Helen of Troy Limited Reports Fourth Quarter Fiscal 2019 Results

Consolidated Net Sales Decline of 0.7%; Core Business Net Sales Flat

Fiscal 2019 Consolidated Net Sales Growth of 5.8%

GAAP Diluted Earnings Per Share (“EPS”) from Continuing Operations of
$1.47

Adjusted Diluted EPS from Continuing Operations Growth of 7.7% to
$1.82

Fiscal 2019 GAAP Diluted EPS from Continuing Operations Growth of 40%
to $6.62

Fiscal 2019 Adjusted Diluted EPS from Continuing Operations Growth of
11.3% to $8.06

Initiates Fiscal 2020 GAAP Diluted EPS from Continuing Operations
Outlook of $6.83 – $7.00

Initiates Fiscal 2020 Adjusted Diluted EPS from Continuing Operations
Outlook of $8.25 – $8.50

Initiates Fiscal 2020 Consolidated Net Sales Growth Outlook of 1% – 3%

EL PASO, Texas–(BUSINESS WIRE)–Helen of Troy Limited (NASDAQ: HELE), designer, developer and
worldwide marketer of consumer brand-name housewares, health and home
and beauty products, today reported results for the three-month period
ended February 28, 2019. Following the divestiture of Healthy Directions
on December 20, 2017, the Company no longer consolidates the Nutritional
Supplements segment’s operating results. That former segment’s operating
results are included in the Company’s financial statements and
classified as discontinued operations for all periods presented.

Executive Summary – Fourth Quarter of Fiscal
2019

  • Consolidated net sales revenue decrease of 0.7%, including:

    • A decrease in Leadership Brand net sales of approximately 1.6%
    • An increase in online channel net sales of approximately 36%
    • Core business flat with the fourth quarter of fiscal 2018
  • GAAP operating income of $44.1 million, or 11.5% of net sales, which
    includes pre-tax restructuring charges of $1.0 million, compared to
    GAAP operating income of $31.4 million, or 8.1% of net sales, for the
    same period last year, which included pre-tax asset impairment charges
    of $11.4 million and pre-tax restructuring charges of $0.7 million
  • Non-GAAP adjusted operating income increase of 1.6% to $53.5 million,
    or 13.9% of net sales, compared to $52.7 million, or 13.6% of net
    sales, for the same period last year
  • GAAP diluted EPS from continuing operations of $1.47, which includes a
    restructuring charge of $0.04 per share, compared to GAAP diluted EPS
    of $0.31 for the same period last year, which included a total of
    $1.07 per share in tax reform, impairment and restructuring charges
  • Non-GAAP adjusted diluted EPS from continuing operations increase of
    7.7% to $1.82, compared to $1.69 for the same period last year
  • Repurchased 654,748 shares of common stock in the open market during
    the quarter for $75.0 million, or an average price of $114.57 per share

Executive Summary – Fiscal 2019

  • Consolidated net sales revenue increase of 5.8% including:

    • An increase in Leadership Brand net sales of approximately 8.9%
    • An increase in online channel net sales of approximately 28%
    • Core business growth of 5.9%
  • GAAP operating income of $199.4 million, or 12.7% of net sales, which
    includes pre-tax restructuring charges of $3.6 million, compared to
    GAAP operating income of $169.1 million, or 11.4% of net sales, for
    the same period last year, which included pre-tax non-cash impairment
    charges of $15.4 million, a pre-tax charge of $3.6 million related to
    the bankruptcy of Toys “R” Us (“TRU”), and pre-tax restructuring
    charges of $1.9 million
  • Non-GAAP adjusted operating income increase of 6.9% to $239.2 million,
    or 15.3% of net sales, compared to $223.9 million, or 15.1% of net
    sales, for the same period last year
  • GAAP diluted EPS from continuing operations of $6.62, which includes a
    restructuring charge of $0.13 per share, compared to GAAP diluted EPS
    of $4.73 for the same period last year, which included a total of
    $1.36 per share in tax reform charges, impairment charges, the TRU
    bankruptcy charge, and restructuring charges
  • Non-GAAP adjusted diluted EPS from continuing operations growth of
    11.3% to $8.06 compared to $7.24
  • Net cash provided by operating activities of $200.6 million, compared
    to $218.6 million
  • Repurchased 1,875,469 shares of common stock in the open market during
    the fiscal year for $212.1 million, or an average price of $113.08 per
    share

During the first quarter of fiscal 2020, the Company announced that it
is in the process of exploring the possibility of divesting its Personal
Care business, a subset of its Beauty segment. The Personal Care
business includes liquid, powder and aerosol products under brands such
as Pert, Brut, Sure and Infusium. This potential divestiture would
advance the Company’s strategy to focus its resources on its Leadership
Brands.

Julien R. Mininberg, Chief Executive Officer, stated: “The fourth
quarter finished well ahead of our expectations. Online sales led the
way, up approximately 36% year-over-year. We are also pleased to report
Beauty net sales were particularly strong, with hair appliances
continuing to grow, and Housewares grew over its high year-ago base.
These factors offset lower sales in our Health & Home segment, which
faced a tough comparison to last year’s robust cough, cold and flu
season. We improved our adjusted operating margin by 30 basis points and
grew adjusted diluted EPS 7.7%, even as we continued to make incremental
investment behind our Leadership Brands and felt the impact of tariff
increases and higher transportation costs.”

“This quarter caps great fiscal 2019 results. Net sales for the full
fiscal year grew 5.8%, Leadership Brand net sales grew 8.9%, online
sales grew approximately 28%, and adjusted diluted EPS grew 11.3%.
Inventory turns improved to 3.3 times and return on invested capital,
net of restructuring, was a healthy 14.6%. During the fiscal year, we
also returned $212 million to our shareholders through share
repurchases.”

“Fiscal 2019 also marks the successful completion of Phase I of our
multi-year transformation strategy, which delivered excellent
performance across a wide range of measures. We improved core sales
growth by focusing on our Leadership Brands, made strategic
acquisitions, became a more efficient operating company with strong
global shared services, upgraded our organization and culture, improved
inventory turns and return on invested capital, and returned capital to
shareholders. Over the past five fiscal years, our net sales CAGR
improved to 3.7% (accelerating to 4.2% in the past 3 years), adjusted
operating margin expanded by 1.3 percentage points, and adjusted diluted
EPS grew at a CAGR of 12.4%. Our global team of passionate associates
deserves all the credit as they embraced a more collaborative culture,
and are eager to continue winning in Phase II.”

“Our strategic focus in Phase II of our transformation is designed to
drive the next five years of progress. The long-term objectives include
improved organic sales growth, continued margin expansion, and strategic
and effective capital deployment. We expect Phase II will include
continued investment in our Leadership Brands, with a focus on growing
them through consumer-centric innovation, expanding them more
aggressively outside the United States, and adding new brands through
acquisition. We anticipate building further shared service capability
and operating efficiency, as well as attracting, retaining, unifying and
training the best people. We believe Phase II can deliver a bright
future for Helen of Troy. We look forward to sharing our plans in more
detail during our Investor Day event next month.”

   

Three Months Ended February 28,

Housewares     Health & Home     Beauty     Total
Fiscal 2018 sales revenue, net $ 116,954 $ 190,470 $ 80,140 $ 387,564
Core business growth (decline) 9,472 (20,597 ) 11,004 (121 )
Impact of foreign currency (357 ) (1,733 ) (510 ) (2,600 )
Change in sales revenue, net 9,115   (22,330 ) 10,494   (2,721 )
Fiscal 2019 sales revenue, net $ 126,069   $ 168,140   $ 90,634   $ 384,843  
 
Total net sales revenue growth (decline) 7.8 % (11.7 )% 13.1 % (0.7 )%
Core business growth (decline) 8.1 % (10.8 )% 13.7 % %
Impact of foreign currency (0.3 )% (0.9 )% (0.6 )% (0.7 )%
 
Operating margin (GAAP)
Fiscal 2019 16.2 % 9.5 % 8.6 % 11.5 %
Fiscal 2018 15.6 % 6.7 % 0.4 % 8.1 %
Adjusted operating margin (non-GAAP)
Fiscal 2019 18.1 % 12.6 % 10.4 % 13.9 %
Fiscal 2018 17.4 % 9.1 % 18.6 % 13.6 %
 

Consolidated Operating Results – Fourth Quarter
Fiscal 2019 Compared to Fourth Quarter Fiscal 2018

  • Consolidated net sales revenue decreased 0.7% to $384.8 million
    compared to $387.6 million, driven by the unfavorable impact from
    foreign currency fluctuations of approximately $2.6 million, or 0.7%.
    Core business net sales were flat, reflecting an increase in
    consolidated online sales, point of sale strength in brick and mortar
    and growth in the Beauty appliance category. These factors were offset
    by declines in the Personal Care business and the Health & Home
    segment. The Health & Home decline was primarily due to the
    unfavorable comparison to the fourth quarter of fiscal 2018, which
    benefited from strong cough/cold/flu incidence along with unseasonably
    cold fall and winter weather. The Company reclassified $3.3 million of
    expense from selling, general and administrative expense (“SG&A”) to a
    reduction of net sales revenue for the fourth quarter of fiscal 2018
    to conform with ASU 2014-09 “Revenue from Contracts with Customers”.
  • Consolidated gross profit margin increased 0.1 percentage point to
    40.9%, compared to 40.8%. The increase is primarily due to a more
    favorable product mix and negotiated product cost decreases, partially
    offset by the unfavorable margin impact from a decline in overall
    Leadership Brand sales, higher freight costs, and the net impact of
    tariff increases.
  • Consolidated SG&A as a percentage of sales decreased by 0.3 percentage
    points to 29.2% of net sales compared to 29.5%. The decrease is
    primarily due to the favorable comparative impact of foreign currency
    exchange and forward contract settlements and lower amortization
    expense, partially offset by higher freight costs, increased
    share-based compensation expense, and higher advertising expense.
  • Consolidated operating income was $44.1 million, or 11.5% of net
    sales, compared to $31.4 million, or 8.1% of net sales. The increase
    in consolidated operating margin reflects the favorable year-over-year
    comparative net impact of pre-tax non-cash asset impairment charges
    and pre-tax restructuring charges of 2.9 percentage points, an
    improvement in gross profit margin, and lower SG&A as a percentage of
    sales.
  • The effective tax rate was 7.9%, compared to 70.6% for the same period
    last year. The year-over-year decline in the effective tax rate is
    primarily due to the favorable comparative impact of a one-time charge
    of $17.9 million last year related to 2018 U.S. tax reform.
  • Income from continuing operations was $37.7 million, or $1.47 per
    diluted share on 25.6 million weighted average shares outstanding,
    compared to $8.4 million, or $0.31 per diluted share on 27.1 million
    weighted average diluted shares outstanding. Income from continuing
    operations for the fourth quarter of fiscal 2019 includes $0.04 per
    share in after-tax restructuring charges, compared to a total of $1.07
    per share in tax reform, impairment, and restructuring charges in the
    same period last year.
  • Loss from discontinued operations was $0.4 million, or $0.02 of loss
    per diluted share, compared to net income of $51.7 million, or $1.91
    of income per diluted share, for the same period last year.
  • Adjusted EBITDA increased 1.9% to $57.7 million compared to $56.6
    million.

On an adjusted basis for the fourth quarters of fiscal 2019 and 2018,
excluding restructuring charges, the TRU bankruptcy charge, non-cash
asset impairment charges, non‐cash share-based compensation, and
non-cash amortization of intangible assets, as applicable:

  • Adjusted operating income increased $0.8 million, or 1.6%, to $53.5
    million, or 13.9% of net sales, compared to $52.7 million, or 13.6% of
    net sales. The increase in adjusted operating margin primarily
    reflects a favorable product mix, product cost decreases, the
    favorable comparative impact of foreign currency exchange and forward
    contract settlements and lower amortization expense. These factors
    were partially offset by higher advertising expense, the impact of
    tariff increases, higher freight expense and increased share-based
    compensation expense.
  • Adjusted income from continuing operations increased $0.9 million, or
    1.9%, to $46.6 million, or $1.82 per diluted share, compared to $45.7
    million, or $1.69 per diluted share. The 7.7% increase in adjusted
    diluted EPS from continuing operations was primarily due to higher
    adjusted operating income and the impact of lower weighted average
    diluted shares outstanding. These factors were partially offset by
    higher interest expense.

Segment Operating Results – Fourth Quarter
Fiscal 2019 Compared to Fourth Quarter Fiscal 2018

Housewares net sales increased 7.8%, or $9.1 million, primarily due to
growth in the online channel, higher club channel sales, new product
introductions and growth in international sales. These factors were
partially offset by lower closeout channel sales. Operating margin was
16.2% compared to 15.6%. The increase was primarily due to the margin
impact of more favorable product mix and lower product costs. These
factors were partially offset by higher rent expense related to new
office space, an increase in advertising expense and higher freight
expense. Housewares adjusted operating income increased 11.8% to $22.8
million, or 18.1% of segment net sales, compared to $20.4 million, or
17.4% of segment net sales.

Health & Home net sales decreased 11.7%, primarily due to a core
business decline of 10.8%. The core business decline primarily reflects
the unfavorable comparison to the fourth quarter of fiscal 2018, which
benefited from particularly strong cough/cold/flu incidence along with
unseasonably cold fall and winter weather. Segment net sales were also
unfavorably impacted by net foreign currency fluctuations of $1.7
million, or 0.9%. These factors were partially offset by seasonal
category growth including incremental distribution and shelf space gains
with existing domestic customers, and new product introductions.
Operating margin was 9.5% compared to 6.7%. The increase was primarily
due to lower advertising expense, lower incentive compensation expense,
and favorable foreign currency exchange and forward contract
settlements. These factors were partially offset by a less favorable
product mix, the net impact of tariff increases, and higher freight
expense. Health & Home adjusted operating income increased 22.6% to
$21.2 million, or 12.6% of segment net sales, compared to $17.3 million,
or 9.1% of segment net sales.

Beauty net sales increased 13.1%, or $10.5 million, primarily due to
growth in the online channel, new product introductions in the retail
appliance category, and an increase in international sales, partially
offset by the discontinuation of certain brands and products, and a
consumption decline in the Personal Care business. Segment net sales
were unfavorably impacted by net foreign currency fluctuations of
approximately $0.5 million, or 0.6%. Operating margin was 8.6% compared
to 0.4%. The increase is primarily due to the favorable comparative
impact of pre-tax impairment charges of $11.4 million in the same period
last year and lower amortization expense. These factors were partially
offset by the unfavorable margin impact of the decline in the Personal
Care business, higher advertising expense and higher freight expense.
Beauty adjusted operating income decreased 36.8% to $9.4 million, or
10.4% of segment net sales, compared to $14.9 million, or 18.6% of
segment net sales.

Balance Sheet and Cash Flow Highlights

  • Cash and cash equivalents totaled $11.9 million, compared to $20.7
    million
  • Total short- and long-term debt was $320.8 million, compared to $289.9
    million, a net increase of $30.9 million
  • Accounts receivable turnover for the fiscal year was 68.3 days,
    compared to 62.7 days
  • Inventory was $302.3 million, compared to $251.5 million. Inventory
    turnover for the fiscal year was 3.3 times compared to 3.0 times.
  • Net cash provided by operating activities from continuing operations
    for fiscal 2019 decreased $18.0 million to $200.6 million. The
    decrease was primarily driven by an increase in cash used for
    inventory and a dispute settlement payment of $15.0 million. These
    factors were partially offset by an increase in income from continuing
    operations and higher non-cash share-based compensation.

Fiscal 2020 Annual Outlook

For fiscal 2020, the Company expects consolidated net sales revenue in
the range of $1.580 to $1.611 billion, which implies consolidated sales
growth of 1% to 3%.

The Company’s net sales outlook reflects the following expectations by
segment:

  • Housewares net sales growth of 4% to 6%;
  • Health & Home net sales growth of 2% to 3%; and
  • Beauty net sales decline in the low-single digits.

The Company expects consolidated GAAP diluted EPS from continuing
operations of $6.83 to $7.00, and non-GAAP adjusted diluted EPS from
continuing operations in the range of $8.25 to $8.50, which excludes any
asset impairment charges, restructuring charges, share-based
compensation expense and intangible asset amortization expense.

The Company’s net sales and EPS outlook assumes the severity of the
cough/cold/flu season will be in line with historical averages. The
Company’s net sales and EPS outlook also assumes that March 2019 foreign
currency exchange rates will remain constant for the remainder of the
fiscal year. The year-over-year comparison of adjusted diluted EPS from
continuing operations is impacted by an expected increase in growth
investments of 10% to 15% in fiscal 2020. The diluted earnings per share
outlook is based on an estimated weighted average diluted shares
outstanding of 25.4 million.

The Company expects adjusted EPS growth for fiscal 2020 to be
concentrated in the second half of the year due to the strong
performance comparison and specific events in the first half of fiscal
2019. The Company expects a decline in adjusted EPS for the first half
of fiscal 2020 of 4% to 8% year-over-year. The decline is expected to be
heavily concentrated in the first quarter primarily due to:

  • strong prior year cough/cold/flu incidence that had a favorable impact
    into the first quarter of fiscal 2019, which is not expected in fiscal
    2020;
  • strong international e-commerce sales in the first quarter of fiscal
    2019 that the Company expects to grow more evenly across fiscal 2020;
  • club channel pipeline fill-in sales during the first quarter of fiscal
    2019, which is not expected to repeat in the first quarter of fiscal
    2020;
  • the acceleration of Hydro Flask orders into the first quarter of
    fiscal 2019 in advance of the integration into the Company’s ERP
    system; and
  • the unfavorable comparative impact of year-over-year advertising and
    new product development expenditures.

The Company expects a reported GAAP effective tax rate range of 9.5% to
11.5%, and an adjusted effective tax rate range of 8.8% to 10.5% for the
full fiscal year 2020. Please refer to the schedule entitled “Effective
Tax Rate (GAAP) and Adjusted Effective Tax Rate (Non-GAAP)” in the
accompanying tables to this press release.

The likelihood and potential impact of any fiscal 2020 acquisitions and
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.

Conference Call and Webcast

The Company will conduct a teleconference in conjunction with today’s
earnings release. The teleconference begins at 9:00 a.m. Eastern Time
today, Friday, April 26, 2019. Investors and analysts interested in
participating in the call are invited to dial (888) 204-4368
approximately ten minutes prior to the start of the call. The conference
call will also be webcast live at: http://investor.hotus.com/.
A telephone replay of this call will be available at 12:00 p.m. Eastern
Time on April 26, 2019 until 11:59 p.m. Eastern Time on May 3, 2019 and
can be accessed by dialing (844) 512-2921 and entering replay pin number
9625670. A replay of the webcast will remain available on the website
for one year.

Non-GAAP Financial Measures

The Company reports and discusses its operating results using financial
measures consistent with accounting principles generally accepted in the
United States of America (“GAAP”). To supplement its presentation, the
Company discloses certain financial measures that may be considered
non-GAAP financial measures, such as adjusted operating income, adjusted
operating margin, adjusted effective tax rate, adjusted income, adjusted
diluted earnings per share, EBITDA and adjusted EBITDA, which are
presented in accompanying tables to this press release along with a
reconciliation of these financial measures to their corresponding
GAAP-based measures presented in the Company’s condensed consolidated
statements of income. All references to the Company’s continuing
operations exclude the Nutritional Supplements segment.

About Helen of Troy Limited

Helen of Troy Limited (NASDAQ: HELE) is a leading global consumer
products company offering creative solutions for its customers through a
strong portfolio of well-recognized and widely-trusted brands, including
OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, and Hot Tools. All
trademarks herein belong to Helen of Troy Limited (or its affiliates)
and/or are used under license from their respective licensors.

For more information about Helen of Troy, please visit http://investor.hotus.com/

Forward Looking Statements

Certain written and oral statements made by the Company and subsidiaries
of the Company may constitute “forward-looking statements” as defined
under the Private Securities Litigation Reform Act of 1995. This
includes statements made in this press release. Generally, the words
“anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “should”,
“seeks”, “estimates”, “project”, “predict”, “potential”, “continue”,
“intends”, and other similar words identify forward-looking statements.
All statements that address operating results, events or developments
that the Company expects or anticipates will occur in the future,
including statements related to sales, earnings per share results, and
statements expressing general expectations about future operating
results, are forward-looking statements and are based upon its current
expectations and various assumptions. The Company believes there is a
reasonable basis for these expectations and assumptions, but there can
be no assurance that the Company will realize these expectations or that
these assumptions will prove correct. Forward-looking statements are
subject to risks that could cause them to differ materially from actual
results. Accordingly, the Company cautions readers not to place undue
reliance on forward-looking statements. The forward-looking statements
contained in this press release should be read in conjunction with, and
are subject to and qualified by, the risks described in the Company’s
Form 10-K for the year ended February 28, 2019, and in the Company’s
other filings with the SEC.

Contacts

Investor Contact:
Helen of Troy Limited
Anne Rakunas,
Director, External Communications
(915) 225-4841

ICR,
Inc.
Allison Malkin, Partner
(203) 682-8200

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