, Final Net® and Vitapointe®. Bushes, combs and accessories are also included in the Personal Care segment. Key brands in this product category include Revlon, Vidal Sassoon and Karina.

The Personal Care segment net sales for the fourth quarter of fiscal 2006 were $99.6 million, compared to $10.5 million for the fourth quarter of fiscal 2005. This represents a decrease of $0.9 million, which is a 0.9% sales decrease. Net sales decreases are a result of pressures to lower prices, selective loss of product placement in a weaker market, especially in our European operations. While we are disappointed in a 0.9% decrease in net sales, this represents an improvement in the 8.3%, 14.8% and 6.1% decrease we experience in the third, second and first fiscal 2006 quarters, respectively. The Houseware segment net sales were $34.9 million in the fourth quarter of fiscal 2006, compared to $27.1 million in the fourth quarter of fiscal 2005. This is an increase of $7.8 million or 28.8%. Sales increases have been primarily driven by continued new product introductions with existing customers and the addition of a new hand tool line. Gross profit for the fourth quarter was $61.6 million for fourth quarter of fiscal 2006, which is 48 -- excuse me, 45.8% of net sales, compared to $58.7 million in the fourth quarter of fiscal 2005, which is 46% of net sales. This is a dollar increase of $2.9 million, which is a 4.9% dollar increase. The increase in gross profit percent of -- I'm sorry, the decrease in gross profit percent of 0.2 percentage point is primarily due to a combination of a reduction in selling prices on certain items and cost increases on certain raw materials in our grooming, skin care and hair care products.

For the fourth quarter, selling, general and administrative expenses increased as a percentage of sales. The SG&A expenses were $48.3 million in the fourth quarter of fiscal 2006, 35.9% of net sales, compared to $43.7 million in the fourth quarter of fiscal 2005, which is 34.2% of net sales. This is a dollar increase of $4.6 million and it's a percentage point increase of 1.7 percentage points. The increase in selling, general and administrative expenses is primarily due to the following: Warehouse storage and handling costs increased $2.4 million; warehouse moving expenses were $800,000; customer selling program costs increased $700,000; we had an increase in advertising of $2 million; we had an exchange rate quarterly year-over-year change of a $3.3 million benefit; we had personnel cost increase of $700,000, and we had incentive compensation increases of $1.3 million. Those items total $4.6 million.

Warehouse storage and handling costs are up due to more utilization of outside warehouses, higher inventory levels and higher transition fees for the OXO business. Warehouse moving expenses are associated with moving inventory from our El Paso warehouse and an outside warehouse in Illinois to our new Mississippi distribution center. Customer selling program costs are up due to additional co-op advertising cost, partially offset with lower handling and noncompliance charges. Advertising increased due to higher spending. Exchange rate change is mostly due to the closing out of our cash flow hedges during the quarter. Personnel costs are up due to additional personnel. And incentive compensation is up due to better results in our Houseware is segment.

Interest expense for the fourth quarter fiscal 2006 was $5.5 million, compared to $3.1 million in the prior year fourth fiscal quarter. Interest expense is up $2.4 million for the quarter due to higher interest rates on our floating rate debt and higher revolving debt. We also incurred approximately $900,000 of interest on tax payments, related to tax audits. Other income in the fourth quarter of fiscal 2006 was $1.6 million, compared to a $300,000 expense in the fourth quarter of fiscal 2005. In the fourth quarter of fiscal 2006 we sold our old warehouse in South Haven, Mississippi, for approximately $16.8 million, recording a gain of $1.3 million. Tax expense for the fourth quarter of fiscal 2006 was $2.7 million, which is 28.7% of income before taxes, compared to a $400,000 benefit in the fourth quarter of fiscal 2005. As mentioned earlier, during the fourth quarter of fiscal 2006 we repatriated $48.6 million in foreign earnings, incurring a one-time tax charge of $2.8 million. The fourth quarter of fiscal 2005 we had a tax benefit of $402,000, because we decreased our tax accruals $2 million due to favorable set -- due to the favorable settlement reached with the Internal Revenue Service for the fiscal years 2000 through 2002.

I will now discuss our financial position. Our cash balance was $18.3 million at February 28, 2006. We have a $75 million revolving line of credit in place, of which we had no borrowings, leaving us with $75 million of available borrowings under this credit facility at February 28, 2006. Accounts receivable decreased $4.4 million year-over-year. On a trailing five quarter basis, accounts receivable day's outstanding increased to 75.2 days at February 28, 2006, compared to 70 days at February 28, 2005. On a current sales basis, accounts receivable day's outstanding are 71.7 days, compared to 80 days a year ago, an improvement of 8.3 days. Inventories at February 28, 2006, increased $30.9 million from February 28, 2005, down from a year-over-year increase of $45.5 million at November 30, 2005. Inventories are up due to new product introductions and to buffer against distribution that may occur as we relocate certain inventories in connection with the consolidation of our warehouse operations into our new South Haven, Mississippi, distribution facility. We also increased inventory purchases to delay the impact of possible future price increases. Shareholders equity increased $54.8 million to $475.4 million at February 28, 2006, compared to February 28, 2005.

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

Thanks, Tom. I'd like now to open the conference call up to -- for callers. Operator?

Thank you, sir. [OPERATOR INSTRUCTIONS] And we'll take our first question from Kathleen Reed from Stanford Financial. Please go ahead.

Good morning. Can you discuss some of the other consumer products companies that have reported -- have discussed inventory destocking at some of the mass accounts, mainly Wal-Mart and Target? And with Wal-Mart representing a meaningful percentage of your business I just wondered if you could talk a little bit -- if you saw any of that inventory destocking in your fourth quarter or if that's also one of the reasons why you think your first quarter sales will be a little bit weaker than the year-ago period?

As far as the decrease in inventories at some of the major retailers, for appliances that happened during the fourth quarter of last year -- of our fiscal fourth quarter. But as far as our HVA products, [Nidel Labs], that's occuring during this quarter and that's one of the reasons. But the transition is the other reason, getting up to speed at the warehouse.

Okay. Also just along those lines with your Personal Care business, can you talk a little bit about the negative pricing, if that's on the appliance side or if that's on your Personal Care brands like the Sea Breeze® and Brut®? And also, I think when you were just mentioning what products were included in your different categories, I didn't hear you mention Time Block, and I wonder if you had sold that brand or discontinued it or if I just didn't hear it that you still own it?

There is price pressure on the appliance business and, hopefully, that's stabilized, but that has been occurring over the last year. As far as -- well, if you go to Wal-Mart we have a -- I just want to tell everybody we have a line called [Style X] that's made exclusively for them under the Revlon brand, and it's doing very, very well there. These are at higher price points to offset the lower price points. Wal-Mart is trying to sell merchandise at higher price points and I think, in our product category, they're being very successful, so that's a very big positive for us.

Okay, and the Time Block brand?

As far as Time Block, we -- this is Chris Carameros speaking. We really haven't emphasized the Time Block brand. We've been putting most of our marketing dollars behind Brut®, [This TIme] and Sea Breeze® and some of the technology that we really bought the Time Block which is really kind of a, I guess, age-defying technology, we plan to take some of those clinical studies which we got along with that and introduce into some products with Brut® in the men's care area, and possibly, Sea Breeze® at this point in time. But not a separate launch for Time Block at this point.

And then, the new distribution wins that you talked about, can you -- if you can't mention the specific retailers, can you tell us which -- if it's appliances or Personal Care or if it's OXO? And I think you also mentioned that you lost some distribution in Personal Care, and I wondered if the new distribution wins are offsetting that or if it's additive? Just more color on the new distribution wins and the ones that you've lost.

Well, the new decisions that we have are basically at our top three to four customers that we have, so that's a positive on the Personal Care. We had talked about -- a few quarters ago about losing distribution at a major professional customer, but we believe in the second half of this year, with the new products that they're going to be introducing that we'll be able to get that business back. So we're very positive about the appliance business increasing during the year.

As far as OXO's concerned, as Tom mentioned to you, most of that's being by driven by existing sales and existing products, along with a new tool line that they introduced in the third quarter. So it's really just coming from the same customers and just more penetration of different products for those same customers, along with the tools that we have introduced in the third quarter.

Okay. So just to be clear, the lost distribution was just on your professional hair care appliances business. OXO doing well and your Personal Care brands also growing and gaining the new distribution, as well?

Well, OXO's doing well, as you said, and as far as distribution on the appliances we have certain SKU's that you're always trading in and out, so we did lose some more higher-volume, lower-price point SKU's in the retail appliance piece. But as Gerry mentioned to you, the Revlon Style X is really where Wal-Mart is going with a selective customer. It's been a great introduction for us, and we added some great SKU's in February of this year and adding, actually, more SKU's in the July and August time frame. So that should be a good thing for us.

Okay. Great. Thanks.

Thank you. Our next question's coming from Gary Giblen from Brean Murray and Carret. Please go ahead.

Yes, hi. Building on the last question, is there destocking occurring at the department store level that's affecting you, Federated, et cetera?

Actually Federated is just a very, very small customer of ours, it's not a very meaningful customer, so what's happening there is not really affecting us.

Okay. And then all department store channels just not significant for you?

They are just not significant to us. Our basic customer, the mass merchandisers, the drug stores, the warehouse clubs and the -- and grocery stores.

Okay. And on the math side, are there product returns that are coming, because we heard that from some other companies that it's not just destocking but actual --

Nothing out of the ordinary, Gary, just business as normal there, as usual.

Okay. And then, on the -- were you planning to have some impairment of OXO sales due to the distribution center transition, or did that occur recently because of the way the transition played out?

We are actually forecast -- and hat's what we said in the press release, forecasting the first quarter to be down a bit because of the transition. But as -- again as it said in the release, we think by the -- in the second quarter we should return back to normal shipping levels and we've been encouraged the last couple of weeks on where we are. It's just a difficult process to be able to move all that inventory, 30,000 pallets, from one location to the next. It had to be done and it's hard to get through all that, but we are getting through it.

Yes. No, I understand. It's just temporary. Okay. And then the -- could you give us a little more color on OXO in terms of the -- I mean, were gross margins up for the quarter, for instance, or was pricing difficult? I couldn't tell whether the pricing was applying to that segment, You mentioned --

[MULTIPLE SPEAKERS] you sometimes and in some quarter you have more product sales, but maybe smaller gross margin versus the other but, no, as far as OXO the gross margins are hanging in there and doing well.

Okay. So -- so you would characterized OXO as having healthy sales apart from the distribution -- the shipping disruption and healthy gross margins, right?

As far as the shipping distribution we've been doing very well at OXO. We just need to get our back order filled and get the products back on the shelf like we need to on a replenishment basis, which is what the business that OXO has.

And just finally, at math, how long do you figure the inventory living down is going to have effect? Is it just the coming quarter or is it a couple more quarters or?

As Gerry mentioned to you, most of the appliance aspect happened last year, although some of it's going to happen a little bit this year, [NOISE] is happening right now and I see it as a two or three-month process where inventory would be brought down and at that point in time, it should be more of a one-time event. Once you bring the inventories down and have less inventory to pipeline to particular retailers, the sales should return based on that, as long as the stuff hits the shelf and gets on the shelf. We do a very good job of replenishing that inventory every day.

Sure, I understand. To be totally clear, there's no product placement lost in the process, it's just the inventory per product being brought down, right?

No, as far as -- you know, we always are trading at different SKUs for SKUs in appliances, and we mentioned you that we've gone into the new Style X with Revlon line, and that's being a very [inaudible] for us, and that's the additional [flexance] that we have. But you do trade out some different SKUs at maybe higher volume, lower margins at that point in time. But nothing out of the ordinary course of business..

Great. Thanks for the update.

Thank you. Our next question's coming from Justin Boisseau from Gates Capital Management. Please go ahead.

First just a couple of housekeeping items. Could you give me the total debt outstanding at the end of the year, as well as the CapEx and cash flow from the ops of the year?

Well, Tom'll get to the total debt. I believe if you flip over to the press release, you probably look on that one page. I think the long-term --

It's 265.

Well, the long-term liability return's 6,000 on the press release.

Million.

Yes, it could be $6 million on the press release. Again we are going to file our 10-K, you;'ll have complete detail, but Tom --

This is Tom Benson. Our long-term debt's $255 million and we have $10 million as a current portion of our long-term debt, so I'd say 265 million.

Nothing on the working capital line?

Okay. What was the effect of foreign exchange for either the quarter or the year on your sales number?

This is Tom Benson. Those details will be in our 10-K that'll be filed next Monday.

Okay. What about can you go through the operating income by segment? You went through the gross margin I noticed earlier. Could you go through the EBIT by segment?

I don't want to really make comments off the -- that information will be in the K. It's all disclosed there. I don't want to give a wrong number just off the top of my head.

Okay. Thanks.

Thank you. Our next question's coming from Doug Lane from Avondale Partners. Please go ahead.

Hi, good morning. Couple of questions. First, can you give us an update on the roll out of the 23 new professional products, how it's going, what the reception has been vis-a-vis your expectations?

Yes, that introduction is actually been delayed. It's going to be introduced in July at the Cosmo Prof show that's held in Las Vegas, one of the biggest beauty shows in the United States, and then shipments starting in August.

And the reasons for the delay?

Because there's 23 products, we didn't want to introduce the products one by one as they came in from the manufacturers. We wanted to wait until we had all 23 to be able to ship a complete line to the customers and that's the reason for that.

Has there been any change in the professional marketplace? I know that these products were characterized by the fact that they were really shifting your product mix upscale into the next level. Is that segment of the market still hot and is that still the strategy with the new line of products?

That's true, yes. As we reported, and as you know, last year was a down year for the professional division because of competition at the higher end. And our new 23 products are at the higher end to counter the decrease in sales and to compete in the higher-end market. So we will have three major brands out in the professional, which is, basically. good, better, best.

And that, if you will, is still an exciting place to be or is that -- going? I just want to bet a --

It's not 100% of the business but it's a strong part of the business. And we weren't there and we're going to be there, shipping the complete line of products. Good reception from the customers and they should start receiving delivery in August and, hopefully, have a good sell-through for the rest of the year, which would increase the sales. There hasn't been any decrease, currently, in the other two brands that we sell, so this brand should give us increased sales.

So, it's really a second half event as far as the P&L is concerned?

Also we are upgrading the other two brand that we have, our Hot Tools brand and Wigo brand, with new products, also.

Okay.

so we have an exciting program in the professional division and almost all of it will be introduced at the July Cosmo Prof show.

That's going to help your -- certainly your margins from a mix standpoint. What is the outlook for margins in '07 versus '06, where we've seen pressure both on the SG&A as a percent of sales, as well as the gross margin? How's that going to play out as we move into 2007? Can you just give us a little bit more color on pricing mix in retail, what your cost outlook is with the product sourced in China, just a little bit more color on how we should think about margins playing out in '07?

It's kind of a mixed bag. New products introductions give us higher gross profit, older products give us less, so there's always the mix of how we get our percentage. For the last year we were -- our gross profit was 45.2%. We believe because of all the new introductions and all the new products and because of the fourth quarter was 45.8%, which was an increase over the 12-month average, that the GP for the next 12 months should be somewhere around a percentage point better than the 45.2, so it should be somewhere around 46%, 46.2. That's all kind of what our outlook is, that the GP will increase.

And the SG&A you mentioned in the press release a little bit of pressure in the first half. Should we look for that to turn favorable in the second half, as well, as a percent of sales?

Well, last year it for the year was 33.1%. A lot of our SG&A is fixed, so as the sales increase, sometimes the dollars don't increase because it's just increased sales. So a lot of it depends on sales. If we have a good year and we sell another $10 or $20 million worth of merchandise, there's a lot more that goes to the bottom line because the SG&A is basically -- in most cases, the biggest part is fixed expense. We're looking for improvement of 33% but we will see it as time goes on. But we're working on trying to get that 33% down somewhat.

Dour, that will improve, obviously, as the warehouse and distribution center in Mississippi becomes more efficient. That's where we're looking, as we consolidate and get all the pieces there and all of it together, we should have some more efficiency in that and it should help the SG&A.

Okay. Alright, thank you.

Thank you. Our next question is coming from Rommel Dionisio from Wedbush Morgan. Please go ahead.

Yes, good morning. A question, probably more for Chris Caramero. Chris, I know a year ago at this time you talked a lot about some new product introductions and plans for the liquids businesses and Brut®, of course. Just looking back, could you just give us a recap on the products, the Nascar launch and sponsorship and all that, and the impact that that had, as well as maybe preview what you look for for that business in '07 -- fiscal '07.

I am going to recap last year, just briefly. You know, we had -- with Brut® we did sponsor the NHRA race. That's become a very successful platform for Brut® for us. As I mentioned to you before, there's a variety of events -- 24, 26 events throughout the country, with promotions at the customers and different stores. And our particular driver, [Ron Caps], has been doing very well. He actually leads the point scale in that particular piece, so it's become a positive thing for us to reintroduce the Brut® brand and make it more relevant for customers. We introduced new shaving SKU's against Brut® last year. We did actually a shaving balm which is being very successful. We've gotten that distribution of shaving back to the major -- some of the major retailers and that's going well for us.

This last year we've introduced a new line of Sea Breeze®, actually Sea Breeze® Naturals. It's at most drug and most mass. You'll see it next to the old Sea Breeze® to be a line extension to position Sea Breeze® as an old product for people to evolve into with the naturals. We're real excited about what we've launched in Mexico with Brut®. That Brut® line actually came out, as I mentioned to you before, in four different scents and that's done very well in Mexico. We're going take that same line-up and launch it through Latin America. We're looking at actually doing that Brut® relaunch with the four different lines in Brazil, as we speak. And so, we are focusing on the brand heritage we have in Latin America, which is really the Brut® and with the Amends powder and the APDO market we have in that particular piece, and we continue to put a lot of resources in that particular area.

So it's done well for us. So, really, the Brut® and Sea Breeze®, Skin Milk® continues to well for us. We're are taking some of the SKU's and trying to get the better distribution on that line. It's a great product, consumers love it, we've just got to make sure it's on the shelf with the distribution pieces. , that gives us an idea of what Idelle has done over the last 12 months and we're looking forward to some new product placements in these SKU's K.going forward.

So looking at '07, Chris, would you view this as a continued investment year or more of a harvesting of already completed efforts? I don't think you change your brands perception overnight, but we're going to continue to invest in the brand, but to the extent that we can get sales increases and you have decent margins we should be get -- more benefit of the dollars we are investing in the brands this year.. You should be a positive increase for that particular piece this year. Great. Thanks very much.

Okay.

Thank you. We have a follow-up question from Kathleen Reed from Stanford Financial. Please go ahead.

Hi. Can you remind us on your expected cost savings from the new warehouse, what you're expecting in fiscal '07? And I know I think you said in the past that you are expect to reinvest a lot of those savings this year, but what was the total savings on an analyzed basis?

Well, as we mentioned to you in the last conference call [inaudible], we're forecasting $8 to $10 million savings in the SG&A area, of which the warehouse was a piece of that. We think it's going to take us probably the first half of the year to become -- get the stuff moved and be proficient within that. We may not have a full year's $8 to $10 million savings this year, but there's other initiatives we have that give us the balance of some of that savings. But we are working on it, and the way it;s configured we believe we can be able to achieve that. And that's why I just mention before in the second half to Doug Lane who asked where we saw SG&A going, that's why we're really forecasting some improvements in that area toward the second half to become more efficient in our distribution center.

Okay. Also just to clarify on Doug's question when he asked about the new 23 line, that was -- that's not Studio Tools, is that correct, because studio ship to mass? So he was talking about a professional product, I just wanted to clarify.

This is a new professional line that has not been introduced yet. It's not Studio Tools, which is already in distribution at retail.

Okay, so did Studio Tools ship in the fourth quarter and can you give it -- is what I think -- and did you -- can you give us an update on how that line was received and is performing?

We have actually been shipping Studio Tools probably for the last six months, but it's going to -- well, we're going to go ahead and undergo a complete repackaging. It did well. It wasn't a big success we thought. We are repackaging it. The customers that have seen it and some that we've already put on the shelf, the sales increased. So Studio Tools is going to be a very good stable sub-brand for us in retail, but that has nothing to do with the professional brand that we'll be introducing in July.

Okay. Can you give us any help with estimating a tax rate for fiscal '07 or just beyond? Should we still be in the 12ish% range or --

We're forecasting in that 10% to 12% range. You know, reality is its probably going to be right around 10%.

And also on that same token, can you give us any expectation for either operating cash flow or free cash flow for next year?

I'd like to go ahead and let you take the numbers off the K and you can do the forecast, because every time we do that forecast, I've got to go back and reconcile how I got there, so you got to do the numbers, please.

Okay. And also --

Just one comment is the only thing we really have major outstanding right now is Hong Kong, and we are working with getting that particular issue resolved. And that's being worked on right now.

And CapEx should go down in '07 over this year, is that still correct?

Oh yes, it'll go down. We -- as I said last time our normal CapEx is in the $5 to $10 million range and we should be there, unless we do some kind of acquisition and it's part of our platform to take a look at those thing. But as far as our CapEx, it's going to be in $5 or $10 million range.

Okay. And then lastly, I know it'll probably be in the K, but can you give us what the rate actually was on your floating rate debt at the end of your year? Just so it'll help us with our interest rate forecast for next year?

I believe it was -- it's 85 basis points over a three month LIBOR, so I don't know exactly what that was. You have a copy?

Yes, on our floating rate debt at year end, it was 5.371 and 5.421. It also got reset, I believe it was on March 29, and it went up to 5.81 and 5.86. So it gets reset every three months, based on three-month LIBOR and plus 85% for -- or 85 basis points for five and seven year and 95 for ten-year.

That's helpful, thank you.

Thank you. our next question is coming from Mimi Sokolowski from Sidoti and Company. Please go ahead.

Thank you. Sorry if I'm redundant, but I was disconnected earlier. First a question, Gerry, I'm not sure what I'm missing, but I think you said OXO is going to be soft in the first half of the year and likewise some of the Personal Care products. I'm confused about that. Why are they going to be soft in the first half?

Mimi, this is Chris.

Hey, Chris.

How are you?

Good.

We commented that is in our of transition of OXO from Monee over to our new warehouse that we will have a transition issue in shipping that goods, and as far as we think we should be a full shipment, full capacity during our second quarter of -- during the year. As far as OXO, the sales have been fine. We just need to get the transition finished within our new warehouse. And as far as we've talked about is on the retail side, the appliances, we are having some new placements at retailers which, again, the third quarter is always the bigger piece of us, especially in the retail in the U.S., and that's where we're going to some growth with those different pieces that we have at retail. particular, Gerry mentioned the new Revlon Style X line at Wal-Mart, we think is going to have a great potential. We've got good SKU's and actually have more SKU's going in in that August, September time frame.

So not until that second half of the year, and in the meantime it's more mature products.

Again, we always do well in that third quarter and we actually -- because that's where a lot of business is in, an extra month worth of business in that time frame. Ultimately, we're going to have some new SKU set show up that will allow that, along with -- Gerry just mentioned a fusion tool line of that professional also starts to sell in that August, September line. So those things are the ones driving that increase for the second half.

I guess it's OXO that I'm hung up on a little bit more, because I thought you were increasing inventories to avoid disruption from the transition, and yet you are still forecasting disruption.

Well, Mimi, when you move, like I said, 30,000 pallets from one location to the next, you're going to have to have all your stuff in there. You have to have all your IT set up and your best laid plans don't necessarily work out as well as you'd like to. If you are confused, the only thing is everybody lays plans and do a forecast and we're doing a good job of shipping out. We probably could've done a better job of shipping out in March. April was okay , May will improve. But there's no one -- I've been a lot of manufacturing business that make a transition smoothly but -- seamlessly, let's put it that way. But it is a complicated business. 800 to 900 SKUs going to 1,000 customers. So there's a lot more task and difficulty in learning that bigger piece of the business and getting that -- shipping on a day-to-day basis. It's difficult to hand out all the nuances of one piece of business to the next because, if you remember correctly, we didn't get any customer service people and/or warehouse people with out transaction. We only got sales and marketing, primarily in New York. So, we're filling those roles, we're getting it done and we're improving.

Okay. And the last thing I wanted to ask about I guess was for Tom. If you do back out that one time charge related to the repatriation of funds in the income taxes, I think it was, you get a been it in for the February quarter. Did you address that?

Let me just kind of comment. Do you understand that Monee was not our warehouse/ That was another person's warehouse, that was World Kitchen's warehouse, all right. So it's just not one where actually it's moving. You have to actually transfer all the systems, all the customers and make a data transfer and put it on oracle. That's a big deal. That's a big deal.

Sure. Perhaps I was just under appreciating it before, the scale.

It's a big deal and we completed the big deal, so -- Still got to shift all the pieces, but as far as the accounting transfer and detail receivables and payables and all that boring stuff, that's been done. But it's necessary to run a business. You were talking about the -- I guess the tax piece. As you know, we had this one-time provision that Congress allowed us to do to take the stuff that was pre '94, because remember post '94, we're not a U.S. corporation, we're an offshore corporation. So all those earnings that were trapped within the U.S. jurisdictions prior to '94, we did our inversion offshore, that was the balance of those earnings. We had the opportunity, because Congress allowed to us take a one-time piece, to take those earnings out of the offshore piece. If you reinvested them back in the U.S. within a time frame, you got a special tax rate of that 5% or 5.5% or whatever it was. And we did that. That's one of the reasons we took the earning offshore. We built a new warehouse and had equipment in Mississippi and we qualified for that provision to be able to do that. That's the one time charge we are talking about to make that, and it had to be done before February 28, which we complete.

Sure, and I understand that, the one time charge, but on the income tax line?

This is Tom Benson. We have a pretty complicated tax structure here, with legal entities in many jurisdictions and as we had mentioned, our European operations did not have a very good year last year. They're in a very high tax rate environment, so when you have tax losses, you get benefits that we put into our tax provision. The way the tax provision worked out is that, basically, we ended up with no taxes for the fourth quarter compared to when you take out the $2.8 million. But it's really going through all the tax jurisdictions, looking at the specific gains or income or losses in their jurisdictions, putting in permanent differences and coming up with the effective rates. So we had losses in Europe but they are in --

We prior accrued taxes in the third quarter.

And they are at the high tax jurisdiction, so that was one of the big impacts.

But, Chris, you are still saying ten to 12% effective tax rate for next year, that's appropriate?

Yes, I am.

Okay. And then I guess the last one would be for Gerry. You mentioned that you had a tough go of things with a certain customer, I think, in the professional category but you're looking forward to getting that business back in the second half of the year. Is that included in your forecast or if it is, is it modest, is realistic?

Yes. For all the reasons we didn't get any new products to that account, we have seven new products that are going to be shipped in September to our major professional customer, so we are very positive for the time period starting after September because of the new products that we have.

Okay, great.Thanks so much.

Thank you.

You next question's coming from [Stephen Friedman] from Wachovia Securities. Please go ahead.

Good morning, Gerry, Chris, and Bob. Congratulations on a better than expected quarter. I was disconnected earlier in the call, so my questions are, maybe, redundant or repetitive. But I think you mentioned in the call that -- or in the prior call that you were going to have $8 to $10 million in expense savings on the new transition. Is that still in place or would it be on an annualized basis, once you make the transition?

Well, we have a place to make those savings and as Tom has pointed out, I guess the conversation is we have some cost to get to those savings. We think in the first six months of the year we're going to have some additional costs but at the end of the day, when we make those transitions and get everything in there, that should be a savings of $8 to $10 million on an annual basis. It may not all be just occur in this fiscal year, but that's --

I understand, because of the transition. Well, that leads me to my next question. The previous caller was talking about expectations on OXO and so forth. And I think I understood your comments to mean that OXO is doing as well, if not better than you expected. You just have the transition issues with the warehouse from Illinois to your new one in Mississippi, and then going forward. OXO is performing as well as you had expected. Is that a correct or an accurate statement?

The answer to your question is yes. We have to get through the transition. We have to get efficient in our shipment to realize some of the savings that we've talked about before. But, yes, the transition is in process and it's been painful to get there, but we're making big strides and big successes to get back where we need to be.

I understand. I have one more question and I noted your weighted number of shares is down approximately one million in your calculations on earnings per share, is that primarily due to stock buy backs by the Company or could you --

This is Tom Benson. It's due to the stock price itself being down and some of the options and things are no longer included in the calculation.

They're not --

It is not due to stock buy backs.

It's due to the stock price. As the stock price drops, many of the options that employees have are underwater, so they're not counted in the weighted-average any more.

Understand. Thank you, Gerry, Chris and so forth.

Thank you, Steve, appreciate it.

[OPERATOR INSTRUCTIONS]

If there aren't any more questions, I'd like to thank everybody for listening in and participating in our fourth quarter and year-end results. And I'm looking forward to speaking with all of you at the end of our first quarter results for this coming year. Thank you again.

This completes the conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.