Helen of Troy Ltd (HELE) 2011 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to today's Helen of Troy fourth-quarter and year-end conference call for fiscal 2011.

Today's conference is being recorded.

At this time all participants are in a listen-only mode.

A question-and-answer session will follow today's presentation.

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

I will now turn the conference over to Mr.

Spear.

Please go ahead, sir

Good morning everyone and welcome to Helen of Troy's fourth-quarter and year-end conference call for fiscal year 2011.

The agenda for this morning's conference call is as follows -- we will have a brief forward-looking statement of review followed by Mr.

Rubin who will discuss our fourth-quarter and year-end 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 any 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 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 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 base 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

Thank you Bob and good morning to everybody.

Helen of Troy, Limited today reported record fourth quarter net sales revenue and net income, and record net sales revenue and net income for the fiscal year ending February 28, 2011.

Fourth quarter net sales revenue increased 55.8% to $237 million from $152 million in the same period of the prior year.

Fourth-quarter net sales revenue in the housewares segment increased 9.1% to $54.557 million compared to $50 million for the same period last year, demonstrating the continued strength of our OXO brands.

Net sales revenue in the personal care segment increased 11% to $113.362 million in the fourth quarter compared to $102.133 for the same period last year.

Fiscal year net sales revenue increased 20% to $777 million from $647.626 million in the prior fiscal year.

Net sales revenue in the housewares segment for the fiscal year increased 9.2% to $216.681 million compared to $198.475 million for the same period last year.

Net sales revenue in the personal care segment for the fiscal year increased 9.4% of $491.215 million compared to $449.151 million for the same period last year, primarily reflecting the acquisition of the Pert Plus and Sure business on March 31, 2010.

Net income for the fourth quarter was $24.382 million or $0.77 per fully diluted share compared to $16.664 million or $0.54 per fully diluted share in the prior year fourth quarter, an increase in net income of 46.3%.

Net income for the fiscal year was $93.305 million or $2.98 per fully diluted share compared to $71.817 million or $2.32 for fully diluted share in the prior fiscal year, an increase in net income of 29.9%.

We're very pleased with our record fourth quarter and record fiscal year results.

We continue to make progress in achieving our strategic business objectives initiated during the past year.

During the fourth quarter, we completed the acquisition of the Kaz business, giving us entry into exciting new product categories under the well-known and recognized Vics, Braun, and Honeywell names.

Our ongoing efforts to improve our gross profit margin and gain operating efficiencies are reflected in our results for the full year.

We plan to continue to implement the following specific initiatives for fiscal 2012 with the goal of achieving net sales revenue and net income growth, continued growth and expansion of the OXO product lines, continued investment in new product line development and introductions to gain market share, integration and development of our new Kaz business, continued sourcing of product cost management initiatives to offset expected commodity and inbound transportation cost increases, and continued implementation of productivity initiatives to reduce operating expenses.

We are confident that we will continue to be an innovative market leader in serving our retail partners and consumers in the years to come.

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

Thank you Gary and good morning everyone.

On December 31, 2010 we completed the acquisition of Kaz, Inc., 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's brands include Vicks, Braun, Honeywell, Kaz, SmartTemp, SoftHeat, Duracraft, Dunlap, Stinger, and Nosquito.

The Kaz business is a new segment to our business and is referred to as our Health Care Home Environment segment.

Two months of operation for the Health Care Home Environment segment are included in the financial results for the quarter ended February 28, 2011.

In the fourth quarter, we experienced a year-over-year net sales revenue increase of $84.9 million or 55.8%.

Gross profit margin declined by 1 percentage point year-over-year due to the impact of the Kaz acquisition.

Fourth-quarter selling general and administrative expense as a percentage of net sales revenue decreased by 0.8 percentage points compared to the same period last year.

Fourth-quarter net income was $24.4 million or $0.77 per fully diluted share compared to $16.7 million or $0.54 per fully diluted share for the same period last year.

This represents an increase in net income and in earnings per fully diluted share of 46.3% and 42.6% respectively.

Net sales revenue for the fourth quarter of fiscal 2011 was $237.1 million compared to $152.2 million in the prior year fourth quarter.

This is a dollar increase of $84.9 million and a percentage increase of 55.8%.

The increase in net sales revenue reflects 2 months of sales from the Kaz acquisition, 3 months of incremental sales from the Pert and Sure acquisition completed on March 31, 2010, and continued organic growth in our housewares segment, despite the still-difficult retail sales environment.

Operating income before impairments for the fourth quarter, fiscal 2011, was $31.5 million which is 13.3% of net sales, compared to $20.6 million which is 13.5% of net sales in the prior-year quarter.

This represented a dollar increase to $10.9 million and a percentage increase of 53%.

The increase in operating income before impairment primarily reflects the impact of sales growth, improvement in the gross profit margin in the personal care segment year-over-year, and lower overall SG&A expenses as a percentage of sales.

Net income for the fourth quarter of fiscal 2011 was $24.4 million which is 10.3% of net sales compared to $16.7 million which is 11% of net sales in the prior year fourth quarter.

This is a dollar increase of $7.7 million and a percentage increase of 46.3%.

Diluted earnings per share for the fourth quarter of fiscal 2011 was $0.77 compared to $0.54 in the prior-year fourth quarter.

This is a $0.23 increase and it's a percentage increase of 42.6%.

The increase in the fourth quarter earnings per share is primarily due to sales growth, lower SG&A as a percentage of sales, and a lower effective tax rate.

Now I will provide a 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, hair brushes and accessories, liquid hair care and styling products, men's fragrances, men's and women's antiperspirants and deodorants, foot powder, body powder, and skin care products.

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

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

Personal care net sales for the fourth quarter of fiscal 2011 was $113.4 million compared to $102.1 million in the prior year fourth quarter.

This is a dollar increase of $11.3 million and a percentage increase of 11.1%.

The growth in personal care in net sales revenue reflects incremental 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, storage, and organization.

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

Houseware net sales revenue for the fourth quarter of fiscal 2011 was $54.6 million compared to $50 million in the prior-year fourth quarter.

This is a dollar increase of $4.5 million or 9%.

Sales growth was driven primarily by new product introductions.

Our health care home environment segment is new this quarter and consists of the Kaz business.

Kaz is a world leader in providing a broad range of consumer products in 2 primary product categories consisting of health care and home environment.

Kaz markets a number of well-recognized brands including Vics, Ron, Honeywell, Kaz, SmartTemp, SoftHeat, Duracraft, Protec, Stinger, and Nosquito.

Health care home environment net sales revenue for the 2 months since acquisition was $69.2 million.

Consolidated gross profit for the fourth quarter was $103.8 million, which is 43.8% of net sales, compared to $68.2 million, or 44.8% of net sales in the prior year fourth quarter.

This is a dollar increase in gross profit of $35.6 million and a percentage increase in dollar terms up 52.1%.

Gross profit margin as a percentage to sales decreased 1 percentage point.

Decline in gross profit margin is primarily due to the acquisition of Kaz which operates with a lower gross profit margin than our other businesses.

Kaz's diluted impact in gross profit margin was partially offset by the impact of commodity cost decreases in fiscal '10 that continue to cycle through our cost of goods sold and a change in sales mix as grooming, skin, and hair care 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 fourth quarter fiscal 2011 was $72.3 million which is 30.5% of net sales compared to $47.7 million which is 31.3% of net sales in the prior year fourth quarter.

This is a dollar increase of $24.7 million.

It's a percentage increase in SG&A of 51.8% in dollar terms.

As a percentage of sales it is a 0.8 percentage point decrease year over year.

The improvement in SG&A is due to operating leverage gained on higher net sales revenue year-over-year.

Interest expense for the fourth quarter was $3.3 million or 1.4% of net sales revenue compared to $2.1 million or 1.4% of net sales revenue in the same quarter last year.

The increase in interest expense is due to additional debt outstanding associated with the Kaz acquisition.

Income tax expense for the fourth quarter fiscal 2011 was $2.2 million compared to $1.9 million in the fourth quarter of fiscal 2010.

Fourth quarter income tax expense was 8.3% of pretax earnings compared to 10.3% effective tax rate in the same quarter last year.

The decrease in the effective tax rate year-over-year results 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 $27.2 million at February 28, 2011 compared to $110.2 million at February 28, 2010.

And we have $71 million of borrowings on our $150 million revolving line of credit.

Our long-term investment balance was $20.7 million at February 28, 2011 compared to $20.5 million at February 28, 2010.

Accounts receivable were $188.4 million at February 28, 2011 compared to $109.7 million at February 28, 2010.

The increase in receivables is primarily due to the Kaz acquisition.

Receivables turnover improved to 64.7 days at February 28, 2011 from 65.3 days at February 28, 2010.

Inventory at February 28, 2011 was $217.2 million compared to $124 million at February 28, 2010.

The increase in inventory relates primarily to the Kaz acquisition and also the increase in our business as a result of the Pert and Sure acquisition.

Inventory turnover improved to 2.7 times at February 28, 2011 compared to 2.5 times at February 28, 2010.

Stockholders equity increased $101.8 million to $685.5 million on February 28, 2011 compared to $583.8 million at February 28, 2010.

We are progressing with the integration of Kaz with the expectation of realizing estimated synergies in excess of $10 million to be achieved in the second full year of operations as previously disclosed on December 9, 2010.

I'll now open it up for questions

And, ladies and gentlemen, the question-and-answer session will now begin.

(Operator Instructions).

Your question will be addressed in the order in which it is received.

We'll take our first question from Anne Gilpin with Jefferies.

Yes.

Thank you.

Question specifically on the Kaz margin profile.

I know you talked a little bit about your synergy expectations but are the margins -- have those kind of tracked better than you expected and have you noted any early synergy opportunities there?

The margins are in line with our expectations on Kaz.

We are working on the synergies on our sourcing side, and basically we have two different offices in China and over time will work on suppliers or alternative suppliers for the Kaz business.

That's a longer lead time than combining our operations in China.

Great.

And, a question on OXO tot -- can you at all quantify its contribution in the quarter and, if not, could you qualitatively talk about whether it's distribution is meeting your expectation and if there are maybe any manufacturing constraints that have been limiting at all?

The OXO tot line continues to grow and it continues to achieve new placement.

We had good sales in the fourth quarter.

We do have additional products that are going to be coming out under that line for this year.

So, it's a growing line but it's a pretty small line and has small distribution still.

Okay.

We're very proud of it, it has been very successful, but it's not a real large seller.

Okay, great.

Thank you.

If I could just switch real quickly to talk about a little bit about input cost inflation -- we've been seeing that affecting a lot of other companies in this space.

Could you talk about what your expectations are for that heading into next year and, in light of that, how tenable an option are price increases given some of the softness in retail you've commented on.

As we've talked about for years, increased costs are with us and they'll probably continue to be with us forever.

We tried to increase our prices to the retailers where we can.

Otherwise, we increased the price on the new products that we come out with.

It's something that we constantly watch because, as you know, petroleum is going up, the yuan, the RMB exchange rate is changing, other commodity prices are changing also.

So, it's something that we live with and we work with it every day.

Our gross profit -- we did very, very well this past year, increasing to 44.9% from 43%, even with the lower margins that we get from the Kaz operations.

So, it's something that we're aware of and we work on everyday.

Got it.

And, if I could just finish up with a couple housekeeping questions.

First, what was the impairment charge related to in the quarter and, then, secondly, in December, I think you gave an EPS range for f-2012 of $3.40 to $3.50.

Does that still hold?

On the impairment charge, there was a line of products in our houseware area that we decided to no longer support so we wrote off some patents associated with that and wrote down some inventory.

And, then, in our personal care area we did testing on one of our trademarks and we have a small impairment on that.

At this time, on our earnings expectations that we put out in December, we're not doing any update to them so we still have the same earnings expectations.

Great.

Thank you.

We'll go next to Jason Gere with RBC capital markets.

Hi.

Good morning this is actually Joe Spak in for Jason.

A couple of questions -- first, on the quarter, I think there was a little surprise by the good SG&A leverage, and I appreciate the power in the model, but would've expected, and I think you alluded to this, that there would've been some deal transactions transition costs associated with Kaz in the quarter.

So, I was wondering if those did come through and if other spending was held back, or if you cut back on advertising to help offset that higher cost pressure.

Jason, this is Tom Benson some of the -- we did have some transaction costs in the quarter.

We also had some transaction costs in the third quarter because we started working on the Kaz acquisition in the third quarter.

We did not really cut back in any cost.

We had some costs associated to implement some of our synergies that happened in the fourth quarter.

There were some of those costs that were also incurred on Kaz's books before the closing.

There were some changes that were made prior to our closing that would onto Kaz's books instead of on the Helen of Troy's books.

Okay.

Great.

And, then, just on the guidance, and I appreciate that you're holding to the $3.40 to $3.50.

But, you also said that Kaz is delivering in line with what you thought and that was originally $0.30 to $0.40 of accretion.

And, given that you did $3.00 this year, are there other pressures in the rest of the legacy business?

Maybe from some -- obviously there's higher inputs, I know you guys are trying to manage them -- but is it a little worse than expected, so maybe the core gross margins are a little lower that are offsetting that?

Or, how should we think about those factors?

Joe, it's Gerry.

You're right, we do have expectations and certainly working earnings to the bottom line from Kaz, but we do have all these price pressures.

It's something, as I mentioned before on a previous call, that we work on all the time and so we set our expectations and $3.40 to $3.50 and, hopefully, we'll work towards or beating those there.

There is all the headwinds that you have in business today of retailers and suppliers, well, retailers on their sales and suppliers on their costs.

So, hopefully, will be able to beat the expectations.

Okay and, then, just a couple housekeeping, if I could.

Was the Pert and Sure -- is that still around that $17 million run rate for the quarter?

This is Tom Benson.

It was $15.7 million for the quarter.

And, was there an FX impact or benefit for the company this quarter?

FX reduced sale by $541,000.

Okay and last one, if I may.

I think you previously stated that the tax rate next year should be moving higher, because I think you said Kaz had something like a 20% rate.

Is that still accurate?

And, then we should just view the lower tax rate in the back of this year as more one-time?

Our expectations are tax rate is going to go up a little bit with Kaz.

We're working on integrating Kaz, also from a tax standpoint.

But a lot of those things take a fiscal year or so to get in place.

Okay, great.

Thank you.

You're welcome.

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

Thanks.

Good morning.

You mentioned in the release that the domestic retail environment has recently shown improvement.

I was wondering if you could talk a little bit about that and provide some color on what you're seeing out there as far as the consumer?

As far as retail sales, you all certainly know more about it than I do.

You can read all the reports from the retail stores.

Many are doing well, many are not.

I kind of think that the economy is growing but very, very small.

I'm sure it's growing at something like 2% or less.

That somethin,g that we deal with, but we plan on getting our increased revenue profit from all the new products that we're coming out with in all the divisions.

So, we're certainly hopeful that we'll do better than the retailers' average revenues are.

Okay.

And, then, separately on Kaz, can you talk about the seasonality of that business?

How should we think about sales going forward on a quarterly basis this year?

The Kaz seasonality reflects kind of the Helen of Troy seasonality so, there is not a big difference.

Kaz does have different product lines for the different seasons.

The fans and the mosquito traps and stuff and then they go to the heaters and things.

So, they don't get the same gross profit margin on all their different lines of products, so actually, the summertime is a tougher gross profit margin period of time for the Kaz business.

Great, thank you.

Our next question comes from Jeff Matthews with RAM partners.

Thanks very much.

I just wondered on Kaz -- when I go into a Walgreens, for example, it seems that they tend to be using Braun and Vics in some categories as an umbrella for their private label.

A, I wonder if that's accurate and B, what do you do about that, if anything?

Yes.

That's just the way it is.

We have brand names and retailers do stock our brand names.

Not everybody has private labels.

Walgreens and, I guess CVS, are both known for having a lot of private-label brands.

That's the way they run the business and it's been this way for years.

Nothing will change.

But, other retailers, if you go to the major retailers, they only want to stock brand names.

But, the drugstore chain is a little different.

They are the ones that have -- not in just this category, but whether you buy liquid shampoo, creams, or whatnot, you'll find that there's copies that the retailer uses to sell it at lower prices than the brand names.

Sure.

Okay.

And, then if I could just follow-up on that and ask what, in the course of the last few months of owning Kaz, have you found that surprised you, either plus or minus, or you didn't expect?

You know, truly, there hasn't been any surprises.

I think there's more opportunities on sourcing and in the synergies that we are working on all the time.

We think there's a lot of good things that will happen.

We always thought there were.

Now, we think that they're definitely there.

We're working together, Helen of Troy and Kaz for the benefit of Helen of Troy.

So, no unusual surprises.

Great.

Thanks.

(Operator Instructions).

At this time, we'll go next to Steve Friedman with Wells Fargo Advisors.

Good morning, Gerry and Tom and Bob.

Congratulations on a great quarter.

Could you tell me -- you're projecting for 2012 $3.40 to $3.50 and do you have in that model or in that blended gross margin for the acquisition including Kaz?

Steve this is Tom Benson.

When we recorded Kaz, as we announced at that time, Kaz has lowered gross profits on the business in the, I'll call it the legacy Helen of Troy gross profits.

So, we expect that the combined gross profit margins are going to decrease next year.

And, we're not giving out a specific number but there will be a decrease when we have a full year of the Kaz business blended in.

All right.

But, with the modeling you're using, again we're using a historic p multiple in your growth, Gerry, we should be looking at something north of 50 on a stock price.

We're looking forward to that.

And, I know the shareholders are.

Okay, thank you very much.

Thank you.

(Operator Instructions).

And, with no further questions in the queue, I'd like to turn the conference back to Mr.

Rubin to conclude.

And, we do have an additional question in the queue, if you'd like to take it.

Yes, please.

We'll go to Jason Gere for a follow-up.

Hi, this is Joe again.

So, thanks for taking the follow-up.

Just was wondering if you could just give a little bit more color on the trends within personal care.

I know that, that business is still weak and retail is challenged there but can you give us a little color on the break out, maybe between appliances and the lotions business, if you will?

Sure.

This is Tom Benson.

Our personal care core business for the fourth quarter had a decline of 4.4%.

Our overall core business between the housewares and personal care was flat for the quarter.

Both the appliance side and the liquids and lotions were working very hard on new products and significant advertisement on liquids and lotions.

So, our goal is to reduce and change the trends so we have core growth in those areas.

And, things have been improving.

Our domestic core growth in the fourth quarter actually grew.

It's the international that is still very challenging for us.

The international, basically Latin America and Europe, and especially in Europe, the economies are very tough there and the consumer is not really back buying like they were.

So, we see positive trends going on the personal care core and we hope to have very good news as the year goes on.

And, then moving to OXO, I think you previously said mid- to high-single-digit growth.

Is that still what you're comfortable with there?

Yes.

We're still comfortable with that.

Okay.

And, then, one last one.

I know advertising, I think you said it was moving up, obviously this year with the inclusion of Pert/Sure.

But, when we think about the integration of Kaz, does that have below corporate average advertising, or is it in [line-ish]?

Kaz will have below corporate average advertising.

They do a lot of their -- they do certain advertising with the customers.

They do not do a lot of general trade and media advertising.

Our business where we do the most significant portion of that is our liquids and lotions business and we have much smaller percentages in our appliance area, in our Kaz area.

With our licensed products, we do get the benefit of advertising, brand advertising, and that -- some of the advertising really comes through our royalty expense that we pay.

Okay.

So, it's fair to say that there could be a little bit of a -- on a percent of sales basis, a benefit from getting Kaz into the mix.

On SG&A, there could be a little benefit, yes.

Okay.

Thanks a lot.

Okay.

We do have another follow-up question.

We'll go to Jeff Matthews.

Hi.

Thanks.

I just wondered if you could talk about the cost increases coming out of China and whether those are affecting any of your future plans in terms of sourcing or are likely to affect them in the next few years?

You know, the major purchasing that we do is in Asia, primarily in China, and, although, we've looked at other countries to make our products, it's just not feasible.

For certain commodities, yes, you could make in Brazil, or Latin America, or in India.

But, for our electrical products, no, we need to make them in China .

But, on the other hand, so do our competitors.

We're not at a disadvantage.

Prices go up, they go up for everybody.

And prices -- just as you see in the United States with gasoline or food, retailers do raise the prices.

There is a trend in the United States for higher prices because of the cost of goods going up.

Again, I said it before, it's just something we live with every day, it has been going on for years, costs worldwide aid will go up.

It's just something we have to live

Thanks.

Okay.

Thank you.

And, with no further questions in the queue, I'd like to turn the conference back to Mr.

Rubin for any additional remarks .

Thank you to everyone for participating in today's conference call for our fourth quarter and year-end results.

As you all know, we did have -- this was our best year in our history and we hopefully look forward to more increases in the coming year.

We'll have our next conference call after our first quarter earnings come out.

Thank you, again.

Ladies and gentlemen that does conclude today's conference.

If you would like to access the replay for today's call, you may do so by dialing 888-203-1112 with replay pass code of 8172329.

This concludes today's conference.

Thank you all for your participation.