Helen of Troy Limited Reports Second Quarter Fiscal 2022 Results

Consolidated Net Sales Decline of 10.5%; Decline of 7.6% from Core Business

GAAP Diluted Earnings Per Share (“EPS”) of $2.11

Adjusted Diluted EPS Decline of 29.7% to $2.65

Raises Fiscal 2022 Diluted EPS and Net Sales Outlook:

Consolidated Diluted EPS to $7.88-$8.31; Core Diluted EPS to $7.68-$8.11

Consolidated Adjusted Diluted EPS to $11.26-$11.56; Core Adjusted Diluted EPS to $11.05-$11.35

Consolidated Net Sales to $2.024-$2.067 Billion; Core Net Sales to $1.990-$2.032 Billion

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 August 31, 2021.

Executive Summary – Second Quarter of Fiscal 2022 Compared to Fiscal 2021 and Fiscal 2020

• Consolidated net sales revenue was $475.2 million, a decrease of 10.5% from fiscal 2021 and an increase of 14.8% from fiscal 2020
  • Core business net sales decline of 7.9% from fiscal 2021 and an increase of 20.6% from fiscal 2020
  • A decrease in Leadership Brand net sales of 8.7% from fiscal 2021 and an increase of 18.9% from fiscal 2020
  • A decrease in online channel net sales of 17.5% from fiscal 2021 and an increase of 8.5% from fiscal 2020
  • A consolidated net sales decline of 10.9% from Organic business
• In July 2021, the Company disclosed that it was in discussions with the U.S. Environmental Protection Agency (the “EPA”) regarding the compliance of packaging claims on certain of its products in the air and water filtration categories and a limited subset of humidifier products within the Health & Home segment that are sold in the United States. The EPA did not raise any product quality, safety or performance issues. As previously disclosed in August 2021, the Company largely resolved the EPA matter with modest changes to product labeling and began executing repackaging plans for the bulk of the affected products. The Company expects to ramp up to normalized shipping activity for the vast majority of affected products at various timeframes during the third quarter. During the second quarter of fiscal 2022, the Company incurred additional compliance costs of $3.0 million, referred to as “EPA compliance costs.” The charge was comprised of incremental warehouse storage costs and legal fees of $2.6 million, which were recognized in selling, general and administrative expense (“SG&A”), and storage and obsolete packaging charges from vendors of $0.4 million, which were recognized in cost of goods sold.
• GAAP consolidated operating income of $67.3 million, or 14.2% of net sales, compared to $99.3 million, or 18.7% of net sales, for the same period last year
• Non-GAAP consolidated adjusted operating income decrease of 25.0% to $81.4 million, or 17.1% of net sales, compared to $108.5 million, or 20.4% of net sales, for the same period last year
• GAAP diluted EPS of $2.11, which includes EPA compliance costs of $0.12 per share, compared to $3.43 for the same period last year
• Non-GAAP adjusted diluted EPS of $2.65, a decrease of 29.7% from fiscal 2021 and an increase of 18.3% from fiscal 2020

Julien R. Mininberg, Chief Executive Officer, stated: “The second quarter exceeded our expectations. We are pleased to see our diversified portfolio once again deliver, with Housewares and Beauty both topping last year’s especially strong sales growth, and Health & Home declining less than expected due to a favorable resolution of the EPA matter. International also grew over the high growth in its year-ago base. We generated adjusted diluted EPS of $2.65 despite the significant impact of widespread inflation affecting nearly all input costs, including materials, labor, and transportation, and despite the lower Health & Home sales in the quarter due to the EPA matter. Looking at the first half of our fiscal year, we are very pleased to grow our Core sales by 8.9% and maintain our Core adjusted diluted EPS in the face of these obstacles. On a two-year stack, the results are even more compelling across many of our key measures. Our flywheel investments across the Company continue to pay off as we drive our Leadership Brands ahead, work hard to mitigate the current inflationary costs, continue to delight consumers with innovative new products, and make further improvements to our global shared services to power the back half of Phase II.”

Mr. Mininberg continued: “Looking ahead to the balance of the fiscal year, we are raising our full fiscal year outlook based on the better than expected second quarter results, positive trends in Beauty and Housewares, as well as the more favorable than expected EPA resolution. Including the EPA matter, the high end of our Core revenue outlook range implies slight growth over the 25.1% growth last year, and our Core adjusted diluted EPS outlook range implies growth of 0.2% to 2.9% over last year’s 26.5% growth. We believe delivering growth over last year’s elevated base and the margin expansion implied in our outlook would be a powerful statement in the face of more than $2.45 per share of inflationary cost pressure and the impact of the EPA matter this year. Excluding the impact of the EPA matter, our implied Core revenue growth outlook ranges from 3.4% to 4.3% and our implied Core adjusted diluted EPS growth outlook is 7%. I am very proud of our associates as they work together tirelessly to overcome challenge after challenge. They are Helen of Troy at its finest.”

“Our strong balance sheet provides dry powder to further accelerate long-term value creation by capitalizing on potential acquisition opportunities and affords us the ability to opportunistically buy back our stock.”

Consistent with its strategy of focusing resources on its Leadership Brands, during the fourth quarter of fiscal 2020, the Company committed to a plan to divest certain assets within its Beauty segment’s mass channel personal care business (“Personal Care”). During the second quarter of fiscal 2022, the Company completed the sale of its Personal Care business, not including the Latin America and Caribbean regions, to HRB Brands LLC, for $44.7 million in cash and recognized a gain on the sale of $0.5 million in SG&A. The transaction also includes an option that provides HRB Brands LLC the right to purchase the Latin America and Caribbean Personal Care businesses no later than the end of fiscal 2022, subject to meeting certain agreed-upon conditions. Accordingly, the Company has continued to classify the identified net assets of the Latin America and Caribbean Personal Care businesses as held for sale. The Company defines Core business as strategic business that it expects to be an ongoing part of its operations, and Non-Core business as business or net assets (including net assets held for sale) that it expects to divest within a year of its designation as Non-Core. Sales from the Latin America and Caribbean Personal Care businesses continue to be included in Non-Core business for all periods presented.

Consolidated Results – Second Quarter Fiscal 2022 Compared to Second Quarter Fiscal 2021

• Consolidated net sales revenue decreased $55.6 million, or 10.5%, to $475.2 million compared to $530.9 million. The decline was driven by a decrease from Organic business of $57.7 million, or 10.9%, primarily due to a decrease in sales in the Health & Home segment as a result of EPA packaging compliance concerns and related stop shipment actions, and a net sales revenue decline in Non-Core business primarily due to the sale of the North America Personal Care business during the second quarter of fiscal 2022. These factors were partially offset by higher brick and mortar sales in the Beauty and Housewares segments due primarily to strong consumer demand and the favorable comparative impact of COVID-19 related store closures and reduced store traffic in the prior period, higher sales in the closeout channel, and growth in consolidated international sales. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $2.1 million, or 0.4%.
• Consolidated gross profit margin increased 0.9 percentage points to 44.3%, compared to 43.4%. The increase in consolidated gross profit margin was primarily due to favorable product mix within the Beauty segment and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue. This was partially offset by higher inbound freight expense due to rising freight rates and container supply shortages, a less favorable channel mix within the Housewares segment, and EPA compliance costs recognized in cost of goods sold in the Health & Home segment of $0.4 million.
• Consolidated SG&A ratio increased 5.4 percentage points to 30.1%, compared to 24.7%. The increase in the consolidated SG&A ratio was primarily due to the comparative impact of higher personnel and advertising expense due to cost reduction initiatives in the prior year period related to the uncertainty of COVID-19, higher distribution expense, unfavorable operating leverage, higher share-based compensation expense, the unfavorable impact of foreign currency exchange fluctuations, and EPA compliance costs of $2.6 million. These factors were partially offset by the impact of lower annual incentive compensation expense, decreased amortization expense, and lower royalty expense.
• Consolidated operating income was $67.3 million, or 14.2% of net sales revenue, compared to $99.3 million, or 18.7% of net sales revenue. The 4.5 percentage point decrease in consolidated operating margin was primarily due to the comparative impact of higher personnel and advertising expenses from cost reduction initiatives in the prior year period related to the uncertainty of COVID-19, higher inbound freight expense due to rising freight rates and container supply shortages, increased distribution expenses, unfavorable operating leverage, EPA compliance costs of $3.0 million, higher share-based compensation expense, and the unfavorable impact of foreign currency exchange fluctuations. These factors were partially offset by a favorable product mix within the Beauty segment and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue, decreased amortization expense, lower royalty expense, and lower annual incentive compensation expense.
• Income tax expense as a percentage of income before tax was 19.8% compared to 9.6% for the same period last year, primarily due to shifts in the mix of taxable income in the Company’s various tax jurisdictions.
• Net income was $51.3 million, compared to $87.3 million. Diluted EPS was $2.11 compared to $3.43. Diluted EPS decreased primarily due to lower operating income in the Health & Home and Housewares segments, an increase in the effective income tax rate and higher interest expense, partially offset by higher operating income in the Beauty segment and lower weighted average diluted shares outstanding.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 23.1% to $87.2 million compared to $113.4 million.

On an adjusted basis for the second quarters of fiscal 2022 and 2021, excluding EPA compliance costs, restructuring charges, amortization of intangible assets, and non-cash share-based compensation, as applicable:

• Adjusted operating income decreased $27.1 million, or 25.0%, to $81.4 million, or 17.1% of net sales revenue, compared to $108.5 million, or 20.4% of net sales revenue. The 3.3 percentage point decrease in adjusted operating margin is primarily driven by higher personnel and advertising expenses stemming from cost reduction initiatives in the prior year period related to the uncertainty of COVID-19, higher inbound freight expense due to rising freight rates and container supply shortages, increased distribution expenses, unfavorable operating leverage, and the unfavorable impact of foreign currency exchange fluctuations. These factors were partially offset by a more favorable product mix within the Beauty segment and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue, lower royalty expense, and lower annual incentive compensation expense.
• Adjusted income decreased $31.5 million, or 32.8%, to $64.5 million, compared to $95.9 million for the same period last year. Adjusted diluted EPS decreased 29.7% to $2.65 compared to $3.77. The decrease in adjusted diluted EPS was primarily due to lower adjusted operating income in the Health & Home and Housewares segments, an increase in the effective income tax rate and higher interest expense, partially offset by higher adjusted operating income in the Beauty segment and lower weighted average diluted shares outstanding.

Segment Results – Second Quarter Fiscal 2022 Compared to Second Quarter Fiscal 2021

Housewares net sales revenue increased $13.4 million, or 6.6%, to $215.2 million, compared to $201.9 million. Growth was driven by an increase from Organic business of $13.1 million, or 6.5%, primarily due to an increase in brick and mortar sales for both OXO and Hydro Flask brands due to strong demand and the favorable comparative impact of COVID-19 related store closures, reduced store traffic and a soft back-to-school season in the prior year period, higher sales in the closeout channel, and growth in international sales. These factors were partially offset by a decrease in online sales primarily due to the unfavorable comparative impact of a shift towards online shopping in the prior year period due to COVID-19 related store closures, as well as a decline in club channel sales. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $0.3 million, or 0.1%. Operating income was $41.9 million, or 19.5% of segment net sales revenue, compared to $45.4 million, or 22.5% of segment net sales revenue. The 3.0 percentage point decrease in segment operating margin was primarily due to a less favorable channel mix, higher inbound freight expense due to rising freight rates and container supply shortages, increased distribution costs, an increase in marketing expense, and higher share-based compensation expense. These factors were partially offset by reduced annual incentive compensation expense and favorable operating leverage. Adjusted operating income decreased 3.9% to $46.0 million, or 21.4% of segment net sales revenue compared to $47.8 million, or 23.7% of segment net sales revenue.

Health & Home net sales revenue decreased $70.0 million, or 33.1%, to $141.5 million, compared to $211.5 million. The decline was driven by a decrease from Organic business of $70.9 million, or 33.5%, primarily due to a decrease in both brick and mortar and online sales of water filtration, air filtration and humidification products as a result of the EPA packaging compliance concerns and related stop shipment actions, and a decline in sales of thermometers due to stronger COVID-19 driven demand for healthcare products in the comparative prior period. These factors were partially offset by an increase in sales of heaters and new product introductions. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $0.9 million, or 0.4%. Operating income was $4.8 million, or 3.4% of segment net sales revenue, compared to $33.8 million, or 16.0% of segment net sales revenue. The 12.6 percentage point decrease in segment operating margin was primarily due to unfavorable operating leverage, EPA compliance costs of $3.0 million, increased personnel expense, higher inbound freight expense due to rising freight rates and container supply shortages, higher distribution costs, higher share-based compensation expense, and the unfavorable impact of foreign currency exchange fluctuations. These factors were partially offset by the favorable comparative impact of tariff exclusion refunds received in the second quarter of fiscal 2022, lower royalty expense, reduced amortization expense, and decreased annual incentive compensation expense. Adjusted operating income decreased 71.0% to $11.0 million, or 7.7% of segment net sales revenue, compared to $37.8 million, or 17.9% of segment net sales revenue.

Beauty net sales growth from Core business increased $16.4 million, or 13.9%, primarily reflecting higher appliance sales due to an increase in brick and mortar sales, growth in the volumizer franchise due to continued high consumer demand, expanded distribution primarily in the club channel, and higher international sales. Total Beauty segment net sales revenue increased $1.0 million, or 0.8%, to $118.5 million, compared to $117.5 million primarily due to the sale of the Non-Core North America Personal Care business during the second quarter of fiscal 2022. Net sales revenue was favorably impacted by net foreign currency fluctuations of approximately $0.9 million, or 0.7%. Operating income was $20.6 million, or 17.4% of segment net sales revenue, compared to $20.1 million, or 17.1% of segment net sales revenue. The 0.3 percentage point increase in segment operating margin was primarily due to a more favorable product mix, reduced annual incentive compensation expense, lower inventory obsolescence costs, and reduced royalty expense as a result of the amendment of the Revlon trademark license. These factors were partially offset by higher inbound freight expense due to rising freight rates and container supply shortages, increased marketing expense, higher personnel expense, an increase in long-term share-based incentive compensation expense, increased distribution expense, and the unfavorable impact of foreign currency exchange fluctuations. Adjusted operating income increased 7.0% to $24.5 million, or 20.6% of segment net sales revenue, compared to $22.9 million, or 19.5% of segment net sales revenue.

Balance Sheet and Cash Flow Highlights – Second Quarter Fiscal 2022 Compared to Second Quarter Fiscal 2021

• Cash and cash equivalents totaled $31.8 million, compared to $148.4 million.
• Accounts receivable turnover was 72.4 days, compared to 68.7 days.
• Inventory was $606.7 million, compared to $350.2 million. Trailing twelve-month inventory turnover was 2.5 times compared to 3.3 times.
• Total short- and long-term debt was $472.2 million, compared to $300.1 million.
• Net cash used by operating activities for the first six months of the fiscal year was $58.3 million, compared to net cash provided of $186.3 million for the same period last year.

Updated Fiscal 2022 Annual Outlook

Due to the sale of the majority of the Personal Care business during the second quarter of fiscal 2022 and the expected continued classification of the remaining Latin America and Caribbean Personal Care business as Non-Core for fiscal 2022, the Company is providing its updated outlook on both a consolidated and Core business basis in order to provide comparability between historical and future periods.

The Company’s updated outlook includes the current estimated impact of the duration of time required to repackage existing inventory affected by the EPA compliance concerns and related stop shipment actions and to return to normalized levels of shipping activity. The Company’s updated outlook includes an estimated unfavorable sales revenue impact of $75 to $100 million and an unfavorable adjusted diluted EPS impact of $0.45 to $0.75 related to lost sales volume and earnings due to the EPA matter. The adjusted diluted EPS impact is net of the favorable impact of cost reduction actions being taken in the Health & Home segment, which include reductions in personnel, marketing and select new product development costs.

The Company incurred $13.1 million and $3.0 million of EPA compliance costs during the first and second quarters of fiscal 2022, respectively. These costs were included in the Company’s GAAP operating results but were excluded from non-GAAP adjusted operating results. The Company expects to incur additional EPA compliance costs in fiscal 2022, which may include incremental freight, warehouse storage costs, charges from vendors, and legal fees, among other things. The Company expects to continue to exclude these costs from non-GAAP adjusted operating results in fiscal 2022, and the costs have been excluded from the updated annual outlook for non-GAAP adjusted diluted EPS.

The Company expects consolidated net sales revenue in the range of $2.02 to $2.07 billion, which implies a decline of 3.5% to 1.5%. The Company expects Core net sales revenue in the range of $1.99 to $2.03 billion, which implies a decline of 1.5% to growth of 0.5%, and includes 4.9% to 3.7% of unfavorable impact related to the EPA matter.

Contacts

Investors:
Helen of Troy Limited

Anne Rakunas, Director, External Communications

(915) 225-4841

ICR, Inc.

Allison Malkin, Partner

(203) 682-8200

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