Helen of Troy(HELE) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended May 31, 2025 Financial Statements The unaudited condensed consolidated financial statements for Q1 FY2026 show a significant net loss of $450.7 million, primarily due to a $414.4 million asset impairment charge, with total assets decreasing to $2.65 billion Consolidated Balance Sheets (in millions) | (in millions) | May 31, 2025 | February 28, 2025 | | :--- | :--- | :--- | | Total Assets | $2,651.9 | $3,132.1 | | Goodwill | $861.8 | $1,182.9 | | Total Liabilities | $1,424.3 | $1,448.6 | | Total Stockholders' Equity | $1,227.7 | $1,683.4 | Consolidated Statements of Operations (in millions, except per share data) | (in millions, except per share data) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Sales revenue, net | $371.7 | $416.8 | | Asset impairment charges | $414.4 | $— | | Operating (loss) income | $(407.0) | $30.8 | | Net (loss) income | $(450.7) | $6.2 | | Diluted (loss) earnings per share | $(19.65) | $0.26 | Consolidated Statements of Cash Flows (in millions) | (in millions) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $58.3 | $25.3 | | Net cash used by investing activities | $(9.5) | $(9.2) | | Net cash used by financing activities | $(45.1) | $(18.5) | Note 4 - Acquisition of Olive & June The company acquired Olive & June for an initial cash consideration of $224.7 million, recognizing $150.7 million in goodwill for expected synergies - Acquired Olive & June for initial cash of $224.7 million (net of cash acquired and adjustments) plus up to $15.0 million in contingent payments based on future performance[19][24] - The acquisition resulted in the provisional recognition of $150.7 million in goodwill, primarily attributed to expected synergies[27][29] Note 5 - Goodwill and Intangibles A Q1 FY2026 impairment test, triggered by stock price decline and revised forecasts, resulted in total asset impairment charges of $414.4 million, significantly reducing goodwill and other intangible assets - A goodwill impairment triggering event occurred in Q1 FY2026 due to a sustained decline in stock price and downward revisions to internal forecasts, reflecting tariff policies and macroeconomic impacts[31] Impairment Charge by Segment (in millions) | Segment | Impairment Charge (in millions) | Key Businesses Affected | | :--- | :--- | :--- | | Home & Outdoor | $219.1 | Hydro Flask ($120.8M), Osprey ($98.3M) | | Beauty & Wellness | $195.3 | Drybar ($103.7M), Curlsmith ($36.2M), Health & Wellness ($35.8M), Revlon ($19.6M) | | Total | $414.4 | | - Goodwill decreased by $317.0 million due to impairment charges, with the net carrying amount falling from $1.18 billion to $861.8 million[35][36] Note 10 - Long-Term Debt Total long-term debt was $871.0 million as of May 31, 2025, with $250.0 million borrowed under a delayed draw term loan to repay revolving credit facility debt Long-Term Debt (in millions) | (in millions) | May 31, 2025 | February 28, 2025 | | :--- | :--- | :--- | | Revolving loans | $385.4 | $678.1 | | Term loans | $491.4 | $243.8 | | Total long-term debt | $871.0 | $916.9 | - In Q1 FY2026, the company borrowed $250.0 million under its delayed draw term loan facility and used the proceeds to repay debt on the revolving credit facility[53] Note 14 - Segment and Geographic Information The company's Q1 FY2026 sales declined across both Home & Outdoor and Beauty & Wellness segments, with domestic sales comprising 74.8% of total revenue Segment Sales (in millions) | Segment (in millions) | Q1 FY2026 Sales | Q1 FY2025 Sales | % Change | | :--- | :--- | :--- | :--- | | Home & Outdoor | $178.0 | $198.5 | (10.3)% | | Beauty & Wellness | $193.7 | $218.4 | (11.3)% | | Total | $371.7 | $416.8 | (10.8)% | - Domestic sales (U.S. and Canada) represented 74.8% of total net sales revenue for the quarter, while international sales were 25.2%[84] Management's Discussion and Analysis (MD&A) Management discusses the significant factors impacting Q1 FY2026 results, including a 10.8% decline in consolidated net sales, a $414.4 million asset impairment charge, and a 62.5% decrease in adjusted operating income - Consolidated net sales revenue decreased 10.8% to $371.7 million, driven by a 17.0% decline in the Organic business[130][131][133] - The company recorded a consolidated operating loss of $407.0 million, which includes a $414.4 million pre-tax asset impairment charge; adjusted operating income fell 62.5% to $16.1 million[131][146][150] - Adjusted diluted EPS decreased 58.6% to $0.41 from $0.99 in the prior-year period[131][171] Significant Trends Impacting the Business The business is significantly impacted by evolving U.S. tariff policies, macroeconomic pressures, and increased competition, leading to reduced retailer orders and softer consumer demand - U.S. tariff policies on imports from China and other regions are creating uncertainty and negatively impacting sales due to paused or canceled retailer orders[103][106][107] - High inflation and interest rates are negatively impacting consumer disposable income and spending on discretionary items, leading to reduced replenishment orders from retailers[110][112] - Online channel sales, representing approximately 23% of total consolidated net sales, declined by about 18% compared to the prior year[113] Results of Operations Consolidated net sales declined 10.8% to $371.7 million, with both segments experiencing decreases due to lower orders and softer demand, while gross profit margin fell and SG&A ratio increased Key Financial Metrics | Metric | Q1 FY2026 | Q1 FY2025 | Change | | :--- | :--- | :--- | :--- | | Net Sales Revenue | $371.7M | $416.8M | (10.8)% | | Gross Profit Margin | 47.1% | 48.7% | (1.6) p.p. | | SG&A as % of Sales | 45.1% | 40.9% | +4.2 p.p. | | Operating Margin | (109.5)% | 7.4% | (116.9) p.p. | - The decline in the Home & Outdoor segment was driven by lower orders in home and insulated beverageware categories, partially offset by strong demand for technical packs[134][136] - The decline in the Beauty & Wellness segment was driven by lower sales of thermometers, fans, and hair appliances due to market dynamics in China, reduced consumer demand, and competition; the Olive & June acquisition contributed $26.8 million in sales[137][138][142] Liquidity and Capital Resources The company maintains adequate liquidity through cash from operations and its $1.5 billion credit facility, generating $58.3 million in operating cash flow in Q1 FY2026 - Cash provided by operating activities increased to $58.3 million from $25.3 million in the prior-year period, primarily due to favorable changes in working capital, especially accounts receivable[172][176] - As of May 31, 2025, the outstanding principal balance on the Credit Agreement was $876.8 million, with $346.7 million available for borrowing per the maximum leverage ratio[183] Critical Accounting Policies and Estimates This section details the Q1 FY2026 impairment testing for goodwill and intangible assets, which resulted in $414.4 million in charges due to a stock price decline and revised forecasts - The impairment was triggered by a sustained decline in stock price and downward revisions to forecasts reflecting the impact of tariffs and the macroeconomic environment[185] Impairment Charge by Asset Type (in millions) | Asset Type | Impairment Charge (in millions) | | :--- | :--- | | Goodwill | $317.0 | | Indefinite-lived intangible assets | $48.0 | | Definite-lived intangible assets | $49.4 | | Total | $414.4 | - Management judgment is crucial in estimating future cash flows for impairment testing, and further deterioration in economic conditions or consumer demand could lead to additional charges[191][192][201] PART II. OTHER INFORMATION This section covers updates on legal proceedings and the company's share repurchase program Legal Proceedings & Risk Factors No material changes to legal proceedings or risk factors are reported since the last Form 10-K, except for an update on the Brita LP patent litigation appeal scheduled for August 5, 2025 - There are no material changes in legal proceedings or risk factors since the last Form 10-K[209][210] - An update on the Brita LP patent litigation indicates that Brita is appealing the ITC's decision in favor of the Company, with oral arguments scheduled for August 5, 2025[50][120] Share Repurchases and Use of Proceeds No open market share repurchases occurred in Q1 FY2026, though 24,660 shares were acquired for tax withholdings on equity awards, with $498.6 million remaining under the $500 million authorization - No shares were repurchased on the open market during the three months ended May 31, 2025[46][213] - A total of 24,660 shares were acquired through "net exercise" transactions related to employee share-based compensation[46][213] - As of May 31, 2025, approximately $498.6 million remained available for future repurchases under the current authorization[44][213]