Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Robert D. Spear – Senior Vice President and Chief Information Officer

Gerald J. Rubin – Chairman, President and Chief Executive Officer

Thomas J. Benson – Chief Financial Officer and Senior Vice President

Analysts

Rommel Dionisio - Wedbush Morgan Securities Inc.

Gary Giblen - Goldsmith & Harris

Mimi Noel – Sidoti & Co.

Mark Cooper – Wells Capital

Analyst for Doug Lane - Jefferies

Analyst for Jason Gere – RBC Capital Markets

Steve Friedman - Wachovia Securities

Helen of Troy Limited (HELE) F3Q10 Earnings Call January 11, 2010 11:00 AM ET

Operator

Welcome to the Helen of Troy third quarter conference call for fiscal 2010. (Operator Instructions) Our speakers for this morning's conference call are Gerald Rubin, Chairman, Chief Executive Officer and President; Thomas Benson, Senior Vice President and Chief Financial Officer and Robert Spear, Senior Vice President and Chief Information Officer. Now it is my pleasure to turn the conference over to Robert Spear. Please go ahead, sir.

Robert Spear

Good morning, everyone, and welcome to Helen of Troy's third quarter financial results conference call for fiscal year 2010. The agenda for this morning's conference call is as follows: We will have a brief forward-looking statement review followed by Mr. Rubin who will discuss the third quarter earnings release and related results of operations for Helen of Troy, followed by a financial review of our income statement and balance sheet for the quarter by Tom Benson, our Chief Financial Officer. Finally, we will open up for questions and answers.

Safe Harbor. This conference call may contain certain forward-looking statements that are based on management's current expectations with respect to future events or financial performance. A number of risks or uncertainties could cause actual results to differ materially from historical or anticipated results. Generally, the words anticipates, believes, expects and other similar words identify these statements. Forward-looking are subject to risks and that could cause such statements to differ materially from actual.

This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by the company. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.

Before I turn the conference call over to our Chairman, Mr. Rubin, I would like to inform all interested parties that a copy of today's earnings release has been posted on our website at www.hotus.com. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. The release can be accessed by selecting the Investor Relations tab on our home page and then the News tab.

I will now turn the conference over to Gerald Rubin, Chairman, CEO and President of Helen of Troy.

Gerald Rubin

Thank you Bob and good morning everyone and welcome to our third quarter earnings conference call. Helen of Troy Limited today reported sales and net earnings for the third quarter ending November 30, 2009.

We are very pleased with our substantially increased net operating results for the third quarter and nine months ended November 30, 2009 in which we achieved in a very difficult retail sales environment. Our houseware segment continued its record of sustained growth and our personal care segment has been affected by the poor retail economy during 2009.

Third quarter net earnings were $24,733,000 or $0.80 per fully diluted share compared to $15 million or $0.48 per fully diluted share for the same year earlier, an increase of 66.7% in earnings per fully diluted share. Net earnings for the nine months ended November 20, 2009 were $55,153,000 or $1.79 per fully diluted share versus $31,246,000 or $1.00 per fully diluted share for the same period a year earlier, an increase of 79% in earnings per fully diluted share.

We continue to review and adjust our business activities to address a slowly improving economic environment while managing liquidity and continuing to control expenses. During this difficult period we believe we are well positioned financially to continue to seek prudent opportunities to grow our business. We also continue our focus on expense reductions while striving to increase sales and gross margins for the coming year. We believe that our consumer brand leadership positions in our market segments will be the basis for positioning our company for continued growth and success.

Looking ahead to next year [we believe] may be the best year for sales and earnings in our 42-year history. I now would like to turn our conference call over to Thomas Benson, our CFO, for the financial results.

Thomas Benson

Thank you Gerry and good morning everyone. In the third quarter we experienced a year-over-year sales increase of 2% reflecting sales from the Ogilvie and Infusion 23 acquisitions and continued strength of our OXO brand partially offset by the impact of continued difficult macroeconomic conditions on consumer demand primarily in our appliance and our accessory product categories.

Gross profit margin improved by 4.5 percentage points year-over-year as a result of lower commodity, inbound freight and sourcing overhead costs that are beginning to cycle through our cost of sales as well as the impact of the Infusium and Ogilvie acquisitions which have comparatively higher margins than the core business.

Selling, general and administrative expenses as a percentage of sales decreased by 0.5 percentage points year-over-year. Third quarter net earnings were $24.7 million or $0.80 per fully diluted share compared to $15.1 million or $0.48 per fully diluted share for the same period last year which represents a 63.9% improvement.

Third quarter net sales increased 2% year-over-year. Net sales for the third quarter of fiscal 2010 were $189.4 million compared to $185.6 million in the prior year’s third quarter. This is an increase of $3.8 million or 2%. The increase in net sales reflects the impact of the Ogilvie and Infusium 23 acquisitions and the continued growth of our houseware segment due to the success of the dry food storage category, the launch of the wet foods storage line and other line extensions. Sales growth was partially offset by the recessionary economic environment and its continued impact on consumer demand mostly in our appliance and accessory product categories.

Operating income increased by 49.3% in dollar terms year-over-year. Operating income for the third quarter of fiscal 2010 was $29.5 million which is 15.8% of net sales compared to $20 million which is 10.8% of net sales in the prior year’s third quarter. This is a dollar increase of $9.9 million and a percentage increase of 49.3%. The increase in operating income primarily reflects the impact of sales growth and improvements in gross profit margin in SG&A.

Third quarter net earnings increased by $9.6 million to $24.7 million. Net earnings in the third quarter of fiscal 2010 were $24.7 million which is 13.1% of net sales compared to $15.1 million or 8.1% of net sales in the prior year’s third quarter. This is a dollar increase of $9.6 million and a percentage increase of 63.9%. Net earnings reflects the sales growth and the gross profit margin and SG&A improvements referred to previously as well as the impact of lower interest expense.

Diluted earnings per share in the third quarter of fiscal 2010 were $0.80 compared to $0.48 in the prior year’s third quarter. This is an increase of $0.32 or 66.7%.

Now I will provide a more detailed review of various components of our financial position. Products in our personal care segment include hair dryers, flat irons, curling irons, thermal brushes, massagers, spa products, foot baths, electric clippers and trimmers, hair brushes and accessories, liquid hair styling and treatment products, men’s fragrances, men’s deodorants, foot powder, body powder and skin care products.

Key brands in the personal care segment include Revlon, Vidal Sassoon, Bed Head, Toni & Guy, Hot Tools, Dr. Scholls, Gold n Hot, Wigo, Health o Meter, [Carina], Brut, Infusium 23, Sea Breeze, Ogilvie, Ammens and Final Net. Personal care net sales in the third quarter of fiscal 2010 were $134.2 million compared to $140.3 million in the prior year third quarter. This represents a decrease of $6.1 million or 4.4%. The key factor contributing to the decline in sales was the continued impact of difficult economic conditions on consumer demand particularly in our appliance and accessory product categories. Sales declines were partially offset by the impact of the Ogilvie and Infusium 23 acquisitions.

Our houseware segment consists of the OXO business. OXO is a leader in providing innovative consumer product tools in a variety of areas including kitchen, cleaning, barbeque, barware, garden, automotive, storage and organization. Brands that we sell include OXO Good Grips, OXO Steel, OXO Softworks, OXO Touchables and Candela.

Houseware segment net sales for the third quarter of fiscal 2010 were $55.2 million compared to $45.3 million in the prior year’s third quarter. This is an increase of $9.9 million or 21.8% increase. Sales growth was driven by the continued success of our Good Grips, POP line of modular dry food storage containers, the year-over-year impact of the launch of our wet food storage line, customer price increases and improvements in product mix.

Consolidated gross profit for the third quarter fiscal 2010 was $83.5 million which is 44.1% of net sales compared to $73.5 million which is 39.6% of net sales in the prior year’s third quarter. This is a dollar increase of $10 million. It is a percentage increase in dollar terms of 13.6%. The gross profit margin as a percentage of sales improved 4.5 percentage points.

The improvement in gross profit margin is due to the impact of commodity costs and inbound freight decreases from earlier this year that are beginning to cycle through our cost of sales, lower sourcing overhead as a result of streamlining our Far East sourcing operations, customer price increases and product mix improvements in houseware segments and the impact of the Infusium and Ogilvie acquisitions which have comparatively higher margins than the core business.

Third quarter selling, general and administrative expense increased 0.2% in dollar terms year-over-year. SG&A expense for the third quarter of fiscal 2010 was $53.7 million which is 28.3% of net sales compared to $53.5 million which is 28.8% of net sales in the prior year’s third quarter. This is a slight dollar increase of $115,000, a slight percentage increase of 0.2% in dollar terms and a decrease as a percentage of sales of half a percentage point.

Interest expense for the third quarter was $2.1 million or 1.1% of net sales compared to $3.4 million or 1.8% of net sales in the same quarter last year. The decrease in interest expense is due to lower levels of outstanding debt. Income tax expense for the third quarter of fiscal 2010 was $3.1 million compared to $2.1 million in the prior year’s third quarter. Third quarter income tax expense was 11.2% of pre-tax earnings compared to 12.2% effective tax rate in the same quarter last year. The fluctuations in our effective tax rates are attributable to shifts in the mix of taxable income earned between the various high and low tax rate jurisdictions in which we conduct our business.

I will now discuss our financial position. Our cash, cash equivalents and trading security balance was $59 million at November 30, 2009 compared to $88 million at November 30, 2008 and we had no borrowings on our $50 million revolving line of credit. Our long-term investment balance was $20.3 million at November 30, 2009 compared to $20 million at November 30, 2008.

Accounts receivable were $144.8 million at November 30, 2009 compared to $142.9 million at November 30, 2008. Accounts receivable turnover improved to 70.6 days at November 30, 2009 from 74.6 days at November 30, 2008. Inventories at November 30, 2009 were $129.8 million compared to $171.7 million at November 30, 2008, a reduction of $41.9 million. Shareholder’s equity decreased $35.2 million to $563.4 million at November 30, 2009 compared to $598.6 million at November 30, 2008, mostly due to the after-tax impairment charges of $99.1 million recorded in the fourth quarter of fiscal 2009.

I will now turn it over to the operator for questions.

Question and Answer Session

Operator

(Operator Instructions) The first question comes from the line of Rommel Dionisio - Wedbush Morgan Securities Inc.

Rommel Dionisio - Wedbush Morgan Securities Inc.

On the personal care business can you just talk about where you think retail inventories are at the moment? I know they were decreased from last year. Is that largely that retail inventories are where they want them at this point?

Gerald Rubin

I believe that retail inventories are less than they should be and December actually turned out to be a very good month for us and I think that is because the retailers didn’t have enough inventory on their shelves to support their sales. From what we hear from the retailers, most of their inventories are very lean. They are not over-inventoried.

Rommel Dionisio - Wedbush Morgan Securities Inc.

In December you saw some improvement there and a good month. Was that just on the personal care side or was that for OXO as well?

Gerald Rubin

For the whole company. For both.

Rommel Dionisio - Wedbush Morgan Securities Inc.

When is the baby line launching? The baby products?

Gerald Rubin

It should launch around March of this year.

Operator

The next question comes from the line of Gary Giblen - Goldsmith & Harris.

Gary Giblen - Goldsmith & Harris

I wonder how you characterize the acquisition environment now versus three months ago? A lot of things have changed hands recently so does that mean more activity going on with Helen of Troy?

Gerald Rubin

As I mentioned last time, we are looking at more deals now than we have in the past but it doesn’t mean they are all good deals. We are sorting through them and hopefully we will find an acquisition this year.

Gary Giblen - Goldsmith & Harris

To provide insight on the scope of things you are looking at, did you look seriously at [inaudible] which Sally Beauty bought? Was that expansion more into Europe a possibility you looked at seriously?

Gerald Rubin

Sally Beauty is one of our customers and they bought a chain of beauty supply stores in Europe. We are not in the business of Beauty Supply stores. We are in the business of supplying these stores with merchandise but not actually owning stores. We don’t own any stores ourselves.

Gary Giblen - Goldsmith & Harris

So you didn’t want to go in the retail direction.

Operator

The next question comes from the line of Mimi Noel – Sidoti & Co.

Mimi Noel – Sidoti & Co.

What was the revenue contribution from Infusium/Ogilvie?

Thomas Benson

That information will be in the Q but the net sales from acquisitions was $9.8 million for the quarter.

Mimi Noel – Sidoti & Co.

The other question I have is bigger picture. The weakness in personal care caught me by surprise because it appears you had already anniversaried the cyclical weakness from declining demand from the recession, so can you add a little more insight on or are you seeing retailers shrink the category? Are you losing share? Are you seeing an encroachment by private label? Something to give us more insight on why this has been weak for more than four quarters?

Gerald Rubin

It doesn’t have anything to do with market share. We still have the same amount of shelf space that we had certainly at the beginning of the year. Looking forward we are looking to increase that shelf space that we have. Private label again is not anything that adds or hurts the sales. No retailer has added private label in their mix in the past year.

I think it is all because of the economy being the way it is in that retailers are promoting more value oriented products and looking for specials and promotions and I think that was a big part of it. We are seeing now that our higher priced merchandise is moving again and I think we will be back hopefully showing increases next year.

Operator

The next question comes from the line of Mark Cooper – Wells Capital.

Mark Cooper – Wells Capital

Can you tell us what the cash flow from operations was in the quarter?

Thomas Benson

$97.9 million.

Mark Cooper – Wells Capital

So that brings the year-to-date total to about…

Thomas Benson

That is for the nine months.

Operator

The next question comes from the line of Analyst for Doug Lane – Jefferies.

Analyst for Doug Lane - Jefferies

Following up to Rommel’s question earlier, is the inventory trend in OXO the same as he personal care side? In other words is the 22-ish percent growth in this quarter pretty reflective of the point of sale takeaway or is there a little restocking in there?

Gerald Rubin

No I think it is just point of sale. They have a lot of new items this year that they have added. I think that certainly has helped them in their sales. It has nothing to do with inventory. The stores are not over-inventoried or under-inventoried. They just usually buy enough to fill the shelf for what they sold. There is no over purchase of inventory in any of our divisions.

Analyst for Doug Lane - Jefferies

In terms of new items within OXO and I guess this applies to both sides of the business but typically what percentage of sales do you expect to get from product extensions either introduced in the last year or two years? Is there kind of a target there?

Gerald Rubin

Not really. There are about 90 products introduced every year. Of course we keep all the other products but some of the products do drop out. I would say there is in the sales more in the 20-25% of their sales each year are new products.

Analyst for Doug Lane - Jefferies

Could you also update us on the traction from the UCB and Staples agreements on the OXO side? Both of them are relatively new, Staples I think being newer.

Gerald Rubin

It seems like it is on projection. It is what we projected. Although we haven’t given out the numbers we are happy with what is going on with UCB and Staples.

Operator

The next question comes from the line of Analyst for Jason Gere – RBC Capital Markets.

Analyst for Jason Gere – RBC Capital Markets

Going back to your commentary on the December trends do you actually classify the retailers as being cautious in November ahead of holiday sales and that is why we saw a pickup in December because things got a little bit better and can that continue?

Gerald Rubin

I think that is part of the reason. I think some of the major retailers were not as optimistic as we were about what the sales would be in December and I think they held back in inventory. Some of them did not do what we call a seasonal buy. They stock up in November so they will have enough merchandise in December. December just kept running the business on a normal basis without stocking up for the season. I am sure some of them had less inventory than they thought they should have and I think maybe that is why in some cases they did come back and buy in December.

Analyst for Jason Gere – RBC Capital Markets

So we could see a little bit of a catch up I guess in the next quarter. On the personal care side, really with the Infusium hair care, we have seen shampoo category get a little bit more competitive. We noticed some promotion on Infusium. Nothing really out of the ordinary but I just wanted to hear your commentary on that category and as shelf space resets are coming up whether you think you can at least maintain or gain some shelf space there?

Gerald Rubin

As everybody knows we purchased the Infusium 23 brand of products from Procter and Gamble I think in the first week of April when we first started shipping it. The promotions we have run are not out of the ordinary of what P&G would have run. Coupons and other promotions. We are looking to increase our distribution. There were a few places that weren’t selling and we did run a national TV campaign, if any of you all saw it. We ran that over the last six months.

I am sure we will continue the campaign next year. That helped boost the sales also. It is not only to boost the sales but to solidify the sales and the retailers we have and to obtain new retailers. The way the business is, it is very competitive. Retailers expect you to promote the brand and advertise it. Otherwise they have no need for it because there are so many brands out there. So we are doing both. We are advertising the brand. We are promoting it. We are not at the low end with Infusium 23. If you go to buy a bottle of our shampoo it is usually $6.99 or $7.99 on the shelf. It is not in the $2.99 category that others have. We are in a great market position. The products are great. We think we are going to do much better next year based on everything that we hear.

Analyst for Jason Gere – RBC Capital Markets

Moving onto OXO, obviously great growth from existing products and product expansion. The new products, do they help you on price mix or would you classify most of that growth on pure volume? If you can just sort of aggregate that 22% a bit?

Thomas Benson

It is basically volume, more shelf space, more products and if you are selling to retailers you need more shelf space. Retailers will buy the new product and they will have to give us more shelf space. The new products cause us to have more shelf space which helps in sales.

Analyst for Jason Gere – RBC Capital Markets

Is there any sort of price mix from the new products?

Thomas Benson

There isn’t that much difference that you would notice between new products and old products.

Analyst for Jason Gere – RBC Capital Markets

So going forward if we think about the growth rate of OXO it is really new product extension as well as new distribution mix?

Gerald Rubin

Right.

Analyst for Jason Gere – RBC Capital Markets

Finally, on the gross margin side obviously very impressive expansion this quarter. How sustainable is that? I know the Infusium and Ogilvie were sort of higher margin but I think you lap Ogilvie next quarter so there may be a bit of a headwind there. Obviously as we continue to move on should we think the costs sort of…I know it takes 6-8 months for the lower costs to move through your P&L but as costs have risen over the years should we expect some less moderate expansion over the next couple of quarters?

Gerald Rubin

You are correct that in this quarter it will include the Ogilvie sales since we had it last year. It will not include the Infusium 23 sales. In our gross profit last year for the fourth quarter was 38.8% and this year we are looking certainly to beat those numbers. I don’t have an exact number until we close the quarter but it will be…

Analyst for Jason Gere – RBC Capital Markets

So as we move through you definitely saw the year-over-year benefit of lower costs but you also saw certain costs move up through the year. So is it fair to assume you still have some expansion but not as significant?

Thomas Benson

Yes I agree. It should be better than the 38%. I don’t know if it will be as high as this quarter. I will let you know in the next conference call. Certainly the GP has been moving up.

Operator

The next question comes from the line of Steve Friedman - Wachovia Securities.

Steve Friedman - Wachovia Securities

In concluding your initial or opening remarks you indicated next year you thought you would have your best year in the company’s history in both sales and earnings. Were you referring to that with or without acquisitions?

Gerald Rubin

I was referring to that without any acquisitions. The core business we have will be the biggest year in sales and earnings we ever had. Now if we do an acquisition of course that will add to that number. In any case it will be our best year ever.

Steve Friedman - Wachovia Securities

I know you don’t give guidance at this time, but can you give any kind of flavor or color regarding what you think the sales or earnings could be? You are well on your way to over $2 earnings per share for this year and stock is at eleven times earnings. What is your thinking regarding those?

Gerald Rubin

If you look back at our history several years back we did have earnings of $2.35 per share and sales were certainly a little lower. They were in the $500 million level. We are doing much better than that and as I mentioned we expect to beat the $2.35 in order to have the best year ever. There are analysts out there that have put out numbers which I think are pretty much in the ballpark. Each one of them are showing a record year for us for fiscal year ending 2011.

Operator

We have no further questions. Mr. Rubin I will turn it back to you for closing or additional remarks.

Gerald Rubin

Thank you all very, very much for listening into our third quarter earnings report. Our year-end earnings report will be coming at the end of our fiscal year and it should be early May when we have our next conference call. I want to thank you all for listening in and supporting the stock. Thank you again.

Operator

Ladies and gentlemen if you wish to access the replay for today’s conference you can do so by dialing 888-203-1112 with a replay pass code of 4455287. Again that does conclude our conference for today. We thank you all for participating and enjoy your day. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Helen of Troy Limited F3Q10 (Qtr End 11/30/09) Earnings Call Transcript
This Transcript
All Transcripts