Helen of Troy Ltd (HELE) 2011 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 2011.

(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 would now like to turn a conference over to Mr.

Robert Spear.

Please go ahead, sir.

Thank you.

Good morning, everyone, and welcome to Helen of Troy's second-quarter financial results conference call for fiscal 2011.

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

We'll have a brief forward-looking statement review, followed by Mr.

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

And finally, we'll open 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 future events or financial performance.

A number of risks or uncertainties could cause actual results to differ materially from historic or anticipated results.

Generally, the words anticipates, believes, expect 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 non-GAAP financial information disclosed by other companies.

The Company cautions listeners to not 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 home page and then the news tab.

I'll 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, and welcome to our second-quarter conference call.

Helen of Troy today reported record net sales, revenue and record net income for the second quarter and six months ended August 31, 2010.

Second-quarter net sales revenue increased 7.8% to $174,823,000 versus net sales revenue of $162,193,000 in the same period of the prior year.

Second-quarter net income increased 47.5% to $23,473,000 or $0.75 per fully diluted share, which is a new record for Helen of Troy compared with $15,911,000 or $0.51 per fully diluted share for the same period a year earlier.

Net sales revenue for the six months ended August 31, 2010, increased 9.4% to $335 million versus $306 million for the same period in the previous year.

Net income for the first half of this fiscal year increased 37.6% to $41,860,000 or $1.34 per fully diluted share, another record for Helen of Troy, versus $30,420,000 or $0.99 per fully diluted share in the same period of last year.

Net sales revenue for the Housewares segment increased 10.2% to $55,704,000 in the second quarter compared with $50,566,000 for the same period last year.

Net sales revenue for the Personal Care segment increased 6.7% to $119 million in the second quarter compared with $111,627,000 for the same period last year.

Net sales revenue for the Housewares segment increased 11.1% to $103,629,000 for the six-month period ended August 31, 2010, compared with $93,254,000 for the same period last year.

Net sales revenue for the Personal Care segment increased 8.7% to $231,347,000 for the six-month period ended August 31, 2010, compared to $212,812,000 for the same period last year.

We are extremely pleased with our record sales and record earnings results for the second quarter and fiscal year to date.

Although the worldwide retail environment continues to be challenging, we continue to have organic sales growth in our Housewares segment, which sells OXO branded goods.

Consolidated gross profit as a percentage of net sales revenue for the first quarter ended August 31 increased 3.4% to 45.9% compared to 42.5% for the same period last year.

Consolidated gross profit margin as a percentage of net sales revenue for the six-months period ended August 31, 2010, increased 4 percentage points to 45.6% compared to 41.6% for the same period last year.

We also benefited from a favorable change in sales revenue mix as grooming, skincare and hair care solution products with comparatively higher margins became a more significant portion of the Company's overall sales revenue.

Our second-quarter earnings per share results reflected improvements in gross profit margin, the accretive impact of recent acquisitions and continued growth in our Housewares segment year-over-year.

In the third quarter we expect flat to declining gross profit margin as compared to the same period last year as a result of increasing inbound freight and commodity costs.

In the third quarter we also expect to incur about $4.5 million of incremental advertising expense year-over-year in support of our newly acquired brands that we purchased over the last two years.

Due to these factors we expect a decline in earnings per fully diluted share for the third quarter of fiscal 2011 as compared to the same period last year.

However, we anticipate year-over-year net sales revenue and net earnings growth in the fourth quarter of fiscal 2011 and we expect earnings per fully diluted share for the fiscal year ending February 28, 2011, to be in the range of $2.70 to $2.80, which would be a record for Helen of Troy.

During the second quarter, the Company repurchased 80,000 shares of its common stock at an average purchase price of $22.49 and the book value of our common stock as of August 31, 2010, was $20.09 per fully diluted share.

EBITDA for the quarter was $32,668,000 versus $25,666,000.

We believe the Company's core strengths remain strong and we continue to execute our business plan for fiscal 2011 as detailed in our fiscal year 2010 annual report.

Our business plan includes new product offerings, striving for increased market share through channel expansion and providing product innovation.

We also continue to pursue further process efficiencies in related selling, G&A expense reductions and we believe we are well positioned as we move into the fall selling season.

I'd now like to the conference call over to Tom Benson, our CFO, for the financial highlights.

Thank you, Gerry, and good morning, everyone.

In the second quarter we experienced a year-over-year net sales revenue increase of 7.8%, reflecting incremental sales from the Pert and Sure acquisition and continued strength of our OXO brand.

Gross profit margin improved by 3.4 percentage points year over year.

Second quarter selling, general and administrative expense as a percentage of net sales revenue increased by 0.4 percentage points compared to the same period last year.

Second quarter net income was $23.5 million or $0.75 per fully diluted share compared to $15.9 million or $0.51 per fully diluted share for the same period last year.

This represents an increase in net income and earnings per fully diluted share of approximately 47%.

Second-quarter net sales revenue increased 7.8% year-over-year.

Net sales revenue for the second quarter of fiscal 2011 was $174.8 million compared to $162.2 million in the prior-year fiscal quarter.

This is an increase of $12.6 million or 7.8%.

The increase in net sales revenue reflects sales from the Pert and Sure acquisition and the continued growth of our Housewares segment.

Sales growth was partially offset by the difficult retail environment and its continuing impact on consumer demand, mostly in our appliance product category.

Operating income before impairment increased by 34% year-over-year.

Operating income before impairment for the second quarter of fiscal 2011 was $27.7 million, which is 15.8% of net sales, compared to $20.6 million or 12.7% of net sales in the prior year fiscal quarter.

This is an increase of $7 million, which is a 34% increase.

The increase in operating income before impairment primarily reflects the impact of sales growth and improvements in gross profit margin, partially offset by higher SG&A expense.

Second quarter net income increased by $7.6 million to $23.5 million, which is 13.4% of net sales, compared to $15.9 million or 9.8% of net sales in the prior-year quarter.

This is an increase of $7.6 million and it's a 47.5% year-over-year increase.

The growth in income reflects an increase in net sales revenue, gross profit margin improvement and the impact of lower interest expense year-over-year, partially offset by slightly higher SG&A expense.

Diluted earnings per share for the second quarter of fiscal 2011 was $0.75 compared to $0.51 in the second quarter of fiscal 2010.

This is an increase of $0.24 per share, which is a 47.1% percentage increase.

Our second-quarter earnings per share reflects improvements in gross margin that began in the second half of fiscal 2010, the accretive impact of acquisitions and growth in our Housewares segment year-over-year.

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

Products in our Personal Care segment includes hairdryers, straightening irons, curling irons, thermal brushes, massagers, spa products, foot baths, electric clippers and trimmers, hairbrushes and accessories, liquid hair care and styling products, shampoo, hair treatment, men's fragrance, men and women's antiperspirants and deodorants, foot powder, body powder, and skin care products.

Key brands in this segment include Revlon, Vidal Sassoon, Bed Head, Hot Tools, Dr.

Scholl's, Brut, Ammens, Infusium 23, Pert Plus and Sure.

Personal Care net sales in the second quarter of fiscal 2011 were $119.1 million compared to $111.6 million in the second quarter of 2010.

This is a $1 increase to $7.5 million, which is a 6.7% increase.

The growth in Personal Care net sales revenue reflects sales from the Pert and Sure acquisition, partially offset by a still difficult retail sales environment.

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, organization and baby feeding, cleaning and bathing.

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

Houseware net sales revenue in the second quarter of fiscal 2011 was $55.7 million compared to $50.6 million in the second quarter of fiscal 2010.

This is an increase of $5.1 million, which is a 10.2% increase.

Sales growth was driven primarily by new product introductions.

Consolidated gross profit for the second quarter of fiscal 2011 was $80.3 million, which is 45.9% of net sales, compared to $68.9 million, which is 42.5% of net sales in the second quarter of fiscal 2010.

This is a $1 increase of $11.4 million and it is a percentage increase in dollar terms of 16.5%.

Gross profit margin as a percentage of sales increased 3.4 percentage points year over year.

The improvement in gross profit is due to the impact of the commodity cost decreases in fiscal 2010 that continues to cycle through our cost of goods sold and a change in sales mix as grooming, skin and hair care solutions with comparatively higher gross profit margins have become a more significant portion of the Company's overall net sales revenue.

Because we began to realize meaningful gross profit improvements in the second half of fiscal 2010, and because of increasing inbound freight and commodity costs being seen in fiscal 2011, we believe gross profit margin will likely be flat to declining year-over-year for the remainder of fiscal 2011.

Selling, general and administrative expense for the second quarter of fiscal 2011 was $52.6 million, which is 30.1% of net sales, compared to $48.3 million, which is 29.7% of net sales in the second quarter of fiscal 2010.

This is a dollar increase of $4.4 million.

It is a percentage increase of 9.1% in dollar terms and it is an increase as a percentage of sales of 0.4 percentage points.

The increase in SG&A in the second quarter is primarily due to a year-over-year increase -- excuse me -- the year-over-year increase in advertising and other selling expenses of $3.6 million and higher intangible asset amortization as a result of recent acquisitions.

We expect the trend of higher SG&A expense to continue through the remainder of fiscal 2011 due to the launch of new Personal Care media advertising campaigns in support of the Pert Plus, Sure and Infusium brands.

Interest expense for the second quarter of fiscal 2011 was $2.1 million or 1.2% of net sales revenue compared to $2.6 million or 1.6% of net sales revenue in the same quarter last year.

The decrease in interest expense is due to lower levels of outstanding debt.

Income tax expense in the second quarter of fiscal 2011 was $2.2 million compared to $1.6 million in the second quarter of fiscal 2010.

Second-quarter income tax expense was 8.6% of pre-tax earnings compared to 9.2% effective tax rate in the same quarter of last year.

I will now discuss our financial position.

Our cash and cash equivalents balance was $49.1 million at August 31, 2010, compared to $12.7 million at August 31, 2009, and we had no borrowings on our $50 million revolving line of credit.

Our long-term investment balance was $20.3 million at August 31, 2010, compared to $20.4 million at August 31, 2009.

Accounts receivable is -- were $122.3 million at August 31, 2010, compared to $116.3 million at August 31, 2009.

Receivable turnover improved to 65.7 days at August 31, 2010, from 67.6 days at August 31, 2009.

Inventory at August 31, 2010 was $167.5 million compared to $154 million at August 31, 2009.

Shareholders equity increased $87.2 million to $627.4 million at August 31, 2010, compared to $540.2 million at August 31, 2009.

I will now make some comments about the expectation for the remainder of fiscal 2011.

In the third quarter, we expect flat to declining gross profit margin as compared to the prior year as a result of an increasing inbound freight and commodity cost.

In the third quarter, we also expect to incur approximately $4.5 million of incremental advertising expense year-over-year in support of our newly acquired brands in the fall selling season.

As a result, we expect a decline in earnings per share for the third quarter of fiscal 2011 as compared to the same period last year.

We expect earnings per fully diluted share growth to resume in the fourth quarter of fiscal 2011 due to year-over-year sales growth and we believe earnings per fully diluted share for the full fiscal year ended February 28, 2011, will be in the range of and $72.80 per share.

I will now turn over to the operator for questions.

(Operator Instructions).

Jason Gere, RBC Capital Markets.

I guess a quick question.

First, I was wondering if you could put a little more color behind OXO, while obviously strong 10% growth, kind of looking at the two-year run rate, there was a little bit of a deceleration.

I was wondering if you could talk a little bit about the top line.

Is full distribution in there, or you got some in August and then the rest comes in November?

And then just on that note, how you're thinking about that business for the rest of the year.

I know the third quarter comes up against a super tough comp; I think it was like 20% last year.

So I was wondering if you could talk maybe a little bit about the organic sales of that business for the rest of the year.

And I have another question afterwards.

We've always said that OXO is growing double-digits, and it did also this quarter, at 10.2%.

I know that last year it grew a little larger, but of course it was always on a smaller base.

As far as the OXO tot, there were minimal shipments in the last quarter.

Shipments started in September and then they will be in the financials for the third quarter.

They have a select number of accounts.

They don't have -- they haven't put it into all the accounts, so there will be just a select number of accounts that they are going to put the OXO tots in.

And we are really excited about that, but sales will not appear until the third quarter.

So with that, though, with the sales coming in September, so obviously in the third quarter, do you remain comfortable that you can continue to grow double digit the rest of the year even though the comparisons are a little bit tougher in the back half of the year than they were in the first out?

Yes, that's what we are estimating.

Okay.

And then just secondly, I'm not sure if you clarified it or not.

How much did acquisitions help Personal Care, or how much did it help the total Company for the quarter?

The acquisitions increased sales just under $20 million for the third quarter.

Okay, and that's for everything, Pert, Sure, Infusium -- I'm not sure if Infusium is part of the -- that's an organic now or not.

Infusium has anniversaried and it's part of organic.

Okay.

And then, with that part, so then when you talk about the appliance business, then the organic trends were down I guess relative to where they were in the first quarter.

I was just wondering if you could put some perspective around that.

Again, the two-year I think looks pretty flat versus maybe the first quarter.

But I was just wondering, can you talk about inventory levels on the appliance side heading into the holiday season?

Are you seeing a little bit of a push-back now on that business, and how are you correcting that and maybe your outlook for the rest of the year?

That's more than one question.

Yes, I know.

On the appliance business, it is soft.

We are cautiously optimistic about the fall season.

We do have good placement; it's just a question of the consumer going to the retail stores and buying our product because we have such great products.

Our inventories are in line for what we project.

We have bought and have received for most part the inventory that we expect to sell over the next three months.

As everybody knows, we keep about five months' worth of inventory.

So we certainly have enough for the next quarter.

And stores are buying conservatively; they are not stocking up, but they do by as they sell and they expect shipments that same day as they sell it.

So as we've always been, we are the warehouse for all these major retailers because we keep the inventory and they don't.

I forgot the other questions you have.

I guess I was just really -- the tie-in is that, when you look to the rest of the year, you have, again, you have some easy comparisons on this note.

I think Personal Care organic was down 11% or 12% in the November quarter.

So do you think that you could finally start to turn the page, that the Personal Care organic sales might turn positive?

Or, do you really have to kind of go about this more conservatively, maybe by the end of the year, you could start to see flattish trends in maybe -- fiscal 2012 is when the organic sales would start to turn positive, albeit obvious on the economy, economic recovery?

In the third quarter, I don't think that we are going to be flat, but I think the decrease will be less than it has been in the last two quarters, and the fourth quarter I guess the same.

But, going in the next year, we're optimistic with the new Plan-o-Grams that they there won't be more decreases, that it will be either flat or increasing on the Personal Care side.

Okay, great.

I'll hop off now and let others ask questions, thanks.

(Operator Instructions).

Mimi Noel, Sidoti & Company.

I apologize if I am repetitive on a question or two; I did have to hop off the line for a second.

Gerry, it's nice to see that you've reinstated your guidance policy, but no comments on the top line.

Can't you give us a little bit of color on that?

Well, on the top-line sales, I think we are projecting increases over the next two quarters, and of course, as you saw in our press release, we are going to have a record year, projecting between $2.70 and $2.80 for earnings per share, so --.

But, you can't tell us the revenue assumptions built into $2.70-$2.80?

No, but -- I think we -- in the last question, Mimi, there was a question about Housewares, and about their growth, and they've had double-digit growth and we are expecting double-digit growth for the full year in Housewares.

Okay.

And as you know, we have the Pert and Sure acquisition, which will be beneficial.

As Gerry discussed, Personal Care area has been tough and he expects it to continue to be tough for the next couple of quarters.

But we are optimistic for the next Plan-o-Gram reset.

And regarding the performance of Personal Care, I think you addressed it, but again, sorry, I had to hop off.

It does look as though the weakness intensified in the August quarter from the May quarter.

Is that a function of year-over-year comparisons, or is there something shifting, and can you verify what the contribution was from acquisitions in the quarter?

Well, I think, Tom already gave that number, and he'll do it again on the acquisition.

I just think it's a factor of what the sales were last year.

As I mentioned, we are optimistic that the sales decrease will be less over the next two quarters than they have been the first two quarters.

Okay.

And, Tom, would you mind providing that number for me again?

The acquisitions were just under $20 million.

They were $19,958,000.

Okay.

What they provided in the quarter of sales.

Okay.

And, Tom, would you give me where your long-term debt stands at now?

We have $131 million of total debt.

$53 million of that is due next June and July.

Okay.

And then the last question, I think, Gerry would be for you regarding the advertising.

What sort of forms of advertising do you plan on using that $4.5 million, or the whole budget?

The $4.5 million is not the budget, it's -- the $4.5 million is the increase over what we spent last year.

Yes, I got you.

And the media that most of the money will go to will be television and with new commercials that we made up, and it also -- for Infusium and for the Pert Plus, and also some print.

But the major part will be television.

Okay, and can you tell me how Idelle has been performing aside from the acquisitions?

Just in general terms is fine.

Well, generally they are getting more strength because we are more important to the retailers.

But some of the core business products that we've had since we started Idelle Labs have decreased somewhat and there will be more money spent in those brands also.

And we hope that there won't -- that the organic business will at least be flat for the year while we have the increase from the Infusium and the Pert Plus and the Sure.

Okay.

That's all I have for now.

Thank you.

Rommel Dionisio, Wedbush Morgan.

Gerry, over the years, over the last couple of years, you've obviously been very successful with new product launches on the Housewares aside.

And just thinking about next year, without getting into too specific details, can you just talk about what your plans are for revitalizing some of the Personal Care business with new product launches, including some of these newly acquired businesses that you have now?

Well, as you know, I'll talk about the OXO first, they have a lot of great products in their pipeline.

They usually introduce a minimum of 100 or more products per year.

And Helen of Troy appliances, we have, between the retail division and our Belson and professional division, we have approximately 100 new products that we are starting to introduce.

So our pipeline for new products is very robust.

And it is more than we've had in the past, but we think that new products do drive the business and we have some innovative new products that we'll be introducing this fall and early next year.

Okay, great.

Thanks, Gerry.

Lee Giordano, Imperial Capital.

Can you talk a little bit more about the integration of Pert Plus and Sure?

I guess what have you learned thus far about those brands, and what do you see for the long-term opportunity for growth there?

I think what we've learned from the acquisitions, we did buy Infusium 23 from Procter & Gamble and then we bought Pert Plus and Sure from Innovative Products out of Phoenix.

But they had purchased them that three years before from P&G.

So basically all these three are P&G brands.

We classify them as neglected brands.

I think they are great brands.

They just did not spend enough money to promote the brand because, as you know, P&G has a lot of shampoo and deodorant brands that they promote, and they just neglected these.

And what we found that by promotion and what we are doing, we are getting increased distribution in some retailers that have not been sold in the last three years, and plus, we strongly believe that the advertising that we are going to spend in the next quarter will solidify the brands and increase our sales going forward.

So we are basically investing in our own brands for the future.

Great.

And then just a second question on the shipping costs.

How long do you see the impact of the higher inbound freight lasting?

Is that going to be a 2011 -- is that going to continue into 2011?

Right now, what we are getting out of the Orient, I don't think it's going to subside any this year.

I think it is what it is, and I talked to other major importers all over the United States, and they have the same problem.

All the shipping companies have gotten together and they basically charge about the same price.

So it's not like you go to one shipping company and it's cheaper than the other shipping company.

All the shipping companies, they may be antitrust in the United States, but in Asia they all kind of got together and decided what price they're going to charge.

So it is what it is, but we are not at a competitive disadvantage.

All our competitors and anybody that imports merchandise from Asia has the same cost increases.

Great.

And then, lastly, just housekeeping -- what was CapEx in the quarter?

I'll give it to you for the year-to-date.

It's $2 million year-to-date.

Great.

Thanks a lot.

Per Ostlund, Jeffries & Company.

I wanted to follow up -- a lot of my questions have been taken, so they are kind of tangents off of a couple of these.

But speaking to the contribution from acquisitions, the $19.9 million or so, is that -- that's basically all Pert and Sure, correct?

Yes, it's all Pert and Sure.

$20 million or so, that seems like a pretty strong number, vis-a-vis $65 million annual expectation.

Is there seasonality to the business that we aren't maybe aware of, or is it just maybe doing a little bit better than you thought?

There is not any meaningful seasonality to the business.

There was at least one customer that we were not able to transition immediately, so there was some catch-up sales to that customer in the second quarter.

I would say the second quarter performed better than our expectations, and we are optimistic going forward.

But I think it's a little early to say it's going to outperform our full-year expectations.

But we had a very good second quarter.

Okay, that's fair.

On the incremental add spend coming up, obviously you've had Infusium in-house for a while and completed the restage there, and so I can understand the timing of going back out with a little bit more aggressive push.

Is the -- assuming that you're going to be putting a lot behind the other new brands as well, is that a sense where you've got a comfort level, having had it in-house a while, that you sort of know what message you want to go out with, even if you don't necessarily have a restage imminently on tap?

You know, we have a great message that we are having in our new commercials that are for the Infusium 23.

We've had it a for a year, we have a solid base; now we need to grow the business.

And so that is where we are going to be spending money on that part.

As far as the Pert Plus, as you just heard, we had a good quarter, probably better than what we expected, and we want that to continue.

And we think by driving the business with advertising that it would be one of our, certainly, our major brands, and hopefully a major bread in the shampoo area.

Okay.

So, we are driving both of those brands.

Okay.

And then I guess I have two housekeeping questions as well.

First, if you would be able to provide the FX impact on the top line, and then secondly, do you have any expectations or anything you can give us as far as tax rate implicit in your $2.70 to $2.80 figure for the year?

The FX impact, we're filing our Q later this morning, so it will be in there.

I don't have it on the top right with me.

So as far as the tax rate, I think the tax rate for the quarter was lower than we anticipate for the whole fiscal year, so I would assume a little higher tax rate.

Okay, great.

Thank you.

Todd Cohen, MTC Advisors.

Just a couple quick questions.

You mentioned you bought back some stock in the quarter, and it looks like you bought stock at a pretty good price.

I was just curious, what's left or open on your buyback?

This is Tom Benson.

We have 1.2 million shares available under our authorized buyback at this time, currently.

Great, and then the book value figure that you gave, was that a tangible book value figure?

That was the total book value, tangible and intangibles.

Okay.

And then on OXO tot, just to clarify, did you indicate on the call that there was none of that business in the second quarter?

There was very small shipments in the second quarter, a couple of hundred thousand dollars, and there will be more shipments in the third quarter, but we have a limited number of customers that we're currently sending that product line to.

Okay.

And then, what is the acquisition environment looking like for you guys?

And might there be any fallout of product from the Alberto Culver acquisition that you might be able to go after, or that might be some more from products within those two companies?

As far as acquisitions, yes, there are a lot of privately held companies that are putting themselves up for sale.

I think a lot of it has to do with either the economy or they believe that the capital gains rate is going to go up next year.

So yes, there are a lot of companies -- not all of them for us, not all of them are good companies.

We are constantly looking, but we found that in the last few months that there has been more acquisitions being shown to us.

As far as Alberto Culver selling to Unilever, truly I don't think that there's anything for us there.

Unilever paid something like 15 times EBITDA.

We don't pay 15 times EBITDA.

We don't pay anything close to 15 times EBITDA.

So I'm sure that they bought those businesses because they want to grow those businesses.

So, no, there's nothing there.

But as time goes on, there are companies that do sell brands.

Not everybody has to sell their whole company, but there always are brands for sale.

And they are brought to us, we look for them, we look at them and we make a decision just as we did with Infusium and Pert Plus and Sure, that if they fit, what we are doing and we can grow the businesses, we are more than happy to buy them.

Great.

Well, good quarter.

(Operator Instructions).

Gary Giblen, Quint, Miller & Co.

Why can't you pass on at least part of the freight cost increase, since everybody is incurring that?

Is it the weakness of the consumer?

No, any cost on new products we pass on in the price that we sell it at.

So we are certainly trying to keep up our gross profit.

We have probably one of the best gross profits and net profits in the industry.

So we are not going to let go of that.

We want to keep that up.

So whatever it takes for us, we are going to try to keep up our profits.

Well, just what I was getting at is that in the earnings release, it says that your gross margins would be comparatively weaker in the coming quarter, so that implies that you are not (inaudible) around the increase.

A big part of that is because of the advertising.

Okay, more.

So that's the bigger piece, more than the freight?

Okay --

And freight and all the other things that are mentioned into the press release.

Okay.

I mean, if the economy were roaring, would you pass on of the gross margin -- not the advertising, but the materials and freight, would that be more readily passed on in price right away, or is there always some --?

As I mentioned, all the new products have the new costs, whatever they are, built into the price that we sell the new products at.

On current products, somewhat, but of course it's always harder to pass on a current product.

Easier to pass on and build it in with the new products.

And as I mentioned, we have a robust amount of products, whether it's OXO or appliance businesses, that we are coming out with.

So the new prices should be built into that, or will be built in.

Okay, I understand.

And then final question is, Wal-Mart publicly indicated they made a big about-face from trying to do more promotional pricing back toward more of an everyday low traditional approach for them.

So did that cause any short-term blips in sales in your category in there?

No.

It hasn't cost us any sales, and of course on the good side, there's the promotional activity that we think that we can get in the future, not only with them but all the major retailers.

Okay.

And then as a sector, the drugstore segment is for several months has had sluggish front-end sales, although that maybe is picking up based on the most recent data point.

But in other words, is that something that affects your numbers, or is it not really present in your segment?

I think you got the right word when you said drugstores are sluggish.

It is sluggish with drugstores.

And hopefully, when more people come back to work, the economy picks up, the drugstores will be much better.

Okay, that's very helpful.

Good luck in the coming quarter.

Stephen (inaudible), [AK] Assets.

I was just hoping to get a little bit of color, as you think longer term in your business, and given your cash flow attributes and your lower sustained tax rate, what the optimized capital structure looks like for Helen of Troy going forward?

Well, the company does cash flow very, very well, and you all can figure it out because of our tax base and because of how much we spend on CapEx.

So our capital base will look good as the years go on.

We are certainly hopeful to use that money to grow the business to increase the earnings per share.

Right, but as far as a targeted debt to EBITDA, there isn't something that have in mind where you look at your business as most efficient?

This is Tom Benson.

I think the higher the leverage, the better return potential.

We are very selective how we employ our capital.

We are looking for good opportunities to employ it, and we feel that we can definitely take on more leverage, but it has to be the right opportunity to do that.

So we are open to increasing our leverage and we feel we have the ability to do that based on our cash flow.

But we want to do it in a smart way.

Right, and maybe given your lack of aggressiveness over the past few quarters as far as stock buybacks, should we assume that you want to keep ample powder dry for some acquisitions that you see out there?

Our preference is acquisition, and we continue to look, but we will also do opportunistic stock buybacks.

As you can see, we did buy back 80,000 shares at the cost, so it was close to $2 million for the quarter, which we have not bought back in about a year or two years.

So we did buy back stock, and that's always one of our priorities, depending on what the price is.

Right, and one more thing.

To be clear, the additional $4 million in advertising expense on this coming quarter, it's specifically for Pert and Sure?

And Infusium.

So the increase, the increase; that's not our total budget.

That's just the --

Right, the incremental dollar amount.

Right.

And was there any incremental advertising expense in the second quarter for these businesses?

There was some incremental advertising expense for Infusium.

We did not spend anything on Pert and Sure in the second quarter.

Right, so without spending any money on Pert and Sure, the brands did $19 million in revenue, which certainly was significantly better than a lot of people were thinking.

So going forward, we have to assume that you are expecting some type of return on your advertising investment, right?

That's correct, but as I mentioned, there was some catch-up sales in the second quarter that I would say were deferred from the transition in the first quarter.

And just as far as quantifying the number, could you?

I don't have it off the top of my head.

It was a meaningful customer that we needed to transition the setup in their system and it took longer than we expected.

But we are moving forward now.

Okay, guys.

Congratulations.

Mimi Noel, Sidoti & Company

Tom, just so we can be painfully clear, if you back out the contribution from acquisitions, it looks like overall, even with consideration of growth in OXO, sales were off about 4.5% organically in this latest quarter.

I just want to make sure I'm not missing anything.

The total core sales were down 4.5%, $7.3 million.

Okay, and the reason why you all are more optimistic for the second half of the year in resumption of growth, can we assume that overall poor sales are going to grow in the second half of the year?

I think we are optimistic on total sales due to our acquisitions, due to our houseware, and that the year-over-year we should have some improvement in core sales.

Okay, okay, but no comment on the second half core sales?

I'm sorry, what was your question?

No comment on the second half for core sales performance?

We are not giving out a specific number, no.

Okay.

And then, Tom, something you said also regarding OXO tot.

You were talking about a limited customer base there.

Is that something that is deliberate, or is that just acknowledgement that the category you can't sell through (inaudible) overlap of your existing retailers?

I think it's getting started.

We are working with selected retailers that are more geared to the baby product retailing.

And a number of our current customers, that is not a category they hold, so it's a smaller potential universe starting out.

Okay.

Is -- are you seeming to suggest that further down the road when you're a little bit more comfortable and it exhausts the distribution with those concentrated retailers, that you could roll out the product to more -- ?

I think in reality, it needs to be rolled out to retailers that sell that category.

Okay.

Okay, and those are the two follow-ups that I had.

Thank you.

Jason Gere, RBC Capital Markets.

I promise this will be quick.

So just with the gross margins, I think in the past conference calls we also talked about the fourth quarter of last year being kind of that peak level and that this year it may not be as high as what you achieved in that fourth quarter last year.

But I guess I wanted to get a little more color just on the flat to down.

I know you do have some tough comps coming up, especially in the fourth quarter.

Can you just kind of flesh out the drivers, especially when you're talking about some of the inbound freight costs there not being able to price?

I just want to kind of look at this model and say, well, should down 50 basis points be the right way of thinking about it when you've got some extremely tough comps coming up in the back half?

Thanks.

Jason, I think you are right on.

I mean, the gross profit margin in the third quarter last year was 44.1%, and in the fourth quarter it was 44.8%.

So that is much closer to the margins we've been running these first two quarters.

And as you know, we've had nice year-over-year increases in the first two quarters and we are not expecting that in the third and fourth quarter, those type of increases over the prior year, but the prior year was much better in the second half than the first half.

It is being driven by commodity costs and freight that are going to be rolling through our cost structure.

We still are going to have very good gross profit margins, but we are not going to see the type of improvement year-over-year that we saw in the first half.

Okay, great, fair enough, thanks a lot.

There are no further questions.

I will now turn the conference back to Mr.

Gerald Rubin to conclude.

Well, thank you, everyone, for listening in and participating in our second quarter conference call.

We are real happy with the results (technical difficulty) this last quarter for the first six months we set record sales and record earnings records.

So I thank you again, and we will all meet and talk again for the third quarter.

Thank you.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-888-203-1112 with replay passcode 343-7643.

(Operator Instructions).

This concludes our conference call for today.

Thank you for participating and have a nice day.

All parties may now disconnect.