Helen of Troy Ltd (HELE) 2010 Q1 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the Helen of Troy first-quarter conference call for fiscal year 2010.

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 for questions and answers at the end of the presentation.

Our speakers for this morning's 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.

At this time, I would like to turn the call over to Robert Spear.

Please go ahead, sir.

Thank you.

Good morning, everyone, and welcome to Helen of Troy's first-quarter financial results conference call for fiscal year 2010.

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

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

Rubin who will discuss our first-quarter earnings release and related results of operations for Helen of Troy followed by a financial review of our income statement and balance sheet for the quarter by Tom Benson, our Chief Financial Officer.

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 anticipate, believes, expects and other similar words identify forward-looking statements.

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

This conference call may also include information that may be considered non-GAAP financial information.

These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other companies.

The Company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.

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 earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures.

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.

And good morning, everybody.

Helen of Troy today reported first-quarter sales and earnings for the quarter ended May 31, 2009.

First-quarter sales were $144 million versus sales of $145 million in the same period of the prior year, a decline of 0.8%.

First-quarter net earnings were $14,509,000 or $0.47 per fully diluted share compared with a $5,558,000 or $0.18 per fully diluted share for the same period in the prior year, an increase of 161%.

First-quarter net earnings for the prior year included the following significant items net of their related income tax benefit or expense.

There was a non-cash impairment charge of $7.6 million or $0.25 per fully diluted share related to the write down of certain intangible assets; a bad debt charge for uncollectible accounts receivable of $2.5 million or $0.08 per fully diluted share related to a significant customer bankruptcy filing and gains on casualty insurance of $2.6 million or $0.09 per fully diluted share.

Net earnings in the first quarter were $14,509,000 or $0.47 per fully diluted share versus earnings without all the significant items in the prior first quarter of $13 million or $0.42 per fully diluted share, an increase of 11.2%.

First-quarter sales in the houseware segment increased 11% to $42,688,000 compared to $38,472,000 for the same period last year, reflecting continued strength in our OXO brands worldwide.

Sales in the Personal Care segment decreased 5% to $101 million in the first quarter compared to $106,531,000 for the same period last year, primarily reflecting the continuing difficult retail environment and the negative impact of foreign currency fluctuations.

Gross profit for the first quarter was 40.7% compared to 43.5% in the first quarter of the prior year, a decline of 2.8% due mainly to commodity prices, increases that last fiscal year -- from the last fiscal year that continue to cycle through the cost of sales and the negative impact of foreign currency fluctuations.

Gross profit margins improved by 2% compared to the quarter ended February 28, 2009, primarily reflecting the favorable margin impact of Infusium 23 acquisition.

We continue to execute extremely well in our market segments.

We are very pleased that selling, general and administrative expenses for the first quarter declined to $39 million or 27.3% of sales versus $45,595,000 or 31.4% of sales for the first quarter of the prior year, an improvement of 4.1 percentage points.

Operating income before impairment charge in the first quarter increased to $19,187,000 versus $17,426,000 in the prior first quarter, an increase of 10.1%.

EBITDA, the earnings before interest, taxes, depreciation and amortization before share-based compensation and significant items was $23,411,000 for the first quarter versus $22,311,000 for the first quarter of the prior year, an increase of 4.9%.

As of May 31, 2009, Helen of Troy's balance sheet remains strong with cash, cash equivalents and trading securities of $50 million and shareholder equity of $521,722,000.

The book value of the common shares of Helen of Troy stock as of May 31, 2009 was approximately $17.06 per fully diluted share.

We are firmly committed to executing our strategic plan for fiscal 2010.

The economic environment remains challenging.

As a leader in our product categories to our retail partners, we believe we are poised to effectively react to changes in the marketplace as they occur.

We stand ready to take advantage of improvements in the future retail environment.

I would now like to turn over this conference call to Tom Benson, our CFO, who will give us a financial review.

Thank you, Gerry, and good morning, everyone.

In the first quarter, we experienced a year-over-year sales decline of 0.8%, reflecting the impact of foreign currency fluctuations and a difficult macroeconomic conditions on consumer demand offset somewhat by sales from the Ogilvy and Infusium 23 acquisitions.

Gross profit margins declined by 2.8 percentage points year-over-year as a result of foreign currency fluctuations and the impact of commodity prices that peaked in fiscal 2009 but continued to cycle through our inventory.

Selling, general and administrative expense as a percentage of sales improved by 4.1 percentage points year-over-year.

First-quarter net earnings were $14.5 million or $0.47 per fully diluted share compared to $5.6 million or $0.18 per fully diluted share for the same period last year.

Excluding an after-tax charge to bad debt expense, insurance gains and impairment charges recorded in the first quarter of fiscal 2009, first-quarter net earnings improved by $1.5 million or $0.05 per fully diluted share year-over-year.

Please refer to the supplemental schedule to the press release for a conciliation of non-GAAP earnings.

On March 31, 2009, we completed the acquisition of the Infusium 23 business from the Procter & Gamble Company for a purchase price of $60 million funded out of cash on hand.

We began earning royalty income from the OXO brand licensing agreements with Staples, the largest -- the world's largest office product company and UCB, a global pharmaceutical leader.

First-quarter net sales decreased 0.8% year-over-year.

Net sales in the first quarter of fiscal 2010 were $143.9 million compared to $145 million in the prior year quarter.

This is a $1 decrease of $1.1 million or 0.8%.

The net sales decline reflected the impact of the strengthening of the US dollar against other currencies in which we transact sales, which resulted in a decrease to reported US dollar sales of $4.4 million or 3% when compared to the same period last year.

Also the deteriorating global economic conditions on the retail environment impacted our sales.

The decrease was partially offset by the Ogilvy and Infusium 23 acquisitions on March 10, 2008 -- I'm sorry on October 10, 2008 and March 31, 2009, respectively which contributed $1.9 million and $6 million respectively to net sales for the quarter.

Operating income before impairment increased by 10.1% in dollar terms year-over-year.

Operating income before impairment in the first quarter of fiscal 2010 was $19.2 million or 13.3% of net sales compared to $17.4 million or 12% of net sales in the prior year quarter.

This is a $1.8 million increase or 10.1% increase.

The increase in operating income before impairment reflects the impact of improvements in selling, general and administrative expense partially offset by lower net sales and gross profit margin.

First-quarter net earnings increased by $9 million to $14.5 million.

Net earnings for the first quarter of fiscal 2010 was $14.5 million, which is 10.1% of net sales compared to $5.6 million or 3.8% of net sales in the prior year first quarter.

This is an increase of $9 million or 161% increase.

The comparison of the first quarter to the same period last year is impacted by significant items that we do not expect to occur in the normal course of business as detailed in the supplemental schedules to the press release.

In the first quarter of fiscal 2009, we recorded an after-tax bad debt expense of $2.5 million associated with the bankruptcy of Linens-N-Things retail chain.

We also had gains on casualty insurance settlements of $2.6 million net of tax and a non-cash after-tax impairment charges of $7.6 million related to the write down of certain intangible assets in our personal care segment.

Net earnings without significant items in the first quarter of fiscal 2010 was $14.5 million or 10.1% of net sales compared to $13 million or 9% of net sales in the prior year first quarter.

This is an increase of $1.5 million or 11.2%.

First-quarter diluted earnings per share was $0.47 for the first quarter of fiscal 2010 compared to $0.18 for the first quarter of fiscal 2009.

This is an increase of $0.29 or 161.1%.

Excluding the significant items referred to previously, diluted earnings per share was $0.47 in the first quarter of fiscal 2010 compared to $0.42 in the first quarter of fiscal 2009, an increase of $0.05 or 11.9%.

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 hairdryers, flatirons, curling irons, thermal brushes, massagers, spa products, foot baths and electric clippers and trimmers.

Key brands in this category include Revlon, Vidal Sassoon, Bed Head, Toni&Guy, Hot Tools, Dr.

Scholl's, Sunbeam, Gold 'N Hot, Wigo, and Health O Meter.

Grooming, skin and hair care products are included in personal care segment.

Products in this line include liquid hairstyling and treatment products, men's fragrances, men's deodorants, foot powder, body powder and skin care products.

Key brands include Brut, SeaBreeze, SkinMilk, Ammens, Vitalis, Condition 3-in-1, Final Net, Vitapointe, Ogilvie and the recently acquired Infusium 23.

Brushes and accessories are also included in the personal care segment.

Key brands include Revlon, but Al Sassoon, Bed Head, DCNL and Karina.

Personal Care net sales were $101.2 million in the first quarter of fiscal 2010 compared to $106.5 million in the first quarter of fiscal 2009.

This is a decrease of $5.3 million or 5%.

The principal factors contributing to a decrease in sales were the continued deterioration of global macroeconomic conditions and the strengthening of the US dollar against other commodities which we transact sales which reduce consolidated sales by $4.4 million year-over-year, most of which impacts the personal care segment.

The decrease in sales was partially offset by sales of $7.9 million in the quarter associated with the Ogilvie and Infusium 23 acquisitions.

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 $42.7 million in the first quarter of fiscal 2010 compared to $38.5 million in the first quarter of fiscal 2009.

This represents an increase of $4.2 million or 11%.

Sales growth was driven by new products and line extensions, particularly our Good Grips pop line of modular food storage containers and growth with existing customer accounts, as well as customer price increases and improvements in product mix.

Consolidated gross profit in the first quarter was $58.5 million, which is 40.7% of net sales compared to $63 million or 43.5% of net sales in the prior year first quarter.

This is a decrease in dollar terms of $4.5 million or 7.2%.

Gross profit margin as a percentage of sales decreased 2.8 percentage points.

Decline in gross profit is due to a reduction in net sales caused by the fluctuation in foreign currency rates while cost of sales were not significantly impacted because we purchased the majority of our inventory in US dollars and the impact of commodity cost increases from the Far East last year that are still cycling through our inventory.

First-quarter selling, general and administrative expense was $39.3 million, which is 27.3% of net sales compared to $45.6 million or 31.4% of net sales in the first quarter of the prior year.

This is a decrease in dollar terms of $6.3 million, which is a 13.8% decrease in dollar terms.

SG&A as a percentage of sales decreased 4.1 percentage points.

The improvement in SG&A as a percentage of sales is due to lower bad debt expense, foreign currency remeasurement gains, decrease in sales commissions and outbound transportation costs, lower other general and administrative expense as a result of our cost reduction initiatives and lower selling expenses partially offset by the impact of insurance settlement gains recorded in the first quarter of last year.

Interest expense for the first quarter of fiscal 2010 and fiscal 2009 was $3.5 million or 2.4% of net sales.

Income tax expense for the first quarter of fiscal 2010 was $1.7 million compared to $1.6 million in the first quarter of fiscal 2009.

First-quarter income tax expense was 10.3% of pretax earnings compared to 22% effective tax rate in the same quarter last year.

The key reason for a higher tax rate in the first quarter of fiscal 2009 was due to the impairment charges of $7.8 million for which the tax benefit was only $155,000.

As some of you know, President Obama is proposing new international tax legislation and has announced his intention to support other proposals, such as the Stop Tax Haven Abuse Act proposed by Senator Levin and Congressman Doggett.

Similar legislation has been proposed in the past and we are actively monitoring the potential impacts of the proposals individually and in the aggregate in developing our strategy.

It is too early to determine the potential impact on the company, if any, as there are many moving parts and in the definitive direction is not evident at this point.

I will now discuss our financial position.

Our cash, cash equivalents, and trading security balance was $50.1 million at May 31, 2009 compared to $50.3 million at May 31, 2008.

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

Our long-term investment balance was $19.3 million at May 31, 2009 compared to $47.1 million at May 31, 2008.

On January 29, 2009, we repaid in full our -- I'm sorry on June 29, 2009, we repaid in full our $75 million five-year senior notes with a combination of $49 million in cash on hand and a draw of $26 million against our revolving line of credit.

Accounts receivable were $105.2 million at May 31, 2009 compared to $114.6 million at May 31, 2008.

Accounts receivable turnover improved to 68.4 days at May 31, 2009 from 68.5 days at May 31, 2008.

Inventories at May 31, 2009 were $168.3 million compared to $149.7 million at May 31, 2008.

Inventory turnover declined slightly to 2.2 times at May 31, 2009 compared to 2.4 times at May 31, 2008.

Current inventory levels are higher than normal due to lower sales in the third and fourth quarters of fiscal 2009 and it will take a few quarters to get back to more desired levels due to our long sourcing lead time.

Shareholders equity decreased $52.7 million to $521.7 million at May 31, 2009 compared to $574.4 million at May 31, 2008, mostly due to the after-tax impairment charges of $99.1 million recorded in the fourth quarter of fiscal 2009.

During first quarter of fiscal 2010, we purchased and retired 47,648 common shares.

In addition to open market purchases, a key employee tendered [762 519] common shares as payment for the exercise price and related tax obligations arising from the exercise of options.

I will now turn it over to Gerry to open it up for questions.

Thank you, Tom.

Operator, we would like to now open up the conference call to questions.

(Operator Instructions) Gary Giblen.

Good morning, Gerry.

Do you think that the order patterns in general for -- on the kitchenware, so the houseware side are getting better, or just stabilizing?

Well, on the kitchen side, as you just heard, our sales were up 11% and business seems to be very, very strong.

They had a good June just as all of the divisions had actually a good June.

So the OXO brand is very, very strong.

And the retailers are showing increases in the sales even though we lost a major account of Linens-N-Things this past year.

So not only did we make up the loss of those sales, but we've had increases from the other customers.

Okay, great.

And then on private label, it had risen against you -- against your products a few quarters ago, and then it receded.

So what is the status of it now?

Is it on the (technical difficulty) side?

Actually I think in our report last year we were hurt by some companies that did try to go private label, but it's interesting to note that we did pick up some of that business just recently as branded merchandise.

So you are going to see that flow through.

Private label brands in the appliance business is not as significant as you may think.

There are a few retailers that do do it.

Those that do do it have not increased.

Those that tried it out, some of them have failed and have gone back to branded merchandise.

So I don't think that is going to be an issue in the future of private label hurting our sales.

Okay.

Just the reason I had kind of brought it forward from the last call is that Wal-Mart continues to be vocal about increasing their emphasis on private label, and you can see them introducing more knockoffs in -- I mean on the personal care side.

But you are saying it is not affecting your sales either houseware side or personal care side?

You are not seeing more Wal-Mart copycatting?

Well, you mentioned Wal-Mart so I will answer that.

Wal-Mart today does not have one single product in private label in their personal care area.

So that is not of concern.

They did have and they've gone back to national brands.

Okay, so that is still the trend.

Okay.

That's excellent.

Thanks, Gerry.

Doug Lane.

Good morning, everybody.

Can you talk about the license agreements with Staples and UCB?

Does that come through the P&L in the revenue line in the OXO housewares segment?

And how big do you see those particular opportunities?

Well, on the licensing, there was nothing in the last quarter that we booked for licensing fees from UCB and from Staples.

You will start seeing that because they are selling the product now and I know in the UCB product it will be starting in June.

We are the licensee for the UCB Group, and I don't know if I mentioned this last time.

It is for a delivery system for their new Cimzia -- it is a rheumatoid arthritis drug.

And they do pay us a royalty, which I can't disclose.

But we believe that the license for both of these will be in the millions.

And that comes through, Tom, that will come through revenues with 100% margin, or does it come in below the operating line?

Doug, this is Tom Benson.

It will be recorded up in the revenue area.

We do have some cost associated with it.

We spend time and effort helping with the design and other expenses.

But they are not large compared to the revenue.

We've been working on this a couple of years, so we've incurred expenses over a period of time to help get this going.

The sales of both of these products started in May.

So in the quarter we had a very small amount of revenue.

It was not meaningful at all.

So the first quarter that will really have four quarters worth of revenue will be in our second quarter and both of them are just starting off.

So we are hoping they continue to grow and are very successful.

So we don't really know exactly what they are going to end up as.

Well, we have had preliminary numbers, but Doug, just so you know, this is a license agreement with both of these.

We don't report their sales on our books.

They report them on their books.

We only receive a license fee.

So I wanted you to know that if you didn't know.

Right, okay.

I understand.

And on the personal care side, Gerry, can you maybe talk about the one or two areas that are doing particularly well and then one or two that are doing particularly poorly just for some color there?

And how do you view your market shares in that category?

Our business in our Idelle Labs division, which has all our liquid products is increasing, not only is the core business increasing, but the addition of the Ogilvie and the Infusium 23 has added increased sales.

We did not report Infusium 23 sales for the whole quarter because we only owned it for two months out of the three months.

So that is going to increase in the next quarter.

So they are doing very well on their base business also.

I think the general weakness that we do have is really in our European and South American markets and it is really due to the weak economies that they have there and to the adverse foreign exchange rate impact.

I think Tom told you that it would have been $4.4 million better had we not had the exchange rate loss.

So hopefully that is going to stabilize, and we won't have those losses anymore.

But we did -- we have taken a big hit this year based on what the exchange rates were in those foreign countries.

Also, I think our gross profit percentage should start increasing as we see the lower prices that we are getting on product start cycling through the inventory.

And the Ogilvie brand and Infusium 23 that we talked about last time should help increase the gross profit percentages because those percentages, although for their sales, their percentage is larger than our regular business.

So those are two very, positive things that are happening.

Okay.

And can we talk a little bit about the personal care appliance business at retail?

Is your business down there organically, and how is it relative to the overall market?

Actually that is the part of the business that is soft.

I think it is nationwide even with our competitors.

I think it is basically the same.

We have a lot of new products coming up.

We have new planograms at our major retailers that have showed increases over last year.

So hopefully that is going to all show up in the next few quarters.

So even though it is soft now, there is a lot of positives in the personal care business based on, as I said, the planograms and our new products.

Do you think you are getting shelf space there, or is it pretty stable?

I think it is pretty bit stable, basically.

There are a few accounts that we do get a little increase but for the most part it is stable.

Okay.

Thank you.

Rommel Dionisio.

Good morning.

Gerry, a quick question.

I know in the past you've talked about expanded global distribution for OXO.

I wonder if you could just sort of update us on the progress of that.

I know part of that is probably masked by the negative impact of currency, but could you just maybe give us an update on how that is going?

Well, OXO does have distributors throughout the world.

The areas that we have taken over and have our own offices are Japan, and in the UK; we have taken over those operations also.

And we are we going to start selling product under the OXO brand in France also through our office there.

And we are looking at a couple of other different areas to have our own offices.

We currently do have distributors in those areas but when we take over we devote more time and then we count the sales on our books rather than having distributors.

So that geography expansion is still going on.

But as far as OXO is going, they have about 80 to 90 new products coming out.

They are going into new categories that we will announce maybe in the certainly in the next quarter that should help increase their sales.

OXO was just a terrific brand.

It is well known nationally.

We wouldn't have these licenses that we just talked about if it wasn't for the brand equity that we do have.

We are going into other areas and hopefully that is going to increase the sales.

OXO -- I mean, I can't say enough about OXO.

It's just a great brand, known nationally.

You go to women all over the United States or even outside the United States and they all know OXO.

They all have OXO.

They all buy it, and people tell me every week how great the products are and how innovative they are.

So there is more products coming.

Great.

Thanks, Gerry.

Look forward to hearing about it.

Thanks.

Mimi Noel.

Hi, Gerry.

Hi, Tom.

A couple of questions.

First, can you, Tom -- Tom, can you comment on how OXO did in the quarter domestically?

Mimi, we don't split it out between domestic and international, but I can tell you the -- domestically the sales in units grew internationally.

I know sales were down slightly, and that is because of the currency changes year-over-year.

Units were either flat or some growth but the sales dollars were down internationally.

I was more trying to get a fix on the domestic picture anyway and if it were still in positive territory and it sounds like it is.

Yes, overall it is 11% growth and the greatest portion of the sales are US (technical difficulty) or expanding internationally.

Okay and I wanted to ask also -- and Gerry, maybe this is a better question for you -- but within personal care, are you seeing a concentrated weakness in any one of your channels, meaning the mass -- the discount retailers versus the drugs versus grocery for example?

No, not really.

I mean, we are strong in mass and in drug.

Department stores, we for the most part don't sell them, so no, we haven't noticed any difference between the drug sales and the mass sales.

Okay, okay.

And Tom, two more for you.

Looking at fiscal 2009, in which quarter did commodity costs peak?

I would say between the third and fourth quarter.

And we have been working with our suppliers and we are getting some price changes.

But our order lead time is a long lead time, and to get the product in.

So we really haven't enjoyed any changes in prices yet in our inventory.

Okay.

And Gerry, I think in the past you have always been committed to fulfillment.

And that being the case, you wanted to maintain these long lead times.

Is that still the case or insight of raw material cost fluctuations are you thinking about shrinking that lead time at all?

Probably not.

We have an order cycle that we order so many months out, and that will still continue.

As prices drop, we will just take advantage of that.

But we can't anticipate what the future is six months from now, so we basically just buy as we need it.

But our lead times are longer because the products come from Asia.

And there is no way for you to shorten that lead time?

We are working on it.

There are sometimes good times and bad times of how much inventory you have.

You don't know if commodity prices are going to go back up, is oil going back up, is copper going back up?

So we just play it basically month by month.

Okay.

And then the last question I had there for Tom on the balance sheet, as you are flush with cash at year end, can it be assumed that the priority for free cash flow will be to pay down that revolver?

At the quarter end, as we indicated, we had close to $50 million of cash.

And then on June 29, we had a $75 million five-year note that was due.

So we used our cash and we have some borrowings on our revolver.

As we continue to generate cash, we will pay the revolver back.

That is a $50 facility, and we can borrow and pay back as the business needs it.

Okay, $50 million -- all right.

That is all I have.

Thank you very much.

Mimi, I just wanted to mention something about cash flow because you brought it up, something that we don't bring up at every quarterly call -- but how strong the cash flow is from Helen of Troy.

Just in the last few months, we bought Infusium 23.

We paid $60 million.

That was our money.

We didn't borrow anything.

We just paid $50 million on our debt.

We still have a strong balance sheet.

We are accruing cash basically every month, and that is something that we sometimes don't talk about the positive of how strong the cash flow is from Helen of Troy.

Thanks for the reminder.

Thank you, Gerry.

Thank you, Tom.

(Operator Instructions).

We have no further questions at this time.

I would like to turn the conference back to Gerald Rubin for concluding remarks.

Okay.

Thank you all for listening in and participating in our conference call.

And we look forward to having you all listen in and interact with us in the next conference call.

Thank you again.

Ladies and gentlemen, if you wish to access the replay for today's conference, you can do so by dialing toll free 888-203-1112 with replay pass code 4844489.

This does conclude our conference for today.

Thank you for participating.

Have a nice day.

You may now disconnect.