Hydro Flask Growth Helps Offset Parent Co. Q4 Losses

Helen of Troy Limited Reports Fourth Quarter Fiscal 2017 Results

• Delivers GAAP Diluted Earnings Per Share (EPS) of $1.30; Non-GAAP Adjusted Diluted EPS of $1.78
• Fiscal 2018 Outlook of GAAP Diluted EPS of $5.38 to $5.71; Non-GAAP Adjusted Diluted EPS of $6.50 to $6.90
• Fiscal 2018 Outlook of Consolidated Net Sales of $1.56 to $1.60 billion; Growth of 1.5% to 4.1%

Helen of Troy Limited, the parent company of industry water bottle maker Hydro Flask, and a designer, developer and worldwide marketer of consumer brand-name housewares, health and home, nutritional supplement and beauty products, today reported results for the three-month period ended February 28, 2017.

Executive Summary

• Consolidated net sales revenue decrease of 2.3% driven by a core business decline of 8.3%, a decrease of 1.2% from Venezuela re-measurement, and a decline of 0.5% from foreign currency fluctuations, partially offset by growth from Hydro Flask of 7.6%
• Consolidated gross profit margin expansion of 2.0 percentage points; 0.6 percentage points from the core business
• Reported operating income of $40.6 million, or 10.8% of net sales, compared to $16.0 million, or 4.1% of net sales in the same period last year
• Non-GAAP adjusted operating margin decreased 2.1 percentage points to 14.9%, which includes an unfavorable impact of 0.4 percentage points from Venezuela re-measurement
• Cash flow from operations was $89.4 million
• Reported diluted EPS of $1.30 compared to $0.34 in the same period last year
• Non-GAAP adjusted diluted EPS of $1.78 compared to $2.03 in the same period last year
• Fiscal 2018 net sales revenue guidance in a range of $1.56 to $1.60 billion and adjusted diluted EPS in a range of $6.50 to 6.90

Julien R. Mininberg, Chief Executive Officer, stated: “Overall we made considerable progress in fiscal 2017. For the year, we achieved 43% growth in GAAP diluted EPS to $5.04 and 7.7% growth in non-GAAP adjusted diluted EPS to $6.73, which exceeded our most recent, upwardly revised, outlook.

“We also expanded our GAAP operating margin by 2.2 percentage points and our non-GAAP adjusted operating margin by 0.4 percentage points, which includes a negative impact of 0.4 percentage points from Venezuela re-measurement. We demonstrated the benefits of our diversified portfolio and key transformational strategies to deliver earnings growth and 22% growth in cash flow from operations despite external headwinds.

“Looking specifically at the fourth quarter, earnings were above expectations, as we delivered adjusted diluted EPS of $1.78, while making important investments in PUR, OXO and Hydro Flask and facing continued headwinds from a sluggish brick and mortar retail environment and unfavorable currency.”

Mr. Mininberg continued: “As we focus on reaccelerating sales growth in fiscal 2018, we plan to strategically invest an incremental $28 million, primarily behind our leadership brands that make up the majority of our revenue and an even higher proportion of our operating profit.

“We are also increasing our attention on e-commerce, which grew over 30% in fiscal 2017, and digital marketing which also made considerable progress during the year. We believe these efforts will position us to achieve core business sales growth in fiscal 2018 in line with our 2-3% long-term sales growth outlook.”

Selected Hydro Flask highlights:

Consolidated Operating Results – Fourth Quarter Fiscal 2017 Compared to Fourth Quarter Fiscal 2016

• Consolidated net sales revenue decreased 2.3% to $376.7 million compared to $385.7 million, reflecting a decrease in core business net sales revenue of 8.3%, a decline of from Venezuela re-measurement of 1.2%, and a decrease from foreign currency fluctuations of 0.5%, partially offset by growth from acquisitions of 7.6%. The core business decline includes a decrease of approximately 1.2% from the rationalization of certain lower margin business, a decline in the Nutritional Supplements segment of 23.1%, a weak cough/cold/flu season and the impact of lower store traffic and soft spending at traditional brick and mortar retail, along with inventory rationalization by several key retailers, partially offset by the shift in consumer preference to purchasing online.
• Gross profit margin increased 2.0 percentage points to 44.0% compared to 42.0%. The improvement in consolidated gross profit margin is primarily due to: (i) product rationalization efforts; (ii) margin accretion from Hydro Flask; and (iii) the impact of a non-cash Venezuela inventory impairment charge of $9.1 million recorded in the fourth quarter of fiscal 2016, which reduced the comparative period consolidated gross profit margin by 2.4 percentage points. These factors were partially offset by the unfavorable impact of foreign currency fluctuations and higher promotional discounting in the fourth quarter of fiscal 2017.

On an adjusted basis for the fourth quarters of fiscal 2017 and 2016, excluding non-cash asset impairment charges, non‐cash share based compensation, non-cash amortization of intangible assets, acquisition-related expenses, Venezuela re-measurement related charges, and patent litigation charges, as applicable:

• Adjusted operating income was $56.1 million, or 14.9% of net sales, compared to $65.5 million, or 17.0% of net sales, primarily reflecting the negative impacts from Venezuela re-measurement and foreign currency fluctuations, higher personnel expense due to higher incentive compensation costs and hourly wage increases, and higher advertising and new product development expense, partially offset by the accretive impact of Hydro Flask and distribution and freight efficiency in the core business.

Segment Operating Results – Fourth Quarter Fiscal 2017 Compared to Fourth Quarter Fiscal 2016

Housewares net sales increased by 30.5% driven by a 37.1% contribution from Hydro Flask, partially offset by an 6.0% decrease in core business net sales revenue. The core business decline reflects lower retail store traffic at brick and mortar and lower order replenishment from key customers, partially offset by solid product sell through at key traditional and online retail customers. The segment was also impacted by the negative impact of approximately 0.6% from foreign currency fluctuations. GAAP operating margin was 20.1% compared to 18.8%. Adjusted operating margin improved 0.9 percentage points primarily due to the accretive impact of the Hydro Flask acquisition.

Balance Sheet Highlights – Fiscal 2017 Year End Compared to Fiscal 2016 Year End

• Cash and cash equivalents totaled $23.1 million, compared to $225.8 million at the end of fiscal 2016, reflecting $200 million drawn in February 2016 to fund the acquisition of Hydro Flask in March 2016.
• Total short- and long-term debt decreased to $485.6 million, compared to $619.9 million, a net decrease of $134.3 million. The decrease reflects net debt repayments of $133.2 million, which include $75.0 million drawn for share repurchases in the third quarter of fiscal 2017.
• Accounts receivable turnover was 55.3 days, compared to 52.4 days.
• Inventory was $289.1 million, compared to $301.6 million. Inventory turnover was 2.8 times, compared to 2.9 times.

Fiscal 2018 Annual Outlook

For fiscal 2018, the Company expects consolidated net sales revenue in the range of $1.56 to $1.60 billion, which implies consolidated sales growth of 1.5% to 4.1%. The Company’s net sales outlook assumes that mid-April 2017 foreign currency exchange rates will remain constant for the fiscal year, which is expected to negatively impact year-over-year net sales revenue by approximately $8.0 million, or 0.5 percentage points, and that the severity of the cough/cold/flu season will be in line with long-term historical averages. Finally, the Company’s net sales outlook reflects the following expectations by segment:

• Housewares net sales growth of 11% to 13%

About Helen of Troy Limited:

Helen of Troy Limited (NASDAQ, NM: 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®, OXO Tot®, Hydro Flask®, Vicks®, Braun®, Honeywell®, PUR®, Febreze®; Revlon®, Pro Beauty Tools®, Sure®, Pert®, Infusium23®, Brut®, Ammens®, Hot Tools®, Bed Head®, Dr. Sinatra®, Dr. David Williams®, and Dr. Whitaker®. All trademarks herein belong to Helen of Troy Limited (or its affiliates) and/or are used under license from their respective licensors.