Helen of Troy Ltd (HELE) 2007 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Helen of Troy fourth-quarter earnings conference call for our fiscal 2007.

(OPERATOR INSTRUCTIONS).

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, and Robert Spear, Senior Vice President and Chief Information Officer.

I will now turn the conference over to Robert Spear.

Please go ahead, sir.

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

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

We will have a brief forward-looking statement review followed by Mr.

Rubin who will discuss our 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 will open it up for questions and answers for those of you with any further questions.

Safe Harbor statement.

This conference call may contain certain forward-looking statements that are based on management's current expectation with respect to 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-Q filed with the Securities and Exchange Commission for the fourth quarter fiscal year 2007 ended February 28, 2007.

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 vendor -- by selecting the Investor Relations tab on our Home page 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, and thank you for listening in to our and participating into our first-quarter conference call -- our fourth-quarter conference call, sorry.

Helen of Troy today reported sales and earnings for the fourth quarter and fiscal year ended February 28, 2007.

Fourth-quarter sales increased 7% to $144 million from $134,508,000 in the same period of last year.

Net earnings for the fourth quarter increased 46% to $9,721,000 or $0.30 per day fully diluted share versus $6,645,000 or $0.21 per fully diluted share for the prior year quarter.

The fourth-quarter sales increases are primarily attributable to greater sales of Personal Care appliances in Europe, domestic Personal Care appliances and domestic brush and hair care accessory sales.

Full-year net sales increased 7.7% to $635 million from $590 million in the prior fiscal year.

Net earnings for the year increased by 1.6% to $50 million or $1.58 per fully diluted share compared with $49,310,000 or $1.56 per fully diluted share in the prior fiscal year.

Full fiscal year sales increases were driven by increases in all lines of businesses and lead by increases in Personal Care appliances in Europe, in Latin America, domestic Personal Care appliances, domestic brush and hair care accessories and domestic sales of our OXO line of products.

We are very pleased with our fourth-quarter results and the progress that we have made in business initiatives during the past quarter.

We have reduced our inventory significantly, ended the year with an increase in cash and temporary investments of approximately $73 million to $91 million while paying down approximately $14 million in debt.

We successfully completed our warehouse transition, completed the product development process for the new Bed Head line that we plan to distribute to retailers during the second quarter of this current year and successfully introduced new products in both the Housewares and Personal Care categories.

Additionally we recently announced the acquisition of Belson Products, the Professional Salon Division of Applica Consumer Products, which will provide us with additional growth opportunities for our Professional Appliance division.

I would like to go over the benefits of the Belson acquisition.

We know the business of Professional Salon styling tools, and we know the products, and we know the buyers and the suppliers.

We should recognize a savings on sourcing opportunities because of the Belson acquisition.

The Gold 'N Hot brand which we acquired is well established and enjoys a very strong position in the ethnic beauty field.

We also paid less than one-time sales.

We are reaffirming our previous issued guidance for fiscal 2008 ending February 28, 2008 of annual net sales in excess of $660 million and annual net earnings in excess of $2.00 per fully diluted share.

We are in the process of evaluating the impact of our Belson Products acquisition on sales and earnings for fiscal year 2008, and we will make adjustments to guidance in the future as appropriate.

The following business initiatives remain an integral part of our current business plan.

Placement in sales of Bed Head by TIGI domestically and Toni & Guy appliances internationally.

The expansion of Fusion Tools appliances in our Professional Salon division.

Lower warehouse shipping and transportation expenses as our staff gains efficiencies through experience, new OXO product introductions, including but not limited to the Candela line of rechargeable lighting products, as well as expanded international OXO distribution and placement in the retail markets of the United Kingdom and Japan.

And development of a more efficient manufacturing and supply chain process to help reduce product development costs and increase speed to market with new and replenishment products.

We believe that the new Bed Head by TIGI product line of appliances and related products have significant future growth potential.

We believe this line of new line of products will become a major contributor to Helen of Troy's overall future profitability.

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

Thank you, Gerry, and good morning, everyone.

We are pleased with our performance for the fourth quarter and selling, general and administrative expenses as a percentage of net sales was down over the prior year.

Fourth-quarter net sales increased 7% year-over-year.

Net sales in the fourth quarter of fiscal 2007 were $143.9 million compared to $134.5 million in the fourth quarter of fiscal 2006.

This represents an increase of $9.4 million or 7%.

I will discuss the reasons for the sales increase under our segment net sales information.

Our fourth-quarter operating income increased by 3.4% year-over-year.

Operating income for the fourth quarter of fiscal 2007 was $13.8 million or 9.6% of net sales.

This compares to $13.3 million or 9.9% of net sales in the fourth quarter of fiscal 2006.

This is a $456,000 increase, which is 3.4%.

Fourth-quarter net income increased 46.3% in dollar terms year-over-year.

Net income for the fourth quarter in fiscal 2007 was $9.7 million, which is 6.8% of net sales compared to $6.6 million or 4.9% of net sales in the fourth quarter of fiscal 2006.

This is an increase of $3.1 million or 46.3%.

Fourth-quarter diluted earnings per share was $0.30 in fiscal 2007 compared to $0.21 for the fourth quarter of fiscal 2006.

This is a $0.09 increase or a 43% increase.

During the fourth quarter of fiscal 2006, we repatriated $48.6 million in foreign earnings and coined a tax charge of $2.8 million.

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

Our Housewares 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, automotive, hardware, storage and organization.

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

The Housewares segment net sales were $36.1 million in quarter four of fiscal 2007 compared to $34.9 million in quarter four of fiscal 2006.

This represents an increase of $1.2 million or 3.3%.

Sales increases have been primarily driven by continued new product introductions with existing customers, as well as new distribution in the grocery channel.

In the fourth quarter of fiscal 2006, we shipped the initial stocking orders of our handtool line.

Thus, year-over-year sales growth is below our historical growth rate and is expected to be double digits for fiscal 2008.

Our other segment is our Personal Care segment and includes the following product lines.

Appliances.

Products in this group include 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.

Grooming, skincare and hair products are included in the Personal Care segment and consist of the following brands.

Brut, Sea Breeze, SkinMilk, Vitalis, Ammens, Condition 3-in-1, Final Net, Vitapointe and Epil-Stop.

Brushes 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 net segment sales were $107.8 million in the fourth quarter of fiscal 2007 compared to $99.6 million in the fourth quarter of fiscal 2006.

This represents an increase of $8.2 million or 8.3%.

Net sales increase is a result of new product introductions including Fusion Tools, Brut Revolution and Toni & Guy brand appliances and unit volume and price increases.

Gross profit for the fourth quarter was $63.3 million or 44% compared to $61.6 million or 45.8% in the prior year fourth quarter.

This is an increase of $1.7 million or 2.7%.

The decrease in gross profit percent of 1.8 percentage points is primarily due to a combination of the Housewares segment, expansion into higher unit price, lower margin gross -- I'm sorry, lower margin product lines, more direct import sales which are sold at a lower margin and product cost increases.

For the fourth quarter, selling, general and administrative expenses decreased 1.5 percentage points as a percent of sales.

SG&A expense for the fourth quarter of fiscal 2007 was $49.5 million, which is 34.4% of net sales compared to $48.3 million or 35.9% of net sales in the prior year fourth quarter.

This is an increase of $1.2 million, and it represents a decrease of 1.5 percentage points.

The increase in SG&A in dollar terms is primarily due to the impact of exchange rate variance, which was a loss of $900,000 in quarter four fiscal 2007 versus a $1.4 million gain in quarter four of fiscal 2006.

Interest expense is down $1.3 million for the quarter compared to the prior year quarter.

Interest rates are higher this year for the amount of debt outstanding is down approximately $15 million, and we had an interest expense of $900,000 in the prior year related to tax audits.

Tax expense for quarter four fiscal 2007 was $517,000, which is 5% of income before taxes.

This compares to $2.7 million or 28.7% of income before taxes in the prior year quarter.

The effective tax rate is down 23.7 percentage points compared to the prior year.

As mentioned earlier, during the fourth quarter of fiscal 2006, we repatriated $48.6 million in foreign earnings, incurring a tax charge of $2.8 million.

I will now discuss our financial position.

Our cash and temporary investment balance was $91 million at February 28, 2007 compared to $18 million in the prior year.

We have a $75 million revolving line of credit in place, of which we have no borrowings.

Our Accounts Receivable increased $8.6 million year-over-year on a quarterly sales increase of $9.4 million.

Our trailing 12-months basis Accounts Receivable days outstanding decreased 71.6 days at February 28, 2007 compared to 75.2 days at February 28, 2006.

On a current sales basis, all Accounts Receivable days outstanding are 71.4 days compared to 71.7 days a year ago.

Inventories at February 28, 2007 decreased $24.3 million from the prior year-end.

The primary reason inventories are down is not repeating the inventory build we had last year due to the relocation of our Housewares inventories from Monee, Illinois and our grooming inventories from El Paso to our new distribution facility in South Haven, Mississippi, as well as not repeating the inventory purchases we did last year to delay the impact of possible future price increases.

Shareholders equity increased $52 million to $527.4 million at February 28, 2007 compared to the prior year-end.

I will now turn it over to Gerry for additional comments (technical difficulty)-- .

Operator, we are now open for questions.

(OPERATOR INSTRUCTIONS).

Kathleen Reed, Stanford Financial.

The first question just on your recent acquisition of Belson, can you just comment whether the margins on those salon products are pretty similar to your existing business and what your total market share of the salon market will be after the acquisition?

Well, currently the Belson division runs a less profit percentagewise than our own Helen of Troy Professional Division.

But we hope to bring that up to equal what we have due to the reasons I gave you.

We think we can buy better.

We will be more influential in the Orient, and we can add a lot of products to it.

As far as the percentage of the professional appliance arena, I don't have any numbers there.

But I'm sure it is probably, I don't know, 40, 50%.

That you will be after including the acquisition?

Right.

Okay.

Next just on the SG&A line item that you just talked about, I think I was writing too fast.

But can you just explain again why we saw a real big improvement in SG&A expenses as a percent of sales?

I think you said it was a currency gain, but then I think that was meant to be in the other income.

If you can just quantify again why the SG&A improved?

I explained the reason why the total dollars went up.

The biggest change in the total dollars was the change in our exchange rates year-over-year in the fourth quarter.

We keep our -- as we settle out hedges or due to exchange rate changes, that goes in the SG&A area.

And then in the prior year -- in the fourth quarter of the prior year, we had a gain of $1.4 million, and this year we had a loss of $900,000.

So there is a $2.3 million swing year-over-year.

Even with that swing, our SG&A costs went down.

As we're growing our sales, we're leveraging our SG&A, and also as we complete our warehouse transition, our costs are going down as we have expected.

Over the last few years, we have explained to people as our -- that we were building our infrastructure here both in people and facilities for future growth, and that was one of the reasons that our SG&A had gone up over the last few years as a percentage of sales.

With the warehouse savings and some of your other internal cost savings programs, are we still expecting like a 8 to $10 million savings rate for fiscal '08 on an annualized basis?

The 8 to $10 million number we have explained in the past is made up of warehouse savings and other SG&A savings.

Such as, there were some transportation savings, some royalty savings.

Some of those savings were realized last year.

So I would not expect an incremental 8 to $10 million savings this year.

We are going to realize savings in the warehouse area this year.

We also have initiatives in the transportation area that we hope to save some money, but as we all know, gas prices are going up.

So I am a little concerned about that.

But the warehouse portion of those savings will enjoy the majority of them this year.

The other portion was already realized.

Okay.

On your gross margin line, the gross margin had declined somewhat in your third quarter, and we saw the gross margin decline this quarter, although it was completely offset by lower SG&A.

And I think in your prepared remarks, you said some of that was higher commodities, and however, you were -- you also cited the direct import trend, and we had heard about that in third quarter.

Can you just talk a little bit about if you think that is an ongoing issue we should continue to see that in fiscal '08?

So maybe you're going to have lower overall gross margins.

However, as an offset, you do have all these savings for SG&A to kind of act as an offset if that is an ongoing trend, increasing trend for direct import and just some of your opinion on that.

Direct import is -- I mean it is a very small portion of our business.

But when you do direct import business, it bypasses the warehouse and transportation segment of our business.

And so what we do is, when we work with customers in that manner, we have a lower gross margin, but at the same time we do not incur certain SG&A expenses.

So it is going to grow, but it is still going to be a very small percentage of our business.

On the other areas of the SG&A -- I'm sorry of the gross margin -- we have been experiencing pressure on our product costs throughout last year.

Some of that has subsided, but working with our customers with new products and with the price increases we have been lagging in that area, and it takes a long period of time to implement price increases.

We are still working on that to we hope to improve our gross margin.

Just really quickly.

Lastly, can you comment -- clearly your appliance both in Europe and domestically did real well.

Can you just comment if Idelle Labs and your accessories business was -- sales were positive in the quarter for your Personal Care division?

Yes, the two divisions that you mentioned were positive, and in my comments that was one of the reasons for our sales growth, the brush, comb and accessory area.

But both divisions that you mentioned, both had positive sales.

Doug Lane, Avondale Partners.

So just to wrap-up on some of Kathy's line of questioning, is it reasonable going into fiscal '08 to expect that gross margins should still be down a little bit year over year, but at least to offset if not more than offset by lower SG&A as a percent of sales due to the initiatives that you mentioned?

No, I think that the gross profit that we had a 44% should hold steady.

As Tom mentioned, we're looking for improvement there because we're passing on price increases.

Some are in effect.

Some will come in starting in August through the latter part of the year.

So no, we're not looking for that 44% to decrease.

And, as far as the SG&A expenses, that we are always working on trying to get that number down.

So if we can get that number down, of course, then it will bring us more to the bottom line.

Okay.

And certainly with the elimination of the duplicate warehouses in Mississippi, that is going to go a long way towards helping your SG&A.

Yes.

Plus, the things that we're doing in the Company that we work on everyday.

So that is one of our goals to get the SG&A percentage down and force the gross profit up and the sales up.

So if all three happen, we're going to have a great year.

No question.

On the sales line, can you talk about your retail business, your reset at Wal-Mart this year, how you feel about Wal-Mart on the retail side in '07 and give us an update on the reception of your new professional products that you rolled out in the second half of last year?

Well, normally we do not comment about how big our planogram is because for competitive reasons, but anybody can walk into a Wal-Mart store and see what we have on the shelf.

Our sales at Wal-Mart are up and have been for the quarter.

Overall sales retail, you all read what goes on.

I would say we're showing a slight increase, and hopefully with the introduction of Bed Head appliances and other things that we're doing that we're going to show a nice increase in that area.

Our sales projections that we put out are based on increased sales.

And so you have to know that we expect increased sales in that division and all our other divisions, too.

Okay.

And on the professional new products from last year, how are they going?

They are going good.

They had a nice increase also, and they are projecting increases for this year also for that division, on top of adding the Belson division.

And I assume that the 660 is before Belson because obviously you're going to add sales from Belson right from the get go.

But you are saying the core business before Belson should do the 660 this year?

Right.

And as soon as we get -- we just bought it a couple of days ago.

As soon as we get a better handle of all of the things that we're doing at the Belson division, we will come up with an estimate of what we think that we will do.

As you know, our fiscal year starts on March 1, and we're already into May, so we won't have a full year of sales for this year in the fiscal year.

Now has that closed?

The Belson acquisition?

Yes, it closed --

Effective May 1.

Yes, May 1.

So it will be one month of this quarter?

Yes.

Okay.

Now you can pull up Applica's filings and see that it was a money-losing division for them.

Obviously there is a lot of overlap on sourcing and distribution with Helen of Troy.

But I just wonder without getting into specifics, should we look for some near-term dilution as you get the thing integrated because it is in a money-losing situation, or do you think the synergies can be pretty much immediately realized?

On their public filings, those include allocations of all their overhead costs.

Quite a few of those costs are not going to be duplicated at Helen of Troy as we integrate it.

I think in the early stages as we integrate it, there is transition costs we're going to incur, and we need to work closely with all the customers.

So over the long-term or as time goes on, maybe not initially, but as the year goes on, next year we expect it to be accretive.

Also, Doug, we will be accretive.

It will be slightly accretive, but it will be accretive to this year's earnings also.

Okay --

Again, what Tom says, what you saw was not the true picture because they threw in a tremendous amount of corporate overhead to that division which we don't have.

Gary Giblen, Goldsmith and Harris.

Building on the last question, how long will it take you to improve the declining sales trend at Belson?

Is it a function of new product intros and how long might that take to do?

I would say it is going to take six months -- you mentioned sales decline.

That was in the year before.

Currently the sales are stable.

They are not declining over last year.

What you saw was probably the year before.

And in order for us to increase the sales, it will take at least six months for new product innovations or introductions.

Okay.

Were they lagging in innovativeness because of Applica's turmoil?

I cannot comment for them, but I think because of what has happened in the past there that there was not a lot of money, if any, spent on R&D and new product development.

And that is something that we're very good at, and we're going to be adding a lot of new products to the Belson line of products.

Okay.

And then just a financial question.

You had the low tax rate, the normally low tax rate of 5% this quarter.

So what is the best assumption for the full year?

I think 10 to 12 is what we have talked about over the longer-term.

I think when you look at a specific quarter, it can jump around depending upon where the earnings are in what jurisdiction.

But in the long-term, we should continue to look for 10 to 12.

Sure.

Okay.

This past year I think it was little over 9%.

9.2.

Yes, moving target.

And so the release says that you're reiterating the guidance, but I mean since the tax rate, since you had a low tax rate here, is there any change in your operating earnings outlook for the year?

It is a wide range anyway, but is it really the same, or is it somewhat more conservative because you have maybe some lower tax rate this year than previously?

No, no, I don't think our tax rate is going to be any lower this year, and I think the estimates that we put out do include the tax rate that we're currently using.

We have not changed our guidance.

The assumptions in the guidance between our release in November are now because of taxes or anything like that.

Okay.

And then the final question is that it seems like department stores, which is not a major part of your mix, but those that are absorbing other store basis like Belk or Federated are having some renewed difficulties now.

So is that material to anything -- I mean if Federated froze up, let's say, in terms of orders, I mean would that matter to you, or is the percent of sales very low and not important?

At the present time, we do not sell to department stores, so they do not affect any of our sales.

We are optimistic that the department stores that you did mention will be taking on the Bed Head line.

So we will have increased sales that we never had before from department stores.

But, at the end of the day, it is just going to be a small part of our business.

It has been zero in the past, and it will just be very small.

So all these roll-ups that happened in the department stores and what they do has not affected us.

Okay.

That is great.

Thank you very much.

John Harloe, Barrow, Hanley.

I am sorry we are all talking about this acquisition you made.

I was hoping you would talk about Epil-Stop that you referred to last quarter that you would probably have something to say this quarter.

We did this past quarter, we did have some distribution in the Epil-Stop.

We will have certainly more as the months come on.

The initial sales numbers that we are getting are good, and we're happy with that.

This is our first year of the new introduction.

The product is just a terrific product, and hopefully that is going to add this year and in future years a lot of sales to the Idelle Labs division.

What channels of distribution are you using to sell this through?

Well, we're in mass and in drug and in grocery.

You're not going to do direct television?

We're going to try a little and see how it goes, but our main thrust is through the mass, grocery and drug.

When Epil-Stop, the old Epil-Stop, reached its peak in sales, what was the amount?

$109 million.

Well, I think it did in excess of $100 million one year.

Did you do that again?

I don't know.

We're sure going to try.

Rommel Dionisio, Wedbush Morgan.

The first question on marketing expenses, in the year ago quarter you said that you increased advertising about $2 million.

I wonder if you can just quantify, Tom, in this current quarter you just quoted, did you sustain that higher level of advertising, or did that come in a little bit?

Actually we do not break our SG&A down into those details.

This is more from memory, but since I did not comment on it.

It was not a material difference from the prior quarter.

Okay, that is fine.

And just switching gears back to the Belson Products acquisition, it seems like there is some product overlap, and I wonder if you could just comment on the potential for cannibalization in your existing sales and how you would try to avoid that?

The Belson division has been competing with Helen of Troy since about 1975.

So we have been competing with them for 32 years.

We have our niche in the marketplace with our brands, and they have their brands and their niche.

They are very strong in the ethnic business where basically we are not.

The division is going to be run separately, separate sales and marketing.

I do not see any deterioration of Helen of Troy's business because of different sales and marketing.

But I do look very positively that what we can do for the Belson division will help them grow the business.

Mimi Noelle, Sidoti & Co.

First, I wanted to ask you what your position is on introducing Personal Care appliances with the OXO brand-name?

You know, the OXO brand is a terrific brand.

I always brag about the OXO division because I think it is probably one of the best brands that we do own, although we do have a lot of other brands.

They are increasing their sales as you heard.

They will be at least double-digit for this year as they have been in the three years prior since we bought the Company.

There are a lot of initiatives on the table.

I cannot discuss them with you, but there is a whole range of products that we are looking at because the OXO name is so well known in the industry.

So --

Okay.

So it has breadth.

You can say that -- (multiple speakers)

Yes.

Okay.

Also, would you provide any historical Belson information?

You mentioned that sales were stabilized in the last public filing.

Where were sales?

I think you can look it up.

They were a public company up until a couple of months ago.

I think their sales were in the low $40 million.

It was down from the year before, but it was in the low 40 million.

In the segment information, you can see the sales for a few years.

And you also see the profit (technical difficulty)-- but as I commented, when we looked at it, there was a lot of allocations put in there.

I will keep that in mind.

And Tom, I do have one more question for you.

I guess do you have any preset plans for debt prepayment in the next year or two?

On our current debt of $225 million, we can prepay that without penalty at anytime.

We are continually looking at the acquisition opportunities, and as a Company, we would like to continue to do acquisitions.

So at this stage we're not really anticipating prepaying our debt.

We really hope to do acquisitions.

But we have the ability if we come to that conclusion.

Certainly.

That is all I had.

Thank you.

Stephen Freidman, Wachovia Securities.

Nice quarter.

Could I ask regarding -- most of my questions have been touched on already -- but could you comment on your last three acquisitions -- OXO, Toni & Guy and Bed Head and now Belson Products?

Do you expect all to contribute to margin expansion substantially this year at least on the OXO, the Toni & Guy and the Bed Head lines?

Okay.

The Bed Head and a Toni & Guy are licensed arrangements that we have.

We have started to sell the Toni & Guy in Europe where it is well known.

There's over 500 salons there, and their liquid products are in boots and other major retailers in England.

So our line of appliances has been doing very well.

And Bed Head, we will not start shipping until July, so that will be our second quarter.

Initially we do have distribution with many of the mass drug chains that we have there.

So that should be -- as time goes on, that should be very good.

We're going to have an initially spending money on television and in print for the Bed Head brand.

So you will see that advertising starting in August after we have initial distribution in July.

So those two are doing very, very well.

OXO, as I commented, has double-digit sales every year.

They are increasing their market share.

They are increasing their products, and they are looking into going into other categories.

And the Belson division should be very, very good for us.

It is currently in Florida.

We're planning on operating out of El Paso in our corporate offices, but it will be separate sales and marketing and reps.

We're going to keep the company intact and grow that business, and Belson will be a competitor with Helen of Troy.

So I think by controlling both, we will have increased sales and hopefully increased margins.

All right.

Well, with that in mind, would it be reasonable to expect a gross margin which you came in with I think around 44% or so for the 12 months ending February of '07?

And with Belson being somewhat accretive this year, even though I think, Tom, you mentioned it being toward the latter part of the year because of the transition, but still a lot of overhead allocated to them.

Wouldn't it be reasonable to assume that the 44% gross could increase a certain amount of basis points along with the SG&A, probably shrinking somewhat with the warehouse fully kicking in this year now?

Well, there are two things I wanted to comment on.

You kind of got them together.

Gross profit and SG&A are certainly separate.

On the gross profit line, we're looking at least for the 44% and growing it.

But I don't have the number yet because we have to see the mix on Bed Head and OXO, which is a greater number than the 44%.

But we do have the Belson division which is less.

So we're offsetting that.

But overall we're looking for an increase, but I don't have that number.

And the SG&A percentage should drop percentagewise as the sales go up and we have a lot of efficiencies.

It is not -- you know a good part of our business is fixed expenses and there is a variable expense.

On the fixed side, if you increase your business, the fixed expense does not cost you more, only the variable, and that is why it is important that we increase our sales because of what we call fixed expenses.

And that would help the percentage of SG&A go down.

So that is what we are working on.

Well, what I was assuming is that you would have an expansion on the gross margin and a decrease on the SG&A.

Hopefully, while you said you don't have any specific guidance on Belson Products, do you expect to give that shortly or sometime in the near future?

Along with -- (multiple speakers)

I think by our next conference call we will.

This is Tom Benson.

I think we wanted -- I think I'm going to call it our core business.

We hope for expansion over the year.

I think on the Belson that has a lower gross profit than our core business, and it is going to take us an extended period of time before we see significant change in that.

So adding Belson to it in combination will bring it down initially.

But if you break it out, kind of the core and the acquisition, the core should grow some, but the acquisition is going to be at a lower margin.

(OPERATOR INSTRUCTIONS).

Kathleen Reed.

Just to clarify what you just said about the gross margin, with the businesses combined, is it fair to assume gross margin would be under pressure in the first part of your fiscal '08, improving in the back half of the '08 and then maybe just flat for the year with the two businesses combined?

No, I don't think so because of all the businesses that we have, and Belson is only being included one month for this first quarter, and their sales are probably just 5% of what the corporate sales are.

You're not going to be able to see anything.

Our goal is to increase the gross profit percentage and decrease the SG&A expenses so that we bring more into the bottom line.

That is the goal that we are working on everyday, and we hope to achieve that.

Okay.

In addition to Bed Head which is launching in your second quarter, Epil-Stop, which seems like it already started to ship so it will benefit your first quarter and then the whole year, I actually just got some coupons for SkinMilk, some new products I think you have under SkinMilk.

Are there any other new product launches either under Idelle Labs or anything else you can talk about at this time that maybe have already been announced that we just don't know about?

No, there has not been anything announced.

Of course, everybody is working on all kinds of new products.

But no, the products that you mentioned that is the Epil-Stop and the SkinMilk are already out in the field now.

Okay.

Then just a last question.

When do we anniversary the new distribution wins for your brushes and accessories division?

Is that the first quarter of '08?

Tom, when is it?

I think we had them for all of last year, but I'm not positive.

I don't know the answer.

(OPERATOR INSTRUCTIONS).

Gentlemen, there appear to be no other questions.

Well, thank you, everybody, for listening into our fourth-quarter and fiscal year results, and I hope to speak with you all on our next conference call.

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