Hydro Flask's Helen of Troy Reports First Quarter Fiscal 2020 Results
Helen of Troy Limited produce of Hydroflask and 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 May 31, 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 classed as discontinued operations for all periods presented.
First Quarter of Fiscal 2020 Consolidated net sales revenue increase of 6.1%, including: An increase in Leadership Brand net sales of approximately 7.4% An increase in online channel net sales of approximately 28.0% Core business growth of 6.8% GAAP operating income of $47.2 million, or 12.5% of net sales, which included pre-tax restructuring charges of $0.6 million, compared to GAAP operating income of $43.3 million, or 12.2% of net sales, for the same period last year, which included pre-tax restructuring charges of $1.7 million Non-GAAP adjusted operating income increase of 6.9% to $59.3 million, or 15.8% of net sales, compared to $55.5 million, or 15.6% of net sales, for the same period last year GAAP diluted EPS from continuing operations of $1.61, which included an after-tax restructuring charge of $0.02 per share, compared to GAAP diluted EPS of $1.43 for the same period last year, which included an after-tax restructuring charge of $0.06 per share Non-GAAP adjusted diluted EPS from continuing operations increase of 10.2% to $2.06, compared to $1.87 for the same period last year
Julien R. Mininberg, Chief Executive Ocer, stated: “This quarter marks a great start to scal 2020 and Phase II of our Transformation, which we recently unveiled during our Investor Day on May 21st. Consolidated core business sales grew 6.8% and adjusted diluted EPS grew 10.2%, both well ahead of our expectations given the especially high year-ago base. Continued investment behind our Leadership Brands paid o handsomely, with net sales growth of 7.4% in the quarter. We continue to gain signicant ground online with strong double-digit growth to now represent 23% of consolidated sales. Housewares had a stellar quarter, and strong Beauty appliance sales drove growth in that segment. As expected, our Health & Home segment faced a tough comparison to the very strong rst quarter of last scal year. As a result of the strong start, we are pleased to raise our revenue and EPS outlook for Fiscal 2020.”
Mr. Mininberg continued: “We believe we have the right people, systems, and strategies in place to deliver on our Phase II goals over the next ve years, powered by a ywheel of continued net sales and adjusted diluted EPS growth, further improvements to our shared services and operating capability, and a winning culture.”
First Quarter Fiscal 2020 Compared to First Quarter Fiscal 2019 Consolidated net sales revenue increased 6.1% to $376.3 million compared to $354.7 million, primarily driven by a core business increase of $24.2 million, or 6.8%, reflecting an increase in brick and mortar sales in the Housewares segment, growth in consolidated online sales, and an increase in appliance sales in the Beauty segment. These factors were partially offset by lower international sales in the Health & Home segment, a decline in Personal Care sales within the Beauty segment, and the unfavorable impact from foreign currency fuctuations of approximately $2.5 million, or 0.7%. Consolidated gross profit margin decreased 0.5 percentage points to 40.8%, compared to 41.3%.
The decrease is primarily due to the impact of tari increases, unfavorable foreign currency fluctuations and higher freight expense, partially oset by the favorable margin impact from growth in Leadership Brands and a higher mix of Housewares sales. Consolidated SG&A as a percentage of sales decreased by 0.5 percentage points to 28.1% of net sales compared to 28.6%. The decrease is primarily due to the impact from pricing actions taken with retail customers, the favorable impact of foreign currency exchange and forward contract settlements, the impact that higher overall net sales had on operating leverage, and lower product liability claim expense.
These factors were partially oset by higher annual incentive and share-based compensation expense related to short- and long-term performance, higher new product development expense, and higher advertising expense. Consolidated operating income was $47.2 million, or 12.5% of net sales, compared to $43.3 million, or 12.2% of net sales. The increase in consolidated operating margin was driven by the net favorable comparative impact of pre-tax restructuring charges of $1.1 million and lower SG&A as a percentage of net sales, partially oset by a reduction in gross prot margin.
The effective tax rate was 7.6%, compared to 6.2% for the same period last year. The year-over-year increase in the eective tax rate is primarily due to shifts in the mix of taxable income in the Company's various tax 3 jurisdictions and increases in certain statutory tax rates. Income from continuing operations was $40.7 million, or $1.61 per diluted share on 25.2 million weighted average shares outstanding, compared to $38.2 million, or $1.43 per diluted share on 26.6 million weighted average diluted shares outstanding.
Diluted EPS from continuing operations for the first quarter of fiscal 2020 included a net favorable comparative impact from after-tax restructuring charges of $0.04 year-over-year. Adjusted EBITDA increased 6.6% to $63.3 million compared to $59.4 million. On an adjusted basis for the rst quarters of scal 2020 and 2019, excluding restructuring charges, non-cash sharebased compensation, and non-cash amortization of intangible assets, as applicable: Adjusted operating income increased $3.8 million, or 6.9%, to $59.3 million, or 15.8% of net sales, compared to $55.5 million, or 15.6% of net sales. The 0.2 percentage point increase in adjusted operating margin primarily reects the impact that higher overall net sales had on operating leverage, lower product liability claim expense, and the favorable margin impact from Leadership Brand growth and a higher mix of Housewares sales. These factors were partially oset by the impact of tari increases, higher annual incentive compensation expense, higher freight expense, higher new product development expense, and higher advertising expense. Adjusted income from continuing operations increased $2.3 million, or 4.6%, to $52.1 million, or $2.06 per diluted share, compared to $49.8 million, or $1.87 per diluted share.
The 10.2% increase in adjusted diluted EPS from continuing operations was primarily due to the impact of higher adjusted operating income from the Housewares segment and the impact of lower weighted average diluted shares outstanding. This increase was partially oset by lower adjusted operating income from the Health & Home and Beauty segments. Segment Operating Results - First Quarter Fiscal 2020 Compared to First Quarter Fiscal 2019 Housewares net sales increased 23.6%, or $27.6 million, primarily due to point of sale growth and incremental distribution with existing domestic brick and mortar customers, an increase in overall online sales, and new product introductions. These factors were partially oset by lower international sales and lower club channel sales.
Operating margin was 21.5% compared to 18.9%. The 2.6 percentage point increase was primarily due to the margin impact of more favorable product and channel mix, the impact that higher overall net sales had on operating leverage, and lower restructuring expense. These factors were partially offset by higher advertising investment to support new product launches and expanded distribution, higher annual incentive and share-based compensation expense related to short- and long-term performance, and higher new product development expense. Housewares adjusted operating income increased 35.3% to $34.4 million, or 23.7% of segment net sales, compared to $25.4 million, or 21.7% of segment net sales. 4 Health & Home net sales decreased 5.2% or $8.5 million, primarily due to a core business decline of $6.6 million, or 4.0%.
The core business decline primarily reflects the unfavorable comparative impacts of international expansion and the tail end of a strong cough/cold/u season in the same period last year. Segment net sales were also unfavorably impacted by net foreign currency fluctuations of $1.9 million, or 1.2%. These factors were partially oset by incremental distribution with existing domestic customers and early replenishment of certain seasonal categories. Operating margin was 9.7% compared to 12.0%.
The decrease was primarily due to the impact of tari increases, higher new product development expense, higher share-based compensation expense related to longterm performance, unfavorable operating leverage from the decline in sales, and the margin impact of a less favorable product and channel mix. These factors were partially oset by the favorable impact of foreign currency exchange and forward contract settlements, and lower product liability claim expense.
Health & Home adjusted operating income decreased 15.2% to $21.2 million, or 13.7% of segment net sales, compared to $25.0 million, or 15.3% of segment net sales. Beauty net sales increased 3.4%, or $2.5 million, primarily due to sales growth in the appliance category, especially online, and growth in international sales, partially oset by a decrease in brick and mortar sales and a decline in Personal Care. Operating margin was 1.2% compared to 2.0%. The decrease was primarily due to the impact of higher freight expense to meet strong demand in the appliance category, the margin impact of a less favorable product and channel mix, and higher new product development expense. These factors were partially oset by lower advertising and amortization expense. Beauty adjusted operating income decreased 26.8% to $3.7 million, or 4.8% of segment net sales, compared to $5.0 million, or 6.8% of segment net sales.
The Company’s net sales and EPS outlook assumes the severity of the upcoming cough/cold/flu season will be in line with historical averages. The Company’s net sales and EPS outlook also assumes that June 2019 foreign currency exchange rates will remain constant for the remainder of the scal year. The Company now expects the year-over-year comparison of adjusted diluted EPS from continuing operations to be impacted by an expected increase in growth investments of 12% to 17% in scal 2020, compared to the prior expectation of 10% to 15%. The diluted EPS outlook is based on an estimated weighted average diluted shares outstanding of 25.3 million.
The increase in the adjusted diluted EPS outlook for fiscal 2020 reflects the Company's strong performance in the first quarter, partially oset by the expected impact of the new U.K. Oshore Receipts in respect of Intangible Property ("ORIP") tax, the expected unfavorable impact from the assumption that June 2019 foreign exchange rates will remain constant for the rest of fiscal 2020, and an expected increase in growth investments compared to the Company's original outlook.
Combined, these items have an impact of approximately $0.20 per diluted share. The Company continues to expect adjusted EPS growth for scal 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 scal 2019. The Company now expects growth in adjusted EPS for the rst half of fiscal 2020 of 4% to 6% year-over-year. The Company now expects a reported GAAP effective tax rate range of 9.9% to 11.9%, and an adjusted effective tax rate range of 9.1% to 10.7% for the full scal year 2020. Please refer to the schedule entitled “Effective Tax Rate (GAAP) and Adjusted Eective 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, further tari increases, or further share repurchases are unknown and cannot be reasonably estimated; therefore, they are not included in the Company’s sales and earnings outlook.
