Helen of Troy Limited

Greetings. Welcome to the Helen with Troy first quarter fiscal 2021 earnings call. At this time, all participants today will be in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I'll now turn the conference over to Jack Janison, Senior Vice President of Corporate. Sir, you may begin.

Thank you, Operator. Good morning, everyone, and welcome to Helena Troy's first quarter fiscal 2021 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 Minnenberg, the company's CEO, will comment on some high-level results for the quarter and 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 21 progresses. 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 words anticipates, believes, expects, and other words similar are words 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 non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently and the non-GAAP financial information disclosed by other companies. The company costs its listeners not to place undue reliance on forward-looking statements or non-GAAP information. Before I turn the call over to Mr. Minnenberg, I would like to inform all interested parties that a copy of today's earnings release has been posted to the investor relations section of the company's website at www.HelenofTroy.com. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-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. Minnenberg.

Thank you, Jack. Good morning, everyone, and thank you for joining us. This morning, we reported an excellent quarter with net sales growth of 11.8%, Thank you for joining us today. and our highly committed organization showed very well as we adapted quickly to the tremendous challenges from COVID-19 and were able to be there for consumers when they needed us most. Collectively, our eight leadership brands grew sales at 15.7% in the quarter, led by double-digit growth from all of Health and Home's leadership brands, Vicks, Braun, Pure and Honeywell. These brands benefited from very strong demand for our highly trusted health and wellness related products. OXO also grew nicely in the quarter as consumers spent much more time at home. Hydroflask sales declined amid store closures but performed better than we expected. Hot tools grew sales despite store and salon closures. Channel mix played a particularly important role as lockdowns kept families home to varying degrees around the world. Online capability development has been a key strategic focus for both phase one and phase two of Helen of Troy's transformation, growing roughly fourfold since 2014 to reach 24% of total company sales at the end of fiscal 2020. In this quarter, online grew a further 33%, now representing 28% of consolidated sales as even more consumers move from bricks to clicks. We also performed better than expected in those brick and mortar stores that remained open. International performance was a standout in the quarter, growing faster than total company sales, driven by health and home and strength across all business segments in EMEA. Margin, profitability, and cash flow were all highly favorable in the quarter as a result of higher sales, improved operating leverage, better mix, and temporary cost reduction efforts. Analyzing the current environment, We are seeing some encouraging trends at those brick and mortar stores that have remained open and online sales continue to be strong. Our products that are more discretionary in nature or more dependent on the retail brick and mortar channel continue to see softness, but recent trends are improving. COVID-19 cases are now rising in multiple regions and economic reopening plans are being questioned or even in some cases revised. While we are pleased with our first quarter results, the net impact of the pandemic on our consumers and supply is still very fluid and uncertain. And as a result, we will not be providing fiscal 21 guidance at this time. When we last spoke in April, we shared actions taken to protect our people and reduce our costs, doing so in a way that focused on protecting the capabilities built during our transformation. Those cost interventions fell into two major categories. personnel cost reductions and reductions or delays in other fiscal 21 spending. We have been treating the reductions like light switches that we are dimming or turning off. By preserving our underlying infrastructure of people and systems, we can turn them back on quickly and with minimal disruption as business conditions warrant. We are generally encouraged by the current trends and prospects for our business, and therefore we are now planning to use the strength from the first quarter to turn on certain light switches and selectively lean back in on many of the key initiatives we believe are critical to driving our value creation flywheel. These plans include hiring for certain key positions, further expansion of our supply chain, further diversification of our China supply base, significant investments in expanding our rapidly growing direct-to-consumer capability, increasing our already strong focus on consumer-centric marketing and product innovation, and the strategic expansion of our IT capabilities. Importantly, effective August 1st, we are also restoring all wages, salaries, and director compensation to pre-COVID-19 levels. I am very grateful to all of the people at Helen of Troy who embraced our approach of shared sacrifice as it allowed us to adjust rapidly to the unknowns. This approach is now allowing us to turn on some of those light switches with much more speed and agility as we were able to keep intact the organization we have worked so hard to build. We believe these plans will enable us to continue with many of our original investments originally slated for fiscal 21 and will help keep us on track to deliver our phase two transformation goals. We believe we have struck the right balance between the uncertainties of the external environment and our strong commitment to doing what is bold and right for executing the strategic choices underlying our multi-year trajectory of transformation. Another area we are focusing on much more is diversity, equity, and inclusion, or DE&I. Recent tragic events have demonstrated that we as a nation and we as a company can do better. During the quarter, we had thoughtful conversations internally, leading us to formalize and intensify our efforts under a new multi-year program designed to ensure further improvement on DE&I at Helen of Troy. This is highly consistent with our stated strategic goal to attract, retain, unify, and train the very best people. We have now explicitly added diversity and inclusion to key foundational documents such as our strategic plan, culture, and corporate identity to emphasize that diversity is a source of strength that we embrace and one that multiplies our effectiveness. Given the linkage to the social and governance parts of ESG, We are connecting our DE&I efforts to our ESG program and adding dedicated leaders for both. The DE&I program also includes elements that increase our focus on recruitment, development, and retention of minorities and women. We are looking to attract and retain top talent from every background and ensure a work environment where everyone can engage, thrive, contribute, and grow to their fullest potential. We are conducting listening sessions with our associates all around the company on this matter. We are rolling out mandatory unconscious bias training worldwide later this summer. We are supporting more external volunteerism and donations among our associates with charitable paid time off and matching contributions. And we are planning donations to organizations primarily focused on the education of black and minority students to improve equality of opportunity. We believe these initiatives are good for all Helen of Troy stakeholders, including shareholders who trust us with their assets, Customers who support our business, consumers who believe in and trust what our brands and companies stand for, talented worldwide employees who seek us out as their employer of choice, and the communities in which we are proud to live and work. We also simply believe these initiatives are the right thing to do. I would like to now share some insight onto how we are managing the day-to-day in the COVID-19 environment. Externally, we remain very close to customers and are using all of the data sources available to us, including point of sale trends, out of stocks, competitive activity, consumer health, and geopolitical developments. As most all of the world has relaxed or allowed their stay-at-home orders to expire, we are closely watching how people feel about coming back into stores. While still early, we are seeing some encouraging trends for our leadership brands beyond the already strong demand for Vicks, Braun, Pure, Honeywell, and OXO. For Hydro Flask, Hot Tools, and Dry Bar, which have been adversely impacted by store closures, we are seeing increases in demand as stores and salons reopen, tempered in part by consumer behavior as we all adjust to new normals. We have also greatly increased our direct-to-consumer capacity for key brands, which has helped us further mitigate some of the store closure impact. Internally, our frontline associates working in the distribution centers and supply chain are going above and beyond the call of duty to help ensure our supply is able to meet growing demand. We have not only called back workers in our distribution centers, we have added staff to support growth and are paying appreciation bonuses to our associates serving as essential workers to recognize their dedication to our customers during this critical and difficult time. Our associates working from home have become extremely adept at continuing Helen of Troy's signature level of collaboration and consumer-centric innovation through a combination of virtual tools and through safety protocols in place in our labs and facilities. We expect those working from home to continue to do so until at least September, depending how best practices and government guidelines unfold regarding return to office environments and to travel. Now I'd like to turn to a review of our business segments. Together, they constitute a diversified portfolio that has performed well over the years and demonstrated resiliency. Individually, they each have unique drivers and dynamics that warrant a bit more color. Health and home is off to an excellent start to the fiscal year with outstanding growth in sales and margins. COVID-19 pandemic is elevating demand for health-related products and driving significant media focus. Multiple generations of consumers are receiving an education about the importance of our health-related products, which we believe has important positive long-term implications for category development. In the short term, consumers are responding with greatly elevated purchases of thermometers, humidifiers, air purifiers, and water purifiers, driving Vicks, Braun, Honeywell, and Pure ahead powerfully in the quarter. Ron is our most global brand and is seeing significantly elevated demand for thermometers and probe covers. We increased our production capacity in the quarter, but demand continues to outstrip supply. We are investing additional capital and human resources into further capacity increases and into the expansion of no touch product offerings, which we expect to come online later in the fiscal year. In addition to our probe covers, other High-margin consumables such as Vicks VapoPads and our Vicks VapoSteam cough-suppressing inhalants also saw demand increases during the quarter as consumers focused on preparedness and family care. We saw a similar trend for water purification. Water quality has been a consumer priority in health and wellness for some time as consumers seek ways to protect their families amid greater awareness of issues around lead and other water safety hazards. With COVID-19, people are now looking even harder for ways to protect themselves and their families through hygiene and cleanliness as they spend more time at home. Water filtration systems like Pure's pitchers and faucet mounts have earned a higher share of a growing category. Demand during the quarter was up strongly for both. Our Pure products are also seeing the benefits of the single-use plastic water bottle bans being implemented around the world as consumers increasingly shift their mindset and purchasing habits Thank you for joining us. and gaining share at other major customers. Those share trends accelerated during the quarter as our supply improved and as consumers continued to favor our products and innovations on all of our key beauty appliance brands, including the highly popular volumizers, which have a growing range of variants and new products on the way across our brands and geographies. Sales of our newest leadership brand, Drybar, were all incremental in the quarter given the recent acquisitions. Drybar online sales were a key bright spot and outpaced historical trends both in DTC and on Amazon. More recently, brick and mortar stores in locations that have reopened are showing positive trends and building as consumers begin to get comfortable returning to shop in key customers like Ulta, Sephora, and Nordstrom. As for Drybar salons, reopening has begun. with 82 salons out of 139 now open in the United States as of the beginning of July. With regard to our previously announced divestiture plans for the personal care business, the marketing process is underway and ongoing. We will report back when we have more news. Turning to our housewares segment, the 3% sales decline in the quarter demonstrated that our diversified portfolio of products is highly resilient after growing 23.8% in the same period last year. Even with retail store closures, many outdoor activities unavailable and the beverage bottle category not deemed essential at Amazon for much of the quarter. OXO was a focus area for consumers at those brick and mortar retailers that were open. Point of sale growth in those stores coupled with triple digit growth online made a big difference in nearly all of the categories OXO serves, especially baking, coffee, storage containers, and cleaning. Hydroflask quarterly results were below the prior year as sharp increases in online sales were not sufficient to overcome store closures. Retail customer shipment trends improved as the quarter progressed and Hydroflask.com sales growth was explosive. Amazon sales late in the quarter also were positive once the retailer expanded product offerings beyond essential items. International sales for Hydroflask grew strong double digits versus a year ago, led by Europe and Asia. Consumer research, social listening, and online search trends confirm Hydroflask brand popularity remains very strong. The brand continues to sustain its number one market share position and large lead over competitors in insulated hydration vessels according to syndicated data. Looking ahead, recent shipments and tracking in retail stores and locations that have reopened are showing encouraging trends. We continue to feel optimistic about the key drivers we've outlined for Hydroflask in our April call. Before I turn the call over to Brian, I want to thank you again for your support, for your encouragement, for your loyalty, and for your trust during this unprecedented time. I am pleased with how our entire organization has continued to perform at the highest levels despite disruptions to nearly every aspect of our business and our lives. For Helen of Troy, fiscal 21 is certainly not one we see as a lost year. It is an opportunity to adapt and to learn how to win in the many new normals that are now emerging. With the results and the resumption of previously planned investments we are announcing today, fiscal 21 is an opportunity to come out stronger. Our commitment to increasing shareholder value is unwavering. We are excited to continue driving our transformation ahead. We believe we have created a set of capabilities and competitive advantages that have allowed Helen of Troy to perform in tough times like now, in past crises, and also in good times. We are relentlessly focused on further elevating our high performance organization and capabilities as we build brands and deliver multi-year results that can lead to superior shareholder outcomes. We are also diligently focused on maintaining a strong balance sheet to ensure we have the financial resources to deploy capital toward the best opportunities to fuel our value creation flywheel. With that, I will now turn the call over to Brian.