Helen of Troy Ltd (HELE) 2012 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Helen of Troy fourth quarter and year-end 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; Thomas Benson, Senior Vice President and Chief Financial Officer; and John Boomer, Senior Vice President.

I will now turn the conference over to Mr.

John Boomer.

Please go ahead, stir.

Good morning, everyone, and welcome to Helen of Troy's fourth quarter and year-end 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 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 fourth quarter and year-end 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 expectation with respect to future events or financial performance.

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

Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from actual results.

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 turn the conference over to Mr.

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

Thank you, John, and good morning to everybody and welcome to our fourth quarter and year-end conference call.

For those of you that didn't know, Bob Spear, our CIO officer, passed away this past January 25th.

For more than 20 years, Bob was a key member of the Helen of Troy management team, helping transform the Company into the global diversified business it is today.

During that time, Bob served as our corporate controller and eventually as our Senior Vice President and Chief Information Officer.

Over the years, those of you who worked with Bob were impressed by his many skills, his dedication, and loyalty to Helen of Troy and his vast knowledge of our business.

Bob always was eager to serve as a sounding board for ideas and was an effective advocate for the concerns of other employees, and we will surely miss him.

We are very pleased with the record fiscal fourth quarter and record fiscal year results as reported.

Fiscal year 2012 results were an important milestone for Helen of Troy, as our annual net sales revenue surpassed $1 billion for the first time to $1,181,676,000.

And our net income passed $100 million for the first time to $110 million.

Both sales and net income were the best in our Company's history.

We continue to make progress in achieving our long-term strategic business objectives despite the numerous challenges of a very difficult retail environment for several of our businesses.

On December 30, 2011, we purchased the PUR business from the Procter & Gamble company for $160 million in cash.

The PUR business has been accretive to earnings since the acquisition and we are very excited about the potential for long-term growth for the PUR brand.

Our corporate core sales increased 2.4% for the full-year after being down the prior two years.

Our debt to EBITDA is just two times, giving us room to do more acquisitions.

We also will be introducing new products this year in all of our divisions.

We expect the strength of our products, along with our powerful brands and targeted growth initiatives will position Helen of Troy for another year of growth.

For fiscal year 2013 ending February 28, 2013, we expect net sales revenue to be in the range of $1.3 billion to $1.325 billion, with earnings per share in the range of $3.80 to $3.90 per fully diluted share.

At February 29, the Company's balance sheet remains strong with stockholder equity of $797 million.

The domestic retail environment has recently shown a small measure of improvement, and 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 the conference call over to Tom Benson, our CFO, for the financial review.

Thank you, Gerry, and good morning, everyone.

In the fourth quarter, we experienced a year-over-year net sales revenue increase of $56.94 million, or 24%.

Gross profit margin in the fourth quarter declined by 1.9 percentage points year-over-year.

Fourth quarter selling, general and administrative expense as a percentage of net sales revenue decreased by 1.1 percentage points compared to the same period last year.

Operating income increased 22.6% year-over-year.

Fourth quarter net income was $29.3 million, compared to $24.4 million for the same period last year.

Diluted earnings per share for the fourth quarter was $0.92 compared to $0.77 for the same period last year, an increase of 19.5%.

On December 30, 2011, we completed the acquisition of the PUR water purification business from the Proctor & Gamble Company and certain of its affiliates for a net cash purchase price of $160 million.

Fourth quarter net sales revenue increased 24% year-over-year.

Net sales revenue for the fourth quarter of fiscal 2012 was $294 million, compared to $237.1 million in the fourth quarter of fiscal 2011.

This is an increase of $56.9 million, or 24%.

The increase to net sales revenue reflects the impact of the PUR acquisition on December 30, 2011, one month of incremental sales from the Kaz acquisition, and organic growth in the housewares segment of 8.8%.

Foreign currency fluctuations decreased sales by $876,000 for the quarter.

Operating income for the fourth quarter fiscal 2012 was $36.6 million, which is 12.4% of net sales, compared to $29.8 million, or 12.6% of net sales in the fourth quarter of fiscal 2011.

This is an increase of $6.7 million, or 22.6%.

The increase in operating income reflects the impact of the PUR acquisition on December 30, 2011, one month of incremental sales from the Kaz acquisition on December 31, 2010, and organic sales growth in the housewares segment.

Year-over-year operating income was unfavorably impacted by a sales decline in the personal care segment and the decline in gross profit margins due to product cost increases.

Fourth quarter net income was $29.3 million, which is 10% of net sales, compared to $24.4 million, which is 10.3% of the net sales in the fourth quarter of fiscal 2011.

This is a dollar increase of $4.9 million and a percentage increase of 20.2%.

Diluted earnings per share for the fourth quarter of fiscal 2011 was $0.92, compared to $0.77 in the prior year fourth quarter, an increase of $0.15, or 19.5%.

Fourth quarter net income and diluted earnings per share growth primarily reflects incremental operating income from the Kaz and PUR acquisitions and organic growth in the houseware segment, partially offset by gross margin declines and higher tax expense.

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, hair brushes and accessories, liquid hair care and styling products, men's fragrances, antiperspirants and deodorants, foot powder, body powder, and skin care products among others.

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 fourth quarter of fiscal 2011 was $109.6 million, compared to $113.4 million in the prior year fourth quarter.

This is a dollar decrease of $3.8 million, or 3.3%.

The decrease in personal care net sales revenue primarily reflects the continuing impact of the economy on retail sales, especially in our international markets, a disappointing new product introduction, and inventory management practiced by some significant retail customers.

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 Soft Works,OXO Touchables, and OXO Tot.

Housewares net sales revenue for the fourth quarter of fiscal 2012 was $59.4 million, compared to $54.6 million in the prior year fourth quarter, which is an increase of $4.8 million, or are 8.8%.

Fourth quarter sales growth was driven primarily by expansion within existing accounts and new product line introductions.

For fiscal year 2012, housewares net sales increased 9.6% year-over-year compared to sales growth of 9.2% in fiscal 2011.

Our healthcare home environment segment consists of the Kaz business acquired on December 31, 2010, and the PUR business acquired on December 30, 2011.

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

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

PUR is one of two leading brands in the US market.

PUR products include faucet mount water filtration systems and filters, pitcher systems and filters, and refrigerator filters.

Healthcare home environment net sales revenue for the fourth quarter was $125 million, compared to $69.1 million in the same quarter last year, anincrease of $55.9 million, or 80.8%.

Of this increase, $21.4 million relates to the PUR acquisition and $35.1 million relates to an incremental month of sales from the Kaz acquisition.

Kaz net sales revenue for the fourth quarter of fiscal 2012 was $103.6 million, compared to $100.5 million in the same quarter last year, onemonth of which was prior to our acquisition of Kaz.

This represents a growth of 3% on a pro forma basis as if the Kaz acquisition had occurred as of the beginning of fiscal 2011.

Gross profit for the fourth quarter fiscal 2012 was $123.1 million, which is 41.9% of net sales, compared to $103.8 million, which is 43.8% of net sales in the prior year fourth quarter.

This is a dollar increase of $19.3 million and a percentage increase of 18.6%.

Gross margin as a percent of sales decreased 1.9 percentage points year-over-year.

The decline in gross profit as a percent of sales is primarily due to product cost increases and the full quarter dilutive impact of Kaz acquisition, which has historically operated with a lower gross profit margin than our other businesses.

The overall decline was partially offset by the impact of the PUR acquisition, which has historically operated with a higher gross profit margin than our other businesses.

Selling, general and administrative expense for the fourth quarter fiscal 2012 was $86.6 million, which is 29.4% of net sales, compared to $72.3 million, which is 30.5% of net sales.

This is a dollar increase of $14.2 million and a percentage increase in dollars of 19.7%.

As a percentage of net sales, SG&A expense declined 1.1 percentage points in fiscal 2012 compared to the fourth quarter of fiscal 2011.

The year-over-year decrease in SG&A as a percentage of sales is primarily due to the full quarter impact of Kaz, which operated on lower SG&A expense as a percentage of sales for the fourth quarter of fiscal 2012 than the Company's consolidated SG&A as a percentage of sales for the same period last year, andexpense leverage and synergies achieved through the integration of acquired businesses into our operating structure.

The overall decrease was partially offset by higher advertising and amortization expense as a percentage of sales related to the PUR acquisition.

Interest expense for the fourth quarter was $3.3 million, or 1.1% of net sales revenue, compared to $3.3 million, or 1.4% of net sales revenue in the same quarter last year.

Income tax expense for the fourth quarter fiscal 2012 was $3.9 million, compared to $2.2 million in the fourth quarter of fiscal 2011.

Fourth quarter income tax expense was 11.9% of pre-tax earnings compared to 8.3% effective tax rate in the same quarter last year.

The fluctuations in our effective tax rate is primarily due to the impact of Kaz and PUR on the mix of income taxed in high rate jurisdictions.

I will now discuss our financial position.

Our cash and cash equivalents balance was $21.8 million at February 29, 2012, compared to $27.2 million at February 28, 2011.

Receivables were $195.3 million at February 29, 2012, compared to $188.4 million at February 28, 2011.

Receivables turnover improved to 62.5 days at February 29, 2012, from 64.7 days at February 28, 2011.

On December 15, 2011, we amended our line of credit agreement to increase the amount of borrowings available under the revolving commitment from $150 million to $250 million.

Inventory at February 29, 2012, was $246.1 million, compared to $217.2 million at February 28, 2011.

Inventory turnover improved to 2.9 times at February 29, 2012, compared to 2.7 times at February 28, 2011.

Stockholders equity increased $111.2 million to $796.7 million at February 29, 2012, compared to $685.5 million at February 28, 2011.

I will now turn it over to Gerry for questions.

Thank you, Tom.

Operator, we are open for questions now.

Thank you.

The question-and-answer session will begin now.

(Operator Instructions).

Our first question comes from Lee Giordana with Imperial Capital.

Thanks.

Good morning, everybody.

Can you talk a little bit more about the gross margin and how big of an impact the product cost increases were versus the Kaz dilution?

And then how should we think about product cost increases through the remainder of the year?

Are you going to be (inaudible) higher costs from last year or should that stabilize?

Thanks.

Lee, good morning.

This is Tom Benson.

As you know, all year long, our gross profit has been impacted by the addition of Kaz.

Kaz historically has operated on lower gross profit margins than the rest of the business.

So for the full year, our gross profit margin this year is 40.5% compared to 44.9%.

The majority of that change is due to the integration of Kaz.

We have had price increases throughout our business in all of the segments.

That is a smaller component of it.

We continue to come out with new products that give us an opportunity to set the price of those products on the cost basis.

It is still a challenging sourcing environment.

It has been throughout the last year and it is still continuing.

But we are working very hard to come out with innovative products and work with our customers where possible to raise prices to reflect the increases.

The PUR business does operate on a higher gross profit margin than our other businesses.

That was a very small component of our sales for the fourth quarter; it was only two months.

Going forward, that will have a positive impact onour gross profit margin.

But as I mentioned, I think, in one of our calls before, the PUR business does have a higher SG&A because it's a heavily advertised business.

So we are looking to improve our gross profit margins next year a little bit.

Great.

And then if you could talk a little more about the personal care segment, what exactly was the disappointing product you highlighted?

And then also what regions in particular when you said international is weak, what region in particular are you seeing the most challenging environment?

Thanks.

Go ahead, Gerry.

The disappointing geography was actually Europe.

It has been difficult in Europe.

And the new product introduction was a lineup of personal care hair dryers and curling irons in the British market.

So that is what held us back from showing an increase in that division.

It was not the United States.

Great.

Thanks a lot.

Okay.

Our next question comes from Steve Friedman with Wells Fargo Advisory.

Good morning, Gerry, Tom, and John.

Good morning.

I have a quick question relating to -- well, part of it was answered in the prior caller's question.

You did say that most of your margin change is due to the Kaz acquisition as opposed to cost increases.

Would that be an accurate statement?

Yeah, that is an accurate statement.

The biggest portion is due to the Kaz.

Okay.

Gerry, one other question.

With your earnings today at $3.48 for the trailing 12 and your earnings guidance approximating $3.80 to $3.90, a little under $4 a share, can you maybe give me a little idea as to why the multiple on Helen of Troy remains around ten times where competitors are yours are trading at 16 to 17 times, such as Jarden Corporation and so forth?

Well, Steve, as you know, I have always voiced my opinion that the Helen of Troy stock price was lower than it should be.

Based on our earnings per share for this past year and for next year and our EBITDA currently and go forward, our stock should be much higher, and I'm sure that as we get more and more support for the business and grow our businesses and now that we passed a billion dollars, I think we're going to be a more radar screen, so I think that's going to help.

Certainly, we are selling (inaudible) multiple today.

Thank you, Gerry.

Thank you.

(Operator Instructions).

We will go next to Jason Gere with RBC Capital Markets.

Hi, it's actually Brian on for Jason.

Good morning.

Just wanted to get some color as you look out to FY 2013, if you could give some ideas to what you are looking at for growth rates for the houseware segment and also personal care, what you think it is going to look like next year.

Well, overall, this past year, we had --

2.4%

We had an organic growth of 2.4%.

We are looking at something similar next year, but we are looking for a positive increase in our personal care business.

OXO has done very nicely and should follow the trend that you have seen over the next two years, and Kaz will in the healthcare and home environment segment should show increases.

So we are very positive that all three divisions this coming year will show increases.

All right, great.

And as you mentioned with PUR coming onboard, what are your plans for future growth in that business and what does it look like?

I know it is a much larger marketing investment than some of our other businesses.

What are your plans there?

Well, we have just taken over the business within the last couple of months from Procter & Gamble and everybody is very excited about the business, and we plan to continue doing much of what P&G did in the distribution and in advertising and we're looking to grow the business.

It is a very good solid business, and as we talked the last time, P&G decided to exit the business and stay with what I call down the drain products and this was one of their brands that they decided to divest them self of.

And I think it is going to be a very good brand.

I can't give you over the phone all the things that we are going to be doing, but it is going to be a good division for us as part of the home healthcare area.

Water is a -- purifying water is a very, very big growth area and although we are number two, we're certainly going strive and see if we can make it to number one in the United States.

Brian, this is Tom Benson.

We do have some new products in the pipeline that we are working on for the PUR business.

It has a little bit longer lead time than some of our other business units to bring products out.

But we are working on some exciting products and we are going to advertise the PUR business and continue to communicate with the consumers the benefits of using water filtration.

So we are very excited about the future and there will be new things coming out.

It may not be in this fiscal year, but we will have exciting things coming out.

Great.

I was just curious, too, with the warmer winter weather that we've seemed to have this past year, did that have any effect on the Kaz business, some other companies have mentioned the lack of flu and cold season this year, so curious if that impacted your business at all?

That did impact our healthcare home environment.

The flu season was very light.

I think it was the lightest in ten years or even longer than that.

There is statistics that they follow very closely.

And also the warm weather -- the warm weather was not only in the US, it was also in Europe initially for the winter season, so that did have a negative impact on our heater sales and humidifiers and things like that.

We would say it was not a good season for the Kaz business.

And just to go a little further on that, is there any way that you could potentially quantify that or think about if there would be a potential impact later on in fiscal 2013?

I don't -- I mean, basically, the sales that were missed because of the season, they are not going to be made up; it will be next season.

If next season is more normal, we expect sales to improve.

Even with the tough weather season for the products and the cough/cold we still had 3% growth in the healthcare home environment.

So it was positive growth but we think that the weather did hurt us, so next year we hope to do better.

Great.

And then just one last one.

Any thoughts on potential for FX impact for the coming year?

I'm sorry, I didn't --

What are your thoughts on currency?

Next year, we have -- we have had some exposure on the Pound already and we have some Canadian dollar hedged in place, and those details are in our 10-K.

There is some tables that show that.

We are concerned.

The Mexican Peso, we have looked at hedging that a few times.

It's a very expensive process to hedge, and so we have concluded not to do it, but that is trading, you know, it is taking over 13 pesos, so that is a little bit negative.

Some of the other ones, the Euro, has one been a little bit more positive for us.

We've hedged some of the exposure and we are happy where we hedged it and other exposure, we continue to look at and look for opportunities to hedge it.

Great.

Thanks very much.

Our next question comes from Jeffrey Matthews with Ram Partners.

Thanks very much.

I'm wondering what you are doing on the sourcing side to deal with the rising costs?

This is Gerry.

We are probably doing everything that we possibly can.

As you know, in the past when we come out with new products, we build in the price increases there.

Any price increases that we do get, we try to increase our prices with the retailers and so we have done everything.

Our competitors are in the same boat as we are, so if our prices go up because of commodity prices or fuel or labor in China, it reflects with our competitors also.

So we're not at a competitive disadvantage.

Sure, but I guess I'm curious, are you moving maybe closer to North America at all in any of your products or out of China into any --

We may -- we currently make Vick's products, Vick's and Braun products in Mexico, and the PUR -- a big part of the PUR refills are made in Mexico, sowe are not making everything in the United States.

Almost all of our Idelle Labs products, the Pert, the Sure, the Infusium 23, the Brut, those are not made offshore either.

Only the personal care items, basically, are made in China for the most part.

Okay.

And then in terms of where you saw some signs of improvement at the retail side, what are you seeing?

I mean, I know you gained share at Wal-Mart, but outside of that, what caused you to note that?

What are you seeing?

You know, I'm very optimistic that this coming year we have the planograms in place that we will be starting in about two months to several other major retailers and it is all positive.

We picked up business, more shelf space with our new products and space that our competitors had.

So I'm very optimistic that in that at least the top customers that we have that we are going to see improvement.

So, again, I'm very optimistic that we are going to show sales increases and profit for the personal care segment coming up starting in the second half of the year.

Okay.

And then, finally, could I just ask on Kaz, looking back, what have been any major interesting surprises about that business to the plus side or the down side?

I think that the thing that we have learned that we didn't have in our other businesses is what Tom told you about, weather does affect the business.

If it's hot, they won't buy fans, if it is cold, they won't buy heaters.

The cold season is very, very important to us, notthat we want people to get sick, but when the cold season does come, they do buy humidifiers and vaporizers and thermometers, which are a big part of our business.

So it's not a surprise, but they have more of a seasonal business than we do and they have to worry about the weather and the cold/cough time of the year.

That is what we learned.

Thanks, very much, Gerry.

Okay.

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

Thank you very much everybody who listened and participated in our conference call today, and we look forward to reporting to you on our results for the first quarter in a few months.

Thank you again.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-888-203-1112 with replay passcode 4202961.

This concludes our conference call for today.

Thank you all for participating and have a nice day.

All parties may now disconnect.