Helen of Troy Ltd (HELE) 2009 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Helen of Troy second-quarter conference call for fiscal 2009.

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 up the conference for questions and answers after the presentation.

Our speakers for this morning's call are Gerald Rubin, Chairman and Chief Executive Officer and President; Thomas Benson, Senior Vice President and Chief Financial Officer; Robert Spear, Senior Vice President and Chief Information Officer.

Now I would like to turn the conference over to your host, Mr.

Robert Spear.

Please go ahead, sir.

Good morning, everyone, and welcome to Helen of Troy's second-quarter financial results conference call for fiscal 2009.

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 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 will open it up for questions and answers for those of you with any further questions.

Safe Harbor.

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 historical or anticipated results.

Generally, the words anticipates, believes, expects, and other similar words identify forward-looking statements.

The Company cautions listeners not to place undue reliance on forward-looking statements.

Forward-looking statements are subject to risks that could cause such statements to differ materially from actual results.

Factors that could cause actual results to differ from those anticipated are described in the Company's Form 10-Q filed with the Securities and Exchange Commission for the year ended February 29, 2008.

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 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.

Thank you, Bob, and good morning to everybody.

Today, Helen of Troy reported results for the second quarter ended August 31, 2008.

Second-quarter sales were $153,543,000 versus sales of $157,924,000 in the same period of the prior year.

Second-quarter net earnings were $10,598,000, or $0.34 per fully diluted share, compared with $18,253,000, or $0.56 per fully-diluted share, for the same period a year earlier.

Last year's second quarter includes the favorable impact of a tax settlement of $7,950,000, or $0.24 per fully-diluted share.

Second-quarter earnings, net earnings were $10,598,000, or $0.34 per fully-diluted share, compared with non-GAAP earnings, which excludes the benefit of the tax settlement of $10,303,000, or $0.32 per fully-diluted share, in the same period, an increase of 6.3% in earnings per fully-diluted share.

If you will note that we did $0.02 better this quarter than last year's same quarter.

Sales for the six months ended August 31, 2008 increased slightly to $298,546,000 versus $298 million for the previous year.

Net earnings for the first half of this year, which includes several significant first-quarter items, were $16,156,000, or $0.52 per fully-diluted share, versus $28,370,000, or $0.88 per fully-diluted share, in the same period of last year.

Excluding the significant first-quarter items, year-to-date non-GAAP earnings were $23,642,000, or $0.76 per fully-diluted share, versus $20,420,000, or $0.64 per fully-diluted share, which excludes the tax settlement in the same period last year, an increase of 18.8% in earnings per fully-diluted share.

Net sales for the Housewares Segment increased 19.6% to $47,134,000 in the second quarter compared with $39,422,000 for the same period last year due to the product line and geographic expansion.

Our OXO brand has continued its growth and leadership position in its retail categories.

Net sales for the Personal Care Segment decreased 10.2% to $106,409,000 in the second quarter compared with $118,502,000 for the same period last year.

Net sales for the Housewares Segment increased 17.6% to $85,606,000 for the six-month period ending August 31, 2008 compared with $72,780,000 for the same period last year.

Net sales for the Personal Care Segment decreased 5.5% to $212,940,000 for the six-month period ending August 31, 2008 compared with $225,314,000 for the same period last year.

The present retail environment continues to remain extremely challenging.

Many of our retail customers continue to experience a slowing sales environment as we enter the critical fall and holiday sales season.

We believe that consumer spending in the mass-market channel is greatly affected by macroeconomic factors including high gasoline prices, tightening credit markets and the ongoing sub-prime crisis.

Despite these challenges, we are pleased with our results in the second quarter.

Our earnings before income taxes increased to $12,124,000 from $11,899,000 in a very difficult marketplace.

And as of August 31, 2008, Helen of Troy balance sheet remains very strong, with cash, temporary investments and long-term investments of $103 million compared to $47 million at August 31, 2007, and stockholder equity of $586 million, an increase of $42 million from the comparable period last year.

Our accounts receivable at quarter end were $116 million compared to $122 million at August 31, 2007.

Our inventory levels at the quarter end were $166 million versus $168 million at August 31, 2007.

The book value of our common stock as of August 31, 2008 was [$18.75] per fully-diluted share.

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

We will continue to execute our business plan by introducing new product offerings, striving for increased market share through channel expansion and product innovation and continuing our effort to increase process efficiencies and reduce related expenses.

Now I will turn (technical difficulty), our CFO.

Thank you, Jerry, and good morning, everyone.

In the second quarter, we experienced a year-over-year sales decline of 2.8%, reflecting the difficult retail environment where many of our retail partners face slowing same-store sales trends.

We experienced sales growth in our housewares and grooming, skincare and hair product businesses, which grew 19.6% and 5.6% respectively compared to the same quarter last year.

This growth was offset by declines in our Personal Care appliance and brush, combs and accessory product categories.

Gross profit margins declined by 0.8 percentage points year-over-year.

Second-quarter selling, general and administrative expense as a percentage of sales improved by 0.6 percentage points year-over-year.

And, we finalized the settlement of the consolidated securities class action lawsuits against the Company and the two officers.

Second-quarter net sales decreased 2.8% year-over-year.

Net sales in the second quarter of fiscal 2009 were $153.5 million compared to $157.9 million in the second quarter of the prior year.

This represents a dollar decrease of $4.4 million, or 2.8%.

Our second-quarter operating income decreased by 4.2% in dollar terms year over year.

Operating income for the second quarter of fiscal 2009 was $14.9 million, which is 9.7% of sales, compared to $15.5 million, or 9.8 % of sales, in the prior-year quarter.

This represents a decrease of $644,000, or 4.2%.

Second-quarter net earnings decreased 41.9% in dollar terms year-over-year.

Net earnings for the second quarter of fiscal 2009 were $10.6 million, or 6.9% of sales, compared to $18.3 million, or 11.6% of sales, in the prior-year quarter.

This is a decrease of $7.7 million, or 41.9%.

The prior-year second quarter included a tax provision reversal related to a tax settlement which provided a benefit of $7.9 million.

Excluding the impact of the settlement from the prior year, net earnings increased 2.9%.

Net earnings before the prior-year tax settlement was $10.3 million, or 6.5% of sales, for the second quarter of fiscal 2008, compared to $10.6, million, or 6.9% of sales, in this year's quarter.

This represents an increase of $295,000, or 2.9%.

Second-quarter diluted earnings per share was $0.34 for the second quarter of fiscal 2009, compared to $0.56 in the prior-year quarter.

This is a decrease of $0.22, or 39.3%.

Excluding the impact of the tax settlement from the second quarter of the prior year, diluted earnings per share increased by 6.3%.

Diluted earnings per share for this year was $0.34 compared to $0.32 in the prior-year quarter, an increase of [2%] (sic -- see press release), or 6.3%.

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

Our Personal Care Segment includes the following product lines.

Appliances; products in this group include hair dryers, 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, Toni&Guy, 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 deodorant, 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 $106.4 million in the second quarter of fiscal 2009, compared to $118.5 million in the prior-year quarter.

This is a decrease of $12.1 million, or 10.2%.

Second-quarter net sales were down in appliances and brushes, combs and accessories, and up in grooming, skincare and hair products year-over-year.

The decrease in Personal Care appliance net sales compared to the same quarter last year was due to a difficult retail environment; the rollout and initial fill shipments of the Bed Head product line in the second quarter of last year, providing a difficult year-over-year comparison; disruptions of business due to a fire in a third-party warehouse in Brazil; a loss of opening price point placement in direct import business with certain retailers due to price increases and product availability issues with certain sourcing partners; a decrease in sales in our health and wellness appliance categories, primarily due to product availability issues; a reduction in amount of inventory held by certain retail partners; and expanded product line offerings by certain competitors and a move by certain customers to replace branded merchandise with private label.

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, storage and organization.

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

The Housewares Segment's net sales were $47.1 million in the second quarter of fiscal 2009 compared to $39.4 million in the second quarter of the prior year.

This represents an increase of $7.7 million, or 19.6%.

The sales increase results from a continued trend of product mix expansion and geographic expansion in the United Kingdom and Japan.

Sales were also positively impacted by the emerging trend of consumers dining and entertaining more at home in the face of an uncertain economy.

Gross profit for the second quarter was $65.1 million, which is 42.4% of sales, compared to $68.2 million, or 43.2% of sales, in the prior-year quarter.

This represents a gross profit percentage decrease of 0.8 percentage points.

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

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

For the second quarter, SG&A expense was $50.3 million, which is 32.8% of sales, compared to $52.7 million, or 33.4% of sales, in the prior-year quarter.

This is a percentage decrease of 0.6 percentage points.

The decrease in selling, general and administrative expense is due to our improved warehouse cost structure, sourcing and engineering cost improvements and lower advertising expenses.

Interest expense for the second quarter of fiscal 2009 was $3.5 million, which is 2.3% of net sales, compared to $3.8 million, which is 2.4% of net sales, in the prior-year quarter.

This represents a decrease of $336,000.

The decrease in interest expense is due to lower amounts of debt outstanding in the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008.

Income tax expense for the second quarter of fiscal 2009 was $1.5 million compared to a $6.4 million benefit in the second quarter of the prior year.

Second-quarter income tax expense was 12.6% of pretax earnings compared to a benefit of 53.4% in the same quarter last year.

The prior-year second quarter included a tax provision reversal related to a tax settlement, which provided a benefit of $7.9 million.

Excluding this item, tax expense for the second quarter of last year was 13.4% of pretax earnings.

I will now discuss our financial position.

Our cash and temporary investment balance was $58.3 million at August 31, 2008, compared to $46.5 million at August 31, 2007.

And we had no borrowings on our $50 million revolving line of credit.

Our long-term investment balance was $45 million at August 31, 2008, compared to zero at August 31, 2007.

Accounts receivable were $116.1 million at August 31, 2008, compared to $122 million at August 31, 2007.

Accounts receivable turnover improved to 69.4 days at August 31, 2008 from 70.7 days at August 31, 2007.

Inventories at August 31, 2008 were $166.4 million, a decrease of $1.9 million from August 31, 2007.

Inventory turnover improved to 2.4 times at August 31, 2008, compared to 2.3 times at August 31, 2007.

Shareholders' equity increased $41.9 million to $586 million at August 31, 2008, compared to August 31, 2007.

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

Thank you, Tom.

Operator, we would like to entertain questions.

Thank you.

The question-and-answer session will be conducted electronically.

(Operator Instructions) Gary Giblen.

Hi.

Good morning, everybody, and good results in the environment we are in.

Just wondering, can you quantify or roughly quantify the Bed Head channel sale that represented extra sales last year, so that we can calculate what the normalized sales percentage was for Personal Care?

I don't have the number available, but as you know, when you do fill pipeline, you do get larger orders when you ship in the merchandise.

But that is true of any introduction that we do, and we have other introductions that we are doing now also.

So that was a good quarter of shipping the Bed Head because it was pipeline fill.

Okay, got it.

And within Personal Care, you mentioned private label.

Now, on the last call, you mentioned that there was beginning to be some private label activity, but perhaps it was ebbing because of retailers or (inaudible) bad experience with private label.

So has the private label presence increased in the last three months?

Yes.

One of our major customers that did go private label and has now reversed some of that, and we will be shipping that product in the third quarter.

Also, one of our major -- another major retailer that did go private label is also in the process of changing to our branded merchandise, because it didn't sell as well as they thought last year.

So that will be coming in the first quarter of next year.

So there are very positive trends where retailers are getting away from private label and going to branded merchandise.

And are we talking primarily appliances here, or is this --?

Primarily appliances, yes.

Okay.

And a couple more.

You mentioned that -- or Tom mentioned lower advertising expense as an SG&A factor.

Was that a purposeful reduction or was that just the comparison working out that way in terms of this quarter versus same quarter a year ago?

Well, it just happened in one of our divisions, Idelle Labs, where we sponsored a car last year.

And we decided that this year that we didn't get our bang for the buck, so we discontinued the sponsorship of the car.

But all of the other advertising is still going on as normal.

Matter of fact, we just have finished a big national advertising program for our Vidal Sassoon Answers, and it was run on -- nationwide in spots, thousands of spots that we put out.

So it is not that we are cutting down on advertising; it is just that if some advertising doesn't work, we cut it out, which is good business, and looking for other ways to spend the money.

Good.

And finally, is the inventory management practices that were mentioned, the retailers and, I guess, destocking and stuff like that, is that appliances or the full line of Personal Care products?

I think it is the full line of Personal Care.

Retailers are not overbuying.

Matter of fact, they are always hesitant to buy, thinking that business is going to be slow.

So I haven't heard any retailer that said they are overstocked on merchandise.

I think it is the reverse.

We have had a couple of accounts that are looking at their inventory to beef it up, because they feel like they don't have enough inventory coming into the fall season.

Okay.

And then there is no SKU reduction that affects Helen of Troy, or we're just talking about days on hand?

There hasn't been any SKU reduction; it is just days on hand, that they go into this temperament of lowering all of their inventory and then they get it too low and then they build it back up.

And I think they are now back into the phase of trying to build it back up for the fall season.

I think some of the retailers that I have talked to have low inventories.

Okay.

Fantastic.

Thanks and good luck in the current quarter.

Thank you, Gary.

Mimi Noel.

Hi, it's Mimi Noel from Sidoti.

Tom, I was wondering if you had available the volume increase in OXO in the quarter.

The overall sales dollar increase was 19.6%.

And it was $7.7 million.

Okay, but the volume increase is what I was looking for.

That will be in the Q that we will file either late today or tomorrow.

Not something you have handy now?

No.

Okay.

And can you elaborate a little bit more on the growth that OXO realized in the quarter, how much of that is from international expansion?

Well, OXO continues to expand internationally.

We actually don't provide the exact percentage, but they are growing greater -- by a greater percentage in both the UK and Japan than their overall growth rate.

Okay.

Is UK and Japan more than 10% of the segment sales?

No, they are not.

Okay.

Can you elaborate a little bit more on the gross margin erosion in the quarter, and perhaps in the context of Belson?

Has that been fully resourced?

Are we seeing the benefits of that now, or is that yet to come?

We've seen some benefit of the Belson resourcing, but it is not completed.

And over time, we expect to get additional benefits.

Okay.

And in your prepared remarks, you mentioned opening price point lines.

Is that low-margin business that you walked away from similar to the prior quarter or is this something different?

Well, opening price point, what we needed to do is due to cost increases we needed to increase some of our selling prices.

And I guess we came to a mutual agreement with our customer that they weren't going to buy from us.

I see.

Last question --.

We don't try to walk away from business; we try to work with our customers.

I understand.

Two questions.

Did you prepay some debt in the quarter?

We did not.

Okay.

And then, I don't know -- I'm sorry --.

Let me just explain that.

$75 million of our debt is due next June, so we re-classed some debt from long-term to short-term.

So maybe that is why you are asking.

I think so, okay.

That is what happened.

Okay.

And then the last one I wanted to ask about -- and maybe this is, Jerry, for you to chime in.

Can you comment on any trends in the Personal Care Segment, particularly appliances, in September?

Well, as you know, our Personal Care Segment was down, but I think in this environment, I think we did very, very well.

We haven't lost any shelf space or any SKUs, and things look very, very positive from some of the major customers that we will have increased SKUs going into the next planograms.

And these planograms will start somewhere around February, April and May.

So we are finishing up that now and what they are going to be handling for next year, and it looks very, very positive for us.

So I am real optimistic that starting in the first quarter we are going to overcome the decreases that we have in the Personal Care Segment.

Okay.

Then is that your commentary regarding September, the last month we just had, subsequent to quarter end?

Well, interesting enough -- and I don't know if it is indicative of the quarter -- but September was a very good month for us.

Okay.

And we are in the first week of October, and hopefully it continues.

Okay, that's helpful.

Thank you.

(Operator Instructions) And if there are no further questions, I would like to turn the conference back over to Mr.

Gerald Rubin to conclude.

Please go ahead, sir.

Well, thank you, everyone, for participating in our second-quarter earnings report, and I look forward to seeing and hearing from all of you and talking to you at our third quarter.

Thank you again.

Also, ladies and gentlemen, if you wish to access the replay of this call, you may do so by dialing 1-888-203-1112.

Again, that number is 1-888-203-1112, with the replay pass code of 9594228.

This concludes our conference for today.

Thank you all for participating.

Have a nice day.

All parties may disconnect.