Edited Transcript of HELE.OQ earnings conference call or presentation 8-Oct-20 1:00pm GMT

Q2 2021 Helen of Troy Ltd earnings call
HAMILTON, October 8, 2020 (Thomson StreetEvents) - Released minutes of the conference call or earnings presentation by Helen of Troy Ltd Thursday, October 8, 2020 at 1:00 p.m. GMT
TEXT version of Transcript
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Company participant
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* Brian L. Grass
Helen of Troy Limited - CFO
* Jack Jancin
Helen of Troy Limited - Corporate Development SVP
* Julien R. Mininberg
Helen of Troy Limited - CEO and Director
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Participants in the conference call
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* Anthony Chester Lebiedzinski
Sidoti & Company, LLC - Senior Equity Research Analyst
* Linda Ann Bolton-Weiser
THERE. Davidson & Co., Research Department - Senior Research Analyst
* Olivia Tong
BofA Merrill Lynch, Research Department Director
* Robert James Labick
CJS Securities, Inc. President and Director of Research
* Rupesh Dhinoj Parikh
Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst
* Steven Louis Marotta
CL King & Associates, Inc., Research Division - MD & Director of Research
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presentation
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Operator [1]
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Greetings and welcome to the conference call on Helen of Troy's results for the second quarter of fiscal year 2021. (User Guide) This conference will be recorded as a reminder. (Operation manual)
It is now a pleasure for me to introduce your host, Mr. Jack Jancin, Senior Vice President for Corporate Business Development. Thank you very much. Sir, please carry on.
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Jack Jancin, Helen of Troy Limited - Corporate Development SVP [2]
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Thank you, operator. Good morning everyone, and welcome to the Helen of Troy's conference call on FY2002 second quarter results.
The agenda for the call this morning is as follows: I will start with a brief discussion of forward-looking statements. Mr. Julien Mininberg, CEO of the company, will comment on some high-level results for the quarter and discuss our current business developments. Brian Grass, the company's CFO, will then review the financials and reflect on the ongoing COVID-19 pandemic over the course of FY21. Both Julien and Brian will speak to you about our announced leadership plans. We then open the call to answer your questions.
This conference call may contain certain forward-looking statements based on management's current expectations about future events or financial performance. In general, the words anticipate, believe, expect and other similar words are useful to identify forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause expected results to differ materially from actual results.
This conference call may also contain information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than non-GAAP financial information disclosed by other companies. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.
Before I call Mr. Mininberg, I would like to inform all interested parties that a copy of today's earnings announcement has been posted in the Investor Relations section of the company's website at www.helenoftroy.com. The earnings release contains tables in which non-GAAP financial measures are compared with the corresponding GAAP-based measures. To get approval, go to the company's home page and select the Investor Relations tab and then the News tab.
I will now hand over the conference call to Mr. Mininberg.
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Julien R. Mininberg, Helen von Troy Limited - CEO & Director [3]
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Thanks Jack. Good morning everyone and thank you for joining us today. I hope you and your families can stay safe and sound. We recognize that people around the world continue to suffer as the virus and natural disasters take their toll. We express our deepest condolences to those who have lost loved ones to COVID-19, contracted the virus, faced financial difficulties, or struggled with the devastating effects of hurricanes or forest fires.
Let us turn to our result. Helen of Troy had excellent results this morning as our diversified portfolio continues to perform very well. We have been able to successfully adapt to and overcome myriad COVID-related challenges. From the beginning of this pandemic, we have acted decisively to run our business and organization through uncharted waters. We had two goals in mind. Our first goal was to protect the health of employees and to continue providing our consumers and customers with the high level of service to which they have become accustomed. Our second goal was to adapt to the new norms with the speed and agility needed to focus on delivering business results for the here and now while advancing our multi-year strategic plan for Phase 2 for sustainable long-term results. We continue to focus on these goals and our Phase II transformation goals. In the second quarter, we began to refocus on our key Phase II priorities. The continued strength of the business now enables us to continue doing this in the second half of our fiscal year. We believe that these investments will continue to benefit everyone involved as we drive our flywheel to create value.
The results that we are reporting on today would not be possible without the enormous commitment of our exceptional employees. The commitment of key people at the forefront in our distribution centers, in our test labs, and in our operational hubs around the world continues to make the difference every day. All over the world, our employees are delivering increased throughput to meet as much demand as possible under the challenging conditions of COVID and its ripple effects around the world. I am very proud to see how the Helen of Troy people in all areas of our business have made the collective sacrifice we made of them during the first months of this crisis in order to maintain the organization and skills to build it we all worked so hard. Their trust and hard work continue to pay off when the resilience of our business, organization and culture is tested and validated. As a result, we announced in early July that we would bring all directors' wages, salaries and compensation back to pre-COVID levels effective August 1, due to the temporary wage cuts. We believe this is at the core of our values ​​and is largely in line with our stated strategic goal to attract, retain, unite and train the best people. It's just the right thing, too.
Regarding the status of our offices and our work-from-home arrangements, we expect to continue our current mix of key employees who operate our distribution centers and keep many of our international offices open, for example in Europe and Asia, while others Helen of Troy employees will most likely continue to work from home through the end of this fiscal year. We will continue to closely monitor the ever-changing COVID-19 situation to ensure our approach to facilities and work environment is timely, thoughtful, carefully measured and in line with expert advice and local regulations.
Before I discuss our business results any further, I would like to address the two executive announcements highlighted in today's press release. The Helen of Troy Board of Directors has asked me to extend my role as CEO of Helen of Troy beyond the end date of February 28, 2023 in my current employment contract. I am honored that you continue to trust me and are excited to serve another year. I believe that we still have significant opportunities to further expand our sales, our profitability, our brand portfolio, our global presence and our capabilities.
When the amended employment contract is finalized, we will make a formal announcement. I am very happy to have had the opportunity to not only lead the company through the remaining 3.5 years of Phase 2 of our transformation plan, but also to ensure continuity of leadership throughout all 10 years of transformation. I am exactly where I like to be, at the center of our strategic thinking with the special responsibility of reinventing our business, delivering sustainable performance and continuing to build organizational and cultural excellence. I look forward to leading the company through FY '24 and through smooth succession planning for the next generation of leaders for FY '25 and beyond.
The second executive announcement we made today is that our friend, colleague and CFO Brian Grass intends to retire in just over a year, effective November 1, 2021. Brian is a valued partner to me and our global business leadership team. I greatly appreciate his expertise, integrity, high standards, and innumerable contributions during a career with Helen of Troy that has spanned over 15 years. He was instrumental in driving our transformation into a company that is built to last. Brian is rightly proud of what he and the company have achieved and the significant strides he and his team have made, adding to the level of excellence for our global corporate finance team and for many of our systems. He has also been heavily focused on building a compelling bank of in-house CFO successor talent that we aim to nurture over the next year. We also intend to do a full outside search to ensure we have the best next CFO for Helen of Troy. We expect this person to provide their usual excellent level of financial leadership and continue to implement our transformation. Brian will talk more about his retirement plans during his presentation. He will remain fully in his role for the next year, ensuring highly effective management and financial management and, in due course, supporting a seamless transition.
Now for our business results. Our diversified business model and portfolio served us well in the second quarter and achieved an excellent first half for fiscal year '21. As highlighted in our press release, we continue to see strong customer demand for our products in each of our three businesses worldwide. Sales growth was 28.2%. Adjusted diluted EPS increased sharply by 68.3%. That growth was broad-based as all businesses and international business grew at least 20% in the quarter. Margins rose due to mix improvements, disciplined capital spending, and operational leverage across our businesses and on our shared service platforms. Our lead brands performed very well with growth of 30.3% including a 3.2% contribution from Drybar. Online sales grew 32% and accounted for approximately 24% of our total sales for the quarter. The pandemic further accelerated the consumer trend from bricks to clicks.
The first half of this fiscal year was a great start into the second year of Phase 2. Net sales for the first half increased 20.4%, driven by Leadership Brand growth of 23.3%. International sales were remarkable, with double-digit growth in the first half of the year. The major projects in EMEA and Asia as part of our Phase 2 strategy to double our international output are exceeding internal expectations and creating attractive new investment opportunities to further drive international growth. Sales to the online channel increased 32% and represented approximately 26% of our total sales since the start of the year. Adjusted diluted EPS increased 46.5% for the first half and we had operating cash flow of $ 186 million.
The combination of successful results in the first half of the year and good prospects for business in the second half of this fiscal year enables us to make even more of the important Phase 2 investments originally planned for this year and what we communicated in our July call to restore. We believe this will help promote the long-term sustainability of our flywheel for value creation. The additional spending allows us to make key hires and drive direct sales, customization, product innovation and marketing. In addition, we can provide more marketing support for the sales profits generated, further diversify our supply chain beyond China, and make investments to expand our delivery capacity and infrastructure.
Infrastructure investments are especially important in these middle years of Phase 2 as we expand our sales and IT capabilities to keep pace with growth of more than 30% since our original transformation began and prepare for our future growth prospects. In addition, we use additional selected marketing opportunities in our business and regional portfolio, such as B. Hydro Flask, non-contact thermometers and the support of our Volumizer franchise.
Even if demand in health-related categories continues to rise, given the biological uncertainty about the progression of COVID and the veracity of the current cold and flu season, we think it wise to keep managing our marketing spend in the back half of other unknowns around consumer demand . Our efforts to improve supply are working, but all current demand is unlikely to be met. Taken together, these uncertainties do not currently allow us to provide specific quantitative financial guidelines. Brian will give an additional perspective on this in his remarks.
In terms of current trends, we like what we see so far. September was another very strong month in almost all businesses. The main trends in health-related products continue, especially at the start of the indoor season in northern climates when hybrid school models come into operation and the general nesting trend continues. Although these were positive business drivers for us, we assume that the rapid sales growth will weaken somewhat in the second half as we are celebrating a very strong end to our last financial year.
Switch now to the results for the second quarter in our divisions. We're extremely pleased with our performance at Beauty, delivering 23% organic sales growth, the highest we've seen in more than a decade. The Drybar acquisition added an additional 12.1 percentage points to the segment's total revenue growth of 34.6% for the quarter. Organic growth adds to organic sales growth of 9.3% over the same period last year, despite the current challenges facing retailers grappling with stay-at-home recommendations and measuring their brick and mortar store reopenings.
As proof of our stream of innovation and the strength of the One-Step Volumizer franchise, it continues to generate enthusiastic customer reviews from expanding sales and increasing its market share. Syndicated data shows that Helen of Troy has continued to grow her # 1 market share in the US haircare equipment online channel over the past 52 weeks and remains a significant lead. In-store syndicated data shows that over the past 52 weeks we have also built our second largest position in the US retail equipment market.
Our innovations for first-class Volumizer devices are still an important driver and a key focus of expansion for us, even if competitive copycat products hit the market. Our one-step volumizers from Revlon and Hot Tools have now received more than 90,000 online customer reviews with ratings of 4.5 stars and more depending on the website and significant media attention both in conventional vehicles and on social media platforms.
Sales of our newest lead brand, Drybar, were all incremental for the quarter. The beauty industry has been hardest hit by COVID. It closed hair salons and slowed reopening and traffic at large retailers in the Prestige Channel and other parts of brick and mortar retail. Despite this challenge, Drybar's sales improved one month at a time for the second quarter as Drybar Salons expanded their careful reopening plans from market to market that prioritize the safety of their customers. Most of the Drybar salons were reopened for business by mid-September, especially outside of the coastal cities, but are still affected by COVID.
Prestige retail faced similar challenges during the quarter. He responded by accelerating the use of e-commerce, buying online and picking up in-store or BOPIS, as well as picking up at the roadside, as more brick-and-mortar stores gradually reopened. Traffic remains challenging for key customers like Ulta, Sephora and Nordstrom, but we continue to see positive sequential buying trends for reopened stores.
With respect to our previously published divestment plan for the Personal Care business, the process is moving forward and we expect to share further progress when we report our earnings for the third quarter in January.
Let us now turn to Health & Home, an outstanding achievement. The momentum continued into the second quarter as the segment's simple mission became more relevant than ever: Be there when consumers need us most with trusted solutions for healthy living and peace of mind. Organic sales increased 33.1% as all four of our Health & Home Leadership Brands grew strongly in the quarter. The demand for Vicks, Braun, Honeywell and PUR products that meet the requirements for temperature, humidity, water quality and air quality continues to be very high.
The trends were particularly strong in the second quarter. New COVID developments arise almost every day. The northern hemisphere generally had a very hot and dry summer, and devastating forest fires continue to rage across much of the western United States. Aside from the immediate business impact of these events, we believe that the increased media attention to our categories and brands has had important positive short- and long-term implications for category development and household penetration, especially since that attention comes at a time when in which consumers are present, focus on current events and learn more about protecting health.
Braun remains our most global brand and is experiencing significantly increased demand. All Braun thermometer types are very relevant today, but no more than our non-contact or non-contact thermometers, which measure and record a person's temperature with clinical accuracy but do not require physical contact. The use of thermometers is changing from a primary diagnostic tool for understanding the severity of an illness and differentiating between the common cold and flu, to an expertly recommended pre-screening device for identifying the potential presence of a virus like COVID-19. Thermometers are the first line of defense helping not only protect our loved ones at home, but now also monitor public health and safety in schools, restaurants, shops, workplaces, institutions and transportation systems.
Earlier this year, we announced that we had started investing additional capital and human resources in expanding the production capacity of thermometers, including non-contact and ear-related devices. In addition to the capacity increase in the first quarter, further increases in production helped us to better satisfy demand in the second quarter. We're also adding an additional offering that should be operational in the third quarter and more to go online in the fourth quarter. With this increase, we expect our total pre-COVID capacity to more than double by the end of the year. This will adjust thermometer performance much better to the ongoing pandemic and better handle our fourth quarter, which is where the cough / cold / flu season traditionally peaks.
Air purification was also a very hot category. Sales of our Honeywell air purifiers in the United States grew strongly in the quarter. The main drivers have been increasing concerns about COVID, especially with the approaching indoor season for many households as well as institutions such as restaurants, schools and universities. Our air purifier sales were further supported by increased media attention highlighting the potential health benefits of using an air purifier during the pandemic. We also saw an early start to the Wildfire season this year. Several August flames in the western United States are unfortunately notable for their magnitude and intensity even among the most recent record fire seasons. Assessing air quality from forest fires can also heighten concerns about COVID-19 as more people are confined to enclosed spaces and polluted air puts the risk of respiratory damage and infections in the airways. The surge in demand for air purifiers has been much stronger than expected and put a strain on our supply chain. We responded quickly and increased the air purifier supply by 50% by the end of next month.
Demand for water treatment continued through the quarter, underscored by two key trends. The first comes from COVID-19 as many people who continue to seek shelter and work from home are looking for additional ways to keep themselves and their families safe. The second is that our PUR products are benefiting from an increasing trend towards single-use plastic bottle bans around the world as the mindset shifts towards more sustainable buying and using habits. Because of these trends and the increase in supply and distribution, syndicated data shows that PUR's growth has outpaced category growth, which has resulted in market share gains for US in-store equipment and replacement filters from PUR.
Finally, in Health & Home, we've seen continued strong demand for our Vicks humidifier devices and VapoSteam inhalants. These products are designed to make breathing easier by helping alleviate the most common symptoms of the common cold - cough and constipation - that can be associated with a variety of respiratory infections. According to syndicated data, our Vicks inhalation and humidifier businesses increased their market share in the US stationary market during the quarter.
Housewares sales rose over 20% in the second quarter, despite facing a particularly strong comparison where the segment grew more than 22% over the same period last year. Our two leading household goods brands grew during the quarter. It is clear that the pandemic is changing almost everything in our daily lives, including the way consumers view food. As people continue to adapt to the housing guidelines, new habits are forming. Many who used to eat outside the home are now getting to know their kitchens again. Studies confirm that consumers, especially millennials, enjoy cooking more, seeking shelter, and experimenting with more meal choices. It is this time of experimentation and newfound fun that also expands the use of essential products and devices for cooking, baking, brewing, cleaning, storing, and organizing. All of this is the ideal place for our outstanding OXO range, which enables consumers to transform their homes and kitchens into efficient spaces that get better every day. We are excited about the outlook for the brand as OXO benefits from these positive new habits and increased adoption by a new and younger demographic. This is positively reinforced by after-sales. OXO usually earns once a household is penetrated.
OXO grew in the brick-and-mortar, online and international markets in the quarter as we gained distribution, launched new products, and benefited from very strong POS trends and branch traffic at certain retailers. The bathroom, food storage, coffee, trade fairs and baking grew particularly explosively. OXO's international sales have also been an excellent source of growth, particularly in EMEA and online. OXO's domestic online sales benefited from a significant increase in direct sales as the brick-to-click trend continues. Dot-Com like Amazon, oxo.com and Target.com were also outstanding. OXO’s market share gains in the US were strong. Syndicated data shows that OXO's sales growth in US dollars was approximately twice as fast during the quarter, despite the rapid growth in the US household goods category. OXO's 1% for the planet partnership continues to align the brand with consumers as it joins a global branding community that bolsters its positive equity by giving the equivalent of 1% of its sales back to environmental charities.
Hydro Flask returned to its growth during the quarter as more people returned to the outdoors and to key brick and mortar retailers that were slowly reopening. In the same period of the previous year, the brand survived a particularly strong comparison and overcame this year's headwinds due to closings and lower shop traffic at important retailers. According to syndicated data, Hydro Flask continues to maintain its leading market position in the US and is largely ahead of the competition in insulated drinking vessels. Hydro Flask's international sales grew very rapidly during the quarter. Most of our retail stores opened at the end of the quarter. Consumers continued to shop online, where the brand had strong e-commerce and DTC sales. Hydro Flask's brick and mortar point of sale also began to improve as pedestrian traffic resumed in areas where consumers were more comfortable leaving their homes. While COVID is likely to last longer than any of us would like, we continue to like our prospects for Hydro Flask as it continues to be highly relevant and extremely popular, with trending positioning, products, sales and online presence .
To conclude my comments, I would like to highlight the focus we are putting on our Phase 2 initiatives. They are the key to driving our flywheel further for added value. In the second half of fiscal year 21, our portfolio is showing excellent momentum, so we can use our cash flow to continue to invest selectively in phase 2. Our balance sheet and financial condition are very strong and can support accelerated investments. With our strong cash flow and low leverage, we are in a strong position to fund higher inventory levels, invest capital on an acquisitive acquisition that gives the flywheel more critical mass, and consider opportunistic share buybacks. While many of the challenges posed by COVID make headlines, we believe we are building a company that is built to last and has demonstrated its ability to create value for our stakeholders in a variety of market environments. A focus on delivering results to everyone involved has been a hallmark of Helen of Troy throughout her transformation and we are proud to continue that work.

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questions and answers
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Operator [1]
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Yes. Great.
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For sure.
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Yes. Yes. Well.


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