Helen of Troy F3Q08 (Qtr End 11/30/07) Earnings Call Transcript

Helen of Troy Limited (HELE)

F3Q08 Earnings Call

January 9, 2008 11:00 am ET

Executives

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

Gerald J. Rubin - Chairman of the Board, President, Chief Executive Officer

Thomas J. Benson - Chief Financial Officer, Senior Vice President

Analysts

Kathleen M. Reed - Stanford Group Company

Gary Giblen - Goldsmith & Harris

Douglas M. Lane - Jefferies & Co.

Mimi Noel - Sidoti & Company

John Harloe - Barrow Hanley

Steve Friedman - Wachovia Securities

Scott Greeder - Scopia Capital

Presentation

Operator

Good morning and welcome, ladies and gentlemen, to the Helen of Troy third quarter earnings conference call for fiscal 2008. (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. I will now turn the conference over to Robert Spear. Please go ahead, sir.

Robert D. Spear

Good morning, everyone and welcome to Helen of Troy's third quarter earnings conference call for fiscal year 2008. The agenda for this morning’s conference call will be as follows: we’ll have a brief forward-looking statement review followed by Mr. Rubin, who will discuss our third quarter earnings release and related results of operation for Helen of Troy, followed by a financial review of our income statement and balance sheet by Tom Benson, our Chief Financial Officer. Finally, we’ll open it up for questions and answers for those of you with any further questions.

First, the Safe Harbor statement; 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 historically or anticipated results. Generally, the words anticipates, believes, expects, and other similar words identify forward-looking statements.

The company cautions listeners to not place undue reliance on forward-looking statements. Forward-looking statements are subject to risks that could cause such statements to differ materially from actual results. Factors that could cause actual results to differ from those anticipated are described in the company’s Form 10-K filed with the Securities and Exchange Commission for the third quarter fiscal year 2008 ended November 30, 2007.

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 to our website at www.hotus.com. The release can be accessed by selecting the investor relations tab on the homepage and then the news tab.

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

Gerald J. Rubin

Good morning, everyone and welcome to our third quarter conference call. Helen of Troy today reported sales and net earnings for the third quarter which ended November 30, 2007. Third quarter sales were $210,348,000 versus sales of $213,437,000 in the same period of the prior year, a decline of 1.4%.

Third quarter net earnings were $22,842,000 or $0.73 per fully diluted share, compared to $22,813,000, or $0.72 per fully diluted share for the same period a year earlier.

Sales for the nine months ended November 30, 2007 increased 3.5% to $508 million versus $491 million for the previous year. Net earnings for the first nine months of this year were $51,212,000 or $1.60 per fully diluted share versus $40,366,000, or $1.28 per fully diluted share in the same period last year.

Excluding these third quarter items, net earnings for the quarter were $25,480,000 or $0.81 per fully diluted share versus net earnings of $22,375,000, or $0.70 per fully diluted share in the previous year, an increase in earnings per share of 15.7%.

Net earnings for the nine months ending November 30, 2007 include an after tax benefit for the second quarter of $7,950,000 or $0.25 per fully diluted share relating to our Hong Kong IRD tax settlement.

Net earnings for the nine months ending November 30, 2006 include an after tax benefit of $192,000, or $0.01 per fully diluted share related to a previous Hong Kong IRD settlement and an after tax gain on the sale of land of $279,000, or $0.01 per fully diluted share.

Excluding all of these items and the third quarter items referred to previously, net earnings for the nine months ending November 30, 2007, were $45,900,000, or $1.44 per fully diluted share compared to $39,454,000, or $1.25 per fully diluted share in the prior year, an increase of earnings per share of $15.2. I would like to point out that everybody should look at the $1.44 without the extraordinary items versus the $1.25, which gave us a 15% increase.

For the third quarter, sales in our houseware segment increased 19% to $47 million compared with $39,700,000 for the same period last year. Net sales in the houseware segment for the nine-month period ending November 30, 2007 increased 19% to $120 million, compared with $101 million for the same period last year.

Net sales in the personal care segment for the third quarter decreased 6.2% to $163 million compared with $174 million for the same period last year. Net sales in the personal care segment for the nine-month period decreased 0.4% to $388 million compared with $390 million for the same period last year.

As you can see, our houseware segment had excellent sales and operating results for the quarter. Our OXO line of products continues to be a very strong leader in its category of products. Our personal care segment is facing a challenging sales environment, which we anticipate will continue at least through the first half of the calendar year.

As we reported previously, we acquired the Belson business during the last quarter. The existing cost of goods structure produced gross margins that are less than similar products in our existing professional product division. We are in the process of shifting the Belson sourcing to our current suppliers, which we expect to provide margin improvement opportunities some time in fiscal 2009.

As of November 30, 2007, Helen of Troy's balance sheet remains strong, with stockholder equity of $563 million, an increase of $47 million, or 9.2% from the comparable period last year.

Our current book value per outstanding share is $18.33. Our cash position as of November 30, 2007 was $87 million versus cash of $59 million, an increase of $28 million or 48%. Today, our cash position is in excess of over $100 million.

Inventory at November 30, 2007, was $146.4 million versus $146.2 million for the same period in the prior year, while total sales year-to-date have increased 3.5%.

Based on our sales results for the quarter, we are revising our sales forecast for the fiscal 2008 year ending February 28, 2008 to be sales in the range of $645 million to $655 million versus our previous forecast of sales in the range of $660 million to $680 million.

We are also revising our net earning guidance to $1.85 to $1.95 per fully diluted share from previous guidance of $1.90 to $2.10 per fully diluted share. Without the extraordinary items, we are projecting $1.70 to $1.80 for this fiscal year versus $1.58, which we reported last year.

We expect the retail environment to continue to be challenging. However, we will continue to execute our strategic initiatives with renewed effort and dedication as we complete this year and formulate our plans for the coming year.

There’s a lot of financials that you all would like to hear about and I’d now like to turn over the teleconference to Tom Benson, our CFO, to give you the financial highlights.

Thomas J. Benson

Thank you, Gerry and good morning, everyone. We faced a difficult domestic retail environment in the third quarter where many of our retail partners faced slowing same-store sales trends and reduced the amount of inventory in their pipelines, contributing to lower overall sales for the quarter.

Our housewares in international businesses continue to grow. Gross profit margins improved slightly year over year excluding the Belson acquisition and selling, general, and administrative expense as a percentage of sales continued to decrease year over year.

We sold land resulting in a pretax gain of $3.6 million. We recorded pretax impairment charges totaling $5 million, representing the carrying value of our Epil-Stop and Time-Block brands, which I will discuss in further detail shortly.

Third quarter net sales decreased 1.4% year over year. This includes $10.5 million of sales from the newly acquired Belson business. Net sales for the third quarter of fiscal 2008 were $210.3 million compared to $213.4 million the prior year quarter. This represents a $3.1 million decrease, or 1.4% decrease.

Our third quarter operating income increased by 0.7% in dollar terms year over year. Operating income in the third quarter of fiscal 2008 was $29.3 million, which is 13.9% of net sales, compared to $29.1 million, or 13.6% of net sales in the prior year quarter. This represents an increase of $200,000, or 0.7%.

Before the impairment charges and the gain on the sale of land, third quarter operating income increased 5.4% in dollar terms year over year. Operating income before impairment and gain was $30.7 million in the third quarter of fiscal 2008, which is 14.6% of sales, compared to $29.1 million, or 13.6% of sales in the prior year quarter. This is an increase of $1.6 million, or 5.4%.

Third quarter net earnings increased 0.1% in dollar terms year over year. Net earnings for the third quarter of fiscal 2008 were $22.8 million, or 10.9% of net sales, compared to $22.8 million, or 10.7% of net sales in the prior year quarter. This was a $29,000 increase.

Excluding the after tax impacts of the impairment charges and gain on sale of land this quarter, and gain on a litigation settlement in the same quarter last year, net earnings increased by 13.9%.

Net earnings before impairment and gain in the third quarter of fiscal 2008 were $22.5 million, which is 12.1% of sales, compared to $22.4 million without the litigation settlement in the prior year quarter. This is -- in the prior year quarter, it was 10.5% of sales. This is an increase of $3.1 million or 13.9%.

I’m sorry, the net earnings before impairment and gain in the third quarter fiscal 2008 was $25.5 million, 12.1%. I had said 22.5.

The third quarter diluted earnings per share was $0.73 in the third quarter of fiscal 2008 compared to $0.72 in the prior year quarter. This represents an increase of $0.01 or 1.4%. Excluding the after tax impacts of the impairment charges and the gain on the sale of land, this quarter and the gain on the litigation settlement in the same quarter last year, diluted earnings per share increased 15.7%. Diluted earnings per share would have been $0.81 in the third quarter fiscal 2008 compared to $0.70 in the prior year quarter, an increase of $0.11 or 15.7%.

Now I will provide a more detailed review of various components of our financial performance.

Our personal care segment includes the following product lines: appliances -- products in this group include hair dryers, curling irons, thermal brushes, hair straighteners, massagers, spa products, foot baths, and electric clippers and trimmers. Key brands in this category include Revlon, Vidal Sassoon, Bed Head, Golden Hot, Sunbeam, Dr. Scholl’s, Hot Tools, Wigo, and Health o Meter.

Grooming, skin care and hair products are included in the personal care segment. Products in this line include liquid hair styling products, men’s fragrances, men’s deodorant, foot powder, body powder, and skin care products. Key brands include Brut, Sea Breeze, Skin Milk, Ammens, Vitalis, Condition 3-in-1, Final Net and Vitapointe.

Brushes and accessories are also included in the personal care segment. Key brands include Revlon, Vidal Sassoon, Bed Head, and [Corino].

Personal care net sales were $163 million in the third quarter of fiscal 2008 compared to $173.7 million in the third quarter of the prior year. This represents a decrease of $10.7 million, or 6.2%.

Third quarter net sales were down in all three product categories year over year. The Belson business, which we acquired effective May 1, 2007, contributed $10.5 million of net sales for the quarter.

The decrease in personal care and net sales compared to the same quarter last year was due to a difficult domestic retail environment, a reduction in the amount of inventory held by certain key retail partners, a decrease in sales in our grooming and wellness appliance categories, expanded product line offerings by certain competitors, and a move by certain professional customers to replace random merchandise with private label.

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, bar ware, garden, automotive, storage and organization. Brands that we sell include OXO Good Grips, OXO Steel, OXO Soft Works, and Candela.

The housewares segment’s net sales were $47.4 million in the third quarter of fiscal 2008 compared to $39.7 million in the third quarter of the prior year. This is an increase of $7.7 million, or 19.3%.

The sales increase resulted from a continuing trend of product mix expansion and geographic expansion in the United Kingdom and Japan.

The company’s gross profit for the third quarter was $90.1 million, which is 42.8% of net sales in the third quarter of fiscal 2008, compared to $91.5 million, or 42.9% of sales in the prior year quarter. This represents a dollar decrease of $1.4 million. In percentage terms, it’s 1.5% of the dollars. The gross profit margin declined 0.1 percentage point year over year.

We continue to experience product source and cost pressures due to raw material price increases, changes in exchange rates, and labor cost increases. Despite these pressures, gross profit margin excluding the Belson acquisition improved 50 basis points compared to the same quarter last year.

To compensate for rising costs, we are implementing selling price increases when possible, introducing new products, sourcing from alternative suppliers, and focusing on our internal cost.

For the third quarter, selling, general, and administrative expense was $59.4 million, which is 28.2% of net sales, compared to $62.4 million, or 29.2% of net sales in the prior year quarter. This represents a dollar decrease of $3 million, which is a 4.8% decrease in dollar terms and is a one percentage point increase year over year. I’m sorry, one percentage point decrease year over year.

The decrease in SG&A expense as a percentage of sales is mostly due to an improved distribution cost structure, freight cost improvements, and lower information technology sourcing costs, partially offset by higher advertising and personnel expenses.

In the fourth quarter of fiscal 2007, we commenced our reintroduction of the newly formulated Epil-Stop product line. In response to unsatisfactory consumer sales and the discontinuance of the Epil-Stop line by certain retailers, we conducted a strategic review of the Epil-Stop trademark in the third quarter of fiscal 2008. We also evaluated the potential of our TimeBlock brand in light of our recent experience with Epil-Stop.

From these reviews, we concluded that the future undiscounted cash flows associated with these trademarks were insufficient to recover the carrying values. Accordingly, we recorded non-cash, pretax impairment charges totaling $4,983,000, representing the carrying value of these trademarks.

We also sold 16.5 acres of raw land adjacent to our El Paso, Texas office and distribution center. The sale resulted in a pretax gain of $3.6 million.

Interest expense for the third quarter was $3.6 million, which his 1.7% of net sales, compared to $4.5 million, or 2.1% of net sales in the prior year quarter. The decrease in interest expense is due to the lower amounts of debt outstanding in the third quarter of fiscal 2008 compared to the third quarter of fiscal 2007.

Income tax expense for the third quarter was $3.6 million compared to $2.7 million in the third quarter of the prior year. Third quarter income tax expense was 13.6% of pretax earnings compared to 10.5% in the same quarter last year. The effective tax rate for the current quarter was impacted by the impairment charges and the gain on the sale of land.

Excluding these items, the tax expense is 8.4% of pretax earnings. The year-over-year decrease in tax expense is due to shifts in the mix of taxable income earned between the various high tax rate and low tax rate jurisdictions in which we conduct our business.

I will now discuss our financial position. Our cash and temporary investment balance was $87.1 million at November 30, 2007, and we have had no borrowings in our $50 million revolving line of credit.

Accounts receivable were $162.7 million at November 30, 2007, compared to $168.4 million at November 2006, on sales in the third quarter of the current year that were $3.1 million lower than the same period last year. Accounts receivable turnover improved to 76.2 days at November 30, 2007, from 78.5 days at November 30, 2006.

Inventories at November 30, 2007 were $146.4 million, an increase of $258,000 from November 30, 2006. Inventory turnover improved to 2.4 times at November 30, 2007, compared to two times at November 30, 2006.

Shareholders’ equity increased $47.2 million to $562.9 million at November 30, 2007, compared to November 30, 2006.

I will now it over to Gerry for additional comments and questions.

Gerald J. Rubin

Thank you, Tom. I would like now to turn over the conference for questions, Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Kathleen Reed with Stanford Financial.

Kathleen M. Reed - Stanford Group Company

Good morning. First, can you just clarify your revised earnings guidance? The $1.70 to $1.80, does that include or exclude the $0.24 gain from the Hong Kong tax settlement that you booked in you 2Q?

Thomas J. Benson

The $1.70 to $1.80, it excludes the Hong Kong tax settlement, it excludes the gain on the sale of the land, and it excludes the impairment.

Kathleen M. Reed - Stanford Group Company

So that’s a clean number -- that excludes everything?

Thomas J. Benson

Yes.

Kathleen M. Reed - Stanford Group Company

Your previous $1.90 to $2.10 guidance though, I did not think that included -- I thought that included the $0.24 gain.

Thomas J. Benson

The $1.90 to $2.10 did include the $0.24 gain. That was the gain on the taxes.

Kathleen M. Reed - Stanford Group Company

So the $1.85 to $1.95 number that you put in your press release, that reflects the charges, that reflects all charges -- is that correct?

Thomas J. Benson

The $1.85 to $1.95 that’s in our press release includes the tax gain and the impairment and the gain on the sale of the land. If you want to take those three items out, it’s approximately $0.16.

Kathleen M. Reed - Stanford Group Company

Okay, so then we get to the clean $1.70 to $1.80.

Thomas J. Benson

Right, so $1.85 to $1.95 minus the $0.16 is approximately $1.70 to $1.80.

Kathleen M. Reed - Stanford Group Company

Okay, great, thanks. And then also, can you comment on the retail environment and what you are seeing overall? It’s a challenging environment for the personal care space but it doesn’t seem for your OXO business, and I just wondered if you could talk about what’s really changed or worsened since your October call and what -- I know you commented in your prepared remarks and your press release that you think it’s going to be tough for the first half of the year and is that both businesses or particularly personal care? If you can just give us some more information there.

Gerald J. Rubin

Well, in the OXO division, they had increases geographically because of us taking over the sales in the U.K. and in Japan. In the personal care area, we have dropped a lot of SKUs that we thought were not profitable. As Tom told you in his comments, without the Belson division, we actually increased our gross profit which has been decreasing for many, many quarters by a half a percent, and that’s because we are cleaning up and getting rid of a lot of SKUs that just are not profitable for us and that was partially had to do with some of the sales decrease.

I would say that our business is competitive but it is also very steady. We have not lost any market share based on the last report that we got, so we are looking forward to a better year coming up because of a lot of the new products that we have.

As you all know, we do show at our major show which is in March in Chicago and those of you that can come by, I’d appreciate if you can come by, you can see all our new products and talk to us and even get a feel for the business at that time.

Kathleen M. Reed - Stanford Group Company

Was it meaningful the last business, or the switch by either -- and if you can clarify if that’s one customer or you are seeing the trend on the professional side of appliances to private label. Is that just an isolated incident or is that a trend that is continuing?

Thomas J. Benson

That’s basically an isolated incident. On the positive side, our international business, Latin America and Europe, actually has increased. We didn’t break that out for you but those were positives. We had increases in those areas but to your question about the private label customer, no, that’s one isolated incident, customer.

Kathleen M. Reed - Stanford Group Company

And then just finally, can you comment a little bit on your thoughts on share repurchase? You have over $100 million of cash on your books. Your stock is down already and even though it’s early in ’08, it was down in ’07. If you can just talk about your priorities for cash and maybe share repurchase versus acquisition and just your thoughts with your stock down at this level?

Gerald J. Rubin

As I mentioned in my comments, we currently have in excess of $100 million in the bank. We have also paid off $10 million of our long-term debt, so our long-term debt now instead of $225 million is $215 million.

We are looking for acquisitions and we believe that we accumulate this cash, which is important for an acquisition, which we believe there will be some during the year. We believe we are better off to use that money for acquisitions.

But if we don’t have any acquisitions, any major acquisitions during the coming year, when we talk to you three quarters from now or four quarters from now, we’ll have the cash flow from this year which will almost pay off our debt of the $215 million, because the company is generating a lot of cash.

So if we don’t have an acquisition, we could almost be debt free 12 months from now. But the point that I want to point out to you is that we are looking for acquisitions and that’s where we feel the best use of our money is.

Kathleen M. Reed - Stanford Group Company

Okay. Thank you.

Operator

We’ll take our next question from Gary Giblen with Goldsmith & Harris.

Gary Giblen - Goldsmith & Harris

Good morning, Gerry and Tom. Since there were a lot of factors that drove the soft results in personal care, can you kind of parse it out and tell us how much of that was company specific versus the environment? In other words, you have competitive activity, which may be just happen to exist against your brands, and then you have the retailer attitude toward reducing inventories, which is probably universal. But I mean, if you sort out the total thing, the total degree of softness, how much would you attribute to industry conditions versus ones particular to Helen of Troy’s brand?

Thomas J. Benson

Gary, I would say most of it has certainly contributed to the economic situation, not to our brand. As I mentioned, our market share has not changed. The softness at retail of customers coming through our major retailers and of course, many of them are public and you get the reports on what’s going on in the retail. It has nothing to do with our brands or our marketing or our products.

But I did tell you that we did drop some non-profitable SKUs and that affected the sales, but we believe that that was a benefit to us because we did increase the profit, the gross profit without those items.

Gary Giblen - Goldsmith & Harris

And is the competitive activity directed against your brands, is that continuing for the next six months? Is that part of why you expect difficult --

Gerald J. Rubin

You know, it’s always competitive out there. I think it’s competitive -- I was talking more the next six months of the softness in the economic retailer situation more than a competitive situation. The competitive situation has been there for 30 years and it will continue. It’s just the softness in retail right now.

Gary Giblen - Goldsmith & Harris

Okay, that’s very helpful. And -- I mean, are the retailers frightened enough where they are actually reducing replenishment orders of even basic items or is it just reducing days on -- well, I guess it’s the same thing but in other words, is it across the board or is it more on the discretionary products within your PC line?

Thomas J. Benson

What’s going on now is that the major retailers want to carry less inventory than they did a year ago. How that affects movement will be decided later but they all want to have less weeks on hand than they’ve had in the past.

But as far as planogram space and the SKUs that we are selling to retailers, it’s all the same. We haven’t lost any.

Gary Giblen - Goldsmith & Harris

Okay. I guess what I’m getting at is the desire to reduce inventory, action to reduce inventory on the part of the retailers, is it more toward the discretionary end of your spectrum of product -- let’s say a foot massager versus an inexpensive hair dryer, which would be less of a discretionary item? Those aren’t the best examples but you see --

Gerald J. Rubin

Actually, we haven’t seen any. I think the less inventory that the retailers want to carry, if they can cut it down, I think is due to the softness that they are seeing and it has nothing to do with the price points because all our price points are popular price points and it has nothing to do with that. I think it all has to do with store traffic.

Gary Giblen - Goldsmith & Harris

Okay, and just this last one for me, in the press release it says you are going to reevaluate personal care segments product line mix. So does that mean possibly divesting entire brands or is that just the SKU reduction within brands?

Gerald J. Rubin

No, it has nothing to do with the brands. It has to do with what I mentioned, about getting rid of low profit SKUs so that we can concentrate on the more profitable SKUs and increase our gross profit.

Gary Giblen - Goldsmith & Harris

Okay, understood. Thanks very much.

Operator

We’ll take our next question from Doug Lane with Jefferies & Company.

Douglas M. Lane - Jefferies & Co.

Good morning, everybody. Can you talk a little bit about how some of the new initiatives, the new product initiatives, the bigger ones have done? I think fusion tools on the profession side, the Bed Head, which was the new license that you got last year, and then any new product activity at Belson? What was the response to the new products this year?

Gerald J. Rubin

Well, on the fusion tools, it was our first year out and we are getting distribution and we believe that there is more distribution out there for us, so it was a good introduction for us for the year, although we haven’t actually shipped a whole year but the customers who are buying it are happy with it.

On the Bed Head products, we do have good distribution. The price points are certainly higher because they are competing with professional products at retail and I would say we did satisfactory. The sales are stable and I think we have built a nice brand with the Bed Head that will go along with the Vidal Sassoon and with the Revlon and the Sunbeam Health o Meter brands that we have. So we are happy that we have that brand.

I don’t believe it’s ever going to be as big as the Revlon and the Vidal Sassoon brands but it is a good steady brand and it does fill the niche of professional products at retail under the Bed Head brand.

Douglas M. Lane - Jefferies & Co.

Any news on Belson? Have you launched new products there yet or is something imminent?

Gerald J. Rubin

I forgot to tell you about Belson. Yes, there’s a lot of new products coming out because while we just took over I think in May and they didn’t have very many new products, if any, in the pipeline and so we have developed a whole new line or products and we are looking for a good year at Belson, increased sales because we have a lot of new products coming out -- actually, basically all new lines are coming out and we just had our national sales meeting this past week here in El Paso with the Belson group and they are all excited. They saw the new products and they think we are going to have a good year this year.

Douglas M. Lane - Jefferies & Co.

On that front, both on the retail and professional side, mostly appliances I’m talking about, how does that work with your retailers? When did decisions get made on the ’09 or calendar ’08 planograms? Is that happening now?

Gerald J. Rubin

It’s happening now and some it does happen later. Some are actually May, June decisions and some are made now. There is no consistency among all the major retailers.

Douglas M. Lane - Jefferies & Co.

And early read on your shelf space going into next year versus this year?

Gerald J. Rubin

It’s good. We’re happy.

Douglas M. Lane - Jefferies & Co.

Okay. What was the specific, as specific as you can get, competitive threat from -- in your categories that you were talking about in your prepared comments. I think you made the comment, Tom, competitive expansion into your categories I think was your --

Thomas J. Benson

There are professional products that have always been in professional arena that are now being sold in retail stores. That’s where the competitive comes in.

Douglas M. Lane - Jefferies & Co.

I see. Okay and I know OXO had a terrific quarter. Can you give us some characterization of how OXO did just in the United States, kind of excluding the international expansion?

Gerald J. Rubin

I don’t have that information. Maybe Tom -- he can do it now or maybe in a few minutes, but that’s been a great acquisition for us. As you all know, we’ve had increased sales, double-digit increased sales and profit with that division year after year after year, so I don’t think the public appreciates the OXO company that we currently own, of what a good company and what a good brand and what good distribution they have.

Thomas J. Benson

Doug, it was up double digits in the U.S. for the nine months.

Douglas M. Lane - Jefferies & Co.

And for the quarter, was it still up?

Thomas J. Benson

Yes, it was but let me look and -- yes, for the quarter, it was up double digits also.

Douglas M. Lane - Jefferies & Co.

Wow, so that continues strong.

Thomas J. Benson

We did have -- we had an introduction of our pop containers, which is a dry food storage container, so as was mentioned, we continue to bring out new products and geographic expansion. So any time you launch new products, you get initial fill-in orders that are very positive and they don’t repeat the next year but as we’ve done each year, we have plans to continue to expand the product line.

Douglas M. Lane - Jefferies & Co.

Okay, and on the cost front, you mentioned excluding Belson, your gross margins were up, which is encouraging after the first half of the year. What is the outlook for where you are today on fiscal ’09? Can you sustain that? I mean, assuming that you can get the Belson cost situation righted, if you will, ex that, do we still look for gross margins to be up in ’09? How is the cost outlook from where you stand today?

Gerald J. Rubin

Well, it’s always a challenge. Although we haven’t received any major cost increases, we believe that over the next 12 months, we will be getting price increases and it’s our job and challenge to increase our prices and innovate to bring in new products where we can absorb the price increase and that’s what we’ve been telling you for -- certainly for years and years, is that you can make more money on new products than you can on existing products because you can price it going in on what your costs are versus pricing it and then getting price increases.

But price increases is just something we live and we, to the best of our ability, try to pass them on to the retailers.

Douglas M. Lane - Jefferies & Co.

Okay, so lastly, I know you had a cautious tone about the retail environment in the first half of next year, understandably so. But from your planning standpoint, I know you didn’t give guidance in ’09 but with the margin situation improving and the new product activity, are you looking for growth in ’09 over ’08, even with the lousy environment?

Gerald J. Rubin

You know, we did not come out with next year’s projection. We just wanted to finish this year because we only have nine months but I can tell you internally we are looking for increased profit and sales for next year, yes. We are not looking for any decrease because of all the things that we have going. So the number that we have just given you for our estimate for this year, we don’t have a number exactly to give you for next year but we are optimistic that when we do give you the number it’s going to be higher than this current year.

Douglas M. Lane - Jefferies & Co.

Thank you.

Operator

Our next question comes from Mimi Noel with Sidoti & Company.

Mimi Noel - Sidoti & Company

Most of my questions have been answered but I did want to ask about sales at retail. As you see it, do you see retail merchandiser being preemptive in their inventory reductions or are they responding to a lower rate of consumption either products, your products in particular or just the categories?

Gerald J. Rubin

Well, you all would know more about that. I mean, you do read the reports from all the retailers. And I think a lot of it is what the press puts out. I just saw this morning some brokerage firm says that the recession is coming, so I guess that mentally affects the consumers and I guess the retail stores to be a little bit more cautious.

What really will happen will be decided I guess during the next six months or year, whether the country is in recession or whether people buy less. There’s so many factors -- the price of oil, but the inventory and the sales are just basically based on take out from the retail stores. If they have more traffic, they are going to sell more product. I don’t believe that our business is changing because of competitive situations. It’s more because of what’s happening at retail.

If more retail -- the more consumers will go to the stores, we will sell more product and I am sure they will also and I think that’s what they are all looking forward to.

Mimi Noel - Sidoti & Company

Okay, and just one more question and a follow-up regarding your commentary on share repurchases versus acquisitions. Can you provide a little commentary on the acquisition landscape?

Gerald J. Rubin

Well, we are looking. We think there are acquisitions out there and we believe -- that are currently being looked at and we believe that there will be more in the coming years, so we think that cash will be king and we are accumulating our money and as I mentioned, if we don’t have an acquisition the next year, we probably have enough money just to pay up all the debt and be a debt-free company after that. But we are aggressively looking for acquisitions and if you all know of any, those of you that are listening on this conference call, we’re more than happy to talk to you about acquisitions.

Mimi Noel - Sidoti & Company

Okay. A final question; I don’t know if it was Tom or you, Gerry, that mentioned but a reference to OXO as taking over the U.K. and Japan, or you taking over the OXO business in the U.K. and Japan -- I’m not really -- that’s a little confusing to me. What does that mean?

Gerald J. Rubin

Well, we had distributors in both of those countries and so we had mentioned this prior, we did take over the distribution. We run it through our own sales organizations now.

Mimi Noel - Sidoti & Company

Okay. When does that anniversary?

Thomas J. Benson

That will anniversary at the beginning of next year.

Mimi Noel - Sidoti & Company

Fiscal ’09 -- okay. All right. Thank you for your help.

Operator

We’ll take our next question from John Harloe with Barrow Hanley.

John Harloe - Barrow Hanley

Let me see if I understand this right -- did you buy this U.K. and Japanese distributor during this quarter?

Thomas J. Benson

No, we did not buy them during this quarter. We converted it over early in the beginning of this year. So this has been going on all year, all fiscal year.

John Harloe - Barrow Hanley

So what would be the pick-up in sales year over year from that merge in your U.K. and Japanese distribution into yours?

Thomas J. Benson

We actually don’t split it out but as I had mentioned earlier, the U.S. is up double digits and so at least probably 75% of the gain is coming in the U.S. and the rest would be coming from the U.K. and Japan.

John Harloe - Barrow Hanley

Would you have a rough cut estimate of what the sales loss would be of the SKUs that you discontinued?

Thomas J. Benson

Without Belson, we’d be down $20 million.

Gerald J. Rubin

Yeah, it was --

John Harloe - Barrow Hanley

So you’re saying that you voluntarily killed SKUs that reduced your sales by $20 million in this quarter?

Gerald J. Rubin

Yes, but we didn’t -- the answer is yes but it’s made up by the other products also, because our sales were only own $3 million.

John Harloe - Barrow Hanley

Well, if you exclude Belson’s acquisition, you are down more than that, I think.

Gerald J. Rubin

I don’t have those numbers. I think Tom -- do you want to call and maybe Tom will get you all the breakdown.

Thomas J. Benson

No, I think you can figure it out. We’ve given the personal care sales and we’ve told you what component of that is Belson and also in our Q, we do core and non-core information.

John Harloe - Barrow Hanley

Okay. Is the Q out or is that --

Gerald J. Rubin

It will be going out later today.

John Harloe - Barrow Hanley

Thanks a lot.

Operator

We’ll take our next question from Steve Friedman with Wachovia Securities.

Steve Friedman - Wachovia Securities

Nice quarter, in view of the environment. I think in your last call -- and most of my questions have been answered also but in your last conference call, the quarter had ended. You had given a little bit of a guide on how the sales were going for the quarter we are in right now, like December and part of January. How did you see those come in, in the environment we’re in?

Gerald J. Rubin

We’re certainly just at the first week in January but it looks like somewhat, we still have another almost two months to go but it will be somewhat like the fourth quarter of last year.

Steve Friedman - Wachovia Securities

Going forward, OXO I presume has performed every bit as well if not better than you had hoped. Is that, along with Bed Head, complementing your Revlon and Vidal Sassoon lines? Would you consider that the main thrust of your areas of growth going forward, both for margins, bottom line and growth?

Gerald J. Rubin

Well, I think it’s all our brands. Certainly OXO is in the housewares area. In the personal care, the brands that we do have, the Bed Head, the Revlon, the Vidal, Health o Meter, Dr. Scholl’s, are doing well worldwide. As I mentioned, we did have increased sales in South America and in Europe.

I think they are all growth drivers for us, actually.

Steve Friedman - Wachovia Securities

Has the Bed Head line met your expectations?

Gerald J. Rubin

I mentioned that it was satisfactory. It didn’t do exceptional but it did what we thought it would do. It’s satisfactory and it’s actually -- I can’t give you all the numbers but it’s a good base. We have good distribution and we are growing on that base. We are adding new products for next year so we wouldn’t be adding new products in the Bed Head line if it wasn’t satisfactory. There are a lot of new products coming out for next year.

Steve Friedman - Wachovia Securities

All right, and then one final question, and you’ve touched on this partially but maybe I could go back to it; with the book value at $18.33 approximately, which is about 80% of the -- or the market value is about 80% of the book right now and your PE trading at, depending on which estimates we want to use, the trading or Ford estimates, maybe at 10-year lows in the price earning multiple of seven or eight times earnings. Do you really feel that going forward, you can find an acquisition more attractive than Helen of Troy stock?

Gerald J. Rubin

As I mentioned in my comments, we’re going to give it a good shot. We’re going to sure try this year to get what I call the big acquisition. If we don’t, we’ll just have a couple hundred million dollars cash in the bank and then management and the board can decide what direction they want to take.

I don’t think people give us the benefit of the way the company is run. I’ve seen some of the press releases that came out and they are kind of negative but if you just analyze the business, we made $0.81 for the quarter versus $0.70. We made $1.44 versus $1.25 for the nine months and I think people should look at that and then look at our terrific cash flow because in order for us to grow the business, we don’t have to build anymore warehouses or retail stores, so we do have a good cash flow and we have a -- you know, in all the things that we do and our interest expense certainly will drop next year because we’ll have more cash that will be getting us interest if we don’t buy anything.

So we are very optimistic that next year is going to be a good year for us and if we get that acquisition, it will even be better.

Steve Friedman - Wachovia Securities

Along with that, you wouldn’t have the same digestion situation as you had with new warehouses and so forth? Would a sizable acquisition be easily digested, I would presume, with --

Gerald J. Rubin

Well, you know, I don’t have the acquisition to tell you what it’s all about but certainly a big acquisition would have its own management and warehousing and distribution and marketing. Let’s see what comes along. No, there wouldn’t be any of the -- the things that we’ve done because we merged all our warehouses together when we bought the OXO company, but let’s see what happens, Steve.

Steve Friedman - Wachovia Securities

All right. Thank you very much.

Operator

Our next question comes from Scott Greeder with Scopia Capital.

Scott Greeder - Scopia Capital

Just had a quick question on the fourth quarter guidance; in your numbers, how much of an effect are you baking in for the foreign currency charge you are going to take in the fourth quarter?

Thomas J. Benson

We’re baking in a negative effect of closing our hedges out of about $1.5 million.

Scott Greeder - Scopia Capital

Okay, so without that, I think that’s what, an additional $0.05, your guidance really is -- you are guiding to $0.30 to $0.40 for the fourth quarter, ex that item?

Thomas J. Benson

Our guidance for the fourth quarter including that item is $0.25 to $0.35 now, so $1.5 million would be about another $0.05.

Scott Greeder - Scopia Capital

Okay. Thanks, that’s all I had.

Operator

We have a follow-up question from Kathleen Reed.

Kathleen M. Reed - Stanford Group Company

Thanks. Just quickly, can you tell us if Belson, $10.5 million in sales, that seems like a real strong number for me, if you are still on track for $20 million to $30 million for the 10 months or is Belson do you think doing a little bit better than you thought?

Gerald J. Rubin

I think we surpassed the numbers that we did put out. You did see the quarterly sales and you can multiply that by four and that’s probably what we are looking at for next year, fiscal year.

Thomas J. Benson

Since May, we’ve had $20 million of sales in Belson already so we have three months left for the rest of the year and so we are expecting it to be closer to $30 million for this portion of the year we owned it, which would have only been 10 months.

Robert D. Spear

And our original guidance was $20 million to $30 million.

Kathleen M. Reed - Stanford Group Company

Right. Okay, great and then lastly, any guidance you can help us with on the tax rate for full year or next year? The 8%, is that something we should use or 10 --

Thomas J. Benson

I think what we’ve said is the 10% to 12% is a good rate to use on an ongoing, longer term basis and when you review the Q, we’ve done reconciliations for the quarter and for the nine months and it will show that the nine months are just over 10%, without some of these what I would call the items we don’t expect to occur every year.

Kathleen M. Reed - Stanford Group Company

Okay, and that, what you just said, that excludes the one-time items?

Thomas J. Benson

I’m sorry?

Kathleen M. Reed - Stanford Group Company

The 10 to 12 excludes the one-time items?

Thomas J. Benson

The 10 to 12 excludes the one-time items, yes.

Kathleen M. Reed - Stanford Group Company

Okay, and then just lastly, your last quarter call, you mentioned there were some IRS tax outstanding issues and I just wondered if you had any update on any of those.

Thomas J. Benson

We still have some years under audit with the IRS and there’s been no meaningful changes during the quarter.

Kathleen M. Reed - Stanford Group Company

Thank you.

Operator

We’ll take a follow-up question from Gary Giblen.

Gary Giblen - Goldsmith & Harris

On the acquisition front, do you have any preference for housewares versus personal care, or is it all of equal interest?

Gerald J. Rubin

Actually, it’s of equal interest -- housewares, personal care, that whole category that we -- what we consider housewares.

Gary Giblen - Goldsmith & Harris

Okay, great and then I had just one inventory question; your inventory looked good in the sense of being in line with sales, but on the other hand you have now anniversaried the duplicate inventory from last year due to the distribution center situation, so are you happy with where inventory is now?

Gerald J. Rubin

You know, as we mentioned, our inventory is now 2.4 turns a year versus 2 turns a year and so yes, we are happy that it’s gone to 2.4 turns a year. And that includes all the Belson acquisition also in those turns.

Gary Giblen - Goldsmith & Harris

Okay. Do the retailer actions to reduce inventory basically add inventory on your end or are you able to adjust for that?

Gerald J. Rubin

No, I think 2.4 turns is sufficient for us to take care of the retailers.

Gary Giblen - Goldsmith & Harris

Okay, good. Thanks, Gerry.

Operator

At this time, there are no further questions. I will turn the conference back to Gerald Rubin to conclude.

Gerald J. Rubin

Thank you all for participating in our third quarter conference call and I look forward to talking to you with the year-end results. Thank you again.

Operator

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-203-1112, with replay passcode 1624504. This concludes our conference call for today. Thank you for participating and have a nice day. All parties may disconnect.

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