Helen of Troy Ltd (HELE) 2012 Q2 法說會逐字稿

Ladies and gentlemen, we thank you for your patience today.

Good morning and welcome to the Helen of Troy second-quarter conference call for fiscal year 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 Brian Grass, Vice President and Assistant Chief Financial Officer.

I will now turn the conference over to Brian Grass.

Please go ahead, sir.

Good morning, everyone, and welcome to Helen of Troy's second-quarter conference call for fiscal 2012.

First of all, I want to apologize for the delay; we were having technical difficulties this morning.

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

And finally, an open question-and-answer session for those of you with any further questions.

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

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

Generally the words anticipates, believes, expects and other similar words identify forward-looking statements.

Forward-looking looking statements are subject to risks that could cause 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 will now turn the conference over to Mr.

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

Thank you, Brian, and good morning to everybody and welcome to Helen of Troy's second-quarter report.

Today Helen of Troy reported record net sales, revenue and record net income for the second quarter and six months ended August 31, 2011.

The second-quarter net sales revenue was $277,420,000 versus net sales revenue of $174,823,000 in the same period for the prior year, an increase of $102,600,000 or 58.7% due largely to the acquisition of Kaz, Inc.

on December 31, 2010.

Second-quarter net income was $23,593,000 or $0.74 per fully diluted share compared with $23,473,000 or $0.75 per fully diluted share for the same period last year.

Net sales revenue for the six months ended August 31, 2011 was $548,887,000 versus net sales revenue of $334,976,000 in the same period of the prior year, an increase of $213,911,000 or 63.9% also due largely to the Kaz acquisition.

Net income for the first half of this fiscal year was $48,198,000 or $1.52 per fully diluted share compared with $41,860,000 or $1.34 per fully diluted share for the same period in the prior year, an increase in net income of $6,338,000 or 15.1%.

Net sales revenue for that Housewares segment increased 14.6% to $63,848,000 in the second quarter of fiscal 2012 compared with $55,704,000 for the same period last year.

Net sales revenue for the Personal Care segment decreased 3.2% to $115,296,000 in the second quarter of fiscal 2012 compared with $119,119,000 for the same period last year.

The Company's new Healthcare/Home Environment segment provided net sales revenue for the quarter of $98,276,000, a decrease of 0.8% in the second quarter compared to pro forma pre-acquisition results for the same period last year.

Net sales revenue for the Housewares segment increased 12.7% to $116,794,000 for the six-month period ending August 31, 2011 compared with $103,629,006 for the same period last year.

Net sales revenue for the Personal Care segment increased 2.9% to $238 million for the six months ended August 31, 2011 compared to $231,347,000 for the same period last year.

The home Healthcare/Home Environment segment provided net sales revenue for the six months ended August 31, 2011 of $194 million, an increase of 3% for the six-month period compared to pro forma pre-acquisition results for the same period last year.

We are extremely pleased with our record sales and record earnings for the second quarter and year to date in a difficult retail environment.

Operating income increased by 9.7% and 21.1% for the three- and six-month period ending August 31, 2011.

The integration of Kaz continues to progress well and according to our expectations.

The impact of seasonality on our consolidated results has become more pronounced with the addition of our new Healthcare/Home Environment segment.

We expect that a significant portion of the new segment's operating income will be earned in the last two quarters of the fiscal year.

In September 2011 we reached a tentative agreement to sell our remaining portfolio of $18,900,000 of par value auction rate securities for 96% of par or $18,140,000.

As a result of this tentative agreement a non-operating pre-tax unrealized loss of $756,000 net of related tax affects of $265,000 was recognized in our consolidated condensed statement of income for the quarter ended August 31, 2011.

As of August 31, Helen of Troy's balance sheet remains strong with cash and cash equivalents of $25,138,000, net working capital of $186,677,000 and stockholders' equity of $725,845,000.

And during the second quarter we repaid $53 million in senior debt at maturity.

Domestic and global economic indicators continue to signal a fragile and slow economic recovery.

Despite the difficult macro environment the Company's core strengths remain strong.

We continue to execute our business plan for fiscal 2012.

Our business plan includes investment in new product line development, sourcing and product cost management initiatives to partially offset commodity cost increases, implementation of numerous productivity initiatives and reduced operating expense and continued pursuit of additional acquisitions of complementary businesses or product lines.

We confirm our previously issued fiscal year 2012 which ends February 28, 2012 fully diluted earnings per share guidance of $3.40 to $3.50.

We are confident that we are well positioned to continue to be a leader in serving our retail partners and consumers.

The EBITDA increased from $60.4 million to $75 million for the six months ended August 31, 2011 as compared to the year before.

This is up $14,725,000 or 24%.

And now I would like to turn this conference call over to Tom Benson, our CFO.

Thank you, Jerry, and good morning, everyone.

In the second quarter we experienced a year-over-year net sales revenue increase of $102.6 million or 58.7% primarily reflecting the impact of the Kaz acquisition and 14.6% organic growth in the Housewares segment.

Gross profit margin declined by 5.4 percentage points year over year due primarily to the impact of lower margins earned in the Healthcare/Home Environment segment which is new to our financial results this year, increased product cost and promotional closeout sales in the Housewares segment and greater usage of coupon programs in the Personal Care segment, the redemption cost of which is recorded as a reduction to net sales [revenue].

Second-quarter selling, general and administrative expense as a percentage of net sales revenue decreased by 0.6 percentage points compared to the same period last year.

Second-quarter net income was $23.6 million compared to $23.5 million in the same period last year.

Earnings per fully diluted share for the second quarter were $0.74 compared to $0.75 for the same period last year.

Year-over-year net income and earnings per fully diluted share were unfavorably impacted by an increase in advertising expense of $4.1 million in the Personal Care segment.

This year we are spreading our advertising spending more evenly throughout the year where we had more spending in the second half of the year last year.

In addition, in September 2011 we reached a tentative agreement to sell our remaining portfolio of $18.9 million par value auction rate securities for 96% of par or $18.1 million.

As a result of the agreement an unrealized loss of $760,000 net of related tax effects of $260,000, which recognized in our consolidated condensed statement of income for the quarter ended August 31, 2011.

It had a $0.015 impact on earnings per share for the quarter.

Net sales revenue for the second quarter increased 58.7% year over year.

Second-quarter fiscal 2012 net sales revenue was $277.4 million compared to $174.8 million in the prior year's second quarter.

This is an increase of $102.6 million or 58.7%.

The increase in net sales revenue -- I'm sorry.

The increase in net sales reflects incremental sales from the Kaz acquisition and organic growth in the Housewares segments of $8.1 million or 14.6%.

Operating income for the second quarter of fiscal 2012 was $30.3 million or 10.9% of net sales compared to $27.7 million or 15.8% of net sales in the prior year quarter.

This is a dollar increase of $2.7 million and a percentage increase of 9.7%.

The increase in operating income reflects the impact of the incremental operating income from the Healthcare/Home Environment segment.

Year-over-year operating income was unfavorably impacted by a decline in sales and an increase in advertising expense of $4.1 million in the Personal Care segment.

As previously reported, certain advertising programs were deferred from the second quarter of fiscal 2011 to the third and fourth quarters of fiscal 2011 providing a difficult second-quarter comparison in fiscal 2012.

Second-quarter net income was $23.6 million or 8.5% of net sales compared to $23.5 million or 13.4% of net sales in the prior year quarter.

This is an increase of $120,000 or 0.5%.

Diluted earnings per share in the second quarter of fiscal 2012 was $0.74 per share compared to $0.75 per share in the prior year quarter.

This is a decrease of $0.01 cent per share or 1.3%.

Second-quarter net income and diluted earnings per share were impacted by a sales decline and a $4.1 million increase in advertising expense in the Personal Care segment.

A decline in gross profit margin in the Housewares segment due to product cost increases and the timing of promotional closeout activity that impacted the second fiscal quarter this year compared to the third and fourth fiscal quarters in the prior year.

A non-operating after-tax loss of $500,000 recognized in connection with the September 2011 tentative agreement to sell our remaining portfolio auction rate securities at a 4% discount to par and higher year over year interest and tax expense.

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

Products in our Personal Care segment include hairdryers, straightening irons, curling irons, thermal brushes, massagers, spa products, foot baths, hairbrushes, accessories, liquid haircare and styling products, men's fragrances, men 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&GUY, Brut, Ammens, Infusium 23, Pert Plus and Sure.

Personal Care net sales revenue for the second quarter of fiscal 2012 were $115.3 million compared to $119.1 million in the prior year quarter.

This is a decrease of $3.8 million or 3.2%.

Decline in Personal Care net sales revenue primarily reflects the impact of difficult domestic and international retail sales environments.

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.

Housewares net sales revenue for the second quarter of fiscal 2012 was $63.8 million compared to $55.7 million in the prior year's second quarter, an increase of $8.1 million or 14.6%.

Sales growth was driven primarily by expanded shelf space with a key retail account, shipments of the new OXO Tot baby and toddler product line, and a year-over-year increase in promotional closeout sales that were in the second fiscal quarter this year and the third and fourth fiscal quarters of the prior year.

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

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

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

Healthcare/Home Environment net sales for the second quarter was $98.3 million.

Consolidated gross margin per gross profit for the second quarter was $112.3 million, which is 40.5% of net sales, compared to $80.3 million or 45.9% of gross sales in the prior year -- I'm sorry, of net sales in the prior year quarter.

This is an increase of $32 million; it's a percentage increase in dollar terms of 39.9%.

The gross profit margin as a percentage of net sales decreased 5.4 percentage points.

Decline in gross profit as a percentage of sales is primarily due to the diluted impact of the Healthcare/Home Environment segment, which has historically operated with a lower gross profit margin than our other two segments.

Product cost increases and promotional closeout activity in the Houseware segment and greater use of coupon programs in the Personal Care segment result -- to promote sell-through at retail in the form of advertising in a difficult economic environment.

Selling, general and administrative expense in the second quarter of fiscal 2012 was $81.9 million, which is 29.5% of net sales compared to $52.6 million which is 30.1% of net sales in the prior year quarter.

This is a $1 increase in selling, general and administrative expense of $29.3 million, which is a 55.7% increase in dollar terms.

This is a decrease of 0.6 percentage points year over year as a percentage of sales.

The year over decrease in SG&A as a percentage of sales is primarily due to the impact of Kaz, which operated on lower SG&A expense as a percent of sales for the second quarter of fiscal 2012 then the Company's consolidated SG&A as a percentage of sales for the same period last year.

The overall decrease was partially offset by higher advertising, legal and professional fees and travel and entertainment expenses as well as the unfavorable impact of net foreign exchange gain losses year over year and the comparative impact of the insurance gain recorded in the second quarter of the prior year.

Interest expense for the second quarter was $3.3 million or 1.2% of net sales revenue compared to $2.1 million or 1.2% 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 second quarter of fiscal 2012 was $2.8 million compared to $2.2 million in the prior year quarter.

Second-quarter income tax expense was 10.7% of pre-tax earnings compared to an 8.6% effective tax rate for the same quarter last year.

Fluctuation in our effective tax rate is attributable to shifts in the mix of taxable income earned between various high and low tax rate jurisdictions in which we conduct our business.

I will now discuss our financial position.

Our cash and cash equivalents balance was $25.1 million at August 31, 2011 compared to $49.1 million at August 31, 2010 and we had $105 million of borrowings on our $150 million revolving line of credit.

Subsequent to the end of the quarter we reached an agreement to sell our remaining portfolio of $18.9 million par value auction rate securities for 96% of par or $18.1 million.

Receivables were $200.6 million at August 31, 2011 compared to $122.3 million at August 31, 2010.

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

Receivable turnover improved to 63.5 days at August 31, 2011 from 65.7 days at August 31, 2010.

Inventory at August 31, 2011 was $257.6 million compared to $167.5 million at August 31, 2010.

The increase in inventory relates primarily to the Kaz acquisition.

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

Shareholders' equity increased $98.5 million to $725.8 million at August 31, 2011 compared to $627.4 million at August 31, 2010.

We are progressing with the integration of Kaz with the expectation of realizing estimated synergies in excess of (inaudible) we achieved in the second full year of operation as previously reported.

I'll now turn it over to Jerry for questions.

Thank you, Tom.

Operator, we're open for questions now.

(Operator Instructions).

Jason Gere, RBC Capital Markets.

Just a couple questions.

I guess one, I was just -- obviously there's a lot of concern about the retail environment out there in the US.

I was just wondering if you could talk about maybe the monthly progression you saw in sales June through August and maybe how September is starting to shape up between the OXO line, which is obviously doing very well.

And then you have the Personal Care side, which looks like it's facing a little bit more of the economic malaise.

I'm just wondering if you can give some color on that, please.

Sure, Jason, this is Tom Benson.

In our second fiscal quarter our sales get stronger as the months go on and in essence just because we get closer to the peak holiday season.

So in August we had stronger sales and in June and July it was expected.

Also our Kaz business, as they prepare for some of the seasonal changes, has stronger sales in August and actually they have stronger sales in the third quarter also, so they have some seasonality to their sales.

September we had a very good month.

In our business we do a lot of preparation for the peak holiday season and a lot of load-in, so we have a very good third quarter in sales.

The consumer consumption and purchases -- a lot of it we don't know exactly how it goes until (inaudible) in the January period.

We're very positive about the load-in for the period; we have to see what the consumers take off the shelf.

So then, when you're thinking about organic sales for the back half of the year, obviously you reiterated your guidance to $3.40 to $3.50 and definitely get a sense of the margin side.

But just from a top-line perspective, this quarter I think your organic sales was around 2% or somewhere in that range.

I might have missed what you said on FX.

But are we (multiple speakers) what's that?

(multiple speakers) sales were 2.5% for the quarter.

FX was 2.5%?

Yes.

Okay.

So then organic sales were kind of flattish on, I guess, what was probably the easiest comp of the year.

So as the back half comes in, it sounds like -- are you comfortable with something in that 4% to 5% type of top-line growth organically?

So obviously excluding Kaz.

And what does that say for -- with OXO where obviously the trends have been very strong.

I think he said there was some change in promotional timing versus just the Personal Care side where you're looking at the appliance business where I think that's where it's a little bit more economically sensitive?

Yes, on OXO what we're indicating is they have had a very strong first half; they had 14.6% growth in the second quarter.

Some of that is sales that have been taken out of the third quarter.

So we are not expecting to have as strong growth in the second half of the year for OXO, it's a matter of timing on the promotional sales year over year.

I mean, we have stated on OXO that we're looking at high-single-digits growth for the year on OXO, we're comfortable on that.

On the Personal Care area it's kind of a -- it's a mix.

In our liquids and lotions we continue to do very well.

We are entered into more promotional advertising and things, so -- that we explained as we brought on these new brands over the last couple of years.

The Personal Care appliance area is a little tougher; we are coming out with some very exciting product lines for our Twilight series and stuff.

And we have some exciting lines coming out in Europe.

So we are optimistic, but that's more of a consumer driven business.

People will replace their hairdryers if they break.

We need to bring out the exciting products so we get them to go out and buy new products and features even though their other one is still working and that's what we're working on.

Okay.

And then just the last question on Kaz and I guess talking about the seasonality.

You talked about the pro forma number that was down 1%, so I guess with currency benefits in this quarter it was probably down low single digits.

So I think the last quarter -- on the last conference call we talked about -- I think you said that that Kaz business probably could be one of your faster growing businesses next to OXO, of course.

So if we're talking more mid-single-digits, are you anticipating that when you look at it year-over-year on a pro forma basis that the back half should see something much greater?

Or is that mid-single-digit outlook for Kaz really more low-single-digit until the economy gets a little bit stronger?

I think Kaz is going to -- for the first half Kaz was up 3% on a pro forma basis.

There was some sales that just the customer timing did get pushed to the third quarter in Kaz, and not a huge month but there was some.

So we're expecting better growth in the second half than the first half.

Okay, great.

Thanks.

I'll pass on to the next person in the queue.

Thanks.

(Operator Instructions).

Steve Friedman, Wells Fargo.

I just would like to go over something.

For the six months you're showing $1.52 in earnings per share versus $1.34.

Your guidance you reaffirmed at $3.40 to $3.50 per share.

And that would imply, I guess, you're looking for $1.88 to $1.98 versus the $1.63 in the second half of the year -- or your fiscal year.

That's a nice increase and I guess a lot of it would be seasonal.

But if you are confident you're going to attain $3.40 to $3.50 can you kind of expand a little bit on how you plan to accomplish that or how confident you are of that number?

Yes, Steve, as you just heard, the Kaz business is very seasonal.

The second six months, which we've already finished one month, September, are much better months for Kaz because of the cold season, the humidifiers and the vaporizer business and their thermometers.

So they do much, much better in the second half than they do in the first half.

And the other businesses do better in the second half than the first half.

And, yes, we've charted it out and we feel comfortable at $3.40 to $3.50.

I think it's just a shifting, I know that everybody reads what the analysts project, but I don't think the analysts took into consideration that Kaz is seasonal business.

I think they look what we told them and just divided by four quarters.

And it is a seasonal business and, yes, we will do much better in the second half and hit our numbers of $3.40 to $3.50.

Alright, that answers my question.

Thanks so much, Jerry.

Jeff Matthews, Ram Partners.

I was wondering if I you could talk about sourcing cost issues and labor inflation and trying on -- and where commodity prices look to you these days?

Thank you.

As far as China, labor costs have gone up in the past year, commodity costs have gone up, but right now they either stabilized or dropped -- as you see, oil has dropped.

So there is a balance between the labor cost and the commodity cost.

So for right now -- for the rest of the year we look at -- that the pricing of merchandise will be stable.

And as everybody knows, we've already ordered or have in stock inventory for the next five, six months.

So we already know what the costing is.

And it looks pretty stable now compared to the year before.

And then on Kaz, just wondering -- now that you have some time with it under your belt -- what the biggest variance is versus what you might have expected when you bought it might have been, either positive or negative?

Yes, well, I'm very, very positive on Kaz.

They have some great licenses and with the support of Procter & Gamble they have the [bix] and the brawn and they're looking to expand the licenses into new products and new areas.

So we're very, very optimistic about Kaz.

And we're very happy that we acquired them.

They're a great addition to the Helen of Troy portfolio.

Thank you.

Jason Gere, RBC Capital Markets.

Thanks, it's me again.

I guess just two follow up questions.

One, I was just wondering if you could talk a bit about the inventory level at retail, particularly on the Personal Care side.

And then secondly, if you could talk about obviously your cash position.

I know you guys don't really like to buy back stock.

Did you look kind of at VO5 when it was on the market and can you maybe -- just an update on the M&A environment and where you need to be on the Kaz integration before you guys could come in and make another acquisition like you've done over the last few years?

Thanks.

Jason, this is Tom Benson on the M&A side.

We cannot specifically talk about who we looked at or who we didn't look at.

But what I can tell you is that we are active in the M&A area.

We continue to look for good opportunities.

We're very disciplined in our approach.

And we feel we're still in position where we could take on additional debt to support an acquisition; we're not highly leveraged at all.

We have financial institutions that want to support our fixed acquisition, so we're looking continuously.

And then what about the inventory levels at retail?

This is Jerry; I can address that.

The retailers are watching their inventories very, very closely.

They are not overstocked and in many cases I believe that they're understocked.

Because if you go to some of the retailers a lot of our products or off-the-shelf and we're working with the retailers to get more product on the shelf.

They are running their business and trying to run as lean as they can.

So the good news is they're not overstocked.

They buy what they need.

Our sales reflect what they're selling.

And the retail consumer is going into the stores based on the economy and they're looking for value.

Value products nationally seem to do better than higher priced items.

And that's the area that we sell in.

Almost all of our products are $30 or under and -- as an average.

And so we expect to do very, very well with the placement that we have in the retail stores for the next six months.

Okay, great.

Thank you.

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

Thank you, everyone, for listening in.

I'm sorry we were a little late, but hopefully we answered all your questions.

Thank you for participating and I look forward to talking to all of you when we report our third-quarter earnings.

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 628-4587.

This concludes our conference call for today.

Thank you all for participating and have a nice day.

All parties may now disconnect.