Helen of Troy(HELE) - 2025 Q2 - Quarterly Results

Executive Summary & Outlook Helen of Troy reported strong Q2 FY25 results, reaffirming its annual outlook and highlighting progress on strategic initiatives and cost-saving efforts Executive Summary - Second Quarter Fiscal 2025 Helen of Troy reported second quarter fiscal 2025 results that were above expectations, leading to a reaffirmation of its annual outlook for net sales, adjusted EPS, and adjusted EBITDA | Metric | Q2 FY25 | Q2 FY24 | | :-------------------------------- | :------ | :------ | | Consolidated Net Sales Revenue | $474.2M | -3.5% | | GAAP Diluted EPS | $0.74 | $1.14 | | Non-GAAP Adjusted Diluted EPS | $1.21 | $1.74 | | Net Cash Provided by Operations | $44.6M | $36.7M | | Non-GAAP Adjusted EBITDA Margin | 11.8% | 14.6% | - CEO Noel M. Geoffroy stated that Q2 results were above expectations and reaffirmed the annual outlook for net sales, adjusted EPS, and adjusted EBITDA[2] - The company took decisive actions towards long-term strategic initiatives, including strengthening the core and further shaping its growth portfolio, and achieved early results on 'Reset and Revitalize' efforts[2] Fiscal 2025 Outlook Highlights Helen of Troy maintains its fiscal 2025 outlook for consolidated net sales, GAAP diluted EPS, and adjusted diluted EPS | Metric | Fiscal 2025 Outlook | | :-------------------------------- | :-------------------- | | Consolidated Net Sales | $1.885-$1.935 Billion | | GAAP Diluted EPS | $4.69-$5.45 | | Adjusted Diluted EPS | $7.00-$7.50 | | Adjusted EBITDA | $287-$297 Million | | Free Cash Flow (Updated) | $180-$200 Million | | Net Leverage Ratio Reduction (Updated) | 1.9X to 1.8X | - Project Pegasus is on track to deliver savings of $26 million to $30 million[1] Second Quarter Fiscal 2025 Financial Performance The company's Q2 FY25 financial performance saw a consolidated net sales decline, decreased gross profit margin, and lower operating income, alongside segment-specific variations and changes in balance sheet and cash flow metrics Consolidated Results Helen of Troy experienced a 3.5% decline in consolidated net sales, primarily due to weakness in Beauty & Wellness, partially offset by growth in Home & Outdoor Net Sales Revenue | Metric | Q2 FY25 (in thousands) | Q2 FY24 (in thousands) | Change (%) | | :--------------------- | :--------------------- | :--------------------- | :--------- | | Consolidated Net Sales | $474,221 | $491,563 | -3.5% | | Home & Outdoor Sales | $241,944 | $239,977 | +0.8% | | Beauty & Wellness Sales | $232,277 | $251,586 | -7.7% | - The decline was primarily driven by lower sales of hair appliances, air purifiers, and humidifiers in Beauty & Wellness, partially offset by Home & Outdoor growth in home and insulated beverageware categories, international growth, and higher sales of fans and thermometers within Beauty & Wellness[5] Gross Profit Margin | Metric | Q2 FY25 | Q2 FY24 | Change (bps) | | :-------------------- | :------ | :------ | :----------- | | Consolidated Gross Profit Margin | 45.6% | 46.7% | -110 bps | - The decrease was primarily due to a less favorable product and customer mix within Home & Outdoor and unfavorable inventory obsolescence expense year-over-year, partially offset by lower commodity and product costs, partly driven by Project Pegasus initiatives[5] SG&A Expense | Metric | Q2 FY25 | Q2 FY24 | Change (bps) | | :-------------------- | :------ | :------ | :----------- | | Consolidated SG&A Ratio | 37.9% | 36.5% | +140 bps | - The increase was primarily due to higher marketing expense, unfavorable distribution center expense (automation startup issues at the Tennessee facility), and the impact of unfavorable operating leverage, partially offset by lower overall personnel expense[6] Operating Income & Margin | Metric | Q2 FY25 (in thousands) | Q2 FY24 (in thousands) | Change (bps) | | :-------------------- | :--------------------- | :--------------------- | :----------- | | Consolidated Operating Income | $34,852 | $46,845 | -25.6% | | Consolidated Operating Margin | 7.3% | 9.5% | -220 bps | - The decrease in operating margin was primarily due to an increase in the consolidated SG&A ratio and a decrease in consolidated gross profit margin, partially offset by a decrease in restructuring charges of $2.1 million[6] Interest Expense & Income Tax | Metric | Q2 FY25 (in thousands) | Q2 FY24 (in thousands) | Change | | :-------------------- | :--------------------- | :--------------------- | :----- | | Interest Expense | $13,216 | $13,654 | -$438 | | Income Tax Expense (% of income before tax) | 22.0% | 17.9% | +410 bps | - The increase in income tax expense was primarily due to the impact of Barbados tax legislation enacted during the first quarter of fiscal 2025, shifts in the mix of income in various tax jurisdictions, and an increase in tax expense for discrete items[7][8] Net Income & Diluted EPS | Metric | Q2 FY25 (in thousands) | Q2 FY24 (in thousands) | Change (%) | | :-------------------- | :--------------------- | :--------------------- | :--------- | | Net Income | $17,014 | $27,381 | -37.8% | | Diluted EPS | $0.74 | $1.14 | -35.1% | - The decrease in diluted EPS was primarily due to lower operating income and an increase in the effective income tax rate, partially offset by lower weighted average diluted shares outstanding and a decrease in interest expense[8] Non-GAAP Adjusted Metrics | Metric | Q2 FY25 | Q2 FY24 | Change (%) | | :-------------------- | :------ | :------ | :--------- | | Adjusted Operating Income | $46.4M | $62.3M | -25.5% | | Adjusted Operating Margin | 9.8% | 12.7% | -290 bps | | Adjusted Diluted EPS | $1.21 | $1.74 | -30.5% | | Adjusted EBITDA | $55.8M | $71.7M | -22.2% | | Adjusted EBITDA Margin | 11.8% | 14.6% | -280 bps | - The decrease in adjusted operating margin was primarily driven by higher marketing expense, a less favorable product and customer mix within Home & Outdoor, unfavorable inventory obsolescence expense, and unfavorable operating leverage, partially offset by lower overall personnel expense and lower commodity and product costs[8] Segment Results The Home & Outdoor segment experienced a modest sales increase driven by insulated beverageware and international expansion, but its operating income and adjusted operating income declined Home & Outdoor Segment | Metric | Q2 FY25 (in thousands) | Q2 FY24 (in thousands) | Change (%) | | :-------------------- | :--------------------- | :--------------------- | :--------- | | Net Sales Revenue | $241,944 | $239,977 | +0.8% | | Operating Income | $31,152 | $36,099 | -13.7% | | Operating Margin | 12.9% | 15.0% | -210 bps | | Adjusted Operating Income | $36,252 | $42,421 | -14.5% | | Adjusted Operating Margin | 15.0% | 17.7% | -270 bps | - Sales increase was driven by insulated beverageware, higher international sales (new and expanded retailer distribution), and expanded retailer distribution in the home category, partially offset by softer consumer demand and lower replenishment orders[10] - Operating margin decrease was primarily due to unfavorable distribution center expense, a less favorable product and customer mix, and higher marketing expense, partially offset by lower overall personnel expense and favorable inventory obsolescence expense[11] Beauty & Wellness Segment | Metric | Q2 FY25 (in thousands) | Q2 FY24 (in thousands) | Change (%) | | :-------------------- | :--------------------- | :--------------------- | :--------- | | Net Sales Revenue | $232,277 | $251,586 | -7.7% | | Operating Income | $3,700 | $10,746 | -65.6% | | Operating Margin | 1.6% | 4.3% | -270 bps | | Adjusted Operating Income | $10,152 | $19,864 | -48.9% | | Adjusted Operating Margin | 4.4% | 7.9% | -350 bps | - Sales decrease was driven by a decline in hair appliances (softer consumer demand, increased competition), lower sales of air purifiers and humidifiers, and decreased water filtration product revenue due to an expired out-license relationship, partially offset by fan and thermometer growth[12][13] - Operating margin decrease was primarily due to higher marketing expense, unfavorable inventory obsolescence expense, and unfavorable operating leverage, partially offset by lower commodity and product costs and lower overall personnel expense[13] Balance Sheet and Cash Flow As of August 31, 2024, cash and cash equivalents decreased, while inventory increased, and total debt saw a significant reduction | Metric | August 31, 2024 (in thousands) | August 31, 2023 (in thousands) | Change | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Cash and cash equivalents | $20,137 | $24,214 | -$4,077 | | Inventory | $469,625 | $435,681 | +$33,944 | | Total short- and long-term debt | $713,235 | $844,903 | -$131,668 | | Net cash provided by operating activities (6 months) | $69,916 | $157,732 | -$87,816 | | Free cash flow (6 months) | $55,890 | $137,200 | -$81,310 | Project Pegasus Restructuring Plan Project Pegasus is a global restructuring plan aimed at improving operating margins through efficiency gains, cost reductions, and strategic optimization, with defined charges and expected savings Plan Overview Project Pegasus is a global restructuring plan designed to expand operating margins by improving efficiency, effectiveness, and reducing costs - Project Pegasus is a global restructuring plan aimed at expanding operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs[14] - The plan includes optimizing the brand portfolio, streamlining the organization, accelerating cost of goods savings, enhancing the supply chain network, optimizing indirect spending, and improving cash flow and working capital[14] - These initiatives are anticipated to create operating efficiencies and provide a platform to fund future growth investments[14] Expected Charges The company anticipates total one-time pre-tax restructuring charges of approximately $50 million to $55 million, expected to be completed during fiscal 2025 | Charge Type | Estimated Amount (in millions) | | :-------------------------- | :----------------------------- | | Severance and employee costs | $15 - $19 | | Professional fees | $28 | | Contract termination costs | $3 - $4 | | Other exit and disposal costs | $4 | - Total one-time pre-tax restructuring charges are expected to be approximately $50 million to $55 million over the duration of the plan, with completion expected during fiscal 2025[15] - Pre-tax restructuring charges are primarily cash expenditures, expected to be substantially paid by the end of fiscal 2025, impacting all operating segments and shared services[15] Expected Savings Project Pegasus is targeted to deliver annualized pre-tax operating profit improvements of approximately $75 million to $85 million, with substantial achievement expected by the end of fiscal 2027 | Fiscal Year | Estimated Savings Recognition | | :---------- | :---------------------------- | | 2024 | ~25% (achieved) | | 2025 | ~35% | | 2026 | ~25% | | 2027 | ~15% | - Targeted annualized pre-tax operating profit improvements are approximately $75 million to $85 million, expected to be substantially achieved by the end of fiscal 2027[17] - Total profit improvements are expected to be realized approximately 60% through reduced cost of goods sold and 40% through lower SG&A[17] Fiscal 2025 Annual Outlook The company maintains its fiscal 2025 consolidated net sales, GAAP diluted EPS, and adjusted diluted EPS outlook, while updating free cash flow and net leverage ratio targets amidst macroeconomic challenges Consolidated Net Sales Outlook The company maintains its consolidated net sales outlook of $1.885 billion to $1.935 billion, implying a decline of 6.0% to 3.5% | Metric | Fiscal 2025 Outlook | | :-------------------- | :-------------------- | | Consolidated Net Sales | $1.885B - $1.935B | | Implied Decline | 6.0% - 3.5% | - The sales outlook reflects lingering inflation, continued consumer spending softness (especially in discretionary categories), increased macro uncertainty, a more promotional environment, and retailers closely managing inventory levels[18] - Remediation efforts for the automation system in the Tennessee distribution facility were substantially completed in Q2 FY25, with minimal impact on sales during the quarter, and targeted efficiency levels are expected by the end of fiscal 2025[18] Segment Net Sales Outlook The fiscal year net sales outlook for Home & Outdoor is updated to a decline of 2.3% to growth of 1.4%, an improvement from prior expectations | Segment | Fiscal 2025 Net Sales Outlook (Current) | Fiscal 2025 Net Sales Outlook (Prior) | | :---------------- | :-------------------------------------- | :------------------------------------ | | Home & Outdoor | Decline of 2.3% to growth of 1.4% | Decline of 3.0% to 1.0% | | Beauty & Wellness | Decline of 9.0% to 7.5% | Decline of 8.0% to 5.0% | - The Beauty & Wellness outlook includes a year-over-year headwind of approximately 1.0% related to the expiration of an out-license relationship in Wellness[19] EPS Outlook (GAAP & Adjusted) The company maintains its GAAP diluted EPS outlook of $4.69 to $5.45 and non-GAAP adjusted diluted EPS outlook of $7.00 to $7.50 | Metric | Fiscal 2025 Outlook | | :-------------------- | :-------------------- | | GAAP Diluted EPS | $4.69 - $5.45 | | Non-GAAP Adjusted Diluted EPS | $7.00 - $7.50 | | Implied Adjusted Diluted EPS Decline | 21.4% - 15.8% | Adjusted EBITDA Outlook Adjusted EBITDA is maintained at $287 million to $297 million, implying a decline of 14.6% to 11.8% | Metric | Fiscal 2025 Outlook | | :-------------------- | :-------------------- | | Adjusted EBITDA | $287M - $297M | | Implied Decline | 14.6% - 11.8% | - Outlook reflects a year-over-year increase in growth investment spending (~100 bps), a headwind from an out-license expiration (~50 bps), and margin compression from automation startup issues at its Tennessee distribution facility (~50 bps, improved from prior 60 bps)[20] - These factors are expected to be partially offset by profit improvement actions implemented in the second quarter[20] Free Cash Flow & Net Leverage Ratio Outlook The company updated its free cash flow outlook to a range of $180 million to $200 million and now expects its net leverage ratio to end fiscal 2025 at 1.90x to 1.80x | Metric | Fiscal 2025 Outlook (Current) | Fiscal 2025 Outlook (Previous) | | :-------------------- | :---------------------------- | :----------------------------- | | Free Cash Flow | $180M - $200M | $200M - $240M | | Net Leverage Ratio | 1.90x - 1.80x | 1.60x - 1.50x | Quarterly Cadence & Assumptions For the third quarter of fiscal 2025, the company anticipates a net sales decline of approximately 4.5% to 1% and an adjusted diluted EPS decline of approximately 10% to 3% | Metric | Q3 FY25 Outlook | | :-------------------- | :-------------- | | Net Sales Decline | ~4.5% to 1% | | Adjusted Diluted EPS Decline | ~10% to 3% | - Full fiscal year assumptions include a cough/cold/flu season in line with pre-COVID historical averages, September 2024 foreign currency exchange rates remaining constant, expected interest expense of $44.0 million to $46.0 million, a GAAP effective tax rate of 27.3% to 29.5%, and an adjusted effective tax rate of 20.7% to 21.3%[22] - The outlook does not include the potential impact of a significant or prolonged recession, future acquisitions/divestitures, asset impairment charges, foreign currency fluctuations, additional interest rate increases, or share repurchases[23] Additional Information This section provides supplementary information including conference call details, explanations of non-GAAP financial measures, a company overview, forward-looking statements, and investor contact information Conference Call and Webcast Helen of Troy will host a teleconference and webcast on October 9, 2024, at 9:00 a.m. Eastern Time to discuss its earnings results - A teleconference and live webcast will be held on Wednesday, October 9, 2024, at 9:00 a.m. Eastern Time[24] - A telephone replay will be available from October 9 to October 23, 2024, and a webcast replay will remain available on the website for one year[24] Non-GAAP Financial Measures Explanation The company utilizes various non-GAAP financial measures, such as Adjusted Operating Income, Adjusted EPS, Adjusted EBITDA, Free Cash Flow, and Net Leverage Ratio, to supplement its GAAP results - The company reports and discusses operating results using non-GAAP financial measures like Adjusted Operating Income, Adjusted Diluted EPS, Adjusted EBITDA, Free Cash Flow, and Net Leverage Ratio[25][59] - These non-GAAP measures provide useful information to management and investors regarding financial and business trends, offering additional perspective on the impact of certain charges and benefits, and facilitating direct comparison with competitors[25][59] - Reconciliations of these non-GAAP financial measures to their corresponding GAAP-based financial measures are presented in accompanying tables[25] About Helen of Troy Limited Helen of Troy Limited is a leading global consumer products company that designs, develops, and markets branded home, outdoor, beauty, and wellness products - Helen of Troy Limited is a leading global consumer products company[27] - The company offers creative products and solutions through a diversified portfolio of well-recognized and widely-trusted brands, including OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar, Curlsmith, and Revlon[27] Forward-Looking Statements The report contains forward-looking statements that are subject to various risks and uncertainties, which could cause actual results to differ materially from expectations - Statements addressing future operating results, events, or developments are considered forward-looking statements, based on current expectations and assumptions[28] - These statements are subject to risks that could cause actual results to differ materially, and readers are cautioned not to place undue reliance on them[28] - Risks include geographic concentration of facilities, cyber incidents, dependence on large customers and third-party manufacturers, trade barriers, economic downturns, execution of Project Pegasus, regulatory changes, and volatility in financial markets[28][30] Investor Contact Contact information for investor relations is provided for Helen of Troy Limited and ICR, Inc - Investor Contact for Helen of Troy Limited: Anne Rakunas, Director, External Communications, (915) 225-4841[31] - Investor Contact for ICR, Inc.: Allison Malkin, Partner, (203) 682-8200[31] Financial Statements & Reconciliations This section presents the company's condensed consolidated financial statements and detailed reconciliations of GAAP to non-GAAP financial measures Condensed Consolidated Statements of Income This section presents the unaudited condensed consolidated statements of income for the three and six months ended August 31, 2024, and 2023, detailing key financial metrics such as sales revenue, gross profit, operating income, net income, and diluted EPS | Metric | Three Months Ended Aug 31, 2024 (in thousands) | Three Months Ended Aug 31, 2023 (in thousands) | Six Months Ended Aug 31, 2024 (in thousands) | Six Months Ended Aug 31, 2023 (in thousands) | | :-------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Sales revenue, net | $474,221 | $491,563 | $891,068 | $966,235 | | Gross profit | $216,070 | $229,653 | $419,149 | $445,284 | | Operating income | $34,852 | $46,845 | $65,615 | $87,486 | | Net income | $17,014 | $27,381 | $23,218 | $49,962 | | Diluted EPS | $0.74 | $1.14 | $1.00 | $2.07 | Consolidated Net Sales by Geographic Region This section provides a breakdown of consolidated net sales revenue by geographic region (Domestic and International) for the three and six months ended August 31, 2024, and 2023 | Metric | Three Months Ended Aug 31, 2024 (in thousands) | Three Months Ended Aug 31, 2023 (in thousands) | Six Months Ended Aug 31, 2024 (in thousands) | Six Months Ended Aug 31, 2023 (in thousands) | | :------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Domestic sales revenue, net | $365,750 (77.1%) | $388,049 (78.9%) | $666,430 (74.8%) | $747,608 (77.4%) | | International sales revenue, net | $108,471 (22.9%) | $103,514 (21.1%) | $224,638 (25.2%) | $218,627 (22.6%) | | Total sales revenue, net | $474,221 (100.0%) | $491,563 (100.0%) | $891,068 (100.0%) | $966,235 (100.0%) | Reconciliation of Non-GAAP Operating Income and Margin This section provides detailed reconciliations of GAAP operating income and operating margin to adjusted operating income and adjusted operating margin (non-GAAP) for both consolidated and segment-level results | Metric | Q2 FY25 GAAP Operating Income (Total) | Q2 FY25 Adjusted Operating Income (Total) | Q2 FY24 GAAP Operating Income (Total) | Q2 FY24 Adjusted Operating Income (Total) | | :-------------------- | :------------------------------------ | :---------------------------------------- | :------------------------------------ | :---------------------------------------- | | Operating Income (in thousands) | $34,852 | $46,404 | $46,845 | $62,285 | | Operating Margin | 7.3% | 9.8% | 9.5% | 12.7% | - Adjustments include restructuring charges, amortization of intangible assets, and non-cash share-based compensation[38][39][40] Reconciliation of Non-GAAP EBITDA and Adjusted EBITDA This section reconciles GAAP operating income and net income to EBITDA, adjusted EBITDA, and adjusted EBITDA margin (non-GAAP) for the three and six months ended August 31, 2024, and 2023 | Metric | Q2 FY25 EBITDA (Total) | Q2 FY25 Adjusted EBITDA (Total) | Q2 FY24 EBITDA (Total) | Q2 FY24 Adjusted EBITDA (Total) | | :-------------------- | :--------------------- | :------------------------------ | :--------------------- | :------------------------------ | | EBITDA (in thousands) | $48,814 | $55,827 | $60,884 | $71,730 | | EBITDA Margin | 10.3% | 11.8% | 12.4% | 14.6% | - Reconciliations include adjustments for depreciation and amortization, restructuring charges, and non-cash share-based compensation[42][45] Reconciliation of Non-GAAP Income and Diluted EPS This section provides reconciliations of GAAP income and diluted EPS to adjusted income and adjusted diluted EPS (non-GAAP) for the three and six months ended August 31, 2024, and 2023 | Metric | Q2 FY25 GAAP Diluted EPS | Q2 FY25 Adjusted Diluted EPS | Q2 FY24 GAAP Diluted EPS | Q2 FY24 Adjusted Diluted EPS | | :-------------------- | :----------------------- | :--------------------------- | :----------------------- | :--------------------------- | | Diluted EPS | $0.74 | $1.21 | $1.14 | $1.74 | - Adjustments include restructuring charges, amortization of intangible assets, non-cash share-based compensation, and for the six months ended August 31, 2024, Barbados tax reform[48][49][50] Selected Consolidated Balance Sheet and Cash Flow Information This section presents selected unaudited consolidated balance sheet data as of August 31, 2024, and 2023, and cash flow information for the six months ended August 31, 2024, and 2023 | Balance Sheet Metric | August 31, 2024 (in thousands) | August 31, 2023 (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $20,137 | $24,214 | | Inventory | $469,625 | $435,681 | | Total debt | $713,235 | $844,903 | | Stockholders' equity | $1,567,580 | $1,501,883 | | Cash Flow Metric (Six Months) | August 31, 2024 (in thousands) | August 31, 2023 (in thousands) | | :---------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $69,916 | $157,732 | | Free cash flow (non-GAAP) | $55,890 | $137,200 | | Net leverage ratio (non-GAAP) | 2.34 (as of Aug 31, 2024, trailing twelve months) | N/A | Fiscal 2025 Outlook Reconciliations This section provides reconciliations for the fiscal 2025 outlook, including consolidated net sales revenue, GAAP net income to adjusted EBITDA, and GAAP diluted EPS to adjusted diluted EPS, as well as GAAP net cash provided by operating activities to free cash flow | Outlook Metric | Fiscal 2025 Outlook (Low) | Fiscal 2025 Outlook (High) | | :---------------------------- | :------------------------ | :------------------------- | | Consolidated Net Sales Revenue | $1,885,000 | $1,935,000 | | Adjusted EBITDA (non-GAAP) | $287,000 | $296,000 | | Adjusted Diluted EPS (non-GAAP) | $7.00 | $7.50 | | Free Cash Flow (non-GAAP) | $180,000 | $200,000 | Notes to Press Release This section provides definitions and explanations for non-GAAP financial measures and other key terms used in the press release - Provides definitions and rationale for non-GAAP financial measures, including Adjusted Operating Income, Adjusted Diluted EPS, EBITDA, Adjusted EBITDA, Free Cash Flow, and Net Leverage Ratio[59] - Defines Free Cash Flow as net cash provided by operating activities less capital and intangible asset expenditures[59] - Explains the calculation of Net Leverage Ratio and clarifies terms like 'Organic business' and 'Domestic net sales revenue'[59]