Helen of Troy Ltd (HELE) 2007 Q2 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the Helen of Troy second 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 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;

Thomas Benson, Senior Vice President and Chief Financial Officer;

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 second quarter earnings conference call for fiscal 2007.

The agenda for this morning's conference call is as follows: We'll have a brief forward-looking statement review, followed by Mr. Rubin, will who discuss our second 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.

And finally, we'll open up for a 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 expectation with respect to future events or financial performance.

A number of risks or uncertainties may 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.

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 second quarter of fiscal year 2007 ended August 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 our home page, and then the news tab.

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

Thank you, Bob, and good morning, everyone.

Helen of Troy Limited today reported sales and net earnings for the second quarter ended August 31st, 2006.

Second quarter sales increased 12.9% to $147 million versus sales of $130,389,000 in the same period of the year before.

Second quarter net earnings were $10,874,000, or $0.35 per fully diluted share compared to $9,452,000, or $0.30 per fully diluted share for the same period a year earlier, an increase in earnings per share of 16.7%.

Sales for the 6 months ended August 31st, 2006, increased 7.7% to $277,613,000 versus $257,781,000 for the previous year.

Net earnings for the first half of this year were $17,553,000, or $0.56 per diluted share, versus $19,999,000 or $0.63 per diluted share in the same period of last year.

Net sales increased 10% to $110,970,000 in our Personal Care segment for the second fiscal quarter compared with $100,861,000 for the same period last year.

Net sales increased 7.4% to $216,300,000 in the Personal Care segment for the 6 month period ending August 31st, 2006, compared with $201,377,000 for the same period last year.

Net sales for the Houseware segment increased 22.6% to $36,196,000 for the second fiscal quarter compared with $29,528,000 for the same period last year.

Net sales increased 8.7% to $61,313,000 for the Houseware segment for the 6 month period ending August 31st, 2006, compared with $56,404,000 for the same period last year.

As you can tell, we are very pleased that the sales increases we experienced in the first quarter have continued into the second quarter.

The initial sell-through of our new product introductions at retail have positively impacted our sales for the second quarter.

We still remain somewhat cautious about the second half of our fiscal year due to various reports of the holiday retail sales estimates.

We continue to see improvements in our warehouse and distribution efficiency and expect those improvements to continue through the next year.

Operationally, our focus during the second quarter remained on our domestic distribution system.

During the quarter, we continued to refine and improve our abilities to operate our new 1.2 million square foot Southaven, Mississippi distribution facility.

We are currently planning to transfer our Personal Care hair care appliance inventory to our new facility during our fourth fiscal quarter.

We reaffirm our previous guidance of sales in the 600 to $620 million range, and earnings of $1.70 to $1.80 per fully diluted shares for the full current fiscal year ending February 28th, 2007.

As of August 31st, 2006, Helen of Troy's balance sheet remained very strong with cash of $32 million, compared to $8 million in the second quarter of the prior year, and the stockholders' equity approaching $500 million, an increase of $48 million in stockholders' equity from the comparable period last year.

Our accounts receivable at quarter end were $117 million, our inventory levels were $185 million, down $22 million, or 10.6% from last year's same period.

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

Thank you, Gerry, and good morning, everyone.

We are pleased with our performance for the second quarter.

Sales growth was positive, margins held up, and selling, general, and administrative costs as a percentage of sales decreased.

Second quarter net sales increased 12.9% year-over-year.

Net sales for the second quarter fiscal 2007 was $147.2 million, compared to $130.4 million in the prior year fiscal quarter.

This is an increase of $16.8 million, or 12.9%.

Our second quarter operating income increased by 17.8% year-over-year.

Operating income in the second quarter of fiscal 2007 was $16.6 million, 11.3% of net sales, compared to $14.1 million, 10.8% of net sales, in the second quarter of the prior year.

This is an increase in operating income of $2.5 million, or 17.8%.

Second quarter net income increased 15% in dollar terms, year-over-year.

Net earnings for the second quarter of fiscal 2007 was $10.9 million, 7.4% of net sales, compared to $9.5 million, or 7.2% of net sales in the prior year quarter.

This is a dollar increase of $1.4 million, and a 15% increase in net earnings.

Second quarter diluted earnings per share was $0.35 in the second quarter of fiscal 2007, compared to $0.30 in the second quarter of fiscal 2006.

This is a $0.05 increase.

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 category include hair dryers, 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.

Grooming, skin care 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.

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

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

The Personal Care segment net sales for the second quarter of fiscal 2007 were $111 million, compared to $100.9 million in the prior year second quarter.

This represents an increase of $10.1 million, or a 10% increase in net sales.

Our Houseware segment is the OXO business.

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

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

The Houseware segment net sales for the second quarter of fiscal 2007 were $36.2 million compared to $29.5 million in the prior year fiscal quarter.

This represents an increase of $6.7 million, or a 22. cent -- 22.6% net sales increase.

Sales increases have been primarily driven by continued new product introductions, such as trash bins, tea kettles, and new cleaning items.

A portion of the sales increase in the second quarter is due to catching up on the order backlog we had at the end of the first quarter, resulting from our warehouse transition.

Gross profit for the second quarter was $66.7 million, 45.3% of net sales, compared to $60.2 million, 46.2% of net sales in the prior year second quarter.

This represents an increase of $6.5 million.

It's a 10.7% in dollar terms, an increase in gross profit.

On a percentage increase, gross profit went down 0.9 percentage points.

The decrease in gross profit percent of 0.9 percentage points is primarily due to a combination of higher costs of customer promotional programs.

We also -- we have also experienced some product price increases.

Selling, general, and administrative expenses for the second quarter of fiscal 2007 decreased as a percent of sales.

SG&A expense was $50 million for the second fiscal quarter, which is 34% of net sales, compared to $46.1 million in the prior year fiscal quarter, which is 35.3% of net sales.

In dollar terms, this was an increase of $3.9 million.

In percentage terms, we had a 1.3% percentage point decrease in SG&A expense.

The decrease in SG&A percentage is due to the impact of higher sales volume on our cost structure, offset somewhat by percentage increases in advertising, and higher facility-related costs due to the operational transition of our distribution system.

Interest expense is up $900,000 due to higher interest rates on our floating rate debt.

Tax expense for the second quarter fiscal 2007 was $1.4 million, 11.1% of income before taxes.

This compares to $1.3 million, 12% of income before taxes in the prior year fiscal quarter.

I will now discuss our financial position.

Our cash position was $31.8 million at August 31st, 2006.

We have a $75 million revolving line of credit in place, which we have no borrowings, but there is a $616,000 open letter of credit against this facility.

Accounts receivable increased $6.2 million year-over-year.

Accounts receivable days outstanding decreased to 73.7 days at August 31st, 2006, compared to 77.1 days at August 31st, 2005.

Inventories at August 31st, 2006, decreased $22 million from August 31st, 2005.

Inventories are down from the prior year due to an increased focus on inventory management, and not having to increase inventories in anticipation of a warehouse transition, and additional purchases in the prior year to delay the impact of price increases.

Shareholders equity increased $47.9 million to $492.4 million at August 31st, 2006, compared to August 31st, 2005.

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

Operator, we'd like to now open the floor for calls.

[OPERATOR INSTRUCTIONS] Kathleen Reed, Stanford Financial.

Can you please provide a little more color on your comments in your press release and in your oral comments, just on your cautious outlook for the second half, if you're seeing anything in particular, ordering patterns from the retailers?

Or -- since it seems like your sales -- you had good sales momentum in your first quarter, and it continued in your second quarter, why you're still -- have a cautious tone for your second half for your year?

Well, our sales are, of course, dependent on all the major retailers in the country.

If their sales are good, our sales will be good.

And of course, this morning even, it was just mixed reviews between some of the major retailers of how business is going, and we just want to remain cautiously optimistic.

I know our sales are good.

We hope they continue to be good.

There's no reason to think that they won't be good.

We put out our range of what we think sales will be, and what profits will be, and we feel comfortable with those.

So -- .

So you're not seeing anything specific right now?

I know you're 1 month into your third quarter.

But this is your -- seasonally your biggest quarter.

So there's nothing that you're seeing that would make your more cautious?

It's just you prefer to be cautious?

Yes.

Conservative.

We prefer to be cautious.

Yes.

September was a good month for us.

And October, November are our best months of the year.

And there's no reason for us to be negative.

We're just cautious, I guess is the word.

Okay.

On your Personal Care sales, can you just tell us what the new products are that are driving that?

I know you had a launch late in your quarter of your Professional Line, but if you can give us more color on if it was appliances, or the Idelle Labs brands, or just what was driving your 10% sales growth there?

Well, a lot of it is new products that we placed with the retailers earlier in the year.

And now the sales are coming in.

These are just across the board in hair dryers, and appliances, and flatteners, and Personal Care products.

Some of the products that -- at Wal-Mart are now doing very, very well, that we made specially for them.

But overall, our products -- the new products that we placed in the retailers are just doing well.

And in our labs division, the new introduction that they have that's just being rolled out now is the Brut Revolution, that we think will increase their sales.

So overall, in every division in the brush, comb, and accessory division, they have new products under the Revlon, the Vidal Sassoon, the Karina brand.

They did very well this past quarter with some new customers they had.

So, overall it was actually very good in all of the divisions.

Did your Brut Revolution ship in your second quarter?

Or is that shipping in your third quarter?

Kathleen, this is Tom Benson.

The Brut Revolution is shipping in the third quarter.

And also, the new Professional Line, that is shipping in the third quarter, also.

Okay.

So that one, you unveiled it at the Trade, at the big show.

It has started shipping in September and will continue initial fill-ins throughout the quarter.

Okay.

Great.

And last question, on the OXO line.

Can you quantify how much of your 22% increase was due to some revenue that got shifted from your first quarter to your second quarter?

I think what we did in the first quarter conference call, we indicated that the shipping and order backlog probably affected us 4.5 to $5 million in the first quarter of sales that we did not get out.

Some of that was a permanent loss.

We -- it's not a perfect number, but we think there was probably about $4 million that we caught up on in -- early in the second quarter, and the last few months of the quarter we've been on normal turn shipments.

So probably I'd say $4 million.

Okay.

Great.

And sorry, you said tea kettles, and You had one other new product you specifically mentioned for OXO?

We have tea kettles, we have trash cans that is getting additional distribution, and we've been shipping.

Okay.

Great.

Thank you.

Gary Giblen, Brean Murray, Carret.

Yes, to follow-up on Kathy's inquiry, I guess destocking had played some role in holding back some sales before, but is that now gone away?

Gary, yes I would say we do -- we don't have any unusual order backlog in any of our businesses.

We did have what we would consider higher backlog than normal in our OXO business at the end of the first quarter.

Okay.

So in terms of specifically getting -- since your new products are doing well, it sounds like there's no barrier to getting new products in, or getting them to stay on the shelves, is that fair to say?

I think that when we talk about new products, we only talk about a few of them specifically in this call.

But like the OXO business, they may have 90 new products this year.

Our appliance business, we might have the same.

So we have a lot of new products every year.

We have come out with some new specific lines.

And the customers are very receptive to our new products, and the new features and enhancements in them.

What happens is some of our old products get discontinued as a result of us coming out with new products.

So a lot of times we look at what is the net growth in products in a customer, because every year we get new ones in, and we trade some out.

Okay.

And then your gross margin comparison was comparatively better than in the first quarter.

In other words, [down] 90 basis points was actually an improvement.

So is that -- is the improvement more in the Personal Care versus Housewares?

And what's the environment in the Housewares margin area?

In the Housewares margin -- actually, overall it's stable.

When you have less than a 1% fluctuation, it's usually a product mix.

Okay.

More than anything else.

Okay.

So pretty random.

Okay.

And then last question is, if you care to address it.

What were -- can you give us some color on why Chris Carameros left?

I mean, what led to that?

Well, I don't know if you've talked with him, but he left for personal reasons, to pursue other ventures on his own.

Okay.

Well, thanks very much.

Rommel Dionisio, Wedbush Morgan.

Yes, good morning, Gerry.

I was actually just following up on the prior question.

Could you just talk about the reallocation of responsibilities that Chris covered?

I mean, he was pretty intimately involved with the Idelle Labs businesses.

Who is internally sort of taking that over?

Basically, the reports that Chris had are -- have been spread among myself and Tom Benson and Bob Spear, to our senior VPs.

So we've taken care of that.

Okay.

And just another question.

On -- you talked about price increases on products impacting gross margin in the quarter.

Is that partly then passing through the higher raw material prices that we saw earlier in the year?

And having said that, if that's the case, do you expect that to moderate, given that spot prices for polyethylene resin have come in pretty significantly here in the last few weeks?

As we talked about, everybody knows resin prices and other, copper, has increased the cost over the last few months.

And we have been working diligently to get price increases from our retailers, which in most cases, were successful.

And the new products we come out with always have a better profit margin than the old products.

So all the new products that we have coming in, we factor in the increased costs that we have.

And we're able to pass that on to the retailer.

As far as costs going down, it's only happened in the last few weeks.

So it hasn't really affected us.

But I think long-term, if the prices stay down of the commodities, then our prices will go down.

But of course, we keep inventory.

We keep what, about 5 months worth of inventory.

So it takes about 5 months to cycle in.

Sure.

Okay.

Thanks, Gerry.

Nice quarter, by the way.

Thank you.

Graham Tanaka, Tanaka Capital Management.

Nice quarter.

Just if you could -- wondering if you could quantify for us the net contributions percentage-wise of new products as a part of the sales increase in the quarter?

And if you could sort of look out maybe for the second half?

Thanks.

I think I missed part of it.

Can you repeat that?

I just was wondering, of the 12% sales gain in the quarter -- in the second quarter, how much of that was sort of net increase from new products that replaced the old ones, sort of on a net basis?

And then what that might look like for the second half, what percent increase?

This is Tom Benson.

We really do not track our sales in that -- like that.

As I said, we have so many new products coming in and out, and replacing, we really don't track what sales increase came specifically from new products.

Okay.

Well, your new product rollouts were important.

And I gather they didn't kick in quite as much last quarter.

So I was just wondering if that's accelerating into the second half?

Well, as we indicated, we had some new products start last quarter.

We have some -- the Brut Revolution started shipping in September.

And our new Professional Line started shipping in September.

So for the year, all our new products are not yet out.

And basically, the cycle starts over again early in the year, next year.

So it's really a continuing cycle as customers reset their planograms, we go in and make our offerings.

And we switch some items out, and we hope to gain additional space each time.

And then going into the important holiday season then on the new products, are you sort of timing-wise where you want to be?

Everything that we've presented to the retailer and promised them we'll be delivering in October and November, we don't see any glitches there.

Thank you very much.

John Harloe, Barrow, Hanley.

Congratulations on the quarter.

In the past quarters you've given some percentage changes in appliance, grooming, skin care, and brush and combs categories.

Could you do that today?

John, when our 10-Q comes out, we'll have more specific details on the segments of our category -- of our -- on what makes up the various segments, and we'll have some sales growth information in there.

Would you make a comment about how you're doing, and what the profitabilities have been like at CVS?

We don't talk about specific customer sales or profitability.

Okay, just one last question.

I thought the price that the private equity firm paid for [Sure] was pretty breathtaking.

I just wondered if that's -- ?

What was the price?

Over $100 million.

Yes, well, I don't think that that's really the real number.

I think that was what was reported in the press.

That's certainly -- .

We'd be surprised if that was the number.

What we heard is far distant from the 100 million.

I guess you're saying it was lower, and not higher?

Yes, definitely.

Okay.

Well my comment was going to be, if you could really get $100 million for that, maybe there's some things you ought to sell to the same people.

But I guess that doesn't apply.

Well, we have a lot of valuable brands, and they're worth a lot of money.

I understand, thank you.

Jim Larkins, Wasatch.

Yes, my question also was about segment profitability.

Is that going to be released in the Q then?

Yes, it will be.

Okay.

Thank you.

[OPERATOR INSTRUCTIONS] Steve Friedman, Wachovia Securities.

Nice quarter.

Thank you, Steve.

Have you noted some increase, or at least some renewed confidence with oil prices coming sharply down in the last couple of months at the ordering level?

And even though you are cautious on your second half, are you encouraged by that element in the economy?

What we've noticed over the last, I guess, 6 or 8 weeks, or 8 to 10 weeks, is an increase in sales from our retailers.

So I don't know how to tell you that it's directly related to the price of fuel or not, or great products that are on the shelf at great value.

But it did start around 10 weeks ago.

We started noticing a good bump in our retail sales.

Not our sales, the customer we're talking about, which is always there is customer takeout from the stores.

Well, noting today's retail sales in general, were pretty positive across the board, except for Wal-Mart, which was a little bit below.

But still, in absolute dollars, they were solid.

Is the new warehouse facility now at -- operating at 100%?

You note in your press release that the Personal Care items are going to be transitioned in the fourth quarter.

And I would presume that's just an operational issue.

But I was wondering if you still expect the savings from the new warehouse facility gaining throughout the fiscal year?

Steve, this is Tom Benson.

Currently in Southaven, Mississippi, we're operating out of 2 warehouses.

And it is our current plan to consolidate into our new warehouse by the end of the fiscal year.

That's a large undertaking.

We have a lot of inventory to move.

And we have certain costs we're going to incur to get that done.

I think that when that is completed, we're anticipating that we will have some ongoing cost savings because we will not be operating out of 2 facilities.

We won't -- we're renting the second facility, currently.

As far as our new facility which we have our OXO business in, and we have our Idelle businesses in there, the operating performance in that facility is -- continues to improve.

We don't feel that it's perfect and at the lowest cost possible there yet.

That was a very large undertaking.

We hired hundreds of employees, and they're still training and stabilizing.

And we're incurring some higher costs because the facility is not 100% utilized, because we won't move in the appliances into it until near the end of the fiscal year.

So going forward, you continue to expect ongoing cost savings as it approaches, and as you close down the second facility?

Yes, and I think the significant costs -- or I wouldn't use the term significant.

The meaningful cost savings will come when we're out of the second facility.

Okay.

Great.

Thank you very much.

And again, congratulations on a fine quarter.

Thank you, Steve.

Kathleen Reed, Stanford Financial.

Just to follow-up on that last question, I have in some prior notes that the appliance business was supposed to be transitioned to your new distribution center earlier this year.

Did it get pushed out, or did I just have that wrong?

This is Tom Benson.

Our initial plan was to move it earlier this year.

When we started up in the new facility, it was bigger undertaking than we anticipated.

And as a result of that, we did not want to make it more difficult by pushing the appliances, and moving them until we were absolutely ready.

So we made a decision to push it off until the end of this fiscal year.

We don't want to do this transition in our peak shipping season and jeopardize order fulfillment or customer service.

Okay.

And, so does the number, when you were just commenting on meaningful --or cost savings, the prior number I have is 8 to 10 million on an annualized basis.

So would we assume then that what you just said, that that would -- that's more of a fiscal '08 savings?

When that 8 to $10 million number -- that was not all from warehouse savings.

Okay.

That was not warehouse alone.

And so next year we're anticipating some warehouse savings, but it's not 8 to $10 million.

We're really not putting a number out on it.

Can you just mention what I forgot then?

What else is included in the 8 to 10?

That had to do with SG&A costs.

There were some other savings.

I don't know if we specifically went into it.

There was transportation savings by relocating to the new warehouse.

There was some royalty savings on some of our royalty arrangements.

So there were other items in there that made up that number.

Okay.

Great.

Can you disclose the current rate on your floating rate debt, currently?

I think it resets every 3 months or something like that.

What I can disclose is that on September 28th, we actually entered into fixed -- we entered into interest rate hedges on our $225 million of floating rate debt.

And we have hedged that for the remaining term.

And some of it is hedged at 5.89%, and some of it is hedged at 6.01%.

And all those details will be in the Q.

Okay, great.

And lastly, is 10% still a good interest rate to use for your full year?

I think you're talking about our tax rates?

Oh, yes.

I'm sorry.

Right, 10%.

I think we have indicated 10 to 12% we feel is the range.

Okay.

Great.

Thanks, again.

And if there are no further questions, I will turn the conference back to Gerald Rubin to conclude.

Thank you, everyone, for participating in our second quarter conference call.

And I look forward to talking to all of you with our third quarter conference call.

Thank you, again.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-203-1112, with replay passcode 1407852.

This concludes our conference call for today.

Thank you all for participating, and have a nice day.

All parties may disconnect now.