Helen of Troy(US:HELE)2023-10-04 10:55PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, detailing asset, income, and cash flow changes for the quarter and six months ended August 31, 2023 Condensed Consolidated Financial Statements Total assets slightly decreased to $2.90 million, while net income declined, and operating cash flow significantly improved to $157.7 million for the six-month period Condensed Consolidated Balance Sheet Highlights (Unaudited) | (in thousands) | August 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | Total current assets | $888,692 | $892,041 | | Total assets | $2,901,660 | $2,913,715 | | Total current liabilities | $472,395 | $412,158 | | Total liabilities | $1,399,777 | $1,424,904 | | Total stockholders' equity | $1,501,883 | $1,488,811 | Condensed Consolidated Statements of Income (Unaudited) | (in thousands, except per share data) | Three Months Ended Aug 31, 2023 | Three Months Ended Aug 31, 2022 | Six Months Ended Aug 31, 2023 | Six Months Ended Aug 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales revenue, net | $491,563 | $521,400 | $966,235 | $1,029,478 | | Gross profit | $229,653 | $221,446 | $445,284 | $432,617 | | Operating income | $46,845 | $46,946 | $87,486 | $80,885 | | Net income | $27,381 | $30,672 | $49,962 | $55,267 | | Diluted EPS | $1.14 | $1.28 | $2.07 | $2.29 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (in thousands) | Six Months Ended Aug 31, 2023 | Six Months Ended Aug 31, 2022 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $157,732 | $(75,452) | | Net cash used by investing activities | $(20,311) | $(258,922) | | Net cash (used) provided by financing activities | $(142,280) | $340,643 | Note 1: Basis of Presentation and Corporate Overview This note outlines the corporate structure, detailing the consolidation of Health & Wellness and Beauty segments into a new 'Beauty & Wellness' reportable segment - Effective Q4 fiscal 2023, the company consolidated its Health & Wellness and Beauty segments into a single 'Beauty & Wellness' reportable segment, now operating two segments: Home & Outdoor and Beauty & Wellness17 Note 8: Restructuring Plan (Project Pegasus) This note details 'Project Pegasus,' a global restructuring plan targeting $60-$65 million in charges and $75-$85 million in annual pre-tax operating profit improvements - Project Pegasus now estimates lower total pre-tax restructuring charges of $60-$65 million (down from $85-$95 million), to be completed during fiscal 202554 - The plan targets annualized pre-tax operating profit improvements of $75-$85 million, expected to be substantially achieved by fiscal 2026, with savings realized approximately 60% through reduced cost of goods sold and 40% through lower SG&A55 Restructuring Charges Incurred (Project Pegasus) | (in thousands) | Three Months Ended Aug 31, 2023 | Six Months Ended Aug 31, 2023 | Total Incurred Since Inception | | :--- | :--- | :--- | :--- | | Total restructuring charges | $3,617 | $10,972 | $38,334 | Note 14: Segment Information This note provides a financial breakdown by segment, detailing net sales and operating income for the Home & Outdoor and Beauty & Wellness segments Segment Performance for Three Months Ended August 31, 2023 | (in thousands) | Home & Outdoor | Beauty & Wellness | Total | | :--- | :--- | :--- | :--- | | Sales revenue, net | $239,977 | $251,586 | $491,563 | | Operating income | $36,099 | $10,746 | $46,845 | Segment Performance for Six Months Ended August 31, 2023 | (in thousands) | Home & Outdoor | Beauty & Wellness | Total | | :--- | :--- | :--- | :--- | | Sales revenue, net | $457,121 | $509,114 | $966,235 | | Operating income | $58,215 | $29,271 | $87,486 | Management's Discussion and Analysis (MD&A) Management discusses financial results, noting a 5.7% decrease in net sales, improved gross margin, and enhanced liquidity from operations Overview and Significant Trends This section outlines ongoing transformation, macroeconomic impacts on consumer spending, growth in online sales, and the favorable resolution of patent litigation - The company's online channel sales grew approximately 17% year-over-year for the quarter, comprising about 27% of total consolidated net sales revenue118 - On September 19, 2023, the ITC issued a Final Determination in the company's favor regarding the Brita patent litigation, terminating the investigation113 - High inflation and interest rates negatively impacted consumer disposable income and spending, leading to reduced retail orders and adverse Q2 FY2024 results114117 Results of Operations This section analyzes financial performance, noting a 5.7% decrease in consolidated net sales, a 4.2 percentage point gross margin expansion, and a nearly flat operating income Consolidated Results Summary - Q2 FY2024 vs Q2 FY2023 | (in thousands) | Q2 FY2024 | Q2 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Total sales revenue, net | $491,563 | $521,400 | (5.7)% | | Gross profit | $229,653 | $221,446 | 3.7% | | Operating income | $46,845 | $46,946 | (0.2)% | | Net income | $27,381 | $30,672 | (10.7)% | - The 5.7% decline in consolidated net sales was driven by a 6.0% decrease from Organic business, primarily due to lower sales in Beauty & Wellness and Home & Outdoor categories134138 - Consolidated gross profit margin increased by 4.2 percentage points to 46.7%, primarily due to lower inbound freight costs and the absence of prior-year EPA compliance costs of $7.1 million151153 - Consolidated SG&A ratio increased by 3.9 percentage points to 36.5%, driven by higher compensation, marketing, and distribution expenses, and unfavorable sales leverage154 Liquidity and Capital Resources The company's liquidity strengthened significantly, with operating cash flow increasing to $157.7 million and capital expenditures decreasing to $20.6 million - Net cash provided by operating activities was $157.7 million for the six months ended August 31, 2023, a significant improvement from $75.5 million cash used in the prior year, driven by improved inventory and accounts receivable management187188 - Capital and intangible asset expenditures decreased to $20.6 million for the first six months of fiscal 2024, compared to $112.6 million in the prior year, following the completion of a new distribution facility189 - As of August 31, 2023, the company had an outstanding Credit Agreement principal balance of $846.8 million and $629.2 million available for borrowing193 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk disclosures from its most recent Form 10-K, with key risks actively managed - There have been no material changes in the company's quantitative and qualitative disclosures about market risk since the last Form 10-K filing198 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of August 31, 2023, with no material changes to internal controls identified - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of August 31, 2023201 - No material changes in internal control over financial reporting occurred during the quarter202 PART II. OTHER INFORMATION Legal Proceedings and Risk Factors The company reports no material changes to legal proceedings or risk factors since its last Form 10-K, except for a favorably resolved patent litigation - There have been no material changes in legal proceedings or risk factors since the last Form 10-K, other than the favorably resolved patent litigation discussed in Note 9203204 Issuer Purchases of Equity Securities This section details share repurchase activity, with 381,965 shares repurchased for $50.1 million, and $349.1 million remaining under authorization Share Repurchase Activity (June 1 - August 31, 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | June 2023 | 477 | $97.01 | | July 2023 | 381,221 | $131.18 | | August 2023 | 267 | $125.86 | | Total | 381,965 | $131.14 | - As of August 31, 2023, approximately $349.1 million remained available under the current stock repurchase authorization206207