Helen of Troy Ltd (HELE) 2007 Q1 法說會逐字稿

Welcome, ladies and gentlemen, to the Helen of Troy first-quarter earnings conference call for fiscal 2007.

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 would now like to turn the conference over to Mr. Robert Spear.

Please go ahead, sir.

Good morning, everyone, and welcome to Helen of Troy's first-quarter conference call for fiscal 2007.

The agenda for this morning 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 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.

Finally we will open it up for questions and answers after the financial review.

First the Safe Harbor statement.

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

A number of risks or uncertainties could cause the 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 not to 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-Q filed with the Securities and Exchange Commission for the first-quarter fiscal-year 2007 ended May 31, 2006.

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 earnings release has been posted to our website, at www.hotus.com.

The release can be accessed by selecting the Investor Relations tab on the 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.

Good morning, everyone.

Helen of Troy today reported sales and net earnings for the quarter ended May 31, 2006.

First-quarter sales increased 2.4% to $130,441,000 versus sales of $127,392,000 in the same period of the prior year.

First-quarter net earnings were $6,679,000 or $0.21 per diluted share, compared with $10,547,000 or $0.33 per diluted share for the same period a year earlier, a decline in fully diluted earnings per share of 36%.

Gross margins for the quarter were up -- were 44% compared to 46% for the year for the first quarter.

Increases in the cost of goods sold and reduced selling prices combined with increase in selling, general, and administrative expenses during the quarter were the primary reasons for the net earnings decline.

The SG&A expense increases included increased personnel costs, higher depreciation, higher outbound freight cost, and higher facility-related costs associated with the transition of the OXO order fulfillment process to our new distribution center in Southaven, Mississippi.

We are pleased with the overall increase in sales for the quarter; and particularly we are encouraged with our sales increases in the Personal Care segment for the first time in over a year.

Operationally our focus this quarter has been the transition of our Housewares segment to our global enterprise resource planning system, which includes the transfer of our Housewares inventory from a Monee, Illinois, distribution center operated by a third party to our new Southaven, Mississippi, distribution facility.

OXO's move to the new facility and related distribution systems began in December 2005 and is now substantially completed.

The shipments of OXO products from our new facility has returned to pre-transition levels.

Our current operating objectives are to improve efficiencies through continued training and process improvements and to reduce future expenses related to those functions.

We are currently beginning to see reductions in staffing levels at the distribution center, which we expect will continue during the current quarter, as well as additional companywide expense reductions in future quarters.

We remain optimistic about our results for the current fiscal year and reiterate our expectation of sales in the range of $600 million to $620 million and earnings of $1.70 to $1.80 per fully diluted share.

Sales for the remaining quarters of this fiscal year are expected to show year-over-year increases.

Early indications of the retail sales sell-through of our higher-end Personal Care products in the mass distribution channel have also been encouraging.

We are also introducing new and innovative professional appliance products in late August.

We have seen selected increases in our cost of goods for the past several quarters and would caution that continuing increases in our product costs or declines in consumer spending could negatively impact our full-year projections.

As of May 31, 2006, Helen of Troy's balance sheet remains strong with cash of $26 million compared to $7 million in the first quarter of the prior year, an increase of $19 million; and stockholder equity of $482 million, an increase $48 million in stockholders equity from the comparable period last year.

Our accounts receivable at quarter end was $114 million.

Our inventory level was $164 million, down $10 million or 6% from last year.

I now would like to turn this conference call over to Tom Benson, our CFO, who will go over the financials with you.

Thank you, Jerry.

Good morning, everyone.

First-quarter net sales grew 2.4% year-over-year.

Our Personal Care segment had a 4.8% growth in sales; and the Housewares segment had a 6.5% reduction in sales.

Net sales for the first quarter were $130.4 million compared to $127.4 million in the prior-year quarter.

This represents an increase of $3 million or 2.4%.

Our first-quarter operating income decreased by 28.6% year-over-year.

Operating income in the first quarter of fiscal 2007 was $10.9 million compared to $15.3 million in the prior-year quarter.

This is a decrease of $4.4 million or 28.6% decrease.

The decrease in operating income is due to a reduction in gross profit resulting from cost increases in certain products, selling price pressures, product mix changes, and increases in SG&A that I will discuss in a few minutes.

First-quarter net earnings decreased $3.9 million.

Net earnings for the first quarter were $6.7 million, which is 5.1% of net sales compared to $10.5 million or 8.3% of net sales in the prior-year quarter.

This represents a decrease of $3.9 million, and it is a 3.2 percentage point decrease based on net sales.

First-quarter diluted earnings per share was $0.21 in quarter-one fiscal 2007 compared to $0.33 in quarter-one fiscal 2006.

This is a decrease of $0.12.

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

Our Personal Care segment includes the following product lines.

Appliances.

Products in this group included hairdryers, curling irons, thermal brushes, hair straighteners, massagers, spa products, foot baths, and electric clippers and trimmers.

Key brands in appliances include Revlon, Vidal Sassoon, Sunbeam, Health o meter, Dr. Scholl's, Hot Tools and Wigo.

Net sales for the first fiscal quarter increased 3.3% over the same quarter in the prior year.

Grooming, skincare, and hair products are included in the Personal Care segment and consist of the following brands -- Brut, Sea Breeze, Skin Milk, Vitalis, Ammens, Condition 3-in-1, Final Net, and Vitapointe.

Net sales for the first fiscal quarter increased 5.9% over the same quarter in the prior year.

Brushes, combs, and accessories are also included in the Personal Care segment.

Key brands in the product category include Revlon, Vidal Sassoon, and Karina.

Net sales for the first fiscal quarter increased 16% over the same quarter in the prior year.

The Personal Care segment net sales were $105.3 million for quarter-one fiscal 2007 compared to $100.5 million in the prior-year fiscal quarter.

This represents an increase of $4.8 million or 4.8%.

We are very pleased with our sales increase of 4.8% in the Personal Care segment.

This is the first quarterly sales increase in the last six quarters.

The sales increases are due to new product offerings with higher average unit prices; some expansion of offerings with current customers; new domestic customers; and continued growth in our Latin American territory.

Our Housewares segment consists of the OXO business.

OXO is a leader in providing innovative consumer product tools in a variety of areas including kitchen, cleaning, barbecue, barware, garden, automotive, hardware, storage, and organization.

Brands that we sell include OXO Good Grips, OXO Steel, and OXO SoftWorks.

The Housewares segment's net sales were $25.1 million in quarter-one fiscal 2007 compared to $26.9 million in the prior-year fiscal quarter.

This represents a decrease of $1.8 million or 6.5%.

The sales decrease of 6.5% is primarily due to the transition of the Housewares segment to our global enterprise resource planning system and the transition to the new distribution center in Southaven, Mississippi.

When we started processing and shipping orders, we experienced startup issues that caused shipment delays.

These delays caused a backlog in orders, order cancellations, and in certain cases required price concessions and the granting of other allowances and accommodations for late shipments.

Shipment volumes decreased primarily in March 2006.

Operating performance improved as the quarter progressed, and in June 2006 our backlog had generally returned to normal levels.

Management estimates the negative impact of these issues on the segment's net sales for the quarter ending May 31, 2006, to be between $4.5 million to $5 million.

Gross profit for the first quarter was $57.9 million, which is 44.4% of sales compared to $58.7 million, which is 46.1% of sales in the prior year.

This is a decrease of $800,000.

This is also a 1.3% decrease in dollar terms and 1.7 percentage point decrease in percentage terms.

The decrease in gross profit percent of 1.7 percentage points is primarily due to cost increases in certain products; selling price pressures; and product mix changes.

For the first quarter, selling, general, and administrative expenses increased in total and as a percentage of sales.

SG&A expenses for the quarter were $47 million, which is 36.1% of sales, compared to $43.4 million or 34.1% in the prior-year quarter.

This represents a dollar increase of $3.6 million and 2 percentage point increase.

The $3.6 million increase in SG&A cost is due to the following.

Warehouse cost increase, $1.9 million.

Outbound freight increase, $400,000.

Personnel cost and benefits, $1 million.

Change in exchange rates and cash flow hedges were a benefit of $1 million.

Other items were an additional cost of $1.3 million.

The above items add up to $3.6 million.

Warehouse costs have increased due to higher facility and personnel costs as we transition our warehouse operations into our new 1.2 million square foot distribution center in Southaven, Mississippi, and the startup of processing and shipment of orders for the Housewares segment.

As the year progresses we are forecasting a reduction of personnel and startup costs associated with our warehouse operations.

We have extended the lease on our formerly owned 619,000 square foot warehouse in Southaven and plan to be out of the facility by the end of our fiscal year, February 2007.

Outbound freight costs have increased mostly due to fuel cost increases.

Personnel costs and benefits have increased as we have hired additional personnel in our sales and marketing areas, to focus on new products and sales growth, and support personnel for the Housewares segment operations.

In the prior year quarter, we had a $700,000 cost associated with foreign exchange rate changes and the changes in our cash flow hedges.

This year's quarter we had a $300,000 gain.

We have benefited from the changes in the British pound and euro, and had a cost related to the Mexican peso relative to the U.S. dollar in this year's quarter.

Operating income decreased to 8.4% of net sales, $10.9 million for quarter-one fiscal 2007, compared to 12% of net sales or $15.3 million for quarter-one fiscal 2006.

Operating income decreased as a result of higher selling, general, and administrative expenses and a reduction in gross profit as discussed above.

Interest expense increased in the quarter.

Interest expense was $4.5 million or 3.5% of net sales, compared to $3.3 million or 2.6% of net sales in the prior-year quarter.

The increase is due to increased interest rates on our floating note debt and a $279,000 interest cost associated with the Hong Kong tax settlement.

Tax expense for the first quarter of fiscal 2007 was $500,000, which is 7.2% of income before taxes, compared to $1.4 million or 11.9% of income before taxes in the prior-year quarter.

The quarterly year-over-year 4.7 percentage point decline in tax expense as a percentage of pre-tax income is due to more of our income in fiscal 2007 being taxed in lower tax rate jurisdictions and a 2.7 percentage point impact of a reversal of $192,000 of tax provision previously established in connection with the Hong Kong tax settlement.

I will now discuss our financial position.

Our cash balance was $26.1 million at May 31, 2006, and we had no borrowings on our $75 million revolving line of credit.

Our accounts receivable were $114.2 million at May 31, 2006, compared to $111.7 million at May 31, 2005.

Sales for the first quarter of fiscal 2007 were $3 million higher than the first quarter of fiscal 2006; and accounts receivable were $2.5 million higher.

Accounts Receivable turnover days were 75.1 days at May 31, 2006, compared to 72.3 days at May 31, 2005.

Inventories at May 31, 2006, were $164 million and decreased $4.4 million from February 29, 2006, and $9.8 million from May 31, 2005.

Normally inventory levels increase in the first fiscal quarter of the year as we build up for late summer and fall new product introductions and holiday sales.

We have had some of this normal build-up, but it was more than offset by inventory reductions in the categories that we are shipping out of our new Southaven warehouse.

We have increased inventory levels in late 2005 to help buffer against disruptions from our warehouse transition.

Shareholders equity increased $47.4 million to $481.5 million at May 31, 2006, compared to May 31, 2005.

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

Thank you, Tom.

I would like now to open up the conference call to callers.

(OPERATOR INSTRUCTIONS) Kathleen Reed, Stanford Financial.

A couple questions.

The first, on the OXO, I think you stated that the negative impact just due to the transition was either -- a range of $4.5 million to $5 million in the quarter.

I know you stated that there were some shipment delays and some order cancellations, pricing concessions, etc.

How much of the orders, though, were pushed out probably till your second quarter, so the late shipments?

Or is that any, considering you said the June levels were back to normal?

This is Chris speaking.

You take a look at the sales over the last quarter, March is where we really were down in that particular month.

April was pretty much even for the prior year; and May we made up for.

But to answer your question specifically, we made up about $4 million worth of sales in the month of June, which probably related to the first quarter.

That's what Tom was talking about.

Gary Giblen with Brean Murray, Carret.

In the last call you mentioned that there were some inventory reductions at retail that affected the Personal Care segment, and yet you had very healthy Personal Care results.

So is that still happening?

Or in other words are the inventory reductions going away?

Or is it just that your results are stronger because of the new product?

I think it is both, Gary.

We have made a conscientious effort to lower our inventory; and year-over-year we were down about $10 million.

For us retail sales have been strong, so it is a combination of both.

We will continue to work on getting that inventory down, even though we expect increased sales.

Okay, then from the retailer behavior standpoint, are they still --?

Is Wal-Mart and others copying them in the inventory reduction mode, or is that cycling through?

It is cycling through.

Everybody wants to reduce inventory, and they would love to reduce inventory to a negative number if they could.

I'm just kidding.

It's just they would like to operate on as low inventory as they can, and I believe that is already in effect.

So hopefully going forward that is not going to affect us.

Okay.

Then just on Housewares, the negative sales number, is that because you had a big sell-in on some of the hand tools that previously -- (inaudible).

You had stronger year-over-year revenue growth before.

So is that just the cycle of products?

Again, as we said, as Tom said and I just got through repeating, sales of OXO have been strong at retail.

We just didn't ship very well, so when we improved and we got caught up in June (multiple speakers).

So there's no change in the retail?

Well, I'm sure that if we did not ship very well during the first quarter, some of the retail people, we didn't have everything in stock.

But we pretty much have gotten everything caught back up and things look to be okay.

Year-to-date sales in OXO, if you start at the beginning of our fiscal quarter through current date, our shipments are up.

Yes, I know.

Okay.

Then just finally on raw materials, you mentioned in your remarks that cost of goods may still be going up, but has that abated?

Or is that still a big issue?

Well, in certain segments we do get increases.

We're trying to absorb that by either increased pricing or on the shipments that we make on new products.

So we're trying to offset those increases.

We hope in the next couple of months that things will stabilize and there won't be any more increases.

A lot of it depends on oil, on copper, on metal.

If those stabilize, then our prices will stabilize, of course.

Okay.

Just one final one.

Sorry.

Given the retailers are trying to hold the line on inventory, does that make it harder to get placement for new products?

Or is that the same as it always is?

No, actually we have done very well on the new placements that are showing up now and will show up in the future.

That has not been a negative to us.

Okay, great.

Thank you so much.

Doug Lane, Avondale Partners.

Just wanted to talk about your full-year outlook.

I know the first quarters are your seasonally smallest quarter, but the EPS number came in lower than I think where most people were forecasting.

I think you had qualitatively looked for it to be down a little bit.

Obviously, $0.21 versus $0.33 is more than a little bit.

So I was wondering, by maintaining guidance, is it just because that is a small quarter?

Or are you starting to feel better about this year, now that you are a quarter into it, going into the selling season?

Doug, this is Chris.

I guess we're just reaffirming what we said in the first quarter.

We did say that we felt the first half was going to be a little bit slow.

We did say we thought we were going to have some additional expenses in where we are going, and that we are affirming that what we thought in the first quarter, the second half should be better.

If you take a look at, as Tom described, some of the costs that we had for the OXO initiative and moving some of that cost, as he described to you, if we didn't have those costs, we would have had $0.03 or $0.04 better on the cost side.

If we would have had the $4 million or $5 million, sales $0.03 or $0.04 there.

But again, we anticipated some of those problems and issues in our last call.

That is why we basically cautioned for the first half, and we feel better about the second half.

Okay, that sounds good.

Just getting back on the cautious tone on the consumer environment, I guess that is just based on what you're reading in the general press.

Are you seeing anything specifically at the trade that gives you pause for concern?

Then can you talk about on the cost front, because I believe you have contracts in China for finished goods.

Is that where the cost pressure is, or is it elsewhere in the P&L?

Of course you have different costs that -- we talked about outbound freight being a function of oil costs and those things.

We talked about the increase there.

But the biggest bang is going to be in the COGS, in the cost of goods sold.

So we have to continue, as Jerry mentioned, to manage it with new SKUs, and get price decreases where we can, and to be able to absorb the price increases.

If the price of oil stabilizes in the $70 range and does not increase, we should have that pretty well absorbed.

We have to have price increases along with some other things to be able to take that in consideration.

Doug, this is Tom Benson.

We have agreed upon prices for our POs over from our suppliers; but we do not have long-term supply contracts with fixed prices.

It is just that from the time that we issue a PO until delivery is a number of months.

So that is why changing price increases kind of take a period of time to lag and come through.

But we do not have long-term contracts.

But the pricing is coming from the factories in China on the finished goods that you buy on the mainland?

The pricing pressure has been there, but it has been there the last three years, Doug, as you well know.

It is just a matter of how you manage those increases.

You just can't ignore them.

But again we need to be able to have a mix of new goods with better margins versus the old goods, as Jerry mentioned in the last press release and last call.

We need to continue to focus on trying to control the costs we can, because some of the costs we can't.

Just to circle back, if you could give us some color on the consumer spending comment, whether that is just from what we all read in the press; or is there some specific insights you have from your trade dealings that makes you a little bit more concerned than maybe you were three or six months ago?

Doug, this as Jerry.

There is actually a misconception between the inventory that the retailers want and would like to have versus what their sales are.

Every retailer of course would like to have -- let's say, make an example; it's not true for everyone -- instead of, say, seven weeks they would like to have five weeks.

But that doesn't mean the shelves are empty.

They are all looking for increases in sales.

They want increased sales, increased turnover.

So just because a retailer says, I'm lowering my inventory by one or two weeks does not, again, mean that the shelves are empty.

They still want increases.

Everybody is looking for increases.

Our sales have been strong.

Our shipments have been stronger this past quarter than the year before quarter.

If you take that along with retailers lowering the inventory, then our POS sales that the consumers are buying has been strong.

But do you think that this kind of lean inventory, destock -- I mean, we hear about Wal-Mart in the programs.

But you deal with thousands of customers.

Is it just a general feeling out there of caution going into the holiday selling season, even more so than maybe last year or the year before?

Doug, I think people are cautious about it because there has been a lot of uncertainty out there, but we don't see anything in our particular category.

But to speak to the having less weeks of inventory, that makes us be more efficient to be able to supply those goods to the larger retailers.

One of the larger retailers was here just I guess a month ago and said, we have the best in-stocks of any one of his suppliers.

So we're doing a good job in the other categories even though we didn't ship that well within the OXO category for the quarter.

I can tell you, Doug, that all our major customers are projecting increases for the balance of the year.

Okay, good.

Thank you.

Tanaka Capital Management, Graham Tanaka.

I just want to clarify.

The OXO net impact was about $4 million to $5 million.

How much of that do you think was permanent, in the sense that it is gone?

Or you could actually recapture that?

When you say the $4 million or $5 million, we made it up in June.

But the question you're really asking is, if you missed a turn at retail, is there a slug of that that you lost?

I would say yes, probably a couple million bucks worth of the turn at retail.

But when you say you made up for it, you restocked inventory?

Yes.

We restocked inventory and it is back to its -- back based on where we have been shipping in the prior year to this year.

As I said before, in June we basically have been caught up to where we had been in prior years.

Really what really happened is we missed $3 million or $4 million worth of sales in March and had to catch up for it in April and May; and pretty much got pretty much caught up in June.

So you chase that $3 million or $4 million for two months.

Right.

Quick question on new products.

What are you sort of hoping for that new products would amount to as a percent of sales in this next fiscal year, this current fiscal year, as opposed to last year?

We really don't give that information because, number one, it is difficult to measure.

Number two you are taking old SKUs and replacing them with new SKUs, and you don't know what the sales are going to be until they get on the shelf.

So really -- Jerry?

Our -- the amount of new items, new SKUs that we put out each year is basically at the same level as it was, say, the year before.

It has not decreased or basically increased. (multiple speakers) There is always a continuous flow all the time of new products that we're putting out.

Great.

The other question is on the cost versus price issue.

How much do you think your prices might be up on average, average selling prices?

Again, I know you are having sort of a change in mix, but how much price increase do you think you're getting this year versus last year?

This is Tom Benson.

There will be a little more information on that in the Q. We discuss some prices and volume changes.

But I think that is a better place to look, because we don't want to go into that type of detail on the call.

The Q is going to be filed today, so you will have it today.

Thanks.

John Harloe, Barrow Hanley.

I just wanted to get an explanation for the accounts receivables days outstanding.

The prior trend was down and improving; then this makes a V and comes up.

It is actually flat year-over-year.

But I am not sure it is as good as you have liked it to have been.

John, this is Chris.

It did show a trend up a bit; but we did do the calculation on the last 90 days sales, and it actually shows a trend of -- what does it show?

Based on the most recent sales, we are at about 80 days compared to 81 last year.

The number that I put out is based on a 12 months trailing running rate, versus based on most recent sales.

We did -- our receivables are actually a little higher than we would like, because in the OXO area we converted all the customers to our new system; and we had heavier shipments towards the end of the quarter.

So there is a slight build-up there that will work down over this quarter.

I knew there was an explanation.

I'd just seen --.

It is going the right direction, John.

The thing that Tom is saying is, when you do a conversion you have got to work those receivables a little bit harder, because you got that happening.

Remember that happened in that February time frame.

Then secondly we do little bit more business in Latin America and Europe, which kind of weights that.

We look at each one of our business units and take a look at that; but in general we're seeing at least a one day improvement over the last 90 days, which is a good thing.

Thanks for the explanation.

Kathleen Reed.

I was cut off before.

A couple of quick questions.

Again, sorry to beat the OXO issue to death, but the OXO -- it doesn't like you have lost permanently any distribution due to some transition issues you just had during this quarter.

Is that correct?

This is Chris.

Every year you gain some and you lose some.

We did not lose any meaningful customers during the transition, no.

Great.

The price, it sounds like you gained price, positive price, in some of your businesses.

It appears to be in Personal Care.

But in your press release you state that gross margin was negatively impacted by some pricing issues.

Can you just help us understand what areas are getting a positive price and what areas are getting a negative price?

Again, primarily you're getting positive price influences because of the new SKUs we are introducing.

Primarily, we mentioned last time, the [style accs] that we have in one of the larger retailers are higher-end SKUs; also in professional we're launching some new lines that will be higher-end pieces.

But also the pieces that you have, have been there, the more I guess common goods that you have had or commodity goods have had price pressures.

Of course that is the way things always evolve.

As you have a mix of products, i.e. trash cans within OXO, you sell more trash cans, it is a higher price point; and as you sell teakettles, a higher price point per SKU.

So that tendency depends on what that mix and what you sell goes in the particular quarter.

I guess from prior conference calls, though, I was under the impression that Personal Care appliances, so not your brand-new lines, which I understand you're launching at a higher price point, but your base products were having some price pressure.

That is true.

But you have actually received a price increase on your Idelle Labs brands, your Sea Breeze and your Brut.

It depends on what you're speaking about.

There's always price pressures within all the different categories you have.

Appliances and the commodity goods in particular always have a price pressure to go down.

Sorry; when you say commodity goods you don't mean raw materials.

You actually mean some of your more --?

I mean the more opening price point products that you have with a particular retailer.

Those kind of items versus the higher-end, more features in the particular products.

That price pressure on your base, open-entry appliances, that is still there?

That is always there.

This year, last year, and year before, that is always there.

Just to go back quickly to what Doug was talking about, it seems on your prior call, which was held like the first week of May, you did say -- I know you don't give quarterly guidance -- but that your earnings should be down slightly this quarter.

Then they came down over 30%.

So I just wondered if this quarter did come in how -- in terms of your internal expectations?

Or did something happen more dramatic?

Because it seems like March was your month where you had the shortfall in OXO.

So at the beginning of May then you kind of already knew about that.

Again, as we said on the call, we believe our sales in the first quarter would be negatively impacted by the transition of OXO to [add] to our new distribution center; exactly what we told you in May happened.

Okay?

So the question is -- can you predict exactly in the middle of May what is happening for the whole quarter?

The answer is no.

But I think we came back quite nicely in April and May and in June to recover to where we had been before.

Okay, great.

Then on your other Personal Care brands, double-digit growth, that's great in the grooming and the combs business; and in your Idelle Labs business up mid single digits.

Any significant new distribution wins there, or any real big new product launches in those two categories that we should think would reoccur then for the remainder of your year?

Well, within the BCA we have had some new category wins, actually distribution wins with one of the little larger drug chains.

Everything else is pretty much through the similar customer base.

But we are adding some new BCA SKUS to a new customer, and we're going to add some new appliance SKUs to that same customer during the second quarter.

BCA?

Tell me;

I'm sorry.

I don't know the acronym.

Brush, combs, and accessories.

You'll see that in the -- a nice increase in that Q today.

Great.

Was that business gained in this quarter, so it should repeat then?

We should see a good benefit?

Kathleen, this is Tom Benson.

The initial shipments went out in the first quarter; so the answer is yes, you should.

When you have your first shipments you get a nice slug; but that is not necessarily an indication that the future is going to be the exact same percentage.

Okay.

Then last question, on your tax rate, a little bit lower than I think you had said before, maybe 10% to 12% range and probably at the lower end of that range.

Is 10% still a good rate to use for your year?

I know it is hard to call.

Or should we --?

We want to continue with the 10%.

As noted by Tom, we did settle within the Hong Kong; it was disclosed in the K last time.

We hope to settle the balance of that Hong Kong in this quarter.

But you may have some reclasses, and you'll see that in the Q between interest and taxes.

One went up, one went down.

But we had it adequately provided for.

Okay.

Last question is gross margin on your new products, the new professional line that I believe ships in August.

Can you just give us a magnitude?

Because I think we -- at least I am anticipating your gross margin to really get a good benefit barring any significant raw material increases or anything like that in your second half of your year.

What the magnitude of the margin differential is, maybe even just on your base professional products versus your regular hair care appliances.

Again, we don't disclose the margins.

Obviously the higher-priced goods, which the professional ones are, have very good margins on them.

We expect to have an increase in the professional in the second half, which would lend to the fact that we're going to have an increase in the gross margin in other areas that we do, too.

But we don't go into that kind of disclosure on the forecast.

Okay, thanks very much.

(OPERATOR INSTRUCTIONS) If there are no further questions, I would now like to turn the conference back over to Gerald Rubin to conclude.

Thank you, everyone, for listening in and participating in our first-quarter conference call.

We look forward to speaking to you on the second-quarter conference call.

Thank you again.

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