Helen of Troy Ltd (HELE) 2011 Q3 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the Helen of Troy third quarter conference call for fiscal 2011.

At this time I would like to inform you that all participants are in a listen-only mode.

At the request of the Company we will open the conference up for questions and answers after the presentation.

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

I will now turn the conference over to Robert Spear.

Please go ahead, sir.

Good morning, everyone.

Welcome to Helen of Troy's third quarter financial results conference call for fiscal 2011.

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

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

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

Safe Harbor statement.

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

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

Generally the words anticipates, 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 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 will now turn the conference over to Mr.

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

Good morning, everybody, and welcome to our third quarter conference call.

Helen of Troy Limited, designer, developer and worldwide marketer of brand name personal care and household consumer products today reported increases in net sales revenue and net income for the third and nine months ending November 30, 2010.

Third quarter net sales revenue was $205 million versus net sales revenue of $189.399 million in the same period of the prior year, an increase of 8.2%.

Net sales revenue for the nine months ended November 30, 2010, was $540 million versus net sales revenue of $495.465 million for the same period last year, an increase of 9%.

Third quarter net income was $27 million or $0.86 per fully diluted share compared to $24.733 million or $0.80 per fully diluted share for the same period a year earlier, an increase of 9.4% in net income for the quarter.

Net income for the nine months ending November 30, 2010, was $68.923 million or $2.20 per fully diluted share versus $55 million or $1.79 per fully diluted share for the same period a year earlier, an increase of 25% in net income for the nine months ending November 30, 2010.

Net sales revenue in the household segment for the third quarter of fiscal 2011 increased to $58.495 million compared with $55.193 million for the same period last year, an increase of $3.3 million or 6%.

Net sales revenue in the Housewares segment for the nine months ending November 30, 2010, increased to $162 million compared with $148.447 million for the same period last year, an increase of $13.677 million or 9.2%.

Net sales revenue in the Personal Care segment for the third quarter of fiscal 2011 increased to $146.506 million compared with $134.206 million for the same period last year, an increase of $12.3 million or 9.2%.

Net sales revenue in the Personal Care segment for the nine months ending November 30, 2010, increased to $377.853 million compared with $347.018 million for the same period last year, an increase of $30.835 million or 8.9%.

We are very pleased with our operating results for the third quarter and nine months ending November 30, 2010, which we achieved in a continuing difficult retail sales environment.

Our Housewares segment continued its sales growth benefiting from our sales in the dry and wet food storage categories.

Our Personal Care segment continued its sales growth benefiting from our acquisition of the Pert Plus and Sure brands.

We look forward to the future with great optimism as we continue to review and adjust our business activities to address a slowly improving economic environment.

We also continue our focus on targeted expense reductions while striving to increase sales and net income for the coming year.

We believe that our innovative product introductions will be the basis for positioning our Company for continued growth and success.

On December 31, 2010, we completed our previously announced acquisition of Kaz Inc.

which will further diversify and expand our world class consumer brands.

We look forward to the additional annual sales revenue from Kaz of over $400 million and the additional brands that include Vicks, Braun, Honeywell, Stinger, SoftHeat and Kaz.

The new products include vaporizers, humidifiers, digital, infrared and non-invasive thermometers, blood pressure monitors, hot/cold healthcare therapy, air purifiers, seasonal humidifiers, heaters, fans, and dehumidifiers, and lawn and garden products.

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

Thank you, Gerry.

Good morning, everyone.

The third quarter we experienced a year-over-year net sales revenue increase of 8.2% reflecting incremental sales from the Pert & Sure acquisition and continued strength of our OXO brand.

Gross profit margin improved by 1.1 percentage points year-over-year.

Third quarter selling, general, and administrative expense as a percentage of net sales revenue increased by 1.6 percentage points compared to the same period last year, reflecting $5.5 million of incremental advertising investment in support of our recent brand acquisitions.

Third quarter net income was $27.1 million or $0.86 per fully diluted share compared to $24.7 million or $0.80 per fully diluted share for the same period last year.

This represents an increased net income in earnings per fully diluted share of 9.4% and 7.5%, respectively.

On December 31, 2010, we completed an acquisition of Kaz, a provider of a broad range of consumer products in the healthcare and home environment product categories.

Significant products include humidifiers, dehumidifiers, vaporizers, thermometers, air purifiers, fans, portable heaters, heating pads, and electronic mosquito traps.

Kaz brands include Vicks, Braun, Honeywell, Kaz, SmartTemp, SoftHeat, Duracraft, Dunlap, Stinger and Nosquito

Third quarter net sales revenue increased 8.2% year-over-year.

Net sales revenue for the third quarter of fiscal 2011 was $205 million compared to $189.4 million in the prior year third quarter.

This is a dollar increase of $15.6 million or 8.2%.

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

Sales growth was partially offset by declines in our international operations resulting from unfavorable foreign currency fluctuations and weak economic conditions.

Operating income for the third quarter of fiscal 2011 was $31.5 million which is 15.4% of net sales compared to $29.9 million or 15.8% of net sales in the third quarter of fiscal 2010.

This represents an increase of $1.7 million or 5.6%.

The increase in operating income primarily reflects the impact of sales growth and improvements in growth profit margin partially offset by higher selling, general, and administrative expense.

Third quarter net income increased by $2.3 million to $27.1 million.

This is 13.2% of net sales compared to $24.7 million or 13.1% of net sales in the prior year third quarter.

This is a 9.4% increase in net income year-over-year.

The growth in net income reflects an increase in net sales revenue and gross profit margin improvement year-over-year partially offset by higher SG&A expense.

Third quarter diluted earnings per share was $0.86 compared to $0.80 in the prior year third quarter, an increase of $0.06 or 7.5%.

Our third 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, partially offset by higher advertising expense, and an intangible asset amortization from recent acquisitions.

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

Products in our Personal Care segment include hair dryers, straightening irons, curling irons, thermal brushes, massagers, spa products, foot baths, electric clippers and trimmers, hair brushes and accessories, liquid haircare and styling products, shampoos, hair treatments, men's fragrances, men's/women's antiperspirants and deodorants, foot powder, body powder and skincare products.

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

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

Personal Care net sales revenue for the third quarter of fiscal 2011 was $146.5 million compared to $134.2 million in the third quarter fiscal 2010.

This represents an increase of $12.3 million or 9.2%.

The growth in Personal Care net sales revenue reflects incremental sales from the Pert & Sure acquisition, partially offset by a still difficult retail sales environment, particularly in our foreign markets, and the impact of unfavorable foreign currency fluctuations.

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, bar ware, 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.

Housewares net sales in the third quarter fiscal 2011 was $58.5 million compared to $55.2 million in the third quarter fiscal 2010.

This is a sales increase of $3.3 million or 6%.

Sales growth was driven primarily by new product introductions.

The Houseware growth rate has declined compared to recent quarters due to the continued maturity of the segments, domestic markets, and certain delays in new product introductions.

Consolidated gross profit for the third quarter of fiscal 2011 was $92.7 million which is 45.2% of net sales compared to $83.5 million or 44.1% of net sales in the prior year third quarter.

This is a dollar increase of $9.2 million which is an 11% increase in dollar terms and a gross margin improvement of 1.1 percentage points.

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

Selling, general, and administrative expense for the third quarter of fiscal 2011 was $61.2 million which is 29.9% of net sales compared to $53.7 million or 28.3% of net sales in the prior year third quarter.

This is an increase in dollar terms of $7.5 million and an increase in percentage terms of 14.1%.

Selling, general and administrative as a percentage of sales increased 1.6% in the third quarter of fiscal 2011 compared to the third quarter of fiscal 2010.

The increase in SG&A in the third quarter is primarily due to year-over-year increase in advertising expense of $5.5 million, acquisition related costs associated with the Kaz transaction, and higher intangible asset amortization as a result of previous recent acquisitions.

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

Interest expense for the third quarter was $2.081 million or 1% of net sales revenue compared to $2.146 million or 1.1% of net sales revenue in the same quarter last year.

Interest expense for the third quarter of fiscal 2011 was $2.6 million compared to $3.1 million in the prior year third quarter.

Third quarter income tax expense was 8.6% of pretax earnings compared to 11.2% effective tax rate in the same quarter last year.

The decrease in the effective tax rate year-over-year relates primarily to the reversal of a reserve for an uncertain tax position for which the statute of limitations has now expired.

I will now discuss our financial position.

Our cash and cash equivalents balance was $70.6 million at November 30, 2010, compared to $59 million at November 30, 2009, and we had no borrowings on our $50 million revolving line of credit.

Our long-term investment balance was $20.2 million at November 30, 2010, compared to $20.3 million at November 30, 2009.

Accounts receivable were $152.4 million at November 30, 2010, compared to $144.8 million at November 30, 2009.

Receivables turnover improved to 68 days at November 30, 2010, from 70.6 days at November 30, 2009.

Inventory at November 30, 2010, was $152.3 million compared to $129.8 million at November 30, 2009.

Stockholders equity increased $92.5 million to $655.9 million at November 30, 2010, compared to $563.4 million at November 30, 2009.

On December 31, we completed our acquisition of Kaz.

The purchase price was $266 million subject to future adjustments including an adjustment for estimated closing date working capital.

The acquisition was funded with $72 million of cash on hand and $194 million of new financing.

Kaz sales for the next twelve months ending December 31, 2011, are expected to exceed $400 million, and we expect the acquisition to be accretive to Helen of Troy's earnings per share for the fiscal year ending February 29, 2012.

I will now turn it over for questions.

Thank you.

(Operator Instructions).

Our first question is from Doug Lane with Jefferies & Company.

Hi, good morning, everybody.

Staying on the year outlook, previously for fiscal 2011 you had talked about $270 million to $280 million, and that was before you announced Kaz.

So, given probably what's viewed as upside in the November quarter, and then we have the impact of Kaz for a couple of months on the February quarter, is that $270 million to $280 million still in the cards, or will there be some added dilution from Kaz that might impact that number?

Right now, Doug, we're looking at $270 million to $280 million.

Although we will have two months of Kaz, there are a lot of transitional costs, and we've started the synergies, so we do have some up-front costs there, but $270 million to $280 million is what we're looking at.

Okay.

That's helpful.

And then when you announced Kaz, you talked about a [$340 to $350] for 2012.

It doesn't sound like anything's changed, but just if I could ask you specifically, are you still looking in that range for 2012?

No, nothing has changed in that regard either.

Okay.

That's helpful.

Moving to OXO, the OXO Tot launch was in the quarter, so we were probably looking for a little bit more out of OXO than the 6% growth you delivered.

And I wondered if you had an update on OXO Tot, and whether there was some impact from that, or just what was going on to OXO to cause some slowing in the quarter?

Doug, the year before comparisons, OXO was up something like 22%, so they had some big numbers to beat.

For the nine months, OXO has been up 9.2% year-to-date, and so that's what we're looking at.

Mid to high single digits for the year, and been trending at, as I said 9.2%, so that trend should probably continue for the year.

Gerry, are you just qualitatively happy with how Tots rolled out?

Yes.

It has limited distribution.

It is just starting off.

It just has several big customers, and they haven't really rolled out the complete line.

We're all going to the Housewares show this coming March, and OXO, as they usually do each year, will have over 100 new products that they have added, or will be adding for this year to be showing, so there is a lot in the pipeline.

There are literally hundreds of items in the pipeline, but they try to control it by having just about 100 items or more a year, coming out each year.

Okay.

And then lastly on the appliance business, you mentioned the mix shift to the liquids and lotions, and appliances have been somewhat weak for two or three years now.

Can you just dig a little bit into that?

Is it more retail than professional?

Are you losing market share, or do you think the overall industry is declining, and just if you could give us just a couple of comments on the appliance business specifically.

I don't think that our market share is declining.

I think just the market for retail or professional, or and professional, has been soft.

We do everything that we can to promote it, so do our competitors.

But it has been soft for the retailers as far as electrical Personal Care products.

Okay.

And then just lastly on gross margin outlook, you are cautious coming into the quarter.

You delivered gross margin upside.

Are you still cautious looking at gross margin over the next two or three or four quarters, or is there something changed there that has improved the outlook?

As you know, our gross profit for the quarter was 45.2%.

For the year, we're at 45.5% which is very, very close.

For the first two months that we're going to own Kaz, the gross profit will be less because, as we announced before, Kaz does have lower gross margins than Helen of Troy does.

I don't have the exact number where it is going to come out.

Because their business has a lower gross profit, it would affect our gross profit that we have been having for the last nine months.

You were concerned about broader input cost inflation and freight costs, and it looks like you have been able to overcome that just in your core business before you even layer in Kaz.

Has there been an improvement in the cost outlook?

Yes.

Of course, there are costs of all of the products that we buy and freight costs and oil and plastic and copper, but we have been able to hold our own.

I wouldn't look for any increase in this 45% range for the Helen of Troy group, but we're holding our own.

That's helpful.

Thanks, Gerry.

Our next question comes from Jason Gere with RBC Capital Markets.

Thanks.

Good morning.

Just wanted to get some follow-ups with the last set of questions that came out there.

With OXO, Gerry, I think you were mentioning just some things about delays in new products, and the maturing segments.

I look at the 6% on top of 20% as obviously a good run rate, the two year stack continues.

So as we look to 2012, in the past you have been pretty confident about double-digit type of organic sales with OXO.

So I am wondering if your thoughts have changed there?

Can you talk about the innovation outside of the Tot launch, what you're thinking about for 2012, and in terms of from a distribution standpoint, how much more runway is there?

Okay.

For the OXO division, what we're looking for now for next year, because they are having a good year, they're up over 9.2%, we're looking for mid to high single digits.

If it gets to double-digits, I think that would be great.

They do have, as I mentioned, they do have a lot of new products that they're coming out with.

They usually show them at the Housewares show.

Hopefully they are going to get good distribution, which they've always had over the last 15 years.

They've had increases.

So, they're going to do very well with their new products.

The OXO Tots will do well, as soon as they get more distribution, and get all the products out in the field.

And as far as what new products and categories they're coming out with, you will have to wait until the Housewares show because we usually don't announce until the Housewares show to show all the new products.

But rest assured that there are a lot of new products in the pipeline, and they will be showing them.

We're hopeful that they'll have double-digit growth, but right now we're trying to be conservative, and say mid to high single digits, which they are right now at the 9.2%.

And then how much of that mid to high single-digit would be carryover from the Tot launch?

Because again, it was delayed from August to November, and again it's limited distribution, so I am trying to think about the innovation, how that's parceled out next year, and how comfortable you feel with that versus maybe innovation you have driven out in the last couple of years, which has been very, very strong?

As far as the OXO Tots, it is going to be a small part of the 9.2%.

I don't have all the numbers yet because they haven't finished the year yet, but it will be a small part of the 9.2%.

It isn't the whole thing, if that's what you're alluding to.

That's not what's giving us the 9.2% growth.

Okay.

I will just move on.

So from a gross margin standpoint, you are saying just as we look out to 2012, and embedded in that [$340 to $350] obviously is Kaz, which will weigh down on your gross margin.

So for this year, you are saying the 45% is the cap, and then we should expect that kind of maybe initially to pull back into maybe the 43% range or so.

Obviously, you will get more productivity, and you'll improve margins over time, but how it initially plays through because it is a lower margin business, is that a fair way of looking at it?

You're going to hit the 45%, and may pull back, but then hopefully longer term it will exceed that?

As I mentioned several times, Kaz does have a lower gross profit than Helen of Troy.

Helen of Troy, as you see, is in the 45% range for the nine months.

Kaz will bring it down over the next year.

I don't have the exact numbers what it is going to, but it definitely will be down because, as I mentioned, they do work on a lower gross profit.

But that is certainly profit and earnings per share to the Company, and that's how we plan to get our earnings up next year.

And then we'll see as time goes on with the synergies and better sourcing and all the things that we have planned, hopefully we'll get those numbers up again.

So, the bottom line, Kaz will be accretive to our earnings.

Certainly.

And then Tom, just a couple of housekeeping.

You talked about FX being negative.

Can you quantify what the FX is on the top line?

And acquisition of Pert & Sure, I think last quarter was almost $20 million in sales.

What was the contribution this quarter?

It just helps us figure out what the core is doing.

Thanks.

Sure.

The FX impact on the top line was a negative $2.49 million for the quarter.

And Pert & Sure was, $17.6 million was the sales for the quarter.

With Pert & Sure, was there any reason for the run rate to slow a little bit, just with the step up in the advertising that you called out?

And should you expect it to get back up to that $20 million per quarter?

It's just the timing of the benefits of the advertising?

When we had the $20 million last quarter, I cautioned people.

I told people that we had one customer that had been delayed in shipping when we took over that business, and there was some catch up that did happen in the second quarter.

So, $17.5 million for four quarters is right in or above the range that we had talked about for this business, so we're pleased with it.

The $20 million in the quarter was too high for an annual run rate, and I mentioned that last quarter.

Okay.

So going forward, we should pick something in the range like in the third quarter, at least for modeling purposes?

I am sorry, Jason, could you repeat that?

I'm just saying, what you achieved in this November quarter, we should think about going forward?

Yes.

When we had done this acquisition, I believe we announced $65 million, and so this quarter it gets us to $70 million, so that's more of the range.

It is not the $80 million based on last quarter.

Okay, great.

Thanks a lot, guys.

Our next question comes from Gary Giblen with [Afferty].

Hi, good morning.

I wonder if you can elaborate further on what you refer to as targeted expense reductions.

Since Helen of Troy runs a pretty lean ship already, and you've cleaned up distribution, the distribution system in the last year or so, give us some flavor, please, for what kind of targeted expense reductions you have?

Gary, when we announced the Kaz acquisition, we mentioned to people that we felt there was synergy potentials.

We put a number out, a run rate of $10 million, but we said that would not be achieved until the second full year.

So we're working very hard to integrate Kaz and their brands and the different departments.

So it is really, for the next year we're going to be working on bringing the two companies together, and we will get some cost savings out of that.

There will be some initial cost to implement some of these things, as Gerry was mentioning about, we're not expecting any type of meaningful positive or negative impact from Kaz in the first two months for this fourth quarter because we have some transaction costs and transition costs.

Okay.

Do you view Kaz as an efficient cost structure company, and it is just the combination and synergies, or is there core cost structure improvements to be made?

I would say that overall they're an efficient cost structure company, just as Helen of Troy is, but when you put two of them together you end up with some duplication in certain areas.

So it is more coming from duplication and synergies than necessarily pure, just taking costs out because of inefficiency of either company.

Okay.

And are there any special degree of cost reduction opportunities within core Helen of Troy?

We work on that constantly every day around here.

So there is not any big pools that I feel we have not worked on, or haven't taken advantage of.

So, core Helen of Troy does not have meaningful cost savings.

Everything is going to come through the synergies.

That's very helpful.

Thank you.

Thank you, Gary.

(Operator Instructions).

We'll move next to Lee Giordano with Imperial Capital.

Thank you, good morning, everybody.

I had a question on the international business.

I know you highlighted that there was some weakness in the economies internationally.

Maybe you could talk a little bit about where specifically you're seeing that weakness.

And then also, could you highlight what you are seeing here in the US as far as the big picture consumer spending environment?

As you do your own work, and as you talk to your retailers, what are you seeing out there?

Are things improving, getting worse, what's the big picture?

Thanks.

This is Tom Benson.

On the international fronts, the major areas we operate are Canada, Latin America and Europe.

Latin America and Europe have been soft, soft economies, and that has impacted our sales greater than it has in, I will call it the US and Canadian market.

So when we're talking about international, it is really Latin America and Europe that we're feeling the impact of the economy.

Europe we're feeling the impact of the currency, not as much in Latin America.

Gerry will talk about the consumers.

I think this Christmas, everybody that we sold, I think they did well with our products, I can't tell you they did great.

They did well.

After Christmas I think that there is some softness that I see by talking to some of the major retailers.

Of course, it is too early to come to any conclusions because there has been bad weather in different parts of the country.

There's even bad weather coming to the northeast today.

So, we're just cautiously optimistic for the business going forward.

Great, thank you.

(Operator Instructions).

It does look like there are no further questions.

I will turn the conference back to Gerald Rubin to conclude.

Thank you, everybody, for listening into our third quarter conference call.

Our next conference call will be our year end fiscal conference call, and I look forward to everybody calling in then.

Thank you again.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-203-1112, with replay pass code of 6648847.

This concludes our conference call for today.

Thank you for participating, and have a nice day.

All parties may disconnect now.