Helen of Troy Limited (HELE) CEO Julien Mininberg on Q2 2021 Results - Quick Version Earnings Call Transcript

Helen of Troy Limited (NASDAQ:HELE) Q2 2021 Earnings Conference Call October 8, 2020 8:45 AM ET

Company Participants

Jack Jancin - Senior Vice President, Corporate Development
Julien Mininberg - Chief Executive Officer
Brian Grass - Chief Financial Officer

Conference Call Participants

Bob Labick - CJS Securities
Rupesh Parikh - Oppenheimer
Olivia Tong - Bank of America
Anthony Lebiedzinski - Sidoti & Company
Linda Bolton-Weiser - D.A. Davidson
Steve Marotta - CL King

Disclaimer: *NEW* We are providing this transcript version in a raw, machine-assisted format and it is unaudited. Please reference the audio for any questions on the content. A standard transcript will be available later on the site per our normal procedure. Please enjoy this timely version in the interim.

Operator

[00:00:05] Greetings and welcome to the Helen of Troy second quarter fiscal 2021 earnings conference call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please. Press star one on your telephone keypad. As a reminder, this conference is being recorded, if you do need operator assistance at any time during the event, please press zero on your telephone keypad. It is now my pleasure to introduce your host, Mr. Jack Jancin, senior vice president of Corporate Business Development. Thank you, sir. Please go ahead.

Jack Jancin

Thank you, operator. Good morning, everyone, and welcome to Helen of Troy, second quarter fiscal year 2001 earnings conference call. The agenda for the call this morning is as follows. I will begin with a brief discussion of forward looking statements. Mr. Julian Lehnberg, the company's CEO, will comment on some high level results for the quarter, discuss current business trends. Then Mr. Brian Grass, the company's CFO, will review the financials in more detail and reflect on considerations from the ongoing covid-19 pandemic uncertainty as fiscal year 2001 progresses. Both Julian and Ryan will speak to you about our announced leadership plans. Following this, we will open the call to take your questions. This conference call may contain certain forward looking statements that are based on management's current expectation with respect to future events or financial performance, generally, the world anticipates, believes, expects, in other words, similar are worth identifying forward looking statements. Forward looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results. This conference call may also include information that may be considered nongay, financial information is non gap measures are not an alternative to gap financial information and may be calculated differently than the non gap financial information disclosed by other companies. The company cautions listeners not to place undue reliance on forward looking statements or nonbiased information. Before I turn the call over to Mr. Mininberg, I would like to inform all the interested parties that a copy of today's earnings release has been posted to the investor relations section of the company's Web site at W w w dot Helen of Troy Dotcom. The earnings release contains tables that reconcile non gap financial measures to their corresponding gap based measures. The release can be obtained by selecting the investor relations tab on the company's homepage and then the news tab. I will now turn the conference call over to Mr. Mininberg.

Julien Mininberg

Thank you, Jack. Good morning, everyone, and thank you for joining us today. I hope you and your families are staying safe and healthy. We recognize the people around the world continue to suffer as the virus and natural disasters take their toll. We extend our deepest sympathy to those who have lost loved ones to covid-19 have been ill with the virus and faced financial hardship or dealing with the devastating impact of hurricanes or wildfires. Turning to our earnings, Helen of Troy posted outstanding results this morning as our diversified portfolio continues to perform very well. We have been able to successfully adapt to and navigate through countless covid related challenges. From the start of this pandemic, we took decisive action to lead our business and organization through uncharted waters. We had two goals in mind. Our first was to safeguard employee health while continuing to provide our consumers and customers with the high level of service they have become accustomed to. Our second goal has been to adapt to the new normals with the speed and agility needed to stay focused on delivering business results for the here and now, while also advancing our multi-year Phase two strategic plan for sustained long term results. We remain laser focused on those goals and on our phase two transformation targets. We began leaning back into our key phase two priorities in the second quarter. The continued strength of the business now puts us in a position to do so even further in the back half of our fiscal year.

We believe these investments will continue to benefit all stakeholders as we drive our value creation flywheel. The results we are reporting today would not be possible without the tremendous commitment of our exceptional people, the dedication of the essential frontline workers in our distribution centers, in our test labs and our and in our operational hubs around the world continue to make the difference every single day. All around the world, our associates are delivering elevated throughput to meet as much demand as possible in the challenging conditions from covid and its ripple effects around the world. I am very proud to see how Helen of Troy is. People in all parts of our business have embraced the shared sacrifice. We asked of them during the early months of this crisis to preserve the organization and capabilities we all worked so hard to build in the transformation. Their trust and their hard work continue to pay off as the resilience of our business, organization and culture gets tested and confirmed. As a result, in early July, we shared that we would restore all wages, salaries and director compensation to precluded levels effective August 1st. I am pleased to share that later in the second quarter. We also made our people whole on all back pay, resulting from the temporary wage and salary reductions. We believe this is core to our values and highly consistent with our stated strategic goal to attract, retain, unify and train the very best people.

[00:05:59] It's also simply the right thing to do. With regard to the status of our offices and our work from home arrangements, we expect to continue our current mix of essential workers operating our distribution centers and keeping many of our international offices open, such as those in Europe and Asia, while other Helen of Troy associates will most likely continue to work from home through the end of this fiscal year. We will continue to closely monitor the ever changing covid-19 situation to make sure our approach to facilities and work environments is timely, thoughtful, carefully measured and complies with expert guidance and local regulations. Before I discuss our business results further, I would like to touch on the two executive leadership announcements highlighted in today's press release. Helen of Troy. Board of directors has asked me to extend my service as Helen of Troy, CEO beyond the February 28th, 2003 end date in my current employment. Agreed. I am honored by their continued faith in me and enthusiastic about serving an additional year. I believe there is considerable opportunity ahead for continued growth of our revenues, profitability, brand portfolio, our global footprint and our capabilities when the amended employment agreement is finalized. We will make a formal announcement. I feel very fortunate to have had the opportunity to lead the company not only through the remaining three and a half years of phase two of our transformation plan, but also to provide continuity of leadership through all 10 years of transformation.

I am right where I enjoy being at the heart of our strategic thinking with a special responsibility to further reinvent our business, deliver sustained performance and continue building organizational and cultural excellence. I look forward to stewarding the company through the end of fiscal 24 and through smooth succession planning for the next generally generation of leaders for fiscal 2005 and beyond. The second executive management announcement we made today is that our friend, colleague and chief financial officer Brian Grass intends to retire a little over a year from now, effective November 1st, 2021. Brian is a valued partner to me and to our global leadership team. I greatly appreciate his expertise, integrity, high standards and countless contributions during what will be more than a 15 year career of Helen of Troy. He has been influential in helping advance our transformation into a company that is built to last. Brian is rightfully proud of what he and the company have achieved, as well as the considerable progress he and his team have accomplished. Raising the levels of excellence for our global corporate finance team and for many of our systems. He has also been highly focused on establishing a compelling bench of internal CFO succession talent that we intend to groom over the next year. We also intend to conduct a comprehensive external service to ensure we have the very best next CFO for Helen of Troy. We expect that person to provide the outstanding level of financial leadership we are accustomed to and to continue to deliver on our transformation.

Brian will speak more about his plans to retire during his remarks over the next year. He will he will continue to remain fully in his role, providing highly effective executive management and financial governance and will assist with a seamless transition when the time comes. Now on to our business results. Our diversified business model and portfolio served us well in the second quarter and drove an outstanding first half for fiscal 21, as highlighted in our press release, we continue to see strong customer demand for our products across each of our three business segments globally. Net sales growth was twenty eight point two percent, adjusted diluted EPS grew a robust sixty eight point three percent. That growth was broad based as all business segments and international grew at least 20 percent in the quarter. Margins expanded behind mix improvements, disciplined investment spending and operating leverage within our business units and in our shared service platforms, our leadership brands performed extremely well in thirty point three percent, including a three point two contribution from Drybar. Online sales grew 32 percent and represented approximately 24 percent of our total sales in the quarter. The pandemic continued to accelerate the consumer trend from bricks to clicks. The first half of this fiscal year marked an excellent start to the second year of phase two, first half net sales grew by twenty point four percent, powered by leadership brand growth of twenty three point three percent.

[00:10:52] International sales were notable, growing double digit in the first half of the year, the major projects in India and Asia. Asia, under our Phase two strategy to double down on international, are performing ahead of internal expectations and creating attractive new investment opportunities to continue driving international growth. Sales to the online channel increased by 32 percent to represent approximately 26 percent of our total fiscal year to date sales. Adjusted diluted EPS increased by forty six point five percent in the first half, and we generate one hundred and eighty six million dollars of operating cash flow. Combination of winning first half results and strong prospects for the business in the back half of this fiscal year allow us to restore even more of the major phase to the investments originally planned for this year and what we communicated in our July call. We believe this will help power the long term sustainability of our value creation flywheel. The additional spending allows us to make key hires and drive ahead on direct to consumer customization, product innovation and marketing. It also allows us to provide more marketing support for the distribution gains we have earned, further diversify our supply chain beyond China and make investments to expand our supply capacity and our infrastructure. The infrastructure investments are especially important in these middle years of phase two as we expand our distribution and its capabilities to keep up with what has been more than 30 percent growth since our original transformation began and to prepare us to handle our future growth prospects.

We are also leaning into additional select marketing opportunities across our business and regional portfolio, such as hydrofluoric types, the monitors and in supporting our volumizer franchise. Even with demand continuing to surge in health related categories, we believe it is prudent to continue to manage our marketing spend in the back half, given the biological uncertainty about the path of covid and given the veracity of the current cold and flu season, as well as other unknowns around consumer demand, our efforts to improve supply are working, yet are still unlikely to satisfy all of the current demand. Taken together, these uncertainties make us unable to give specific quantitative financial guidance at this time, Ryan will provide some additional perspective on this in his remarks. Regarding current trends, we like what we see so far. September was another very strong month across nearly all parts of the business. Major trends in health related products continue, especially in the indoor season begins in northern climates as hybrid school models start up and as the overall nesting trend continues. While those have been positive business drivers for us, we expect the torrid pace of revenue growth to moderate somewhat in the back half as we anniversary the very strong finish to our last fiscal year. Switching now to results for the second quarter in our business segments, we are extremely pleased with our performance in beauty delivery, 23 percent organic sales growth, the highest we have seen in more than a decade.

To drive our acquisition contributed a further twelve point one percentage points to the segments total sales growth of thirty four point six percent in the quarter. The organic growth comes on top of the nine point three percent organic sales growth in the same period last year, despite the current challenges around retailers who are grappling with stay at home recommendations and measured reopening of their brick and mortar stores. Testament to our innovation stream and the strength of the ones that volumizer franchise continues to generate, generate, raise customer reviews for an expanding distribution and grow its market share. Syndicated data shows that during the latest 52 week period, Helen of Troy further grew its number one market share position in the online channel for U.S. hair care appliances and continues to hold a significant lead. Syndicated data in brick and mortar shows that during the latest 52 week period, we also grew our number to share position in the market for U.S. retail appliances. Our first mover volumizer appliance innovations continue to be a major driver and are a key expansion focus for us even as competitive copycat products enter the market. Are Revlon not tools, one step volumizer have now earned more than 90000 online consumer reviews with ratings of 4.5 stars and up depending on the site and considerable media attention both in traditional vehicles and on social media platforms.

[00:15:38] Sales of our newest leadership brand, Drybar, were all incremental in the quarter. The beauty industry has been among the hardest hit by Cosied, shutting down hair salons and slow slowing reopenings and traffic at major retailers in the Prestige Channel and in other parts of retail, brick and mortar. Despite this challenge, Drybar revenue improves sequentially each month of the second quarter as Drybar salons expanded their careful market by market reopening plans that prioritized the safety of its clients. By mid-September, Drybar salons had largely reopened for business, especially those outside of coastal cities, but remain impacted by covid prestige retail face similar challenges during the quarter, responding by accelerating the use of e-commerce, buy online and pick up in store or BOTUS and curbside pickup as they gradually reopened more of their brick and mortar stores. For key customers like Otha, Sephora and Nordstrom, traffic remains a challenge. But we continue to see positive sequential purchase trends for stores that have reopened. With regard to our previously disclosed divestiture plan for the personal care business processes advancing, and we anticipate being able to share more progress, we report our earnings for the third quarter in January. Now, turning to health at home, an outstanding performance momentum continued in the second quarter as the segment simple mission was more relevant than ever. Be there when consumers need us most trusted solutions for healthy living and peace of mind. Organic sales grew thirty three point one percent as all four of our health and home leadership brands grew sharply in the quarter.

Demand remains very strong for Vicks, Ron, Honeywell and puer products that address needs around temperature, humidity, water quality and air quality. The trends in the second quarter were especially powerful. New Cohu developments emerge almost every day. The Northern Hemisphere generally experienced a very hot and dry summer, and devastating wildfires continue to rage across large swaths of the western United States beyond the immediate impact of these events on the business. We believe the heightened media attention on our categories and brands has had important, positive, short and long term implications for category development and household penetration, especially as this attention comes at a time when consumers are focused on current events. I'm learning more about protecting health. Ron remains our most global brand and is being significantly elevated demand, all brawn thermometer types are very relevant today, but none more so than our no touch or noncontact seismometers, which measure and record a person's temperature with clinical accuracy, yet require no physical contact. The use of thermometers is changing from what was primarily a diagnostic tool to understand the severity of an illness to distinguish between a cold and the flu. Now a prescreening device recommended by experts for use in identifying the potential presence of a virus like covid-19. The monitors have become the first line of defense to help protect not only our loved ones in the home, but now also monitor public health and safety in schools, restaurants, stores, work sites, institutions and the transportation systems.

Earlier this year, we shared that we began investing additional capital and human resources into expanding thermometer production capacity, including no touch and ear on top of the increase in capacity. We secured in the first quarter. Further production increases helped us satisfy even more of the demand in the second quarter. We are also adding incremental supply that should be operational in the third quarter and get more coming online in the fourth quarter. With this ramp up, we expect to be more than double our total pre covid capacity by the end of the year. This will much better match to monitor output to the ongoing pandemic and better handle our fourth quarter during which the cold and flu season traditionally peaks. Air purification has also been a very hot category. U.S. sales for our Honeywell air purifiers grew strongly during the quarter. The key drivers were increasing concerns around covid, especially as indoor season approaches for many households, as well as institutions such as restaurants, schools and universities. Our air purifier sales were further aided by heightened media attention, highlighting the potential health benefits of using an air purifier during the pandemic. We also saw an early start to the wildfire season this year. Multiple August blazes in the western United States, unfortunately, stand out even among recent Record-Breaking Fire seasons for their scale and their intensity. Finding air quality from wildfires can also compound concerns around covid-19 as more people are confined to enclosed spaces and polluted air can create risk of airway damage.

[00:20:49] Respiratory infection. The surge air purifier demand has been much stronger than we expected, straining our supply chain. We have responded quickly with a 50 percent increase in air purifiers supply becoming operational by the end of next month. Man for water purification also continued in the quarter, underscored by two key trends. The first is from covid-19, as many people who continue to shelter in place and work from home are seeking additional avenues to help protect themselves and their families. The second is there are pure products are benefiting from an increasing trend of single use plastic bottle bands around the world as mindsets shift toward multiple put towards more sustainable purchase and usage habits propelled by these trends and increases in supply and in distribution, syndicated data shows that Pures growth has outpaced the growth of the category, resulting in market share gains for consumers, U.S. devices and replacement filters in brick and mortar. Lastly, in health and home, we have seen continued strong demand for our vic's humidifier devices and vapor steam inhalants. These products are designed to ease breathing by helping relieve the common symptoms of cold cough and congestion that can accompany a wide range of respiratory infections, according to syndicated data, are Vic's inhalant and humidifier businesses brew market share in the US brick and mortar market during the course. In housewares, second quarter sales increased by over 20 percent, even as we faced a particularly strong comparison in which the segment grew more than 22 percent in the same period last year.

[00:22:29] Both of our housewares leadership brands grew during the quarter. It is clear the pandemic is changing nearly everything in our daily lives, including the way consumers look at food. As people continue adapting to shelter in place guidelines new habits are forming. Many who used to rely on eating outside the home are now getting reacquainted with their kitchens. Studies confirm that consumers, especially millennials, are experiencing the joy of cooking, more of sheltering in place and experimenting with a wider variety of meal options. Is this time of experimentation the new found fun that is also expanding their use of essential products and gadgets for cooking, baking, brewing, cleaning, storage and organization? All of these are in the sweet spot for our outstanding OKso lineup that helps consumers transform their homes and kitchens into engaging, efficient spaces that make every day better every day. We are excited about the prospects for the brand as okso benefits from these positive new habits and greater adoption by a new and younger demographic. This is positively compounded by follow on sales OKso usually earns once a household has penetrated. OKso grew in brick and mortar online and internationally during the quarter as we gained distribution, launched new products and benefited from a very strong point of sale trends and store traffic at certain retailers, fast food storage, coffee, measuring and baking had particularly explosive growth.

[00:24:00] International sales for OKso were also an excellent source of growth, especially in EMEA and online Arktos. Domestic online sales benefited from significant increases in direct to consumer as the trends from bricks to clicks continued. Dotcoms such as Amazon, OKso, Dotcom and Target Dotcom were also standouts, market share gains were strong for OKso in the United States. Syndicated data shows that even as the U.S. housewares category has grown fast, axios dollar sales growth during the quarter has been roughly twice as fast. Oxalis partnership with one percent for the Planet further aligns the brand with its consumers as it joins the global community of brands that reinforce their positive equity, giving back the equivalent of one percent of its sales to environmental nonprofits. Hydrofoil has returned to growth during the quarter as more people return to the outdoors and to brick and mortar retailers will slowly reopen, the brand overcame a particularly strong comparison in the same period last year and overcame this year's headwinds from closures and lower store traffic at key retailers. According to syndicated data, Hydrofluoric continued to sustain its number one U.S. market share position and its large lead over competitors in insulators, hydration vessels, international sales for hydrofluoric very fast in the quarter are retail stores were largely open by the end of the quarter. Consumers continue to shop online where the brand delivered strong e-commerce and DTC sales have dropped. Last brick and mortar point of sale also began to improve as foot traffic started to reemerge in regions where consumers felt more comfortable leaving their homes.

[00:25:44] While it is likely covid will persist for a longer time than any of us would like, you continue to like our prospects on Hydrofluoric as it remains highly relevant and wildly popular and with its EntreMed positioning products, distribution and online presence. That I wrap up my comments, I would like to emphasize the focus we are placing on our Phase two initiatives, they are the key to continuing to drive our value creation flywheel heading into the back half of fiscal 21. Our portfolio is demonstrating excellent momentum, allowing us to use our cash flow to continue selectively investing in phase two. Our balance sheet and financial position are very strong and capable of supporting accelerated investment. With our strong cash flow and low leverage, we are in a strong position to fund higher inventory levels, deploy capital toward accretive acquisition that adds more critical mass to that flywheel and consider opportunistic share repurchases. While many challenges from covid grabbed the headlines, we believe we are creating a company that is built to last and has proven its ability to create value for our stakeholders in a wide range of market environments, focusing on delivering results for all stakeholders has been a hallmark of Helen of Troy throughout this transformation. We are proud to continue that work. I will now turn the call over to Brian.

Brian Grass

[00:27:06] Thank you, Julianne. Good morning, everyone, and thank you for joining us. I hope that you are safe and healthy. Our thoughts continue to be with the people who have been directly affected by the covid-19 pandemic. We want to extend our appreciation for the efforts of first responders, health care providers and essential workers, and for the efforts of our own associates that are able to work from home. I'm pleased to say that the rate of infection among our associates has been minimal. Our priority has been and continues to be their well-being during this unprecedented time. The impact of covid-19 pandemic has significantly accelerated demand for leadership brands, and I'm grateful that Helen of Troy is in the position to continue to provide products that help individuals and families during this difficult time. As Julian highlighted, we delivered an exceptional quarter reporting more than 20 percent growth across all three segments and strong operating margin expansion or profitability was buoyed by temporary expense reduction and deferral initiatives put in place earlier in the year due to the uncertainty of the pandemic's impact on economic activity. They saw a strong performance in a little more visibility with respect to Poland's impact on our business, we have now reversed many of the expense reduction initiatives, particularly personnel related actions, in reactivates several key phase two investments. We remain below normalized levels of marketing spend for several reasons, which I will cover later in my remarks. On the whole, this is showing the strength that I have not seen in my 14 years of the company, which, combined with an expanded gross profit margin and expense discipline, resulted in adjusted EPS growth of sixty eight point three percent in the second quarter. Or liquidity was another highlight, ending the quarter was one point one billion in liquidity, including one hundred forty eight point four million in cash and 955 million available on a one point twenty five dollars billion credit facility. And our liquidity has continued to improve until October.

[00:29:15] We generated 171 million of free cash flow in the first six months of the year and we increased inventory by almost 100 million dollars in the capital expenditure investments of fifteen point two dollars million. To better satisfy the surge in demand, we have seen and help mitigate any potential further covid-19 disruption on our supply chain. As we noted in today's earnings release, we have the further outlook for fiscal 2021 at this time, we expect to return to our historical practice of providing an outlook once visibility improves. Now, moving on to a more detailed review of the quarter, consolidated net sales revenue was five hundred thirty point nine million, twenty eight point two percent increase over the prior year. Organic business net sales grew twenty five point seven percent, driven by very strong sales growth and all three business segments. As expected, we saw improving trends in the housewares and beauty segments in second quarter. Demand in the Health and Home segment continue to drive growth consistent with the first quarter. This strength more than offset the adverse impact of covid-19 related store closures in more store traffic at certain retail customers during the quarter, which continue to adversely impact net sales primarily in our housewares and beauty segments. This includes retailers such as Dick's RTI, that Bath and Beyond specialty outdoor specialty kitchen department stores over Sallies Tripa salons and closed out retailers where same store net sales were generally down due to either store closures early in the quarter or reductions in foot traffic as consumers continue to adjust for shopping behaviors and discretionary spending.

[00:31:04] Consolidated sales in the online channel grew approximately 32 percent year over year to comprise approximately 24 percent of our consolidated net sales in the second quarter. Sales from her leadership brands grew thirty point three percent in the quarter, which includes three point two percentage points of growth and drive on. Well, our sales improve sequentially from the first quarter of the fiscal year. Second quarter sales continue to be hindered by hypersaline in key customer store closures. Organic sales for housewares segment increased twenty point two percent, which included growth for both the Austenland hydrofluoric brands. This reflects higher demand for upscale products as consumers spend more time at home cooking, cleaning, organizing and pantry loading in response to covid-19, an increase in online sales for both awesome and hypoplastic higher sales in the channel, growth in international sales and new product introductions. These factors were partially offset by the covid-19 related impact of reduced store traffic and store closures at certain retail brick and mortar customers, mostly in the early part of the quarter. Health and home organic business net sales increased thirty three point one percent due to consumer demand for health care and healthy living products in domestic and international markets in both brick and mortar and online channels due primarily to covid-19 in demand driven by severe wildfire activity on the West Coast of the United States.

[00:32:39] These factors were partially offset by declines in non-strategic categories. Beauty second month sales for thirty four point six percent in organic sales increased 23 percent, driven primarily primarily by strong demand for a One-Step family of products, expanded distribution and an increase in international sales. Drive our products contributed NetSol revenue of ten point five million or twelve point one percent to segment net sales growth. These factors were partially offset by a sales decline and the legacy mass market, personal care business, the impact of store closures earlier, early in the quarter, and lower foot traffic at certain retailers in the unfavorable impact of foreign currency fluctuations of approximately point four million, four point five percent. Consolidated gross profit margin expanded four to forty three point four percent, compared to 43 percent, the point four percentage point increase is primarily due to favorable product mix within health and home in the organic beauty business, the favorable impact of the drive, our product acquisition, the favorable channel mix within the houseware segment, lower direct import sales and lower airfreight expense. These factors were partially offset by unfavorable product mix in the House for a segment in the unfavorable comparative impact of tariff exclusion refunds received in the prior year period.

[00:34:07] Consolidated FEMA was twenty four point seven percent of net sales, compared to twenty nine point eight percent. The five point one percentage point decrease is primarily due to the impact that higher overall sales have on operating leverage in cost reduction initiatives, including temporary personnel, advertising, travel expense reductions due to the uncertainty of the 19. These factors were partially offset by higher performance based annual incentive compensation, higher legal expense and higher customer chargeback activity in skinny ratio of twenty four point seven percent is below our historical norm due partially to the surge in revenue, but also due to cost reduction measures in place for a portion of the quarter in lower marketing span due to supply and distribution capacity constraints in certain parts of the business, which I will discuss later in my remarks. Gap operating income was ninety nine point three million, or eighteen point seven percent of net sales, compared to fifty four point five million or thirteen point two percent of net sales in the same period last year. On an adjusted basis, consolidated operating margin was twenty point four percent, compared to fifteen point nine percent in the same period last year. The four point five percentage point increase primarily reflects the favorable impact that higher overall sales had on operating leverage, a favorable product mix within health and home in the organic beauty business, the favorable channel mix within housewares and cost reduction initiatives, including temporary personnel, advertising and travel expense reductions due to the uncertainty of covid-19.

[00:35:51] These factors were partially offset by an unfavorable product mix within the household segment, the unfavorable comparative impact of tariff exclusion refunds received in the prior year period, higher performance based incentive compensation, higher legal expense and higher freight and distribution expense. Housewares adjusted operating margin increased one point three percentage points to twenty three point seven percent, primarily reflecting the impact that higher overall sales had on operating leverage, a more favorable channel mix in cost reduction initiatives, including temporary personnel, advertising and travel expense reductions due to covid-19. These factors were partially offset by a less favorable product mix, higher performance based incentive compensation expense, higher freight and distribution expense to support strong demand and increased customer chargeback activity. Both at home and just in operating margin increased six point seven percentage points to seventeen point nine percent, primarily, primarily reflecting the impact that higher overall sales had on operating leverage, a more favorable product mix and cost reduction initiatives due to close at 19. These factors were partially offset by the unfavorable comparative impact of tariff exclusion refunds received in the prior year period and higher performance based incentive compensation expense.

[00:37:15] Duty adjusted operating margin increased seven point six percentage points to nineteen point five percent, primarily due to the impact that higher overall sales had on operating leverage, a more favorable product mix, lower airfreight expense and cost reduction initiatives due to covid-19. These factors were partially offset by higher personnel expense related to the acquisition of Drybar products, higher performance based incentive compensation expense and increased legal expense. Moving on to taxes. Income tax expense as a percentage of pre-tax income was nine point six percent compared to income tax expense of ten point three percent, primarily due to the benefits recognized from the transition of our local entity from offshore to onshore status, partially offset by increases in liabilities related to uncertain tax positions. As you may recall, we currently have an indefinite tax holiday in Macao and Macau for more than a supplementary regulations. The grant tax incentives to approved offshore institutions will be abolished on January 1st, 2021. Existing approved offshore institutions such as ours can continue to operate under the offshore regime until the end of calendar year 21. Beginning calendar year, 21 hour, Macao's subsidiary will transition to offer status and become subject to the statutory corporate income tax rate of approximately 12 percent. As previously disclosed, the impact of this change are consolidated, effective tax rate, but subject to the transfer pricing analysis, which was completed in the second quarter.

[00:38:55] On an annual basis, we expect this change to increase our overall consolidated, effective tax rate by one point five to two percentage points beginning in fiscal year 2022, which we consider to be a favorable outcome given the extent of the corporate tax rate change. Net income was eighty seven point three million or three dollars and 43 cents per diluted share on twenty five point five million shares outstanding, compared to forty six point one million for a dollar 83 per diluted share in the prior year on twenty five point two million shares outstanding. Not gap adjusted income grew sixty nine point seven percent to ninety five point nine million or three dollars and 77 cents per share, compared to fifty six point five million or two dollars and twenty four cents per share. Now, moving on to our financial position for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2001. Accounts receivable turnover was sixty eight point seven days, compared to sixty eight point four days for the same period last year, our accounts receivable balance was 402 million compared to 310 million three hundred ten point four million in the same period last year. Inventory turnover was three point three times for the trailing. 12 months ended August 31st twenty twenty, compared to two point ninety nine times for the prior year period.

[00:40:23] Inventory was three hundred fifty point two million, compared to three hundred and seventy point nine million net cash provided by operating activities increased one hundred and forty eight point one million, two hundred and eighty six point three million for the first six months of fiscal 2021. The increase was primarily due to higher net income and higher cash provided by accounts payable and accrued expenses, partially offset by higher cash use for receivables and inventory. The increases in working capital components are in line with our expectations due to the significant growth, the fiscal year and our efforts to mitigate any further potential covid-19 disruption on our supply chain with higher inventory levels.

[00:41:08] We expect to further build inventory leading into our peak selling season in the second half of the year. So the short and long term debt was 300 point one million, compared to three hundred one point two million. Free cash flow for the first six months of fiscal 20 21 increased one hundred forty one point seven million, two hundred and seventy one million as of the end of the second quarter. Our leverage ratio is defined in our debt agreements was point nine times compared to one point two times at the same time last year. This is the sequential decrease compared to one point one times as of the end of the first quarter of this fiscal year. Our net leverage ratio, which nets for cash and cash equivalents with our outstanding debt, was point five times at the end of the quarter. We continue to hold higher than normal levels of cash to protect us against any future attacks in the shops, to the credit markets, and allow us to fund our targeted inventory levels going into our peak selling seasons and through Chinese New Year without the need to incur further debt. We believe our liquidity and cash flow puts us in a great position to continue navigating the uncertainty of the external environment and take advantage of potential capital allocation opportunities. Now on to a business update as we look to the remainder of the fiscal year, we're still operating in an extremely dynamic environment due to the evolving covid-19 pandemic and related consumer and business uncertainty.

[00:42:35] We are not providing an outlook for fiscal 2021 at this time. In addition to the lack of visibility into consumer demand and the uncertain impact of covid-19 on the retail environment. Trends are emerging that may impact our ability to fill some orders on a timely basis and our ability to make marketing investments with an acceptable return, all of which had a significant impact on our ability to forecast within a reasonable range, as previously disclosed during the first quarter of fiscal 2021, as part of a comprehensive approach to preserve our cash flow and adjust our cost structure to align to lower anticipated revenue we implement. We implemented a number of temporary cautionary measures in response to the uncertainty from Poland, 19. Based on stronger than expected performance. We reversed a number of these measures toward the end of the second quarter of fiscal 2021, including a restoration of all wages, salaries and direct compensation to prickled at 19 levels. In addition, towards the end of the second quarter, we also selectively increased levels of investments in certain marketing activities, new product development and launches in capital expenditures in support of our Phase two transformation strategy during the remainder of the fiscal year. We are planning to continue to increase our marketing and other growth investments.

[00:43:58] We continue to see very strong demand trends in many of our product categories in the second quarter, demand continues to outpace even recently increased supply capacity with respect to thermometer, free air filtration, water filtration and various products within housewares, which in some cases is resulting in our stocks. Surges in demand and shifts in shopping patterns related to covid-19 have strained the U.S. freight network, which is resulting in carrier delays in addition to houseware sales growth of fourteen point one percent and twenty two point four percent in fiscal year 2019 and 2020, respectively. Demand has further surged for the OKso brand, which in combination with carrier delays, has forced order flow to outpace shipping capacity. And one of our distribution centers.

[00:44:48] In some cases, this is resulting in out of stock at retail for some clients. But we have moved very quickly to bring additional distribution and storage facilities online in support of surging water volume and higher targeted inventory holdings heading into our peak selling season. We believe there could continue to be some level of our stocks in certain parts of our business.

[00:45:10] Not only do these trends impact our ability to accurately forecast revenue, they can also limit our ability to make marketing expenditures with an adequate return on investment in certain categories where macro trends like covid-19 are driving demand significantly higher than historical levels or in situations where supply or distribution is capacity constrained. We believe that driving additional demand through incremental marketing activities could compound potential ship shipping delays for our stocks in these situations. Currently, planned marketing investments designed to drive short term demand would not be made. We believe these factors could contribute to a wide variation of outcomes with respect to our adjusted EPS for the remainder of the year. Our best plan is to make the majority of the incremental marketing investments that we planned at the beginning of the year and that we believe are best for the long term health of our brands if we are able to execute against our base plan. We would expect adjusted operating margin for the full fiscal year to expand by approximately point to two point four percentage points compared to fiscal 2020, which would imply year over year compression in the second half of the year. The current demand trends continue, and we are not able to execute against our base plan, adjusted operating margin could expand by as much as point eight to one point six percentage points for the full fiscal year compared to fiscal 2020. As a result, we believe there could be as much as 50 cents to a dollar of adjusted diluted EPS variability just for marketing investments that are planned for the second half of the year, but may not be made due to an unacceptable return on investment capacity constraints or lack of visibility.

[00:46:59] This range does not include the additional potential revenue variability from covid-19. Well, this year, certainly testing us all, I'm pleased with how our entire organization is rising to the challenge. Our teams are working hard to fulfill customer and consumer orders while simultaneously executing the key phase two initiatives we have chosen and developing operational plans for a variety of scenarios. We remain disciplined, get opportunistic in our expense and capital investment approach, focusing on maintaining a strong balance sheet to ensure we have the flexibility to pivot our approach as we navigate these uncertain times. Finally, just a few comments regarding the announcement of my intent to retire on November 1st, 2021, just over one year from now. As stated in today's earnings release, I put aside my entrepreneurial interests for almost my entire career, and I've now reached a point where I can explore these interests in a financially responsible way while still being young enough to do it is my dream to build something that I could hand over to my son one day. I also want to be more available for my son than I would be if I continued in my current role. I believe I can be successful in different ways in my professional career, but the only way I can be successful as a dad is to be there.

[00:48:17] My life has been nothing but patiently supportive, despite the long hours, personal sacrifices and intrusions on family time, that I owe her more, to use a financial analogy. I've made a lot of withdrawals from the family account and it is time to start making some deposits. Finally, I've always tried to put the company's interests first, and I believe the company will benefit from the fresh set of eyes, new blood and a different voice. I'm proud to say that the company has never been stronger financially, operationally or strategically, and I believe the best is yet to come. I'm also proud that we have developed strong internal CFO succession talent, whom we will continue to groom over the next year. The company also intends to conduct in that same search to ensure the best possible succession for Helen of Troy. I thank Julia for his friendship, mentorship and trust. I also want to thank Julian, the board of directors for global leadership team and the finance organization, for allowing me to be a part of this amazing journey. It is a gift to be entrusted with the responsibility of leading a company like Helen of Troy. And I am truly grateful. I look forward to working with Julian to ensure the smoothest possible transition for the company. I also look forward to speaking with many of you over the next year, hopefully in person at some point. And with that, I'd like to turn it back to the operator for questions.

Question-and-Answer Session

Operator

[00:49:39] Thank you, ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time, a confirmation tone indicate that your line is in the question queue. You may press star, too, if you would like to remove your question from the queue. So participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one to register questions at this time. Our first question today is coming from Bob Labick of CJS Securities. Please go ahead.

Bob Labick

[00:50:13] Good morning and congratulations on the personal news as well as the strong operating performance. Super exciting to hear, Julian, that you're extending your contract and staying on. And Brian, obviously, I'll admit a little bit of a surprise announcement, but it sounds like you've thought about it a lot and it sounds terrific. So congratulations.

Brian Grass

[00:50:39] Well, thanks. Sullenness working with you for sure. And, you know, it's not by now, but we have a little bit of time. But but values are working together over the past 12 years that.

Bob Labick

[00:50:50] Oh, absolutely. Now, I appreciate it very much as well, and I won't say goodbye yet either, because we have another year maybe before just jumping to the operational is. One more question for you, Brian. If you don't mind, you talk about your current, you know, ownership position and how to try and how that might, you know, change or be impacted if that's, you know, thought of as part of the, you know, funding of your your future pursuits or, you know, how you're thinking about that.

Brian Grass

[00:51:16] Sir, so I have a meaningful position in Helen of Troy in terms of stock ownership and, you know, I would expect that the takeaway is I would expect that to continue through my days of retirement. I do expect to have, you know, some level of sales for diversification purposes and retirement planning purposes. But but again, I expect my ownership to remain meaningful throughout my tenure. It's also important to know that per my severance agreement and our retirement plan, I'm eligible for continued vesting of my stock awards. And so I have a vested interest in health, employee success, the succession planning work that we're doing four years after my retirement, because I have a vested interest in those stock awards that the best one, two, three years after the date of my retirement. So I think the key takeaway is I am a very, very meaningful ownership interest in Helen of Troy stock, and I expect that to change in a meaningful way, although there could be some sales over time, just again for diversification and retirement planning.

Bob Labick

[00:52:33] Ok, got it, makes a lot of sense. And as I said, we have another year, so I won't say goodbye, but jumping over to operations or just the business in general, obviously, you guys are a consumer centric company focusing on innovation and new products. And that's what's been driving your growth for so long. How have the needs, the wants or the desires of your customers changed from covid? And how are you changing right now to address these needs and, you know, being able to still get consumer insights in a different environment?

Julien Mininberg

[00:53:07] Yeah, thanks, Bob, it's a great question, consumer centric, that's exactly the right word for us. It is our single minded focus and frankly, our obsession. In the case of covid related demand, consumers are doing some interesting things as indoor season comes along in the Northern Hemisphere. So I think schools, universities, this time outside in general, because of the temperature, we're seeing a considerable surge in things like air purifiers. There's tons of articles in the press, some of the scientific press, lots of recommendations now, even from the CDC on the subject of indoor transmission, ventilated spaces, droplets, particles, etc.. So this is a big deal and is changing consumer behavior. We're seeing a tremendous surge in air purifier sales that's only accelerated since Q2. So here we are in almost the middle of Q3. And I can definitely say that that is growing considerably. We're bringing tons more capacity online, as we said in the public remarks. In fact, about 50 percent more purifiers on top of what we've already sold and have coming by the end of next month into our production system. And in the case of thermometers, there's a change as well here. We're seeing people going for this idea of detecting temperature to now screening, and that's happening both on the consumer household side and also in institutions of all kinds. So kilometers, I mentioned it yourself. I was going to an Apple store and people six feet apart online. The first thing they do is check your temperature, importantly, with no contact numbers, which has become a big deal for us.

[00:54:55] And we're making a lot one of those as well, not production increases based on consumer behavior. The nesting season has been a really big deal in housewares. This is good news for the company as well. We're seeing, for example, younger people, millennials and even younger households than that. Now I'm discovering sort of joys of home cooking, tuning up, that's catching up. And I think everyone on this call probably knows that also as a very positive rabit like quality, meaning one month or two, one or two items, make it into the home, their quality, their epsilon's, the feel similar experience, what we call the second moment truth. After you buy, you use it at second moment, makes those rabbits multiply considerably within the house and you go back a year or two later. It's kind of like hydrographic. We've just seen a lot of them scattered around the house. So that's a couple of examples of consumer habits changes. I think one last one, which is around Drybar, there's quite a lot of Drybar home care happening. So think of women. Conemaugh Fewer trips to the salon, but nonetheless on Zingales and other other obligations and I want to look good and drive our products are just spectacular to that. People buying, especially online.

Bob Labick

[00:56:18] Ok, great. Appreciate all that color there and you've talked about, you know, no comes on the call today. Obviously you're selling products as fast and sometimes, you know, can't even sell as many you're making as you're selling the fast you can make them. And you pull back on marketing to not exacerbate the supply constraints. What is your other areas to spend to shifting your spending patterns? One of the projects can you spend on and can you give us some examples of what you're doing with that marketing? Obviously, some of the marketing is, you know, flowing through the lack of markets flowing through the bottom line. But there are other things you can be spending on internally.

Julien Mininberg

[00:56:59] Yeah, Ton. So you may even be some confusion on this. So I want to make sure this gets out, but I'm really glad you bring it up to two things I'd like to say. One is we are spending heavily on the phase two key initiatives, and it's not just marketing. And the second is that we are spending on marketing, especially in certain areas. We just don't want to stimulate short term demand on products where we already have so much natural demand that we can't meet the supply. So in all the lighting, it's already had an overwhelming amount of orders and you can't meet every single one of them to spend short term money to generate more of those orders. This is not a good return on investment. In the case of the other areas that we're spending, think of the things that were listed in the call infrastructure. That's I.T. distribution, throughput capability. It's also the ability to diversify our supply chain beyond just China, which is something that many people on this call were pounding the table for only a few months ago. And we have been doing for some time. We're also spending a fair amount of money on hiring, especially in key areas of the company upstream, especially engineering quality, product development, spending on product development in a big way and in marketing itself. There's things that don't hit the market in the very short term. So I think content for videos, packaging, new claims, development, testing of new products, testing with consumers, market research and other areas, as well as mentioned on the call for spending money.

[00:58:38] Also on the topic of culture, especially now with new people coming on board, are training them in the work from home environment takes a little bit of extra cost because they don't have the natural onboarding experience. So plenty of money going out the door. And on the subject of all of it, against phase two flywheel generators and lastly, on the marketing to be careful not to generate short term demand if we don't see enough supply.

Brian Grass

[00:59:09] If I'd like to add something to where we're taking advantage of this opportunity to spend a lot operationally as well. So we're expanding our distribution footprint. We're, you know, improving the quality of our systems and doing a lot of activities around that. I and I really think the outcome is good either way. I think maybe there's a focus on a little bit of compression in the back half. But I think, you know, if we have a little compression, even with that, we still get a very good outcome for the year. And we've been able to invest behind our brands. If we are able to do the spending, then we're going to get a great, tremendous outcome in terms of earnings and I think still be a very good spot with respect to demand trends and the health of the business. And we've made the investment operationally that will support the growth for the future. So I kind of view the situation we're in as being, you know, no loose. It's just a little bit fluid. And so when people want very precise financial projections, it's hard to guess. But it's not a bad outcome either way. It's either going to be very strong profit result or it'll be a good process result with investment behind our brands and investment behind the infrastructure of our business. So, you know, I view it as, you know, can't lose in the situation. It's just a wide range of outcomes that we could have for the full year. And we want to be very transparent about that. And that's what we're trying to do.

Bob Labick

[01:00:41] Ok, great, now that sounds terrific, and then last one, I promise I'll jump back in queue, but, you know, typically you're back to school has been pretty big for hydrophilic. So I was kind of curious. This year's obviously massively different than any other time. And what kind of update on that, how that may have may or may not be impacting hydrofluoric. And I can't help myself. So I also want to ask about you potential customization, you know, enhancements to the hydrofluoric opportunity and kind of where that stands.

Julien Mininberg

[01:01:11] Yeah, let's start with hydrofluoric, just tons of opportunity anhydrase last week, we spent years building that franchise. We're doing a ton more of it right now.

[01:01:22] We use the word leaning in a couple of times in our comments. And we mean there's some key brands that we said we are investing heavily in. We also said that short term there are marketing opportunities. It's very much one of them. In fact, almost on top of the list. We're spending also, by the way, on our volumizer franchise, which is growing rapidly, expanding around the world. We're spending on international we're spending on there's no contact anemometers, especially in Asia, as examples of the build out this big deal. It's doing extremely well in most of its markets, especially outside the United States right now. Happened to be on fire and on DTC is a huge new driver for hydrolyzed beyond what we've done already, one where we feel we can catch up considerably with what's going on in the market. And we're reporting some of the best.

Bob Labick

[01:02:14] Ok, well, I will jump back in and pass the questions on. Thank you.

Operator

[01:02:22] Thank you. Our next question is coming from Rupesh Perry of Oppenheimer. Please go ahead.

Rupesh Parikh

[01:02:28] Good morning. Thanks for taking my questions and also congrats on a nice quarter. So I guess I want to start out with just just just a question on guidance. So we look at your commentary. It suggests either we the of 20 to 40 basis points of order spending plans or 80 to 60 days to 160 basis point, if you can. So at least based on my estimate, that implies operating margins could be down more than 200 basis points in the back half of the year. Is that is that accurate? And is there any way to, I guess, think about, you know you know that, you know, whether these investments, accelerated investments maybe that you would have made in future years and just pull them forward to this year.

Brian Grass

[01:03:06] So I think it's called the directionally accurate I mean, I I didn't calculate the back half, but I think if you do the math of what we've given you, you can get the outcome. So it's really just math what happens in the back half. And that's really not our focus. Our focus is the outcome for the year and the health of the business going forward. And that's what we're striving towards. The quarterly variability, I think, is is not worth spending much time on because, you know, it doesn't matter at the end of the day how we get there. It just matters, you know, where we get and we want to be careful with the health of the business and we're focused on that. But like I said previously, the bottom either outcome is very positive in our minds. Either we've used the opportunity that we've been given to invest behind the brands and we're in a very strong position going into next year. And we have a little bit of compression in the back half of the year or we don't have the compression. We have incredible results for the full fiscal year and we're still positioned, we believe, to do well going forward.

[01:04:14] But we are very conscious and aware of the health of our brands. And so we want to use every opportunity that we can give with the demand surge to invest behind our brands. It's just the demand surge has been so great that we have to be a little more selective in terms of our marketing spend because we can't drive demand where we can't fulfill meet the needs of the demand. And so it's a very unique situation to be in and a good situation to be in. And we're figuring it out. And I think we're stewarding the brands in the business as well as we possibly can, given all the volatility. So I hope that answers your question I know is more specific about the precise compression. I think that's something to consider and know as you're doing the math of our projections. But I don't think it should be the takeaway. The takeaway should be where we're stewarding the health of our business the best we can in this environment. And I think we're in a very good place.

Rupesh Parikh

[01:05:14] That's helpful color there and maybe just one follow up question, because we look at that help in home business and obviously very strong growth in Q2. I was just curious if you could speak to sell in versus sell out if you saw any restocking benefit during the quarter, as maybe some similar retailers ordered ahead, had a key season.

Julien Mininberg

[01:05:33] Yeah, it's mostly sell in and sell out. The demand is extremely strong, especially in for leadership brands that make up the vast majority of health and home. So just to be clear that specs from Honeywell and pure and people may have the wrong impression, they may think that somehow we don't have supply. It's not true. We have large amounts of supply. We've made them bigger and they're going to get bigger. Still, what is true is that we have even larger amounts of demand, especially in the air purifiers and the thermometers. And so what's happening is the cell is already inbound as quickly the outbound and for retailers, let's order is quickly sold through. That is leading to Smadar stocks. And that's why we called it out. And you can probably see those in the marketplace in the case of the replenishment orders that constant. And we're fulfilling as much of those as humanly can. There is some allocation just because of limited supply. And as we catch up, there's less and less of that. And then in terms of the replenishment for the cold and flu season, retailers are properly positioned, I believe, for a normal cold and flu season. There is uncertainty and we called it out in all the markets about what that season will be like for the simple reason, because it is unusual and concurrent. So we'll see how that goes. But everything's in the right place and the more that we bring in, it all sells through. And that's happening for retailers, too. And they're replenishing as fast as they can.

Rupesh Parikh

[01:07:05] Ok, great. Thank you very much for the color of the volunteer party.

Brian Grass

[01:07:10] Let me follow up a little bit on the compression in the second half. I mean, you're pointing out, I think that it seems like a big number. I want to point out that in the profitability in the back half, last year was very strong, too. And in the end, we had a very strong demand surge or volume surge, especially in Q4, which was a little bit ahead of our expectations. And so the profit was also ahead of our expectations. And we, you know, didn't have the spending line lined up to go along with that outcome. So hopefully a little bit of color there. And you understand that the comparison is important as well, and that will factor into the compression. But like I said, I think either way, the outcome is good for the full year and quite honestly, even the second half, because I think we'll be positioning ourselves well for next year.

Julien Mininberg

[01:08:03] Yeah, it may be time to just get real clear on this compression thing, because I think it's coming up a fair amount. And it's possible that people are having a concern that that is greater than the situation that we're really in the thick of the year is a lumpy one. We were in a situation like everyone else in the world where covid hit hard in months like March, April, May, and we, like others, turned off some light switches and cut our spending. We had increases in margin because of that as the demand surged and we saw that in Q1. Now, again in Q2, we had margin expansion that's above normal and not a sustainable regular number. As we look at our phase two investments that we originally envisioned at the beginning of the year, they are bold and they are right. And those significant investments are with power flywheel and is creating the long term transformation that has generated so much value. This is the result now is that the same management team is doing the right thing. We are using the tremendous cash flow of the company that you saw one hundred and seventy one dollars million of free cash flow in the first half to drive that engine in the back half. So if you start that spending in the front half because of the lumpy covid thing and have opportunities both on infrastructure as well as in the marketplace, hiring of the other things I mentioned in the list I gave in the public remarks, only a fool would not do that and spend it to strength. What you see, as Brian pointed out, is a year that should have a tremendous outcome on top of the tremendous output we had last year. And the lumpiness in between is the truth of covid. If we went and spent the rest of the year hiding under our beds and preserving that very, very high, unusual margin of the first half, I think we'd be doing a tremendous disservice to the long term trajectory of the business and to our shareholders.

Rupesh Parikh

[01:10:02] Great, thank you, I think that was helpful color there, the computer.

Julien Mininberg

[01:10:05] Sorry to be tough there, but I think people have this idea that know short termism is somehow a good idea for not only managing for the long haul, that I think of it this way. We plan in thinking five year chunks. That's our strategy to plan in three year chunks. That's our strategic execution. And we deliver in one year Trump chunks. For the last six years, we've not only done that, but delivered strongly. We don't think this year will be an exception, but that lumpiness is unusual. It's covid driven and we are doing the right thing.

Rupesh Parikh

[01:10:38] Ok, great. Thank you.

Operator

[01:10:41] Thank you. Our next question is coming from Olivia Tong of Bank of America. Please go ahead.

Olivia Tong

[01:10:47] Great, thanks. Good morning. I first want to talk a little bit about sales. You talked about, you know, September kind of continuing the trend that you saw in the in the quarter in the August quarter. Talk a little bit about whether Q2 benefited from catching up to prior demand to the quarter benefit in any way from a pull forward of future sales or have these trends kind of just, you know, sort of any impact from timing shifts? And then just also, you know, obviously realizing a number of the categories are benefiting from covid prevention and wildfire related demand, all these things. So can you talk to your expectations when when we do get a vaccine and what what implications that might have on sales? Thanks.

Julien Mininberg

[01:11:32] Yeah, a couple of things in there, so there's backward ones, current ones and future ones, so let me try to unpack it that way. Start with the backward ones we did not see pull forward. What we see is a surge in demand in Q1. We saw it again in Q2 and we saw an acceleration in Q2 not only in demand, but in people's opportunity to buy in brick and mortar stores opened in Q2. We all saw that during months like June, July and August, people were shopping, but frankly, at a lower rate online continue to surge. That's the whole bricks to click thing. And the fact that people at home a lot more. So they're just in stores after the traffic thing. So not pull forward, but sell through in terms of the surges in demand, it's correct that covid is driving surges in things like the health related products, like the thermometer's, air purifiers, water purifiers, etc.. And in the case of the future, what we've seen so far in September is the same. It's just been very, very strong. We're in the early days of October, and while we didn't say it in our prepared remarks, I can say we're in a safe harbor here. And a the call that October is also continuing to be excellent, although we're in the early days of October, of course, we've reforecast it internally and that forecast looks good. That said, there is a fog that comes with close in to your point about the future.

[01:12:56] There are unknowns and we tried to call that out in our prepared remarks and be responsible about the truth of that uncertainty, starting with the vaccine. There's much talk about the vaccine, but there are three questions about it that nobody knows when, how many and how many will take it. So when will the vaccine come? How many doses will be available and how many people will take it? After all, not to mention how effective. I'm just assuming the effects those things are just not known, let alone the impact it may have on the cold and flu season, which which people speculate about, but frankly, no facts on the matter. So as we look at the future, what we think is that sales will remain strong. As we said in our prepared remarks, the tourist growth of the first half will moderate a bit. People should hear the word growth. And remember, in the back half base, there was significant growth in the back half base and we see significant growth over that. So hopefully that gives you some color on the sales side, past, present and future.

Brian Grass

[01:13:59] Does Bolivias. Bryan, I just want to add that Julia mentioned store closures and lower foot traffic. I want to point out that we got the results for Q2 without even having a full quarter of either stores being open or operating at full kind of traffic with full traffic patterns. And that's still not going to continue for a while. I mean, we have some of our retailers that have same store sales down 50 percent year over year. Yet we were still able to produce the result that we did for the second quarter. So you're kind of asking, did we celebrate anything into the second quarter? And the answer is no. In fact, I think the second quarter was dampened by the fact that we didn't have brick and mortar fully up and operating, probably likely well for some time. But I think our results have shown that we can be very successful in that environment.

Olivia Tong

[01:14:52] Great, thanks for the second question for me is just an apology. It appears like I'm being a dead horse, but it does seem like the market is clearly questioning the second half margin implications. So why shouldn't the year benefit more significantly from the sales leverage in the first half? I mean, you adding more projects than you originally planned? If so, what are they? Because adding personnel back, you know, that was part of the plan. Prekop it. Right, sticking to investments. That was the plan for covid. So why isn't there more of a incremental margin expansion planned for the year just from the fact that sales are coming in significantly better than you thought?

Brian Grass

[01:15:35] This is far from Libya, and I think that Julian will add, yes, we have plans pretty covid, but we put those plans largely on the shelf for the first half of the year. So if you're now going to take something that was going to be spread over four quarters of a year and now you're concentrating them into two quarters of a year, you will obviously have compression. I also think it's just not the right way to run a business, to take a tailwind like we've seen from covid and not use the opportunity to invest some of that tailwind that we've received back into the business. We've always talked about our kind of algorithm for letting 50 percent of our unexpected profit improvements were expected and allowing that to drop to the bottom line and then reinvesting the other half of that. We're taking the same approach now, and we've got this situation where we were able to make all the expenditures or chose not to make the expenditures in the first half of the year. And we want to get back on track on a lot of that. So to me, it's very clear why the situation with her, with the numbers and the compression across the quarters we are spending was very much dampened by the actions we were taking the first half of the year. I mean, you can see in her Aschiana margin and look back at the company historically, it's we've never had a skinny ratio below 20 percent. So it's artificially low. We need to get a base of spending back. And yes, we are choosing to make more investments than we had even originally planned in terms of operations and infrastructure, because we need to keep up with the amazing growth that we've had honestly over the last two years and a half year this year. So hopefully that helps. Maybe Julian wants to add.

Julien Mininberg

[01:17:31] Just a simple thought, which is as maybe like Sesame Street simple. So apologies if it's that simple, which is if you look at the beginning of the year and the end, I think you'll like what you see in the beginning of the year. We were coming off tremendous strain from last fiscal year growth, nine point two percent and nine dollars and thirty cents of adjusted EPS. We had significant incremental investments. That's what we call bold and right in phase two. And they were shut down for a period of time, largely the first quarter because of Cosied. As we started turning them back on at the beginning of Q2, we had tremendous sales surge and that margin expansion that everybody and the market seems to be focused on. That's great news. We would be absolute fools now with better forecasting our hand, a better result in our hand not to deliver a year that same or even better than the one that we originally envisioned on the going in basis. We have the cash flow for it. We have the earnings for it, and we have the initiatives for it. And we are only spending money on things that we strongly believe in. So if you go at the end of the year, you should get a result. It's better than the one that all of the analysts envision, better than the one that we ourselves decision. And we end up with a significant acceleration of a business that already was accelerated. From that standpoint, it's hard to see the problem here.

Brian Grass

[01:18:55] And one last thing I'll point out is you have things like incentive compensation that with the results that we have for the first half of the year, we're projecting for the full year to escalate significantly because the results are so good. So the compensation has to get adjusted and that falls in the back half as well. So there are, you know, things like that can also contribute to the compression. But in our minds, it's all positive. And like Julian said, I think you're going to like the outcome at the end of the year.

Olivia Tong

[01:19:28] Thanks so much on.

Operator

[01:19:32] Thank you. Our next question is coming from Anthony Lubinsky of the Guardian Co. Please go ahead.

Anthony Lebiedzinski

[01:19:39] Yes, good morning and thank you for taking the questions and nice to hear that. Julian, you'll be staying on for another year. And congratulations, Bryan, for your pending retirement. So I just wanted to follow up. Julian, you said earlier that you'd be looking for the pace of sales to moderate. Would that be mostly in the health and home segment or are you concerned about moderation in other segments of your business as well?

Julien Mininberg

[01:20:10] Yeah, let's make sure we're clear on the sort of moderation we just grew 28 percent, so that probably qualifies for being toread, if that's the right word. But it's fast, I can say that. And it's ahead of our expectations as well as the consensus that was in the market in the case of moderation. If you look at the sales that were expected in the market, we don't think they're very far off, to be very honest. And that said, we are continuing to see the sales coming in faster. I've mentioned a couple of times that September was extremely strong for us in October. While it's early days so far, quite good in terms of the stuff that's yet to come. That's where the fog of covid comes in. And I just can't tell you how that's going to turn out. I can say that what we do see on sales looks strong, just doesn't look twenty eight percent strong. So that's all that we meant by the word moderation. If the market heard anything else with full respect that they're incorrect. And on the topic of extension of my tenure, I want to say thank you. I'm very proud of what we're doing with Helen of Troy. We are building the company to last. It has delivered and the idea of seeing all through the transformation of phase one in the first five years, now phase two and the second five years, that would mark a 10 year run. And I would be very proud and honored to have the opportunity to take the company through the entire the entire transformation from start to finish. So thank you. And with regard to Brian, which is a strong go for the full year, and we have tremendous internal capability as well in the company in addition to the external search that we mentioned in our prepared remarks. So you're in good hands on the CFO side now, as well as on the other side of Brian's time of the euro.

Brian Grass

[01:22:01] Joy, let me just out a little bit on the compression, I think are stories of the moderation of the sales in the second half. I think it's a function of reduced demand and more a function of the comparison to the prior year. We grew 10 percent in the third quarter of last year and we grew 15 percent in the fourth quarter of last year. butI grew 23 percent. Housewares grew 15, and health and home grew 10 or 11 percent in half. So just to be clear, the moderation in growth is less. We see demand weakening and more of it's going to be against a comparison where there is very high growth in the last year and some of that will even covid related in the fourth quarter in the health and home business state. There was certainly demand for monitary even in our fourth quarter of last year and some of the other products. So hopefully that makes sense. It's not a weakening so much in demand. It's more of a comparison.

Anthony Lebiedzinski

[01:23:01] Got it. OK, thank you very much for that. And just wondering if you guys could perhaps maybe quantify the cost of additional distribution and storage facilities that you talked about in the press release. And also, you know, as far as the impact of reversing the previous compensation reductions, is there a number you can quantify for those as well?

Brian Grass

[01:23:24] Well, on the distribution expense, I would say it's know probably not a needle mover as a total company level, it's meaningful spin that we're having to incur to keep up with growth and in it's the right thing to do. And it brings us into the next phase of our distribution footprint that we're in the middle of working on right now. I think you have to understand the levels of growth that we've gone through over the last three years to appreciate, you know, why we're in the position where we need to make these investments and we've had extensive growth and it's a good problem to have and we're making those investments and doing it in the right way. But I wouldn't say you're going to that is a factor for the second half of the year. But I don't think it's, you know, the highest on the list it may be on in the middle of the list or towards the bottom of the list in terms of influencing that. And then in terms of the the compensation reduction anniversary, I think the the way it played out is that won't be so significant of a hurdle to overcome because we acted quickly to restore a lot of our compensation. And even we were in situations where we felt like we needed to make higher certain hires, even though we were in the middle of a hiring freeze, because strategically and to support the business, we felt it was the right thing to do. So I think we minimize the impact of the lower personnel spending in the first part of the year will be a factor that we have to consider for next year. But like I said, I think the way it played out, it ended up being smaller than than we all thought it would be as we covid-19 began.

Anthony Lebiedzinski

[01:25:11] Got it. And then last question for me, as far as you know, the tax tax rate. Can you, Brina, recap what you expect for the back half of the year for tax rate and for fiscal 22?

Brian Grass

[01:25:23] Sure, the back half of the year, consistent with where we normally are, you know, things 10 percent, nine, 10, 11 percent, and it'll bounce around quarter to quarter in that range. And then, as I mentioned, there is a change with respect to our Makow entity in the tax regulations there where we will now going into the next fiscal year be subject to the corporate tax rate there, whereas in the past we had a zero tax rate there and that's a massive change. But we were able to structure and do our transfer pricing analysis in a way where the total consolidated, effective tax rate impact will only be one point five to two percentage points going into next year. So you could you know, you could take where we are all at 10 ish, maybe a little lower, and then add one and a half to two percentage points to that. And that should be kind of our ongoing effective tax rate.

Anthony Lebiedzinski

[01:26:23] Got it. OK, well, thank you and best of luck.

Julien Mininberg

[01:26:26] Thank you. Thank you, Anthony.

Operator

[01:26:29] Thank you. Ladies and gentlemen, in the interest of time, we are asking the additional questioners to please limit themselves to one question, and that is no questions can be followed up with offline. Our next question is coming from multipotent 138. Davidsen, please go ahead.

Linda Bolton-Weiser

[01:26:45] Hi, how are you? And congratulations on the quarter and your personal news. Can I just ask you about when you talked about the second half of last year and the hard comparisons, if you actually look back, it looked like you had margin decline in the fourth fiscal quarter last year, and it was because it looked like the FDA spending was actually really high. It was up and it was up 33 percent year over year. So can you remind us what happened in the fourth quarter of last year? Was that marketing spending or was that compensation expense or what was that exactly in the fourth quarter of last year?

Brian Grass

[01:27:28] Fourth quarter of Interisland. I'll also point out that the third quarter of last year, the margins were extremely high, so high margin, Q3, lower margin in Q4. You're right. I think if you blend the two together, you know, you get more of a normalized margin for us. And so, yes, there was a shift in spend less spending in Q3 and more spending in Q4. And we mean what we did in Q4 as we saw the results in Q3 and made very conscious decisions in Q4 to spend into the strength that we were seeing. And we likely would have continued that trend going into Q1 and Q2 of this year. But because of covid, we had to readjust. So hopefully that makes sense to you. We saw the results for Q3 and we had a good outlook for the remainder of the year. We made decisions to spend into the business in Q4 and that's why the Q4 margin is lower than normal. But I think if you look at both of those two quarters together, it's more normalized margin.

Linda Bolton-Weiser

Ok, thanks, I'll leave it there. Thank you.

Operator

[01:28:36] Thank you. Our next question is coming from Steve Marotta of Silking. Please go ahead.

Steve Marotta

[01:28:42] Good morning, Julian and Brian. In the interest of time, I'll ask one very quick question as it pertains. I believe, Julian, you mentioned the share repurchase as one potential outcome for capital use. Can you talk a little bit about if that has been officially suspended during covid, if it has been unsuspended, if it was never suspended and what the balance of that share repurchase plan might be?

Julien Mininberg

[01:29:04] Yeah, yeah, good, thanks. Hi, Stephen, thanks for asking that. In the early days of covid, we didn't feel comfortable on the topic of share repurchase, even though the stock was greatly depressed along with the rest of the entire securities market. It was just too much uncertainty and we didn't know what was to come. We also couldn't give guidance at that time and not even the pretty significant step breadcrumbs that we've put out today in the second quarter, the first quarterly report, the one we gave in July, we gave much more news about what we were seeing in terms of trends and signals about where we were on the business. But nonetheless, as you can tell from today's announcement, I did not buy back stock in terms of where we are now without telegraphing in any way. I can simply say that we have put out a pretty strong result in the first half and we've given you as much visibility as we can for the second half. So even in the absence of guidance, are we to make the decision to buy back stock? We would feel very comfortable doing so. And the market is given a keen understanding where we stand past, present and our visibility for the future. And with regard to the capital allocation, you see our balance sheet and also our cash flow. I'd like to remind everyone here we're entering the strongest cash flow part of the year, which traditionally is the back half. So that's likely to be an accelerant for us from the balance sheet standpoint. See our debt ratios as well. Net debt ratio that we just reported is half a turn, I believe, and trying to please confirm and we're about to generate a lot more cash, assuming in the second half of the year goes well. And so even with the investments that we're making, which again, remind these were the original investments that we planned at the beginning of the year, it just got lumpy, meaning less in the first half or more in the second half. I just can't emphasize it enough. We believe that the full visibility is there and what we did buy back stock was to do so without concern.

Steve Marotta

[01:31:10] Helpful, thank you.

Operator

[01:31:13] Thank you at this time, I'd like to turn the floor back over to Mr. Manenberg for closing comments.

Julien Mininberg

[01:31:18] Yeah, well, thank you, everybody, for joining us. We really appreciate it. Thank you for listening. It was simply an outstanding quarter and not just an outstanding quarter, but an outstanding first half. We like very much where we stand. We believe we're making all the right choices on what to do going forward. That said, there is uncertainty out there and I hope we communicated it responsibly today. We look forward to speaking to many of you in the coming days and weeks and updating you on our progress. Our next report will be of our results for the third quarter and that will come on the traditional time in January. So with that, thank you very much.

Operator

[01:31:55] Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or walk off the webcast at this time and have a wonderful day.