Helen of Troy Limited

Greetings and welcome to the Helen of Troy third quarter fiscal 2021 earnings call. At this time, all participants are in a listen only mode. A 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jack Jansen, Senior Vice President, Corporate Business Development for Helen of Troy. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and welcome to Helen and Troy's third quarter fiscal 2021 earnings conference call. The agenda for the call this morning is as follows. I'll begin with a brief discussion of forward-looking statements. Mr. Julian Minnenberg, the company's CEO, will provide some high-level comments on results for the quarter and current business trends, then outline some longer-term drivers of growth. Then, Mr. Brian Grass, the company's CFO, will review the financials in more detail and comment on the company's outlook for fiscal 2021. 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 expectations 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 than the non-GAAP financial information disclosed by other companies. to company cost and listeners not to place undue reliance on forward-looking statements or non-GAAP information. Before I turn the call over to Mr. Minenberg, I'd 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 call over to Mr. Miniver.

Thank you, Jack, and good morning, everyone. Happy New Year. I hope you all had a safe and happy holiday season. Thank you for joining us today. There's a lot of ground to cover this morning. I want to start by highlighting our outstanding third quarter results. Sales in the quarter grew over 34%, with strong demand for our products driving significant growth in each of our three business segments globally. Adjusted EPS grew over 20%. The cash flow from operations was very healthy. Tremendous progress that further accelerates outstanding year-to-date performance. With just a few weeks to go before the end of fiscal 21, we are on track to becoming a $2 billion company this year and delivering at least $11.50 a share in adjusted EPS. We are especially pleased to announce this expected earnings result, even as we make significantly increased growth investments to fund key programs that will help drive fiscal 22 and lay the groundwork for the major initiatives intended to power our value creation flywheel for the back half of phase two. In line with our capital allocation strategy, we put some of our strong cash flow to work in the third quarter, returning capital to shareholders by buying back just under a million shares of our stock at an average price below $200 a share. During the third quarter, we also continued to build our inventory back to healthy levels, and in December, we extended our exclusive global license for the Revlon trademark with a one-time upfront payment at an attractive multiple. In recent years, our Revlon business has more than doubled, making it a key propellant of our global hair appliance business. We are pleased to secure the Revlon brand as an important element of our good, better, best approach for continued growth in global hair appliances, along with our own brands of Hot Tools, Golden Hot, and Dry Bar. This transaction is an excellent fit with Helen of Troy's goal to own outright or preserve long-term use of the brands that are important to our portfolio and that we have proven we can grow under our stewardship. We know many of you are interested in our perspective on continued growth for Helen of Troy, especially following this year of accelerated revenue and earnings growth. So before giving color on the third quarter results in each business unit, I want to discuss some of the key investments we are making to continue creating value in fiscal 22 and beyond. These include direct-to-consumer, new product development, customization, marketing, international, next-gen distribution infrastructure, and IT, as well as CapEx for higher production capacity, several meaningful cost-of-good savings programs, and further geographical diversification of our sourcing footprint beyond China to Southeast Asia and to Mexico. Even with the significant investments we have already made and planned, we have the capacity for further value creation by acquisition and remain focused on selective strategic M&A as an additional growth driver. We are excited to be in a position this fiscal year to make the long-term investments needed to catch up with our rapid growth over the past several years and to invest in the building blocks and capabilities we believe will create incremental revenue and earnings growth during the rest of phase two. We believe it is much healthier to lean forward into the business momentum we are seeing and support our multi-year plans as opposed to being overly focused on our results from quarter to quarter. This is the same formula we've used in both phases of our transformation and believe it has been a key driver of our track record of sustained success. I also want to take a moment to speak to our average annual growth targets. We are pleased with the accelerated top and bottom line growth rates in the first two years of our five-year phase two transformation plan. Looking ahead to the remaining three years of Phase 2, we remain confident in the average annual organic sales growth targets of 2.5% to 3.5% and average annual adjusted EPS growth of 8% over the course of fiscal years 22 through 24. I'd like to now turn to our results in the third quarter and share some perspective in each business segment. We are extremely pleased with our performance in beauty, delivering total sales growth of over 56%, including 40% organic net sales growth. Operating leverage from higher sales and a more favorable mix drove significant gains in beauty margins, even as we made additional investment in new product development, supporting customers, and hot tools sponsorships like the Country Music Awards. Key business drivers included continued high demand for one-step volumizers and waivers, new distribution earned during the quarter, and an incremental $17.5 million of dry bar revenue. Even as competitors enter the marketplace, our one-step volumizer franchise across our four major beauty brands continues to grow and garner considerable attention. It has now amassed more than 150,000 online reviews at an average of 4.6 stars on Amazon alone. Key online and brick-and-mortar retailers have highlighted Revlon one-step volumizer sales as a standout in their own early holiday reporting. Third-party syndicated data shows Helena 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 two share position in U.S. retail appliances. Over the course of fiscal 21, we have become the share leader at several key customers. The share growth in beauty was broad-based across our brands, with strength in Revlon, Hot Tools, Bedhead, Golden Hot, and Dry Bar. Revlon also continued to grow share in EMEA, especially in the United Kingdom. Drybar improved sequentially again this quarter despite retailers and salons still struggling with the challenges of stay-at-home recommendations in certain areas of the country like Los Angeles and New York. Regarding our previously disclosed divestiture plan for the personal care business, the process is advancing. We are seeing strong interest from potential strategic and financial The business has many iconic brands, and we believe it can be more successful with a high level of focus, investment, and attention from a new owner. We are still targeting completion of the process by the end of this fiscal year. In health and home, our largest and our most global business, sales performance in the third quarter was particularly strong, growing almost 35% and bringing the segment's growth to over 32% fiscal year to date. Profitability in this segment remained healthy, supporting necessary investments in key areas such as new product development, direct-to-consumer, and new hires in engineering, marketing, institutional sales, and other mission-critical departments. The biggest driver of the sales growth in health and home was continued demand for health-related products such as Vicks, Braun, Honeywell, and Pure that address the need to monitor body temperature, control humidity levels, and improve air quality and water quality. Tremendous media attention and focus from authorities and scientific experts on reducing airborne droplets and aerosols drove air purifier demand from consumers and institutions, more than doubling sales of our highly rated Honeywell purifiers in the quarter. The high demand and our work to increase supply have led to new market share gains in the United States for our market-leading Honeywell purifiers, pure water filters, and Vic humidifiers. The investments we made earlier this year to increase supply in categories such as thermometers and air purifiers have created considerable additional capacity in the third quarter, and we expect further capacity increases in our fourth quarter as we meet demand and build back to healthy inventory levels. As previously shared, in total, we expect our supply to more than double versus pre-COVID-19 in these key categories. This also allows us to better handle demand above historical averages as COVID peaks, and in the future, handle the new normal of demand we expect now that consumers and institutions are more aware of the importance of these categories and of our high-quality products. Like other events, such as global warming and 9-11 that changed long-term consumer behavior, we believe the heightened awareness driven by COVID will be sticky. Our products are well respected. They're market leaders in these categories, and they are where consumers, institutions, and retailers generally favor high-quality brands they know and trust. To give you some perspective on the current cough, cold, and flu season, which usually peaks late in our fourth quarter, incidence levels have been tracking well below historical averages. We believe the lower cold and flu incidence is at least partly due to social distancing, increased hygiene protocols, limited back to school, work from home, reduced travel, and limited group gatherings. Meanwhile, COVID-related demand is more than offsetting the lower cold and flu base that's being laid down this season. In housewares, third quarter total net sales increased by over 21%, even as we faced a particularly strong comparison in which the segment grew more than 28% in the same period last year. Our housewares portfolio continues to be ideally situated to support the cooking, cleanliness, and sustainability focus that is now habit in homes around the world, especially during the pandemic. Housewares grew in brick and mortar online and internationally. Oxford's food storage, baking, cooking, utensils, and kitchen organization categories were all growth drivers as the home nesting trend continued. But just one more strategy we have talked in the past has been a very positive factor for OXO this year. New generations are discovering the excellence of OXO products and adding new OXO items to their households. Consumers that already know and love the brand are also buying more OXO items. These factors drove very strong points of sale growth both online and in brick and mortar at key retailers. OXO also benefited from expanded distribution and new product launches during the quarter. All of these drivers helped contribute to market share gains in the United States. Hydroflask faced a strong comparison to domestic distribution gains in the prior year period, especially in the sporting goods channel, and was also challenged in the quarter by a soft back-to-school season as most U.S. students were learning remotely outside the classrooms. Internationally, the brand did very well, growing sales and making significant distribution gains. Before leaving my remarks on the business performance side, I would like to touch on international for just a moment. It is an important plank of our phase two strategy with EMEA and Asia Pacific chosen as the key regions we are focused on. Both of these regions performed very well in the third quarter, fueling international sales growth rates only slightly behind the fast pace we saw at the consolidated total company levels. International margins also expanded in the quarter. COVID is indeed a driver, but it is important to note that the growth we are seeing in EMEA is across all of our business units, with beauty and both housewares brands growing strongly in the region. Now I'd like to share some thoughts on our longer-term prospects and opportunities we are looking at beyond the pandemic and as we plan out our growth for the back half of Phase 2. While we have not faced a global pandemic on the scale of COVID-19 in the past, it is important to note that over the past several years, we have overcome significant obstacles many thought could put us back on our heels. Examples include major new tariffs, rapid evolution of digitization and impact on sales and marketing, the shift to online as a major new channel, large seasonal swings such as the incidence of illness due to colds and flu or the unpredictability of wildfires, major consolidation in the freight industry, formidable new competition, currency fluctuations, and significant changes in tax law. In each case, we adapted, improved our capabilities, and powered through to deliver top and bottom line growth. Eleanor Troy came into the pandemic with momentum. It came in with a diversified portfolio of proven leadership brands and a well-developed culture and organization. The consumer trends related to COVID-19 further strengthened many of our leadership brands and accelerated our online presence. We wrap up fiscal 21 and expect to start fiscal 22 with the same all-weather portfolio, healthy business fundamentals, improved inventory positions, tailwinds from the accelerated investments we are making now in the second half of fiscal 21, many exciting soon to be announced product innovations, a robust slate of strategic initiatives, and a culture and organization that continue to distinguish itself as it rallied to overcome the many challenges from COVID-19. As we select our building blocks to drive growth for the back half of phase two, I thought it might be helpful to touch upon a few of the consumer themes and macro trends we believe can add value in fiscal 22 and beyond. The first is a higher installed base for our health and wellness products that have consumables. We are selling more air filtration, water purification, and thermometry devices than at any time in our history. Many of these devices have high-margin consumables, such as air filters, water filters, and probe covers that have a replacement cycle. We believe there is power in the Just One More strategy for these devices as well, with air purifiers and humidifiers now in more rooms and institutions, and items like thermometers and humidifiers once thought of as seasonal now becoming more like year-round staples. The second is the shift from cities to suburbs. with each seeding a new cohort of buyers for many of our leadership brands. For example, new and younger households are discovering OXO, growing its awareness and its installed base. Consumer habits will likely continue to focus on cleanliness, storage, coffee, and baking, as the work-from-home pendulum is expected to recalibrate to some new normal beyond COVID-19. Historically, OXO earns follow-on adjacent sales in kitchens, bathrooms, and throughout the home once a household is penetrated. Again, the idea of just one more is making a difference for our consumers, our brands, and our business. The third trend that we anticipate is a new safety of home opportunity to satisfy new consumer needs as people look for ways to ensure safe and clean food and water. We expect they will also be looking for methods to or commute. Both OXO and Hydroflask have the perfect on-the-go solutions to provide the peace of mind and trust of home as consumers venture back into the post-COVID-19 world. Another trend is consumer-centric innovation. This one has always been bedrock for us. Bringing new products from brands people trust to make life easier, save time, and sustainably solve problems better than competition is a permanent trend and a proven strength for Helen of Troy. As we look at current and future consumer needs, we have identified new focus areas that include customization, personalization, portability, multifunctionality, durability, increased storage, wireless connectivity, and next-generation lightweight materials, all intended to offer more reasons for consumers to try, trust, and prefer our brands. The fifth trend is the sustainability trend, which we see as important not only for our brands, but also corporately. Sustainable, eco-friendly components are inspiring Helen of Troy to look for new ways to reimagine and reduce packaging as one of the many approaches to reduce our environmental footprint. For consumers, reducing one's carbon footprint and plastic pollution by using products like hydroflask drinkware and insulated coolers and totes versus single-use items is expected to become even more important than it already is today. Our global associates and consumers around the world are demanding stronger ethics and greater equality from each other, their brands, and their companies. Recently, we made key hires to lead our ESG and diversity, equity, and inclusion initiatives. Our grassroots work in these areas and our more formal approach over the past year is already producing results. For example, Helen of Troy's Health and Home Division is recognized as an official Walmart gigaton guru. OXO is now a member of 1% for the Planet. PURE is leading drinking water education programs in communities where lead is a major health concern, and Hydro Flask continues to distinguish itself as an environmental and accessibility leader with its Park for All program. In fact, Hydro Flask recently won the 2020 American Park Experience Award from the National Park Trust. We are excited to take all of this to the next level during Phase 2. We see direct-to-consumer and further acceleration of e-commerce as attractive organic building blocks for the back half of Phase 2. We have been investing in online for years and have seen the benefit with roughly a quarter of all Helen of Troy sales now occurring through some form of e-commerce. Our online reviews have grown rapidly, as has our ability to serve consumers directly. with the best yet to come as we invest further in this area with new people and much better systems to acquire and fulfill consumer and institutional demand directly. Direct-to-consumer has long been a part of Hydroflask's growth and has more recently become a major driver for OXO and Drybar as we dial up our DTC capabilities with new front-end systems on the sales and marketing sides and scalability on the IT and operations sides. We are investing further in technology, people, and best of breed IT platforms to create a much more seamless end-to-end consumer experience that further distinguishes our leadership brands. And lastly, beauty remains timeless. Looking good and feeling your best is always on trend. The pandemic has led to a rise of do-it-yourself beauty. Products like our one-step volumizers are earning influencer attention because they save women time, deliver a great look, and make beauty regimens not only faster, but also easier. During the pandemic, consumer priorities have shifted towards products that allow them to mimic the salon experience at home, buy online, and look great during virtual meetings. Our brands have flourished in-store and online by reacting quickly to changing trends. We also expect Helen of Troy's beauty business will benefit by serving consumers and stylists as the vaccine becomes more widely available, salons reopen, and social gatherings once again become a part of everyday life. Stepping back, we believe Helen of Troy's leadership brand portfolio is well positioned to leverage this slate of themes and macro trends. Our investment choices have been tailored to match. Black Swan events like COVID-19 served as change agents and catalysts that create new trends and accelerate pre-existing ones. The most significant shifts typically have relevance for many years. We believe brands like ours that resonate with consumer need for authenticity, comfort, and security are the ones shoppers frequently turn to and trust. In conclusion, as we look to a strong finish for fiscal 21 and prepare for fiscal 22, Our attention is focused on carefully balancing three critical measures of progress. The first is generating an excellent financial result each fiscal year. The second is making the bold and the right investments to further build our world-class brands and the capabilities we believe will power us through the back half of phase two. The third is advancing our culture. Our core values of being in touch, mutual respect, ingenuity in all its forms, Shared successes and maximizing the contribution from exceptional people have helped drive our phase two strategy to attract, retain, unify, and train the very best people. We continually measure our progress in each of these areas. Our financial results are published for all to see. On culture, while a bit harder to measure, we just completed a survey among more than 1,000 of our global associates. The results show we advanced on every single metric over the two years since we last surveyed our organization. A powerful confirmation that we are on the right track in building an even stronger organization and cultural foundation in phase two. Our balance sheet and financial position are very strong and capable of supporting further investment. With strong cash flow and low leverage, we are well positioned to add more critical mass to our value creation flywheel, include the opportunity to deploy capital towards accretive acquisition and consider opportunistic share repurchases. Delivery for all stakeholders has been a hallmark of Helen of Troy every year throughout its transformation. We continue to work on creating long-term value in fiscal 22 and beyond, and we are grateful for your trust in us as we do so. With that, I will now turn the call over to Brian.