Helen of Troy Ltd (HELE) 2012 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Helen of Troy first-quarter conference call for fiscal 2012.

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; Brian Grass, Assistant 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 and welcome to Helen of Troy's first-quarter conference call for fiscal 2012.

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

Rubin who will discuss our first-quarter earnings release and related results of operations for Helen of Troy.

Followed by a financial review of our income statement and balance sheet for the quarter by Brian Grass, our Assistant 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 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 also be accessed by selecting the Investor Relations tab on our homepage and then the news tab.

I will now turn the conference over to Mr.

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

Thank you Bob and good morning to everybody and welcome to our first-quarter conference call of fiscal year 2012.

Helen of Troy Limited today reported record first-quarter net sales revenue and record first-quarter net income for the quarter ending May 31, 2011.

Our first-quarter net sales revenue was $271 million versus net sales revenue of $160 million in the same period of the prior-year, an increase of $111 million or 69.5% due largely to the acquisition of Kaz on December 31, 2011.

First-quarter net income was $24.605 million or $0.78 for fully diluted share compared with $18.387 million or $0.59 per fully diluted share for the same period in the prior year, an increase of $6.2 million or 33.8% in net income.

First-quarter net sales revenue in the Personal Care segment increased 9.3% to $122.718 million compared to $112.228 million for the same period last year.

Net sales revenue increased across all major product categories with a corresponding overall improvement in gross profit margin.

First-quarter net sales revenue in the Housewares segment increased 10.5% to $52.946 million compared to $47.925 million for the same period last year.

OXO continued its market-leading position during the first quarter.

The Healthcare/Home Environment segment provided net sales revenue for the first quarter of $95.803 million.

Net sales revenue increased 7.2% in the first quarter when compared to its performance on a pro forma basis for the same period last year prior to its acquisition.

A new thermometer and humidifier product introductions as well as expanded shelf space with a key retail account accounted for the net sales revenue growth.

We continue to execute well across all of our market segments.

During the first quarter our net sales revenue and net income increased in all of our reporting segments.

We are pleased that we were able to deliver record net income for the first quarter in a continuing soft sales environment.

Our operating income in the first quarter was $30.654 million compared to $22.732 million for the same period last year, an increase of 34.8%.

The SG&A expense as a percentage of net revenue decreased by 1.5 percentage points to 29.2% for the 3 months ending May 31, 2011 compared to 30.7% for the same period last year.

And we continue to focus on our cost structure as our integration of Kaz progresses.

We are firmly committed to executing our strategic plan for fiscal year 2012, even if the economic environment remains challenging.

The major components of our strategic plan include the following; Continued growth and expansion of our OXO product lines, continued investment in new product line development and introductions to gain market share, continued sourcing and product cost management initiatives to partially offset expected commodity and inbound transportation cost increases, continued implementation of productivity initiatives to reduce operating expenses, and the pursuit of additional acquisitions of complementary businesses or product lines.

Our first quarter performance lays a solid foundation for the current year.

As the leader in the product categories through our retail partners, we believe we are well-positioned to achieve record net sales revenue and record net income for Helen of Troy in fiscal 2012.

We are reiterating our projection of $3.40 to $3.50 per share earnings for fiscal 2012.

I now would like to turn this conference call over to Brian Grass, our Assistant CFO.

Tom Benson is not feeling well today and will not be joining us.

Thank you Jerry and welcome everyone.

In the first quarter we experienced a year-over-year net sales revenue increase of $111.3 million or 69.5%, primarily reflecting the impact of the Kaz acquisition and the organic growth in the Personal Care and Housewares segment.

Gross profit margin declined by 4.7 percentage points year-over-year due to higher wages and lower margins earned in the Healthcare/Home Environment segment.

First quarter selling, general and administrative expense as a percentage of net sales revenue decreased by 1.5 percentage points compared to the same period last year.

First-quarter net income was $24.6 million compared to $18.4 million for the same period last year.

This represents an increase in net income of $6.2 million or 33.8%.

Earnings per fully diluted share for the first quarter was $0.78 compared to $0.59 for the same period last year, which is an increase of 32.2%.

First-quarter net sales revenue increased 69.5% year-over-year.

Net sales revenue for the first quarter of fiscal '12 was $271.5 million compared to $160.2 million for the first quarter of fiscal '11.

This is an increase of $111.3 million or 69.5%.

The increase in net sales reflects 3 months of incremental sales from the Kaz acquisition, 1 month of incremental sales from the Pert and Sure acquisition completed on March 31, 2010, core business growth of $9 million or 5.6%, and Personal Care and core business growth of $4 million or 3.5% despite a still difficult retail sales environment.

Operating income before impairments for the first quarter of fiscal '12 was $30.7 million or 11.3% of net sales compared to $23.2 million or 14.5% of net sales for the first quarter of fiscal '11.

This is an increase of $7.4 million or 31.9%.

The increase in operating income before impairments primarily reflects the impact of sales growth in the Personal Care and Housewares segments, year-over-year improvement in the gross profit margin of the Personal Care segment, and lower overall SG&A expense as a percentage of sales.

Consolidated operating margins were unfavorably impacted by the seasonal nature of the Healthcare/Home Environment business.

Based on the previous 2 years, the quarterly period ending in May has historically been Kaz's weakest in terms of net sales and operating margins.

We do not expect Kaz's operating results for the quarter ended May 31, 2011 to be reflective of the full-year results for fiscal year 2012.

First quarter net income increased by 33.8%.

Net income for the first quarter of fiscal '12 was $24.6 million or 9.1% of net sales compared to $18.4 million or 11.5% of net sales for the first quarter of fiscal '11.

This is an increase of $6.2 million, or 33.8%.

Diluted earnings per share for the first quarter of fiscal '12 was $0.78 compared to $0.59 for the first quarter of fiscal '11.

This is an increase of $0.19 or 32.2%.

The increase in first-quarter earnings per share is due primarily to sales growth, improvement in gross profit margin in the Personal Care segment, and lower SG&A as a percentage of sales partially offset by higher interest expense.

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

Personal Care segment.

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, Toni and Guy, Brut, Ammens, Infusium 23, Pert Plus and Sure.

Personal Care net sales revenue for the first quarter of fiscal '12 were $122.7 million compared to $112.2 million for the first quarter of fiscal '11.

This is an increase of $10.5 million or 9.3%.

The growth in Personal Care net sales revenue primarily reflects 1 month of incremental sales from the Pert and Sure acquisition and organic growth in the core business.

Housewares segment.

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 tot.

Housewares net sales revenue for the first quarter of fiscal '12 were $52.9 million compared to $47.9 million for the first quarter of fiscal '11.

This is an increase of $5 million or 10.5%.

Sales growth was driven primarily by shipments of the new OXO tot baby and toddler product lines and expanded shelf space for the key retail accounts.

Healthcare/Home Environment segment.

Our Healthcare/Home Environment segment consists of the new Kaz business acquired on December 31, 2010.

Kaz is a world leader in providing a broad range of consumer products in 2 primary product categories consisting of Healthcare and Home Environment.

Kaz markets a number of well-recognized brands including Vicks, Braun, Honeywell, Kaz, Smart-Temp, SoftHeat, Duracraft, Protec, Stinger and Nosquito.

Healthcare/Home Environment net sales revenue for the first quarter was $95.8 million.

This reflects growth of 7.2% when measured on a pro forma basis in comparison to the same period last year prior to the acquisition.

Consolidated gross profit was $109.9 million for the first quarter of fiscal year '12 or 40.5% of net sales compared to $72.4 million or 45.2% of net sales for the first quarter of fiscal '11.

This is a dollar increase of $37.5 million and a 51.8% increase in dollar terms.

As a percentage of sales, this is a 4.7 percentage point decrease.

The decline in gross profit as a percentage of sales is primarily due to the dilutive impact of the Healthcare/Home Environment segment which has historically operated with a lower gross profit margin than those of our other 2 segments.

This decline was partially offset by year-over-year improvement in the gross profit margin of the Personal Care segment.

SG&A expense for the first quarter of fiscal year '12 was $79.3 million or 29.2% of net sales compared to $49.2 million or 30.7% of net sales for the first quarter of fiscal '11.

This is an increase of $30.1 million or a 61.1% increase in dollar terms.

This is a decrease as a percentage of sales of 1.5 percentage points.

The year-over-year decrease in SG&A as a percentage of sales is primarily due to transition service fees incurred in the prior-year first quarter in connection with the acquisition of the Pert Plus and Sure brands, and the impacts of Kaz which operated on lower SG&A expense as a percentage of sales for the first quarter of fiscal '12 and the Company's consolidated SG&A as a percentage of sales for the same period last year.

These decreases were partially offset by higher amortization expense associated with the Kaz acquisition.

Interest expense for the first quarter was $3.4 million or 1.3% of net sales revenue compared to $2.2 million or 1.3% of net sales revenue in the same quarter last year.

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

Income tax expense for the first quarter of fiscal '12 was $2.8 million compared to $2.4 million for the first quarter of fiscal year '11.

First quarter income tax expense was 10.1% of pre-tax earnings compared to an 11.4% effective tax rate in the same quarter last year.

I will now discuss our financial position.

Our cash and cash equivalents balance was $16 million at May 31, 2011 compared to $47.6 million at May 31, 2010.

And we have $53.2 million of borrowings on our $150 million revolving line of credit.

During the quarter we liquidated $3.1 million of long-term investments at par, bringing the balance down to $17.6 million at May 31, 2011 compared to $20.7 million at May 31, 2010.

Receivables were $197.8 million at May 31, 2011 compared to $115.4 million at May 31, 2010.

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

Receivables turnover improved to 63.8 days at May 31, 2011 from 65 days at May 31, 2010.

Inventory at May 31, 2011 was $228.2 million compared to $135 million at May 31, 2010.

The increase in inventory relates primarily to the Kaz acquisition.

Inventory turnover improved to 2.8 times at May 31, 2011 compared to 2.6 times at May 31, 2010.

Stockholder's equity increased $104.8 million to $711.1 million at May 31, 2011 compared to $606.3 million at May 31, 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 reported.

I will now turn it over to Jerry for questions.

Thank you Brian.

Operator, we are now open for questions.

(Operator Instructions) [Gary Giblen, Aegis Capital].

I was wondering, are you seeing any more product overlap and competitive activity for OXO from Cuisinart and Sabatier because Lifetime Brands has mentioned a little bit more product overlap that they are pursuing.

I can't speak for what they are doing.

The shelf space that we have at major retailers is the same as what it has been.

And in certain large retailers, we are gaining more space because of the new products that we are adding.

As I tell everybody, we add somewhere around 120 new products every year.

That was true last year, and it will be true this year.

And we have about 3 years in the pipeline.

So, we are innovative, we design the products and we patent them, and if anybody tries to copy us, we will sue them.

So we are continuing adding new products to our product line.

I didn't mean to say they are copy-catting, but just entering the upscale cutlery and gadget area, or doing more in that area.

But, okay, you're not seeing any change in the competitive environment with OXO?

The competitors that you mentioned have been in the business in there, so it is not new competition for us.

Okay.

And just, in the release it refers to continuing soft sales environment.

So, is the right way for us to understand your perspective there that it is just the same as it was, no longer getting better, but not getting worse either?

Is that a good summary?

Yes, I believe there's a slight improvement.

I know you all read the data and reports from retail outlets throughout the country.

I think it is getting better.

It's not where it was a few years back, but I think there is a slight improvement in the retail sales environment.

Okay, and last quickie is -- what's the latest, best guidance on tax rate?

You came in with a low tax rate, like 10.1%.

I think the people were thinking of like 12% to 13% for the year.

So what is the best number to use for the year in projecting?

I will let Brian answer.

This is Brian Grass.

Our tax rate will range in between 10% and 15% on a quarter-to-quarter basis or an annual basis.

It just depends on shifts in the mix of our income between our various tax jurisdictions.

Okay.

Good to get that update.

Thank you very much.

Lee Giordano, Imperial Capital.

Can you talk about -- well, first of all, were there any 1-time integration expenses in the quarter?

There were very little continuing integration expenses left over from the original integration.

So there were very little expenses -- not meaningful.

Okay, great.

And then on the OXO business, can you talk about the rollout of OXO tot, and how that is trending towards your expectations?

Well, we are making progress.

Some of the products that we didn't deliver in the past 2 quarters are now coming in, and we are delivering those.

We are getting good feedback, and adding new retail outlets to it.

So, it's going to do as we projected.

Great.

And then lastly, can you talk a little bit about the acquisition environment out there?

Are you still seeing a lot of opportunities come across that might look attractive?

I don't know if there is more opportunities; I know there are acquisitions out there.

We, like others, are looking.

Mostly what we see, we don't like.

It's not a question of not affording it or not paying for it, it's just that we just haven't seen anything that we like.

Of course, when you're in the acquisition business you have to see 20 or 30 acquisitions before you find 1 that you like, or even more.

So, what we see is not of the quality that we would like to see right now.

But times change, and hopefully there will be some quality acquisitions out there in the next year.

Thanks a lot.

Rommel Dionisio, Wedbush.

Jerry, I wonder if you could just provide us a little more granularity on the Personal Care business, and the acceleration you saw -- the very nice improvement you saw in that business this quarter.

I know you mentioned it was a broad-based recovery across product lines, but did you boost advertising, or was it aggressively launched new products?

I wonder if we could just maybe talk a little bit more about what's driving the improvement there?

In our Electrical Personal Care business, we have designed, developed, and patented several new products, which we are nationally advertising now.

We do have national distribution.

And starting, I believe, late this week or next week we have a 30-minute infomercial on our new Hollywood Styler that we've been shipping.

So we are looking for continued increases in our Electrical Personal Care business based on the new products that we put out and the national advertising.

Besides national television, we are advertising in magazines and other media to increase the business.

On the liquid business, they are starting to advertise more on the [Infusium] 23, the Pert and the Sure, and doing good things with the Brut.

So, overall, everybody seems to be increasing their business.

I know we've had 4, 5, 6 quarters where we didn't have increases in the Personal Care business, but I think that has come to an end.

You saw it this quarter where we did have positive organic growth, on top of the 1-month extra that we had for Pert and Sure, and we hope that will continue.

So we are very optimistic with all the new things we have in the pipeline.

Great.

Thanks very much.

Steve Friedman, Wells Fargo Advisors.

Good morning, Jerry and Brian, and congratulations on another good quarter.

I have 2 quick questions.

Am I correct in assuming that the Healthcare and Home Environment category includes 100% of Kaz, or the $95.8 million in sales that you did this quarter?

Yes, the new category that we have, called Healthcare/Home Environment, is all Kaz.

We wanted to segregate that out, so we are operating now in 3 different areas -- the Housewares, the Personal Care, and the Healthcare and Home Environment.

Okay.

On a pro forma basis compared to pre-acquisition, are you satisfied with the increase over the first quarter of last year on a pro forma basis?

Are you saying if we didn't own Kaz?

Yes, as compared to when you didn't own Kaz.

Right.

Yes, definitely, as we've been talking about, both the Kaz -- I mean the Household and the Personal Care increased, I think it was like 7.2%.

Yes, that's what I believe you said.

One further question.

The gross margin of 40.5% -- going forward now with the blend with Kaz, is that the margin that you reasonably expect to be going forward?

Yes.

I think that for the next few quarters, I think that's what you can look forward to.

But we are working diligently to get the gross profit on Kaz up to the gross profit that Helen of Troy still enjoys in the other 2 categories of Personal Care and Housewares.

So, hopefully we are going to start seeing some improvement as sourcing improves for the Healthcare and Home Environment segment.

All right.

That answers it.

Thanks so much, Jerry.

Jason Gere, RBC Capital Markets.

I guess going back to the core sales or the organic sales, so in this quarter I think you said that the total Company was in the mid-single-digit range, and arguably on probably the toughest comp of the year.

So based on how you're looking out the back half in terms of how retailers are positioned with inventory, and your innovation and distribution gains, are you comfortable with those trends kind of continuing for the rest of the year?

Or what's your second half of the year outlook in terms of the retail environment, considering that you talked about it is still a softer sales environment?

Jason, our projections and comfort for the second half of the year is very good because in several of our major retailers, they are resetting their planograms this month, and we have increased SKUs on the retailers' shelves.

We are optimistic for this second half of the year.

As always, it's not our fiscal year, but of the calendar year is going to be very, very good for us, and as I mentioned, we have a lot of new products.

We are advertising them, and we have more shelf space.

If all the stars align, we're going to have a very good second half.

Okay.

One housekeeping.

Can you quantify how much currency helped in the quarter?

Yes, currency helped $3.6 million for the quarter.

Okay, and that was all in the Personal Care segment, I assume?

It's a mix between Personal Care and Healthcare/Home Environment.

Okay.

And then, just the last question.

One of the things you talk about is just the productivity initiatives, and we've heard a lot about this in the industry.

I was just wondering who you benchmark yourself to?

Where do you think the long-term opportunity is to get the productivity rates up at Helen of Troy?

Well, I don't know if there is a company that we measure ourselves against.

As I go around the country, most of the companies compare themselves to Helen of Troy, but we are constantly looking to increase our gross profit and our net profit for the Company.

It is something that we do every day, considering the environment that we're living in.

Okay, great.

Thanks a lot, guys.

If there are no further questions, I will turn the conference back to Gerald Rubin to conclude.

I wanted to thank everybody for participating in our first-quarter fiscal-year 2012 conference call, and I look forward to speaking with all of you and have you participate in the second-quarter earnings conference call in the near future.

Thank you all again for participating.

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 4939327.

This concludes our conference call for today.

Thank you for participating, and have a nice day.

All parties may now disconnect.