Editor’s Note: We’ve edited the Q2 earnings release from consumer brand company Helen of Troy to focus on industry company Hydro Flask, which Helen of Troy aquired in March 2016. The full earnings release, including more details on other brands in HOT’s portfolio, can be found on the company’s IR website.
Click here to listen to a podcast with Hydro Flask GM Scott Allan, who discusses the company’s growth, new product introductions, and advice for small brands.
Helen of Troy Limited (NASDAQ:HELE), the parent company of 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 August 31, 2017.
Second quarter fiscal 2018 results include pre-tax non-cash asset impairment charges of $18.1 million and a $3.6 million charge related to the bankruptcy of Toys “R” Us, with no comparable charges in the same period last year.
Executive Summary
Consolidated net sales revenue increase of 2.8%, including:
- An increase in Leadership Brand net sales of approximately 5.9%, including Hydro Flask
- An increase in online channel net sales of approximately 17.9%
GAAP operating income of $20.1 million, or 5.3% of net sales, which includes $18.1 million in non-cash pre-tax asset impairment charges and a $3.6 million charge related to the bankruptcy of Toys “R” Us, compared to $37.5 million, or 10.2% of net sales in the same period last year
Non-GAAP adjusted operating income growth of 7.7% to $51.5 million, or 13.6% of net sales, which excludes the impairment and bankruptcy charges mentioned above, compared to $47.9 million, or 13.0% of net sales in the same period last year
Effective tax rate of 45.3% compared to 15.9% in the same period of the prior year, driven by the tax impact of impairment charges
GAAP diluted EPS of $0.33, which includes $1.02 per share in impairment and bankruptcy charges mentioned above, compared to $1.00 in the same period last year
Non-GAAP adjusted diluted EPS growth of 26.0% to $1.65, compared to $1.31 in the same period last year
Julien R. Mininberg, Chief Executive Officer, stated: “We are pleased to deliver another solid quarter at Helen of Troy, highlighted by a 2.8% increase in total sales, driven primarily by new product introductions, online customer growth, incremental distribution, and growth in international sales. Importantly, we achieved growth of 5.9% in our Leadership Brand sales and a 17.9% increase in online sales.
“This growth, coupled with disciplined incremental investment spending, operating efficiency and lower tax expense led to an increase in adjusted diluted EPS of 26%. The quarter was again led by our Housewares segment (including Hydro Flask), which grew sales 8.3% …”
Mr. Mininberg continued: “Looking more broadly, I am pleased with our progress in the first half of the year. During this period, we achieved total sales growth of 3.1% and an increase in our Leadership Brand net sales of 7.9%, most of which are growing share. In addition, sales to the online channel increased 23.0% and now represents 14.6% of our total sales. …”
Segment Operating Results – Second Quarter Fiscal 2018 Compared to Second Quarter Fiscal 2017
Housewares core net sales increased by 8.3% reflecting an increase in online channel sales, incremental distribution with existing customers, expanded international and U.S. distribution, and new product introductions for both Hydro Flask and OXO brands.
This growth includes the unfavorable impact of lower store traffic and soft consumer spending at traditional brick and mortar retail and the impact of slowing growth in the Outdoor sector.
Net foreign currency fluctuations were immaterial to segment sales in the period. GAAP operating margin was 20.5% compared to 22.9%. Adjusted operating margin decreased 1.6 percentage points primarily due to higher marketing, advertising and new product development expense, partially offset by lower incentive compensation expense and the impact of increased operating leverage from net sales growth.
Fiscal 2018 Annual Outlook
For fiscal 2018, the Company now expects consolidated net sales revenue in the range of $1.560 to $1.585 billion, which implies consolidated sales growth of 1.5% to 3.1%. The Company’s net sales outlook assumes that September 2017 foreign currency exchange rates will remain constant for the remainder of the fiscal year 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 8% to 10% (including Hydro Flask)
The Company’s current Housewares outlook reflects management’s expectation that solid growth achieved in the first half of fiscal 2018 for both OXO and Hydro Flask will moderate in the second half of the fiscal year due to weakness at brick and mortar retail, slowing growth in the Outdoor sector and a difficult comparison from new product introductions and distribution gains in the same period last year.
. . .
Consistent with the Company’s strategies of investing in core business growth and consumer centric innovation, its outlook now includes approximately $0.40 to $0.50 per share year-over-year in incremental after-tax growth investments expanding digital marketing, advertising, new product development and e-commerce, primarily behind the Company’s Leadership Brands (including Hydro Flask).
The revised incremental spending plan partially reflects the effectiveness achieved from the Company’s spend in the first half of the year. It also includes a shift in the timing of some planned investment to the second half of the year. The diluted EPS outlook is based on an estimated weighted average diluted shares outstanding of 27.4 million.
