Helen of Troy Ltd (HELE) 2018 Q4 法說會逐字稿

Good day, and welcome to the Helen of Troy Limited Fourth Quarter 2018 Earnings Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Jack Jancin, Senior VP, Corporate Business Development.

Please go ahead.

Thank you, operator.

Good morning, everyone, and welcome to Helen of Troy's Fourth Quarter Fiscal 2018 Earnings Conference Call.

The agenda for the call this morning is as follows: I'll begin with a brief discussion of forward-looking statements.

Mr. Julien Mininberg, the company's CEO, will comment on the financial performance of the quarter and accomplishments of the year and then outline areas of focus for fiscal 2019.

Then Mr. Brian Grass, the company's CFO, will review the financials in more detail and comment on the company's outlook for fiscal 2019.

Following this, Mr. Mininberg and Mr. Grass will take questions you have for us today.

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 are words identifying 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 not to place undue reliance on forward-looking statements or non-GAAP information.

Before I turn the call over to Mr. Mininberg, I'd like to inform all interested parties that a copy of today's earnings release has been posted to the company's 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 obtained by selecting the Investor Relations tab on the company's homepage and then the News tab.

I will now turn the conference call over to Mr. Mininberg.

Thanks, Jack, and good morning, everyone.

Thanks for joining us today.

Welcome to our call.

I'm pleased to report that our continued execution against our clear and focused transformation plan enabled us to deliver a strong fourth quarter and another successful year at Helen of Troy.

Before continuing, I'd like to point out that I'll be focusing my remarks on our results from continuing operations.

As announced in December 2017, we completed the divestiture of Healthy Directions early in our fiscal fourth quarter.

This is in line with our strategy of focusing our resources on our leadership brands, which comprise the majority of our revenue and an even higher proportion of our operating profit.

We finished fiscal year 2018 strong.

We delivered fourth quarter results above our expectations.

During the quarter, net sales from continuing operations grew 12.5% and adjusted diluted earnings per share rose 9% to $1.69.

Our performance was supported by an especially severe cough, cold and flu season, strength in Housewares and a better than expected performance in Beauty.

Customer replenishment was healthy following the strong sell-through of our products during the holiday season.

For the full year, we achieved consolidated sales growth of 5.9% and core sales growth of 5.1%.

We delivered adjusted diluted earnings per share growth of 11.6% and expanded our adjusted operating margin while simultaneously investing in our shared services, our core business and the caliber of our organization.

We reaccelerated core sales growth in fiscal 2018 well beyond the cough, cold and flu strength.

Growth was strong across our diversified portfolio, reflecting disciplined strategic investment in our leadership brands, digital marketing and e-commerce.

These results reflect the strength of the transformation plan we put in place in fiscal 2015 to unlock additional shareholder value.

As many of you are aware, this plan focuses on 7 strategies, which are investing in our core; strategic, disciplined M&A; consumer-centric innovation; upgrading our organization and people systems; creating best-in-class shared services; attacking waste; becoming more asset efficient and also more shareholder friendly.

I am proud of our outstanding employees all around the world who have worked tirelessly to execute this plan and generate such strong results over the 4 years.

Our measures of success include growing our net sales at a 3.1% compound annual rate, driven by focusing on our leadership brands and e-commerce.

Our adjusted diluted EPS CAGR was 12.6%.

Our gross margin expanded by 2.6 percentage points providing fuel to make prudent, incremental investments.

Adjusted operating margin has expanded by 1.1 percentage points.

Our free cash flow CAGR was 15.9% during those 4 years, which allowed us to add new businesses to our portfolio via acquisition and pay down debt.

Our strong cash flow also allowed us to opportunistically return capital to shareholders.

Over the past 4 years, we've bought back approximately 7 million shares, acting when we felt our share price was undervalued.

Reflecting on the matter of valuation, we believe that objective measures such as enterprise value to free cash flow and enterprise value to adjusted earnings per share can provide a fair indication of our company's intrinsic value.

For perspective, our free cash flow yield is currently 8.9%.

Finally, while not a strict financial measure, perhaps our most important achievement over the past 4 years has been the benefits generated by meaningful investments in our shared services capabilities, people systems and upgrading the caliber of our organization.

These, together with significant improvements to our culture, are producing new levels of efficiency and excellence that we believe will power us in fiscal 2019 and well into the future.

Now, turning to fiscal 2018, our leadership brand portfolio represents more than 77% of total sales from continuing operations for fiscal '18.

Each grew faster than our 2% to 3% core revenue objective, and most grew share for those that we track.

As a group, they grew 16% in the fourth quarter and 9.5% for the full fiscal year 2018.

These brands have the greatest potential to win as we dig deep for consumer-centric insights that lead to superior branding through design, innovation, digital marketing and e-commerce.

These assets generally have #1 or #2 positions in their categories and are among the highest volume, highest margin and most efficient businesses in our portfolio.

During Q4 and for the full fiscal year 2018, we made further progress in our online sales and our digital marketing efforts.

We continue sharpening our strong focus on winning with consumers in their preferred shopping habits and channels.

Online sales accounted for over 15% of company net sales for full fiscal year 2018 and over 14% for the fourth quarter, representing year-over-year increases of 32.5% and 28% respectively.

Our e-commerce growth spans across key customers, distributors and our own websites.

Amazon continues to grow and is our #2 customer, accounting for approximately 13% of sales during the fiscal year after the sale of Healthy Directions.

Digital marketing remains a major focus companywide.

In fact, of the planned 14% to 18% incremental spending behind our brands for fiscal 2019, a significant amount is going to digital on our leadership brands.

We are also making further investments in our digital marketing capabilities as we continue to make significant strides nearly every day to keep our brands in the hearts, minds and the checkout carts of consumers around the world.

Our approach was validated as the NPD Group Home Division presented its Fifth Annual Industry Awards during last month's International Home and Housewares Show in Chicago.

Our Housewares segment earned 3 awards for being the top grower in online market share for calendar year 2017.

Two were awarded for OXO, for gadgets and for food storage, and one to Hydro Flask for portable beverage wear.

Turning now to our business segments, overall, each of our 3 segments exceeded our expectations in the fourth quarter, rounding out a very good year for Helen of Troy.

In Health & Home, our largest and most global business, we continue to make positive gains domestically, internationally, online and in-store.

Its sales performance in the fourth quarter was the strongest in recent years, up 19.4%, bringing the segment's growth to 7.9% year-over-year.

Building further on the margin improvement in this segment over the past several years, fiscal 2018 added 0.6 percentage points in adjusted operating margin.

In the fourth quarter, Health & Home revenue benefited from sales of thermometers and humidifiers, which correlate closely to the severity of the cold and flu season, especially the incidents of fever, cough and congestion.

Sales of Honeywell fans, heaters and air purifiers similarly correlate to adverse environmental conditions like the forest fires on the West Coast and the extraordinary cold spells this past winter.

These adverse conditions across multiple categories, which came primarily in January and February, represented a marked change to the more normal start of the season we saw in the fall.

Sales gains were achieved even amidst retail partners' ongoing efforts to streamline inventory while serving consumers and their families at a time when need for quality products was above normal.

The Housewares segment delivered an impressive fourth quarter with sales up 13.4%, beating our expectations.

Housewares grew 9.5% for the full fiscal year, as both OXO and Hydro Flask finished strong and posted healthy growth for the full year.

Our execution and business fundamentals remain healthy, and we are winning with consumers and customers domestically, internationally, online and in brick-and-mortar.

Are investments in innovation, new distribution, marketing and e-commerce are working and providing good returns.

Sales were underpinned by healthy replenishment after the holiday season at key customers.

On a full year basis, adjusted operating margins of 21.3% were also healthy.

We did see some pressure on margins from additional promotional activity, new channels of distribution and continued investments behind new content for these leadership brands on the marketing side, particularly online where consumers increasingly research, compare and buy.

OXO had an excellent quarter, rounding out its solid performance for fiscal 2018 both domestically and overseas.

Hydro Flask sell-through rates continued to be solid and the brand continued to add share to its already market-leading position.

This is according to syndicated data, as it delivered excellent sales growth for the quarter and our full fiscal year.

Our inventory remains in a healthy position across the business, with customer order replenishment pacing largely in line with sell-through after the holiday season.

In February, we began shipping our 2018 spring collection including new colors for Hydro Flask, the new Oasis line of highly stylish and functional large personal and family beverage containers and Hydro Flask accessories including our new bottle slings.

Customer reaction has been very positive, and we are strongly supporting the lunches with digital and in-store marketing to consumers.

Beauty, I'm pleased to report, continues to improve even in a relatively weak market for categories.

Stabilizing and subsequently growing this business is an important priority for Helen of Troy.

Our improving products, branding, e-commerce, execution and consumer-focused communications are delivering better results.

Revenue during the fourth quarter was modestly down by 2.1%, better than we expected as sell-through and replenishment orders following the healthy holiday season came in.

Progress was also made on adjusting operating margins in the quarter.

For the full fiscal year, the segment declined by 1.8%, also ahead of expectations, as retail and professional appliance growth nearly offset the decline in personal care.

In appliances, point of sale activity in both the professional and retail businesses continued to be encouraging.

Vindicated data shows that during the latest 52-week period, we grew our share in the U.S. retail appliances.

We are pleased that Helen of Troy continues to improve its #2 domestic position.

Nevertheless, we recognize that there are still challenges and much work ahead in order to earn the consistently positive results we believe will make Beauty the stable performer we seek for our portfolio.

Our Beauty segment, through Project Refuel, is also addressing its cost base to better invest in sales and earnings growth and improve its trajectory.

Additionally, we are refining our strategies and continuing to upgrade talent and skills as we increasingly focus more effort on digital, e-commerce and innovation.

Turning to some highlights from our operations, our shared services continue to make strides through new technologies and business practices to further improve speed and service while lowering costs.

These have been a key driver of margin improvement and prepare us well to support further expansion of our core business as well as make further acquisitions.

Our business segments are increasingly integrated into our shared services base, which helps us further leverage scale and ensure best practices are in place all across the company.

At this point in our transformation, doing so is not only strategic, it is cultural.

In fiscal 2018, all of this helped us reduce inventory by a further 10.5% even as we grew revenues, now reaching 3 turns in fiscal 2018, an important milestone as we make further progress on asset efficiency.

As reflected in our outlook for fiscal 2019, our work in shared services is also helping us mitigate rising commodity and transportation costs and fund the further investments needed to keep our leadership brands growing in the rapidly changing and highly challenging retail environment.

In closing, let me reiterate our confidence in our business, organization and our ability to succeed, compete and win.

This confidence comes from what we achieved over the past 4 years and from the very strong year we just delivered in fiscal 2018.

It is also reflected in our fiscal 2019 outlook, where we expect to grow both our top and bottom line over the strong base of fiscal 2018 and invest further for the long term.

I am pleased that we expect to grow over the particularly tough compares we will face in Health & Home and Housewares, and in Beauty, we are working very hard to improve our trend line.

We continue to be relentless in our focus on executing against the choices in our transformation plan.

With our favorable leverage, we are in a good position to continue to deploy capital towards accretive acquisitions and potential further opportunistic share repurchases.

We are also focused on further improving inventory management and other efficiencies to accelerate cash flow.

We are even more excited about longer-term opportunities we see ahead.

And with that, I will now turn the call over to Brian.

Thank you, Julien.

Good morning, everyone.

Before discussing the quarter in more detail, I'd like to remind everyone that, upon the divestiture of Healthy Directions in December 2017, we no longer consolidate the Nutritional Supplements segment's operating results.

The Nutritional Supplements segment's operating results are classified as discontinued operations for all periods presented, and my comments today will be regarding our results from continuing operations unless otherwise indicated.

Now, turning to a review of the quarter, consolidated sales revenue was $390.8 million, a 12.5% increase over the prior year period, driven by an increase in our core business of 11.3% and a 1.2% benefit from foreign currency.

Core business revenue growth was driven by the contribution from new product introductions, online customer growth, incremental distribution and growth in international.

Sales growth in the online channel continued to be strong and increased approximately 28% for the quarter and comprised approximately 15% of our consolidated net sales for fiscal 2018.

I'd like to point out that these percentages are calculated from continuing operations in both periods.

With the divestiture of Healthy Directions, our only growth rates have increased while our online percentage of total sales has slightly declined from previous disclosures.

Contributing to the consolidated net sales growth was an increase from our leadership brands of 16%.

Our leadership brands represented almost 79% of our consolidated net sales for the quarter compared to approximately 76% on a continuing operations basis for the same period last year.

Housewares core net sales increased 13.1% driven by an increase in online channel sales, incremental distribution with existing customers, expanded domestic distribution, international growth and new product introductions for both Hydro Flask and OXO brands, partially offset by the unfavorable comparative impact of strong sales into the club channel in the same period last year.

Segment net sales also benefited from the favorable impact of net foreign currency fluctuations of approximately $0.4 million or 0.4%.

Health & Home net sales increased 19.4%, reflecting growth in the online channel, expanded international distribution and incremental distribution with existing customers.

Sales were favorably impacted by unseasonably cold fall and winter weather and significantly higher cough/cold/flu incidents compared to the same period last year.

Segment net sales also benefited from the favorable impact of net foreign currency fluctuations of approximately $2.8 million or 1.7%.

Beauty net sales decreased 2.1%, primarily reflecting the decline in brick and mortar, partially offset by growth in the online channel.

Segment net sales benefited from the favorable impact of foreign currency fluctuations of approximately $0.9 million or 1.1%.

Consolidated gross profit margin was 41.3% compared to 41.6% for the same period last year.

The 0.3 percentage point decrease is primarily due to an increase in promotional programs and the unfavorable margin impact of a higher mix of sales into the discount channel.

This was partially offset by favorable product mix, growth in the company's leadership brands and the favorable impact from foreign currency fluctuations.

SG&A was 30.1% of net sales compared to 29.5% for the same period last year.

The 0.6 percentage point increase is primarily due to higher incentive compensation expense, the unfavorable comparative impact of foreign currency exchange in forward contract settlements and higher advertising and new product development expense.

These factors were partially offset by improved distribution efficiency, lower outbound freight costs and the impact that higher overall net sales had on operating leverage.

Operating income was $31.4 million, or 8% of net sales, which includes asset impairment and restructuring charges totaling $12.1 million, compared to operating income of $41.5 million or 11.9% of net sales in the same period last year, which includes asset impairment charges of $0.5 million.

Collectively, these items unfavorably impacted the year-over-year comparison of operating margin by 3 percentage points.

Adjusted operating income was $52.7 million or 13.5% of net sales compared to $50.5 million or 14.5% of net sales.

The one percentage point decrease in adjusted operating margin primarily reflects the decline in gross profit margin, higher incentive compensation expense, the unfavorable comparative impact from foreign currency exchange and forward contract settlements and higher advertising and new product development expense.

These decreases were partially offset by a higher mix of leadership brand sales and higher operating margin, improved distribution efficiency, lower outbound freight costs and the impact that higher overall net sales had on operating leverage.

Turning now to adjusted operating margin by segment, Housewares adjusted operating margin was 17.5% compared to 21.4% in the same period last year.

The 3.9 percentage point decrease was primarily due to an increase in promotional programs, higher sales into the discount channel, increased marketing and new product development expense and higher personnel costs.

This was partially offset by a higher mix of Hydro Flask sales, lower incentive compensation expense and the favorable impact of increased operating leverage from net sales growth.

We invested into the strength of the fourth quarter and believe that the fiscal year adjusted operating margin performance is more reflective of this segment's ongoing profitability.

Health & Home adjusted operating margin was 9% compared to 10.7%.

The 1.7 percentage point decrease primarily reflects higher advertising expense resulting from a shift in the timing of spend from the third quarter to the fourth quarter, higher incentive compensation expense, an increase in product liability expense and the unfavorable comparative impact of foreign currency exchange and forward contract settlements.

These factors were partially offset by improved distribution efficiency, lower outbound freight costs, increased operating leverage from net sales growth and the favorable impact of net foreign currency fluctuations on net sales.

We believe (technical difficulty) ongoing profitability.

We also believe the segment has further long-term adjusted operating margin expansion potential.

Beauty adjusted operating margin (technical difficulty) .5% reflecting a favorable margin mix, lower media advertising expense and cost savings from our restructuring plan, Project Refuel.

The improvement was partially offset by the net sales decline and its unfavorable impact on operating leverage.

Income tax expense as a percentage of pretax income was 70.6% compared to income tax expense of 9.3% for the same period last year, primarily due to a one-time provisional charge of $17.9 million related to recently passed U.S. tax reform.

This increased our effective tax rate by 62.9 percentage points.

On an ongoing basis, we expect the impact of tax reform to have a net benefit to our effective tax rate of approximately 1 percentage point.

Income from continuing operations was $8.4 million, or $0.31 per diluted share, which includes impairment, restructuring and one-time tax reform charges totaling $28.9 million or $1.07 per diluted share.

Income from continuing operations in the prior year was $34.4 million, or $1.25 per diluted share, and included after-tax impairment charges of $0.4 million or $0.02 per share.

Adjusted income from continuing operations was $45.7 million, or $1.69 per diluted share, compared to $42.7 million, or $1.55 per diluted share.

The 8.4% increase in adjusted diluted EPS from continuing operations primarily reflects the impact of higher adjusted operating income, lower interest expense and lower weighted average diluted shares outstanding.

Now moving onto our financial position, receivable days outstanding increased to 61.3 days, compared to 60.4 days in the same period last year, reflecting strong sales growth at the end of the quarter.

Inventory was $251.5 million, representing a 10.5% decline year-over-year.

Inventory turnover improved to 3x compared to 2.8x in the prior year period.

Total short- and long-term debt decreased $195.7 million to $289.9 million compared to $485.6 million at the end of the fourth quarter last year.

We ended the fourth quarter with a leverage ratio of 1.3x compared to 2.1x at the end of the fourth quarter last year.

During the fourth quarter, we repurchased approximately 409,000 shares of our common stock for approximately $36.9 million.

For the fiscal year, we paid down $197 million of debt and repurchased over $65 million of our common stock.

Reflecting on the fiscal year, I am proud of what we accomplished in fiscal 2018, and I'm excited about our positioning for the future.

We were able to drive strong, organic growth, expand adjusted operating margin and grow adjusted EPS by 11.6% while making incremental growth investments in our strongest assets.

We invested into the strength of the fourth quarter, which we believe sets us up well for fiscal 2019.

We continue to improve our already peer-leading free cash flow through disciplined receivables management and what we believe is becoming a best-in-class supply chain.

Through the divestiture of the Healthy Directions business and strong earnings growth, we improved our return on invested capital in fiscal 2018 and are positioned for continued improvement in fiscal 2019.

We are also streamlining key pieces of our organization to make them better integrated, more effective and more efficient.

We've created several shared services functions we believe are becoming best-in-class that we can further leverage through acquisition and organic growth, all of this while navigating the rapidly evolving retail environment.

Turning now to our outlook, please note that we have provided a reconciliation of fiscal 2019 projected GAAP diluted EPS to non-GAAP adjusted diluted EPS in our earnings release issued this morning.

Also, note that the company will be adopting the new revenue recognition standard in the first quarter of fiscal 2019.

We expect the adoption of the standard to result in the reclassification of certain expenses from SG&A to a reduction of net sales revenue for approximately 1% in fiscal 2019, with conforming reclassifications in fiscal 2018.

We expect the impact to result in reductions to net sales of approximately $13 million and $11 million in fiscal 2019 and 2018 respectively, with corresponding reductions to SG&A expense in each period.

Please see the table entitled Fiscal Year 2019 Outlook for Net Sales Revenue after Adoption of the Revenue Recognition Standard in the accompanying tables to the press release.

For fiscal 2019, we expect consolidated net sales revenue in the range of $1.485 billion to $1.51 billion, which implies consolidated sales growth of 0.4% to 2.1%, including the impact from the revenue recognition standard in both periods and also implies the 2-year CAGR in line with our long-term organic growth expectations.

Our net sales outlook assumes the severity of the upcoming cough/cold/flu season will be in line with historical averages, which unfavorably impacts the comparison to fiscal 2018 by 1.1%.

Our net sales outlook also assumes that March 2018 foreign currency exchange rates will remain constant for the remainder of the fiscal year.

By segment, we expect Housewares net sales growth in the mid-single digits, Health & Home net sales growth in the low single digits, with an unfavorable impact of approximately 2.5% from the average cough/cold/flu assumption, and Beauty net sales decline in the low to mid-single digits.

We expect consolidated GAAP diluted EPS from continuing operations of $6.30 to $6.50 and adjusted diluted EPS from continuing operations in the range of $7.30 to $7.55 based on estimated weighted average diluted shares outstanding of 27 million.

Our outlook excludes any noncash asset impairment charges, restructuring charges, share-based compensation expense and intangible asset amortization expense.

The year-over-year comparison of adjusted diluted EPS is impacted by an expected increase in growth investments in support of the company's leadership brands of 14% to 18% in fiscal 2019 and the impact of expected commodity and freight inflation on our cost of goods sold in SG&A.

The year-over-year comparison is also unfavorably impacted by approximately $0.12 to $0.14 from the average cough/cold/flu assumption and approximately $0.15 from fiscal 2018 tax benefits that aren't expected to repeat in fiscal 2019.

Our outlook for adjusted diluted EPS implies a growth rate range of 0.8% to 4.3%, which includes a combined drag of 3.9% from the average cough/cold/flu assumption and the unfavorable tax comparison.

Our outlook for diluted EPS from continuing operations assumes that March 2018 foreign currency exchange rates will remain constant for the remainder of the fiscal year.

We expect cash flow from operations growth in the range of 10% to 12% for fiscal 2019.

We expect capital expenditures in the range of $30 million to $35 million, with approximately $15 million of infrequently occurring leasehold improvement capital related to several facility relocations that happen to fall within the same fiscal year.

Looking at our expectations for tax, we expect a reported GAAP effective tax rate range of 9% to 11% and an adjusted effective tax rate range of 8.7% to 10.7% for the full fiscal year 2019.

The comparison of the effective tax rate range to fiscal 2018 is unfavorably impacted by 2.1 percentage points from tax benefits recorded in fiscal '18 that are not expected to repeat in fiscal '19.

Please refer to the schedule entitled Effective Income Tax Rate and Adjusted Effective Income Tax Rate in the accompanying tables to today's press release.

The likelihood and potential impact of any fiscal '19 acquisitions or additional divestitures, future asset impairment charges, future foreign currency fluctuations or further share repurchases are unknown and cannot be reasonably estimated, therefore they are not included in the company's sales and earnings outlook.

And now, I'd like to turn it back to the operator for questions.

(Operator Instructions) Our first question today comes from Frank Camma from Sidoti.

So just a couple of quick questions.

First of all, with Beauty, if I had to force you to pick just one, and I know it's not maybe a fair question, but given the strength of the categories you're in, especially with appliances, is it more important what you're doing or what your partners are doing as far as getting Beauty back on a growth path?

And what I mean by that is do you feel that just the retail environment is weighing on those categories more so than you maybe innovating in the category?

Yes, that's a great question, Frank.

Julien here, and good morning.

It's a tough category, Beauty.

It's not growing in brick-and-mortar.

We do believe it's growing online, and, as a result, the actions that we're taking are enough, as we proved in fiscal '18, even in that tough environment, to grow the appliances business.

It didn't just grow, it also grew share, so said another way, it grew faster than the market and our competitors.

And in the case of appliances, the combination of innovation, packaging improvements gets you to branding, quality, marketing improvements and the major push online from us over the last 12 months in particular, but it stems to before that.

We are able to grow the appliance business.

In terms of which is the stronger force, which is I think what you're asking, it is hard to push water up that hill, and so it makes it hard to grow fast enough to turn all of Beauty positive, and that did happen in fiscal '18 that we did grow fast enough to grow appliances, but not fast enough to overcome the weakness that we're seeing in personal care.

So as you look forward, or we look forward, what we see is reasons to continue to be encouraged for Beauty to basically flatten and then start some growth.

And that said, the factors that you're talking about do make it difficult.

Outside the U.S., there's lots of opportunity for us in appliances, so in Pro, we are becoming much more active on that subject, Europe being the most specific example of 2018, and we've got some major pushes going on.

And even in the domestic environment, the way we position our businesses from a ramping standpoint, what's in which channel and the kinds of innovations and the way we represent our brands should be enough to counter those balancing forces as a retail trade.

Okay.

And my other question was just you were really clear about some of the puts and takes on what's going to affect the guidance, obviously, cold/cough and stuff.

But are there any things, seasonality wise, that we should look at for Housewares that you might be anticipating, like a promotion with Prime Day with Amazon that might give you a bump and the timing of such things?

Yes.

Thanks.

We participate in a lot of those things.

Some pay out better than others, so we're careful to focus also on ROI so not just the top and not just moving inventory around irregularly because it has to sell through, and you don't want to promote it through at margins that you don't like.

So there is a double-edged sword there.

On Health & Home, it's not just cold and flu.

Brian talked about this.

He talked about drag from -- so like you said, clear on the puts and takes.

We're pretty proud to grow over a pretty strong year in Health & Home, and it's not just cold and flu.

Everybody says that but they sometimes forget that we're in heaters, we're in fans, we're in air purifiers.

There's 3 other examples of core categories there, and all of them actually had really strong years because of the tough weather, whether it was cold, forest fires, allergies, all kinds of things.

And so when you have a positive perfect storm of sales -- I'm not suggesting that we like the adverse conditions that people face, but we love that we can provide relief when they have those problems.

The fact is, all of that went our way in fiscal '18.

To be able to grow over that in Health & Home in fiscal '19, we're proud to be able to guide in that direction with the low single digits despite.

And when it comes to Housewares, specifically your question on seasonality, it's much less the case.

The opportunities there are on the web, international, getting our new products in front of consumers, expanding distribution and then seasonality, it'll come and it'll go.

There is some in the business.

Hydro Flask, each quarter in the calendar year tends to be a little bigger than the one before, so 4 is bigger than 3 is bigger than 2, like that.

And in OXO, it's fairly stable in that regard.

Christmas is always just a little bit better, but there's not that much seasonality there.

Okay.

And I guess just a challenge to that.

You said that -- you mentioned on the prepared remarks Hydro Flask, I think a product -- one of the product launches.

Is there anything in healthcare, home environment that we should look out for that might offset some of those counterpoints of the difficult comp?

The product launches that we should look...

Yes, so we have to be careful not to speak of specific ones that we haven't announced yet publicly just because of competitive.

There's some very, very capable competitors out there, and the less they hear about our future, the better on the one hand.

On the other hand, we have announced new products in most of the core categories, either some during fiscal '18 that will have their push now and into fiscal '19 and some new ones.

We're going up market a little bit in a few cases, I think humidifiers, for example.

That's a market that's been pushed down actually over the years through private label, etc., so there's some higher-end innovation.

There's some opportunities for distribution expansion.

There's major pushes going on companywide on the web, and I mentioned before about opportunities internationally.

So these are examples of some drivers.

I wouldn't say any of them are major catalysts, and, in fact, in Health & Home, you saw a low single-digit guide.

It's going to take a lot of work to climb over the very strong '18.

Okay.

So just a bunch of singles to offset some of that pressure then, essentially.

Yes.

Like any good company, we're working on a couple of doubles and triples there, but when they're ready, we'll tell you all about them.

(technical difficulty) from (technical difficulty)

This is actually Lee Jagoda for Bob.

So a couple of questions just there's been a lot of discussion around pricing of brands at retail.

Can you talk about your innovation pipeline and your ability to get price and margin on some of these new products?

Yes.

Great.

So every time you launch a new product, you get a chance to reset price and margin because you're setting the price and it's a new ballgame on margin.

There's no history to promotion or competitive activity, so with new products, it's the best chance to reset price and margin, and as you go a little bit higher-end on some of the products, you get a little bit more room.

Some of that gets spent right back into creating the demand for those higher-end products because they have to be differentiated from the good products that they're replacing or the better products when you put something into the best category out there.

And on existing products, if anyone's going to get pricing, it's the market leaders, and we generally are market leaders, especially in the United States in now almost 80% of our business, which is not to suggest that it's easy to take pricing.

It's a shame actually because it's widely known that the commodity pressures and transportation costs are moving against all the manufacturers, whether they make something that's completely undifferentiated like private label or highly differentiated like a market leader.

The pricing environment -- sorry, the commodity environment, is pushing costs up for all of them.

You think of all the basic commodities.

So it's not easy in that regard, but if anyone's going to take it, it's the market leader.

We've built very little big price changes into our forecast, but nonetheless, we are seeing some pressure on margins and it is right to take some pricing, so we'll do the very best we can in the market, and, frankly, I think our customers understand that, but they're in a difficult environment as well.

And then just going to your customers, any commentary around retail inventory levels or store closing activities that are impacting demand?

Yes.

From a demand standpoint, we don't think so.

Some of that naturally flows somewhere else, so if a consumer wants to buy something, they'll find a place, so if store X is closed, they'll find store Y that's open.

And the web is an opportunity for them to buy regardless of some of the brick and mortar challenges or those store closings, credit issues, all the things that are making that environment so tough.

So I don't think so is the short answer on the demand impact.

In terms of the impact of retail on, I guess, us from an inventory standpoint, I know a lot of folks have talked about lots of inventory reductions.

We saw a lot of that in fiscal '17, but, frankly, not much in fiscal '18, and we've been very, very careful in our inventory planning work with customers to get to healthy levels of stocking for them and, frankly, also for us.

We're working very hard on our supply chain.

You hear us talk about it all the time, so shortening lead times, picking the best suppliers and making sure we have the right product on time but not tons of it.

So we've been able to take inventory out.

We've been able to sell to demand even as they take inventory out, and then you saw from the shipments that we just reported in our sales and the comments that we made that we did not see inventory disruptions from retailers doing big consolidation because the products sold through, and when that happened, they reordered.

Sure.

And then one more and I'll hop back in.

In terms of your current net leverage, it looks like you're going to be around 1x debt to EBITDA.

How do you view your optimal capital structure and to the extent it's much different than the 1x we're at today, how do you expect to get there?

Sorry, I missed part of the question, Lee.

Repeat the first part.

Sure.

Just pointing out your net debt to EBITDA leverage is around 1x currently.

Just trying to figure out how you view your optimal capital structure and, if it's different than that 1x, what levers are you going to pull to kind of get there?

Yes, I would say we kind of strive to be in the 2x to 4x range, so we're slightly below that, and we're looking at acquisitions all the time and want to have plenty of firepower to do that, and so it's kind of a balancing act.

We'll also look for opportunities to return capital and repurchase shares.

I would say we're slightly below the optimal range where we would like to be, but, again, we're also looking at acquisitions and want to be able to execute on those.

So we'll continue to balance those things and strive to be in the 2x to 4x range.

Yes, my only build on that one, Lee, is we generate a lot of cash.

We're proud of that.

We work hard.

You saw us go the extra mile this time to point out our cash flow.

That cash flow compound annual growth rate over the last 4 years is 15.9%, and we put it to work in all the ways that Brian just said.

And that said, our balance sheet could use a bit more leverage on it, and when the right acquisition comes along, we're not afraid to pounce.

And if the market undervalues our stock -- and you heard us call out some new measures in that area -- and that captures our attention, frankly.

Our next (technical difficulty) Carey from Bank of America.

So just I think you guys covered the sales comp dynamic and some of the puts and takes going forward.

On the investment side, can you talk to the impact of the 14% to 18% growth in investments and the impact on earnings and maybe what could cause that investment level to be relatively higher or lower as you progress through the year?

Yes, so on the -- I'm glad you called it out.

On incremental investment?

We talked to this before a lot of times ...

Yes, incremental.

These businesses.

Yes, do we did invest significantly in the brands in '18 and, in fact, we pumped it up a bit in the fourth quarter you probably saw that in the margins for the fourth quarter.

The company made some bets and so put a fair amount of money down and grew our support in fiscal '18 significantly.

In fiscal '19, we're talking about a 14% to 18% increase in that number year-over-year, so that's why only was I emphasizing incremental.

And in the case of where it's going, you heard in our comments that it's going primarily to the leadership brands, whether it's on marketing support, the web or the new product development work and some other key areas to support those businesses.

In terms of what would make us feed it like we did at the end of fiscal '18, we're very willing and, in fact, quick to get behind strength.

When we see a product working, we will feed it quickly.

And when we see a product not working, a new product that we still believe in -- which that's why we launched it, and we have a lot of premarket testing before we launch -- we will support it.

At some point though, we shift our bets during the course of the year, and then the seasonality also has a way of playing out.

So when we saw all of that, we moved quickly in fiscal '18 and we wouldn't be afraid to do it again in '19 even if it moves the earnings around a little bit because, in the end, sustainable long-term growth in top line to bottom line in the market share is what's going to win the game over a long-term basis.

Okay.

And just to clarify to make sure you understand here, the incremental is on the $0.45.

Where did that number end last year?

Is the 14% to 18% incremental on that incremental investment number from last year?

We were very close to our most recent guidance on incremental spend from fiscal '18.

So we were very close to what we said we would do at our most recent update, and then the 14% to 18% is on top of that.

Yes.

I think the easiest way to think about it is double-digit on top of double-digit, so if we grew that investment double-digit last year, we're doing it again this year.

If that's not a show of strength that we believe in those brands, I don't know what is.

And, frankly, it's a tough environment out there.

You've got to play ball.

Video content, all the different online tools, this costs money and leaning in against private label and all the rest of the dynamics that are out there, it's important to support them.

You say, well, where's the cash coming from because we're growing our earnings nevertheless?

It's coming from the strength in shared services, and we're proud of that.

That's even overcoming some pretty ugly headwinds when it comes to things like commodities and transportation.

I'm sure tons of companies have talked about those forces that are out in the market.

So to be able to balance all that and grow your earnings while you invest that kind of incremental money in the business and overcome the headwinds and the tough fiscal '18 compare that's ahead of us for this year, we think we have the balance just right.

And Chris, just to clarify, the 14% to 18% is on our total spend, so it's growth on top of our total spend from last year, which includes the increase that we did in fiscal '18.

Okay.

Understood.

And I guess just following up on this last question, right?

The net leverage of 1 turn is quite low and 2 turns below, it sounds like, the midpoint of where you tend to like to think about your range.

So how much is the fact that fundamentals are a bit challenged for some of the players in this space or indeed the backdrop is just more challenging with the tough retail environment and inflation on commodities and transportation, how does that factor into your calculus on this given that you have said that you're actively in discussions with potential companies for an acquisition.

It just kind of hasn't gotten across the finish line.

So I wonder if you could just provide a bit more context around those discussions, and then if that isn't the right move, why not use some of that to accelerate buybacks?

Yes.

Great.

We may see it bit differently.

We don't see a relationship between the leverage ratio and the choices on the business from a day-to-day standpoint.

From a shareholder value creation, we strongly agree, the balance sheet is underutilized right now, and we could do more with it, so our priority remains acquisition.

We're very, very picky, and I think that's probably a good thing on the matter.

We're humbled by the fact that not all acquisitions work out, but we're very proud of the record we have.

So getting those to the finish line, we want to bring the right one there, not just bring one there.

Well, I would just add that I think, if I understand your question, what you're asking, I would say fit is more important than fundamentals, so it's not being able to get the right fit in an acquisition then it is the fundamentals out there being the big driver.

Yes, and speed.

While all of us want to move forward and put that cap structure to work, the result is going to be more important than the speed.

And then on the subject of accelerating return of capital, you just saw us report that we acted again this quarter on the subject of buybacks, so there was some activity, and you probably heard in our 4-year look that we have not been shy on the subject.

We're talking about nearly 7 million shares starting with that tender offer back at the very end of 2013 and spilling into the first part of our fiscal '15.

So we're not shy on the matter, and we do see, as we look at the metrics that are in the marketplace from a valuation standpoint as we called out in our prepared remarks, that we believe some significant undervaluation in the stock on the basis of those metrics.

So we're not smarter than the stock market, that's for sure, but when we see the market consistently undervalue us relative to some pretty objective measures, where, frankly, we show meaningful strength relative to our competitors, we'll act.

And on the subject of acquisition, it remains our priority, and we'd greatly prefer to do that first.

Our next question today comes from Linda Bolton-Weiser from D.A. Davidson.

So I'm not as familiar with all your different customers and channels of distribution, but when you mention the mix effect on margins, you said a little more in discount channel.

Do you mean the mass retailers versus specialty, like Bed Bath & Beyond, or do you mean dollar stores?

Can you just clarify what you mean by all the different channel ships and how much do you do in dollar stores versus specialty versus mass retail, just roughly?

Yes, sure.

So first of all, welcome, Linda.

We're very happy to have you initiate coverage on Helen of Troy, and I'm glad you are following us and welcome.

This is a good company, and we're very happy to have your analysis of us.

In the case of channel mix, we don't break out our sales by channel or even sub channel like that, like your comment about dollar stores.

Dollar stores is not a big channel for us.

Where we are talking about more is, when we say discount channel, we don't think dollar stores.

Think of Ross stores, Maraxx, T.J. Maxx, these kinds of outlets where there's a pretty robust set of consumers that shop in those stores.

Some of them even have it as their first choice.

They go there first, and where it makes sense, we'll put our product there.

There are times when we're going from an older line to a new line.

Think old colors, sometimes even a little bit of excess inventory, where, frankly, it's better to put it in the market at a good margin where there's a kind of consumer that looks there first and wants to buy it, and it gives us an opportunity to keep our inventory lean and to move our newest products into other channels, so think mass or online for example.

And that creates this dynamic that we're talking about.

Sometimes there's some price promotion, and it helps from a competitive standpoint or in deal making when you're moving chunks of inventory.

That's more the way we think about it than feeding the dollar stores, which we like as a customer class.

It's just not common that our products, which tend to be more on the better and best end of the food chain, would naturally be an affinity for the dollar channel, so we look at it more like that.

In terms of percentages, like I said, we don't break it out.

The numbers are not huge, and you saw, actually in Housewares for example, some pretty big growth.

The margins are still nicely healthy, 21-kind of percent kind of numbers.

These are big numbers, and so it's not like we're giving away all the margin to push out the inventory.

Okay.

Thanks.

And then just, Julien, I guess I respect you for divesting a business that you had purchased a few years ago.

How do you think about -- I have a few companies I follow that have noncore businesses that have declining revenue, and they always say, well, there's a lot of buyers who would like to take it off your hands for a low valuation.

So how do you balance divestiture and the benefits that come with being able to free up resources and improve your growth rate versus the idea that you're losing cash flow, you're losing -- you might sell at a lower valuation?

How do you balance that when you think about like the divestiture side of things?

Yes, it's a great question and thanks.

They often -- I've heard many times the expression of, it's easy to buy, harder to sell or good that you buy, but even harder to know when to sell, so we made a tough call.

I think we made the right one.

It's good for our company.

You see us accelerating our growth now that we have one division that's not bringing down that growth as much.

It's good for our ROIC or our return on invested capital.

It's good for so many aspects of us, so I believe we made the right choice, but not an easy one, especially one that I, myself, as you point out, made the choice to buy along with the rest of our board.

So this was a hard decision, so thanks for that.

And in the case of this decision, you're absolutely right.

It's very hard to give up cash flow.

It helps cover our overheads.

Cash flow is important to us, as we pointed out lots of times, as a company.

But in the end, strategically, the portfolio should be one that we've believe is right for us, and so many companies who sell actually decent assets -- we have quite good ones that are not necessarily right for us in some of the nonleadership brand groups, -- those are the ones that are getting a hard look.

And in terms of the pain of taking them out, things like stranded overhead and the other negative effects that you're alluding to, I think it's more important to do what we think is right for the long-term business, free up the capital to redeploy it against something that we think is a better asset and then to put it in the hands of someone who can do more with it and therefore value is created.

In terms of prices, I can't tell you how many phone calls we get after any such hint of people who say, great, I'll take that off your hands, and they're looking for some sort of fire sale.

We're not in trouble.

This is a good company.

We're winning, and we're in no hurry to sell our assets below their value.

We're in a hurry to take fair market value for something that we believe is better in someone else's hands.

If it's appropriate, we'll run a competitive process, and may the best man win.

And on the subject of our portfolio, we'll focus on where we can best use our capital and our skills to get the kind of results that we just put on the board in fiscal '18.

Great.

Thanks.

And just -- sorry.

I missed the CapEx guidance for FY '19.

Can you just repeat what you guided to?

Yes.

It's $30 million to $35 million, and we pointed out that there's approximately $15 million of infrequently occurring leasehold expense investments because it just so happens that we have 3 facility relocations occurring in the same fiscal year.

Our next question today comes from Steve Marotta from CL King and Associates.

Congrats on a great quarter.

Most of my questions have been asked and answered, but I just have a couple of very quick housekeeping questions.

First, have there been any share repurchases year-to-date?

And also if you could please remind us the balance of the share repurchase program currently.

Yes.

Just to make sure I understand, when you say year-to-date, which time period are you talking about?

The calendar?

Fiscal year-to-date.

Meaning fiscal '19?

Correct.

Yes, so thanks on the quarter.

And on the share repurchases, it's hard for us to talk about a quarter that we haven't yet reported, so wish it was easier just to answer directly.

It would be hard to say what we've been doing in the first quarter of fiscal '19 when we haven't reported the quarter.

In terms of the authorization, there's a $400 million authorization for the company, which is a decent number.

There's $328 million remaining on the authorization.

And we've been working that down, so there's the number of what's available, so if you're asking for how much buying power there is, I guess there's the number.

And in terms of actions, I can't emphasize it enough -- we even put it in our prepared remarks -- but those metrics that we called out, we don't think the market looks at them as much as perhaps would be healthy, and yet they're, objective and relative to competitors, they're not just strong but would suggest that there's opportunities there.

And whether we would act on it or not, it really gets back to Chris Carey's question.

Our capital allocation strategy is crystal clear.

We'd prefer to put our money against acquisition, but we will be picky to find the right one.

And then the money's not burning a hole in our pocket, and yet our balance sheet is underutilized, so somewhere in there is the right balance between dry powder, assessing the valuation and deciding if we would make an opportunistic purchase.

And as far as year-to-date, we'll let you know anything that happened in the first quarter when we report the first quarter.

Some companies that are active in the market take the opportunity on a call to talk about what they have done either quarter-to-date or year-to-date, but I respect the choice not to.

Yes, and their situation may be a little bit different than ours.

We would not buy because we would be -- we have a blackout period effectively until report, so we would not have purchased anything during the period based on the way our reporting periods fall.

Yes.

I guess an abundance of caution on our part.

We feel like if we're in a blackout period, then we're not active.

I understand.

And I know you do not guide quarterly, but is there any sort of uniqueness to the current year where either sales or earnings, based on, again, either promotions or shipments or marketing spend, for instance, falls harder in any particular quarter than others and that we should be made aware of early on?

Yes, that's a good question.

I think our growth is fairly evenly spread across the first 3 quarters, and the comp in the fourth quarter will be difficult to grow over, so I would expect even growth over the first 3 quarters and a slight decline in the fourth quarter.

From an EPS standpoint.

Both sales and EPS.

Yes.

Got you.

Compares as well.

(Operator Instructions) I will now hand back to Mr. Mininberg for closing comments.

Great.

Well, thanks so much, everybody, for joining our call today.

We very much appreciate that.

Thank you also, operator.

We appreciate your support.

We're very proud of what's been accomplished, not just over the last year, but we're 4 years in and the numbers, I hope, speak clearly.

We do look forward to another successful year in fiscal '19.

We appreciate the support, and I know we'll be talking to a number of you in various follow-up calls, and at some point, we'll be out on the road and be able to do even more.

Thanks very much, and have a great day.

Thank you.

That will conclude today's conference call.

Thank you for your participation today.

You may now disconnect.