Helen of Troy Ltd (HELE) 2008 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 2008.

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; 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 second-quarter earnings conference call for fiscal 2008.

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

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

Rubin who will discuss our second-quarter earnings release and the related results of operations for Helen of Troy, followed by Tom Benson who will discuss the financial review of our income statement and balance sheet for the quarter and then finally we will open it up for questions and answers for those of you with any further questions.

Now the Safe Harbor statement.

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

A number of risks or uncertainties could cause actual results to differ materially from those 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 year ended August 31, 2007 and in our other filings with the SEC.

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 homepage and then the News tab.

I will now turn the conference over to Mr.

Gerald Rubin, Chairman, CEO and President of Helen of Troy.

Thank you, Bob.

Good morning, everybody.

Helen of Troy today reported results for the second quarter ending August 31, 2007.

Second-quarter sales increased 7.3% to a record $158 million versus sales of $147 million in the same period of the prior year.

Second-quarter net earnings were $18.253 million or $0.56 per fully diluted share compared with $10.874 million or $0.35 per fully diluted share for the same period a year earlier, an increase in earnings per share of 60%.

Sales for the six months ending August 31, 2007 increased 7.4% to $298 million versus $278 million for the previous year.

Net earnings for the first half of this year were $28.370 million or $0.88 per diluted share versus $17.553 million or $0.56 per diluted share in the same period last year.

Over the past eight years, one of the major concerns from shareholders has been the tax dispute that Helen of Troy has had with the Hong Kong Inland Revenue Department.

I am pleased to report that we have settled this tax dispute for the fiscal years 1998 through 2005.

This settlement increased fully diluted earnings per share by $0.24 for the quarter and year to date.

We are pleased that the sales increases we experienced in the first quarter 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.

However, our present retail environment is extremely challenging.

Many of our retail customers are facing a slowing sales environment as we enter the critical fall and holiday sales season.

We believe this disappointing consumer spending trend in the mass-market general is likely attributable to macro factors, including high gas prices, tightening credit markets and the housing problems.

Because of these factors, we are adjusting our previous guidance for the fiscal year ending February 29, 2008.

Sales are projected to be in the range of $660 million to $680 million versus our previous guidance of sales in the range of $680 million to $690 million.

Net earnings are now projected to be in the range of $1.90 to $2.10 per fully diluted share, which includes $0.24 per fully diluted share represented by our tax settlement.

We believe that our Company's business fundamentals remain strong.

Going forward, we plan to continue to execute our business plan by introducing new product offerings, increasing marketshare through channel expansion and product innovation and continuing our effort of increasing process efficiencies and reducing related expenses.

I would now like to turn this conference call over to Tom Benson, our CFO, who will give you the financial highlights.

Thank you, Gerry and good morning, everyone.

We are pleased with our performance for the second quarter.

Despite a challenging retail sales environment, sales growth was positive.

Gross profit margin improved 40 basis points over the first quarter and selling, general and administrative expenses as a percentage of sales continued to decrease year over year.

We have also settled eight years of open tax disputes with the Hong Kong Inland Revenue Department.

We are very pleased to have settled this long-standing dispute with the Hong Kong taxing authorities.

Second-quarter net sales increased 7.3% year over year.

Net sales for the second quarter of fiscal 2008 were $157.9 million compared to $147.2 million in the prior year quarter.

This represents an increase of $10.8 million, which is a 7.3% increase.

Our second-quarter operating income decreased by 6.9% in dollar terms year over year.

Operating income in the second quarter of fiscal 2008 was $15.5 million, which is 9.8% of sales compared to $16.6 million or 11.3% of sales in the prior year.

This represents a decrease of $1.1 million or 6.9%.

Second-quarter net earnings increased 68% in dollar terms year over year.

Net earnings for the second quarter of fiscal 2008 were $18.3 million, which is 11.6% of sales compared to $10.9 million or 7.4% of sales in the prior year quarter.

This represents an increase of $7.4 million or 67.9% increase.

Please note that we had a tax provision reversal in the quarter related to the Hong Kong tax settlement, which provided a benefit of $7.9 million -- $7.9 million.

Second-quarter diluted earnings per share, including the $0.24 associated with this tax settlement, was $0.56 in the second quarter of fiscal 2008 compared to $0.35 in the second quarter of fiscal 2007.

This is a $0.21 increase in diluted earnings per share, which is a 60% increase.

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

Personal Care segment.

Our Personal Care segment includes the following productlines; 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 this category include Revlon, Vidal Sassoon, Bed Head, Gold 'N Hot, Sunbeam, Dr.

Scholl's, Hot Tools, Wigo and Health o meter.

Grooming, skincare and hair products are included in the Personal Care segment.

Products in this line include liquid hair styling products, men's fragrances, men's deodorants, foot powder, body powder and skincare products.

Key brands include Brut, Sea Breeze, SkinMilk, Ammens, Vitalis, Condition 3-in-1, Final Net and Vitapointe.

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

Key brands include Revlon, Vidal Sassoon, Bed Head and Karina.

Personal Care net sales were $118.5 million for the second quarter of fiscal 2008 compared to $111 million for the second quarter of fiscal 2007.

This represents an increase of $7.5 million, which is a 6.8% increase.

Appliance net sales were up year over year despite offsets by declines in grooming, skincare and hair products and brushes and accessories.

The Belson business, which we acquired effective May 1, 2007, contributed $6.5 million of net sales for the quarter.

Our Housewares segment.

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, OXO SoftWorks and Candela.

The Housewares segment net sales for the second quarter of fiscal 2008 were $39.4 million compared to $36.2 million in the second quarter of fiscal 2007.

This represents an increase of $3.2 million or 8.9%.

Distribution center shipping issues in the first quarter of fiscal 2007 caused shipping delays resulting in some first-quarter sales orders to be shipped in the second quarter of fiscal 2007 causing a difficult quarter-over-quarter comparison for our second quarter of the current fiscal year.

Accordingly, we believe that the comparison of the six month periods ended August 31, 2007 and 2006 to be more reflective of OXO's overall operating performance than the individual quarterly comparisons during the same timeframe.

Houseware net sales were up $11.5 million or 18.7% for the six months ended August 31, 2007 compared to the prior year period.

Sales increases resulted from a continuing trend of product mix expansion and geographic expansion in the United Kingdom and Japan.

Gross profit for the second quarter was $68.2 million, which is 43.2% of net sales compared to $66.7 million or 45.3% of net sales in the second quarter of fiscal 2007.

This represents a dollar increase of $1.6 million or 2.3%.

Gross profit margin declined as a percentage of sales 2.1 percentage points.

We continue to experience product sourcing cost pressures due to raw material price increases, changes in exchange rates and labor cost increases.

To compensate for rising costs, we are implementing selling the price increases when possible, introducing new products, sourcing from alternative suppliers and focusing on our internal costs.

Selling, general and administrative expenses for the second quarter was $52.7 million, which is 33.4% of net sales compared to $50 million or 34% of net sales in the second quarter of fiscal 2007.

This is a dollar increase of $2.7 million or 5.4%.

On a percentage basis, SG&A went down 0.6 percentage points year over year.

The decrease in SG&A expense as a percentage of sales is mostly due to an improved distribution cost structure, outbound freight cost improvements and lower information technology outsourcing costs.

Interest expense for the second quarter of fiscal 2008 was $3.8 million, which is 2.4% of net sales compared to $4.7 million or 3.2% of net sales from the second quarter of fiscal 2007.

The decrease in interest expense is due to lower amounts of debt outstanding in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007.

Income tax benefit for the second quarter was $6.4 million, which is a credit of 53.4% of income before taxes compared to a $1.4 million expense or 11.1% of income before taxes in the second quarter of fiscal 2007.

In August 2007, the Company and the Hong Kong Inland Revenue Department reached a settlement regarding tax liabilities for fiscal years 1998 through 2005.

As a result of the settlement, the Company reversed tax provisions previously established for those years totaling $7.9 million.

I will now discuss our financial position.

Our cash and temporary investments balance was $46.5 million at August 31, 2007 and we had no borrowings on our $50 million revolving line of credit.

In June 2007, we made a $25 million prepayment without penalty on our $100 million senior notes that matured June 2009.

Also in June 2007, based on a review of our expected cash flows, we reduced our $75 million revolving line of credit facility by $25 million down to $50 million.

Accounts receivable were $121.9 million at August 31, 2007 compared to $117 million at August 31, 2006.

On sales in the second quarter of the current fiscal year that were $10.8 million higher than the same period last year.

Accounts receivable turnover improved to 70.7 days at August 31, 2007 from 73.7 days at August 31, 2006.

Inventories at August 31, 2007 were $168.3 million, a decrease of $17.1 million from August 31, 2006.

Inventory turnover improved to 2.3 times at August 31, 2007 compared to 1.9 times at August 31, 2006.

Shareholder equity increased $51.5 million to $543.9 million at August 31, 2007 compared to August 31, 2006.

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

Thank you, Tom.

Operator, we would like now to take questions.

(OPERATOR INSTRUCTIONS).

Gary Giblen, Goldsmith & Harris.

Hi, good morning, Gerry.

Wondering whether the modest guidance reduction is due to specific order cancellations or major push-outs or just a general sense of conservatism from your dealings with the major retailers?

Right now, it is not based on any orders or anything we lost, it is just us being more conservative as we look over the next six months and that is basically it and so we thought we would verbalize it with everybody.

And are you finding major retailers destocking in terms of days-on-hand inventory or are they just adjusting perhaps for slower consumer takeaway?

Well, several of our major retailers have cut their inventories.

They do want more turns.

I don't believe that that has hurt us nor do we believe that it causes less sales.

It is just that the retailers want to keep less inventory and our job is to supply them on a daily basis with all the merchandise that they need.

But I don't think that any of that has affected the sales of what is going on in the stores.

Gary, we do not get long-term orders from any of our customers, long lead times.

So we are -- they look at their consumer offtake and their systems reorder.

So a lot of the retailers have been -- had slowing year-over-year same-store sales.

So over time, we feel that's going to affect us.

Okay.

So you are really just anticipating rather than observing current reality.

I know.

I understand.

And then just on the same topic, in the first-quarter call, a lot of discussion was had about new products being good for gross margins, as well as for sales because you can kind of instantly build in fully inflated raw materials costs into new products.

So is the difficult retail environment affecting the new product placements and are you getting say all that margin benefit from the new products that you had anticipated?

Gary, on the new product introductions, yes, the gross profit is larger.

Of course, it is offset by other products where we have price increases from the factories and we have not passed that on yet.

And the new product sales will, of course, come mainly in the third quarter and the fourth quarter for us is when we do our seasonal business.

So hopefully that is very positive.

We have good placement in all the retailers and I just -- we just have to be conservative on what is going to happen this fall and Christmas.

Okay.

But no particular trouble spots because of the retail environment and the new product placements or sell-through or anything --?

No, we have good product -- the new products have good placement and now it is up to the retailers to get their customers in the store to buy the products.

Okay, great.

Thanks, Gerry.

I will probably come back with more questions, but I better give up the floor now.

Thanks.

Kathleen Reed, Stanford Group.

Hi, good morning.

Can you tell us if the appliance sales in the current quarter that you just reported, were they up if you exclude the Belson acquisition?

Yes, they were.

They were up slightly for the quarter without Belson.

Okay.

And your Bed Head, I think, appliances shipped out in June.

Can you just tell us how that was received?

I think that was a real big launch for you and I would have thought more sales would have been booked for Bed Head this quarter, but maybe that is not the case, if you think the sell-through will happen 3Q and 4Q, but are retailers ordering closer to the season, so maybe we should see some higher sales from the new Bed Head launch in 3Q and 4Q as well?

Included in the sales were the new introduction of Bed Head.

Some were shipped in the first quarter and some retailers in the second quarter.

As a matter of fact, some were even in the third quarter got their initial shipments the first weeks of September.

So we are happy with the distribution that we have and we have also been very happy with the sales.

It is a higher priced line, but we do have distribution in major retailers all over the country.

Okay.

And with your sales revision, are you able to say is it across the board or are there some segments that are being more negatively impacted than others?

It sounds like OXO is continuing to do really well and I guess is the Belson guidance still $20 million to $30 million or is that someone reduced too because you are taking a more cautious approach to sales?

No, the Belson number that you just mentioned is what we think we can do.

What has happened with Belson, because we just took it over a few months ago, there were no new products in the pipeline and we are developing a lot of new products, which will be coming out over the next couple of months?

So we are very optimistic about Belson because what they have is not new products and what we are going to have is a lot of new products because that is our expertise is developing new products and we have a lot of new products and many of them are going into the Belson division.

As Tom told you in Personal Care, we have weaknesses in our grooming products, skincare and our brush and accessory departments, so those are the weaknesses offset by larger sales that we have in our appliance division.

And international is doing very well.

Okay.

But are you able just on the sales revision, is it kind of OXO is still doing well and the other -- it is more Personal Care or is it kind of just more cautious for both divisions combined?

I would say the sales revision is more associated with North America.

Our international areas where we feel are going to grow stronger over -- than the North America region in percentage terms and both in our Personal Care and in our Housewares, we think that there is going to be some softening from the historical growth while we work through this economic time.

I mean the houseware things are very tied to people redoing their kitchen or buying appliances or new homes and everything and, as we know, that has slowed down currently.

Okay.

And just on the gross margin decline in the quarter, down I think 210 basis points, can you -- is there any way to say more was on -- I think in your last quarter, there was some increased promotion for Brut and so that netted against sales and there was some pricing pressures on some base lower level appliances.

Can you quantify -- is it much more this quarter raw materials or is it some of these other issues or is it the direct import issue, retailers moving to direct import and I know Belson is a lower gross margin business, but is there any way to talk a little bit about the gross margin decline?

I think the main reason is cost of goods of what is happening domestically and our foreign manufacturers because -- whether -- we use a lot of plastic and we use metals and all those costs have gone up plus the exchange rate between the Chinese yuan and the Hong Kong dollar has deteriorated in the last year from 8.28% to about 7.5%, almost about 9% there.

So it is all in the price of goods and what we are doing is, of course, getting better profit on new products and trying to get price increases wherever we can to offset that.

Have you announced any price increases on anything for the fall that would help your margins in the second half?

Yes, we do.

We do have price increases.

As a matter of fact, we have price increases almost all the time, but we do have price increases that are starting now.

I know it is hard to say, but can you just give us an average?

Is it on the appliances say mid single digits or is it -- is there any way to just quantify that a little bit?

I would say over the broad spectrum of all the products of OXO and the appliances, I would say come around 4%.

Okay.

And just finally, do you have a current share repurchase program and what would be I guess the priorities for cash and if you think share repurchase would do you well with the stock at these levels?

That is something that we are currently discussing.

We estimate that by the end of the fiscal year on February 28 that we will have approximately $100 million in cash and we are looking very strongly at repurchasing stock.

Tom gave you some of the statistics.

I think the stock price today is selling somewhere around book value, so there is nothing excessive in the price of the stock.

As a matter of fact, we think it is very, very cheap and we will certainly look into doing something about it.

Okay.

Thank you so much.

Bill Leach, Neuberger Berman.

Good morning.

As I calculated, your revised guidance implies EPS growth of about 10% for the back half of the year and I was just wondering about your confidence in that guidance because when you read the tone of your press release, you don't sound too optimistic.

Well, we looked at every division that we have and every customer and we came up with the best estimates that we believe that our sales are going to be for the next six months and that is what we reported.

Do you anticipate gross margins being more stable for the balance of the year?

Basically that is what we are looking at.

I think for the first six months, we were at 43% and, of course, we are doing everything possible to get that 43% up, but some of our estimates are based on some of those numbers looking forward.

Thanks a lot.

Mimi Noel, Sidoti & Co.

Hi.

Tom, I thought it was interesting in your prepared remarks at first when you were looking at the gross margin, you were looking at it sequentially versus the May quarter rather than year over year.

Do you think that is the best way to look at the gross margin when looking at projections and that being the case, that there is not as much seasonality to the gross margin as say there used to be?

I think that in our first, second and fourth quarter, the mix of products are approximately the same.

Historically, in our third quarter, we have more health and wellness products, which historically have carried a lower margin.

So I think it is good to look at it both ways.

So I am looking at it both ways, but the third quarter is a little different mix than the first, second and fourth.

Okay.

And your comment was that there is more health and wellness in the November quarter, which is usually dilutive?

Correct.

And then I was also hoping maybe, Gerry, you want to chime in on this.

Looking at the relationship between the decent sales increase, the nearly 10% decline in inventory and the 200 basis point drop in the gross margin, is there anything that I can conclude from that?

I mean was any of the margin erosion calculated to the extent that you were discounting more heavily?

No, none of it because of discounting or dumping a product or anything.

It is all cost of goods.

So all inflationary pressure?

Right.

Okay.

And you mentioned that 4% general price increase to Kathy before.

Could you say that was similar in the August quarter?

No, but the price increases that I give you are -- certainly don't always take effect on one day and nor does it apply to all customers.

But we do have price increases.

Okay.

Then maybe the better question to ask is the potential for benefit from price increases better in November than it was for August or can you not make that generalization?

I would say yes, but I don't know if I can tell you right now until the end of the quarter whether the gross profit will be greater in the third quarter than it was in the first six months because of what is going on with commodity pricing and making our products.

Okay.

But at least in isolation, maybe you have a little bit more of a tailwind with the price increases in the November quarter?

Hopefully.

Okay.

I won't hold you to it.

Just trying to make sure things are --.

We are doing our best.

That's all I have.

Thank you, Gerry.

Thank you, Tom.

Thank you, Mimi.

(OPERATOR INSTRUCTIONS).

John Harloe, Barrow Hanley.

Tell me what the DD&A was in the quarter?

Which --?

Depreciation and amortization.

It was $3.5 million last quarter.

What is it this quarter?

John, just a second.

It is $3.627 million.

Say it again?

Three what?

$3.627 million.

Thank you.

And what would the gross profit margins look like excluding Belson?

As we have stated, Belson has a lower gross profit margin.

We haven't calculated without Belson, but it would be slightly higher.

Belson represented just over $6 million of sales for the quarter.

It would be slightly higher.

And what was Belson's inventory in the quarter?

I am going to say approximately $9 million.

I don't have the exact number in front of me.

Tom, remind me what you told us it was last quarter?

Was it $6.5 million or $7 million or something like that?

I think it was pretty much the same.

It was in the same range.

Belson inventory has not changed significantly.

I can make that statement.

Great.

Thank you very much.

Gary Giblen, Goldsmith & Harris.

Yes, hi.

Can you hear me?

Yes, Gary.

Sorry.

Just wondered what was the gross margin comparison in appliances since that was the relatively stronger segment?

This is Tom Benson.

We don't give out specific gross margins by segment.

Okay.

I mean it's usually available in the Q, but it's not there yet.

Just subjectively, were gross margins favorable?

Are you pleased with gross margins in the appliance division?

The appliance division -- well, the appliance division gross margins were better year over year.

Where in perhaps are you -- were improved year over --?

They were improved year over year.

Good.

All right.

That helps.

Thank you.

Versus the consensus modeling, it looks like the Company guidance is different both on SG&A percentage and gross margins.

I can understand the gross margin part because of the obvious cost pressures and whatnot, but in other words, are you performing where you want to be on SG&A or are there any areas for distinct improvement later in the year on that?

SG&A is performing how we are expecting.

We are expecting cost savings and distribution in freight and we are achieving those.

Our introduction of new products, specifically Bed Head, carries more advertising than our historical lines, but there is -- we are constantly working to lower SG&A as a percentage of sales, but there is no big areas of disappointment for us in there.

Okay.

Will that Bed Head advertising continue for awhile or is that just introductory?

It is going to continue at least through the third quarter.

Okay.

That's very helpful.

Thank you, Tom.

(OPERATOR INSTRUCTIONS).

[Steve Friedman], Wachovia.

Good morning, all.

I think most of my questions have been answered, but just want to repeat.

The cost of goods increased the 210 basis points.

Tom, you mentioned you had raw material costs as part of it.

You said some of the others was -- could you tell me what that is and what the offset is beside price increases?

There is really three components of the cost side.

It's the actual raw material costs going up.

It is the change in exchange rate as Gerry had discussed and it is also just inflation pressures on labor costs from our sourcing partners.

And what we are doing about it is we are doing price increases and those are long negotiations with our retailers and we are working very hard on them.

We are also looking at alternative supply sources and we are working on our internal costs to try to mitigate as much as we can of the cost increases that we are getting.

Did I hear also that the third-quarter product mix is more dilutive or that you feel that your gross margin might -- with the offsets that you are implementing, the gross margin might improve in the third quarter?

What I stated was historically the third quarter has a higher percentage of sales of health and wellness products than the first, second or fourth quarter.

It is more of what I would call a seasonal in and out business and the health and wellness products carry a lower gross margin than our other type of products.

When I talk about health and wellness, those are the spa and massagers and slippers and things like that, foot baths.

Okay.

Can you also just comment how -- you are a month and a half into the third quarter.

How do you see it realizing that a lot of your businesses -- I think you've mentioned just 30 days out -- do you see a move to a good holiday season or are you just being cautious or can you see anything in the third quarter that is positive?

The sales during the third quarter build each month from September, October to November and basically what is happening is the retailers are loading their stores and their warehouses for the busy season, which is basically mid-November through December.

Our September sales were softer than we would like.

October is higher than September at this point and growing.

Really what is happening is the retailers are just loading their stores.

It is really going to come down to the consumer offtake that happens later in the quarter and as that happens, we will continue to get reorders.

So would it maybe be fair to say that the meat or the heart of the third quarter is still yet to be seen?

The second half of the third quarter historically is stronger than the first half.

Okay.

Thank you very much.

John Harloe, Barrow Hanley.

I meant to ask you all if the tax credit, the Hong Kong business, is that a non-cash item?

The $7.9 million that went through the P&L, out of that, we are going to get about $5.5 million cash-free punt.

Okay.

Thanks.

So it is part and parcel.

Matt Sirovich, Scopia Capital.

Hi, guys.

I had a quick follow-up on the taxes as well.

That cash portion of the settlement that you will be receiving, I imagine that is not reflected in your cash balance at August 31, is that right?

That is not in our cash balance.

We expect to receive it in the third quarter.

We haven't received it yet, but we expect over the next six weeks to get it.

Okay.

And the tax asset that you had on your balance sheet will just go away?

That will go away during the third quarter also as we pay what we owe and then we will get refunded the difference.

Can you say, maybe you have already, what your total debt number is at quarter-end?

It is $225 million.

$225 million.

And with the settlement of that Hong Kong tax dispute, would you say that your tax structure and tax rates going forward are fairly stable or are there any other significant tax disputes that you are involved in?

I think our rate is stable.

I think we have open tax disputes with the Internal Revenue Service and we are in multiple taxing jurisdictions.

I am going to say we are in probably 20 taxing jurisdictions and we are subject to audit in all those jurisdictions.

So, as you know, taxes is something that is constantly looked at by outside authorities here.

The areas where we have large operations are the US, our various Latin America companies, Europe and Asia.

So those are the areas I feel that would have the highest exposure and we think Hong Kong, which has been hanging over us, we feel that we have put that to bed.

And in terms of the IRS disputes, can you give any color on the magnitude of those disputes?

Those are disclosed in our Q and they are much lower than the Hong Kong one and the last time we settled the US one, we ended up having a favorable settlement.

Okay.

Last question I have is just on the distribution center.

Would Which you say that all of the distribution center issues are behind you and that is operating exactly how you would have expected it would operate or is there still room for improvement?

I think it is operating the way we projected and yes, there is room for improvement.

Every week, we look at it and try to improve our efficiencies.

The more business we do, the lower the percentage cost of running the warehouses.

So a lot of it is based on sales.

Sales go up and it costs us less to operate the warehouse.

Basically the percentage will go down certainly in the third quarter over what it was in the first and second quarter.

But there is -- every week, we are looking for efficiencies, but basically we are happy with what we have.

All right.

Thanks a lot.

Gary Giblen, Goldsmith & Harris.

Hi, Gerry.

You mentioned that a share repurchase -- a corporate share repurchase is possibly under consideration.

How about what are your feelings about personally buying shares at these depressed levels?

Well, I think it is a good buy.

I think we have thousands of shareholders.

I would like to see them come in and buy.

I always say this -- is the Company the only one that should be buying the Company shares?

If that was the case, you could make a case for why having shareholders.

I think that the shareholders ought to be buying the shares if they want to be shareholders.

Right.

Would a management buyout be something that would be considered at some point in the future or is that totally not on the table?

Well, at these prices, it is something that is on the table.

The ratio to EBITDA versus what our stock price is selling, you all can figure out, is very, very low and it might be the best acquisition Helen of Troy can ever have.

Yes.

I think there's a good case for that.

Okay, thank you for sharing your thoughts.

Thanks.

(OPERATOR INSTRUCTIONS).

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 earnings conference and I look forward to speaking to all of you at the end of the third quarter if not sooner.

Thank you all very much for participating.

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 4986155.

This concludes our conference call for today.

Thank you all for participating and have a nice day.

All parties make disconnect now.