Helen of Troy Limited

Greetings and welcome to the Helen of Troy first quarter 2022 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. It is now my pleasure to introduce Jack Jansen, Senior Vice President, Corporate Business Development. Thank you. You may begin. Thank you, operator. Good morning, everyone, and welcome to Helen Troy's first quarter fiscal 22 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 comment on financial performance of the quarter and specific progress on our strategic initiatives. then mr brian grass the company's cfo and matt osberg the company's senior vice president of corporate finance will review the financials in more detail and comment on the company's outlook for fiscal 22. following this mr minnenberg mr grass and mr osberg to take questions you have for us today 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 described by other companies. The company causes listeners not to place undue reliance on forward-booking statements or non-GAAP information. Before I turn the call over to Mr. Miniver, 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 press releases tab. I will now turn the conference call over to Mr. Mienenberg. Thank you, Jack. Good morning, everyone, and thank you for joining us. We have a lot of areas to cover this morning. Before talking about the excellent quarter, the many strengths across the business, and the outlook for the full fiscal year that we introduced today, I would like to update you on the EPA matter in our press release. I will finish my remarks with some important updates about our organizations. The EPA raised concerns that packaging claims on certain products in our U.S. water and air filtration lines and a limited subset of our humidifier products are not in compliance with the EPA's strict interpretation of specific regulations. We have already addressed their concerns on the water filtration products by making modest changes to our packaging and have resumed shipping our pure products. We strongly believe we can likewise address the EPA's concern on air and humidification packaging, after which we will work as quickly as operationally possible to restart shipments on those as well. It is important to emphasize that the EPA has not raised any concerns on product quality, safety, or performance. These are outstanding products that have served consumers well over several decades, with plenty of first-rate innovation along the way. Health and home sales were not impacted in the first quarter, the remaining concerns on the packaging for the air products and the affected humidifiers. Since the stop shift, we have been working closely with the EPA and continue to emphasize speed. Our people are working around the clock to minimize the impact to consumers, to retailers, and to our business. Now, turning to the first quarter business results, as we discussed when we last reported in April, we were seeing a very strong first quarter taking shape. The results reported today were even stronger than we expected, with 28.6% sales growth and 37.5% growth in adjusted earnings per share. The sales growth was broad-based, with beauty and houseware leading the way as reopenings drove store traffic and our brands continued to distinguish themselves with consumers. Health at home also grew, surpassing the very large COVID-related first quarter base laid down a year ago. Our strategy to double down on international continued to bear fruit from prior flywheel investments, growing sales even faster than the fleet average in the quarter. The outstanding earnings per share growth was driven primarily by very strong sales, which was more than enough to offset a return to more normalized spending and the headwinds from widespread inflation affecting nearly all input costs, including materials, labor, and transportation. Operating margins expanded in the quarter, further benefiting from the resurgence of our two highest margin brands, Drybar and Hydroflask. The quarter also demonstrated the importance of our leadership brands and our omni-channel capabilities. Leadership brand sales grew by approximately 23%, and Revlon, which is our largest up-and-coming non-leadership brand, grew even faster. Our ability to win across channels was once again on display as consumers coming out of lockdown rebalanced between brick and mortar and online. Fueled by pent-up demand and stimulus money, consumers are returning to stores as restrictions lift. Our brick and mortar sales increased significantly compared to the same period last year when the majority of stores and salons were closed. Brick and mortar's resurgence in the quarter made it a higher-than-usual percentage of our sales mix. Our online sales growth moderated as expected, increasing approximately 4%, representing approximately 22% of consolidated sales. By way of comparison, online sales in the first quarter of last year grew 33% and represented approximately 28% of consolidated revenue, which notably was double the average for the total U.S. e-commerce industry. With the even greater comforting years to come, we continue to invest in online capability and in direct-to-consumer as important growth channels. On the capital side, we continue to take steps intended to drive long-term value for shareholders with four major actions so far this fiscal year. The first was divesting the majority of our mass market personal care business, as announced in early June. The transaction was strategic as it sharpens our focus on stated objectives of growing our leadership brands and expanding consolidated operating margin. We can now deploy resources that historically have gone towards our personal care business to opportunities that better fit our long-term growth objectives, have more attractive growth prospects, and are expected to have a better ROI. The divestiture also allows our sales and profit growth rates to accelerate by eliminating the drag of the personal care business. The second action was finalizing a land purchase in Galloway, Tennessee, to build a state-of-the-art distribution center which will have high levels of automation and scalable direct-to-consumer capability. This new 2 million square foot facility will support our housewares portfolio, allow us to capture even higher levels of efficiency in the back half of Phase 2 as we re-optimize how we use the rest of our distribution footprint across the company, and it will position us to better support future organic and inorganic growth. Third action was adding further value to shareholders by repurchasing just under 2% of our stock. The fourth action was securing more inventory ahead of the bulk of the cost increases currently seen in the market. This has multiple benefits. It is an important component of our cost mitigation plans in the face of higher supply chain costs. It also positions us well to continue to meet demand and better manage the current period of global supply chain disruptions. Taking on more inventory ahead of our seasonal high volume periods provides more certainty in the face of container shortages, shipping delays, and COVID outbreaks at several key ports. It also makes good use of our pre-negotiated sea freight contracts at rates considerably lower than what would be paid in the current spot market. As you are no doubt aware from many other sources, the supply chain disruptions and higher costs for commodities and labor have caused substantial challenges to profitability in nearly all industries. I'm very proud of how our supply chain, our business units, and our finance teams work together to attack this surge in costs over the past several months and implement a set of mitigation plans that largely offset the estimated dollar impact. Beyond the inventory and the pre-negotiated sea freight container rates I mentioned, we have reduced or delayed our spending plans in several areas, and we are implementing price increases. Those price increases have been carefully designed to protect our market shares by managing key consumer price points. An additional mitigation measure has been to introduce new products at higher price points that elevate the benefits of our brands so they can deliver for consumers and can sweeten our mix. I would now like to touch on our business segment results for the first quarter. Beauty led the way with exceptional sales growth at just under 79%. All four of our major beauty brands grew substantially. The key drivers were significant improvements in supply to meet continued high demand for current products, such as volumizers and waivers, and the successful launch of new innovations, such as the Drybar Reserve line. We also earned new distribution in the U.S. Club Channel and expanded distribution in Europe and Latin America. While store and salon shutdowns and homebound consumers a year ago made the comparison easier this quarter, we note that our beauty segment grew 5% in the year-ago comparison period. Beauty operating margin improved markedly behind mix improvements, operating leverage, and the benefits of our amended Revlon trademark license. Our pioneering family of one-step volumizers continue to grow across Revlon, Hot Tools, Bedhead, and now also on Dry Bar. Communication across more and more social media platforms is helping expand popularity with consumers and help to build the franchise. One Step has now accumulated more than 300,000 online reviews at an average of 4.6 stars on Amazon alone, with 80% of them at 5 stars. We continue to see opportunities for further household penetration and market share upside in the U.S., We also see more upside as we further expand our presence in EMEA, in Canada, and in Latin America. Drybar was a substantial contributor to the growth and margin improvement as stores and salons reopened, as social gatherings resumed, and as we launched more of the innovative new products we have invested in over the 18 months since acquisition. Combining our scale, distribution reach, and strategic focus on beauty appliance with Drybar's prestige positioning is very powerful. Examples in recent months include the single-shot appliance on Drybar, the high-end Drybar Reserve ultralight dryer, and the liquid glass product line. Now that we have a good, better, and best beauty appliance portfolio, we are leaning into our momentum through a robust pipeline of new consumer-centric innovation, new marketing programs, an even stronger organization, and further new distributions. In our houseware segment, first quarter sales surged by approximately 38%. Our houseware segment is a diversified mix of OXO that excels indoors and Hydroflask with its compelling indoor and outdoor lineup. Both brands grew in the quarter, and both increased market share in their categories. OXO saw an upturn in key brick-and-mortar retailers and solid point-of-sale results, reflecting improved store traffic and new distribution both domestically and internationally. New product introductions contributed to growth as retailers and consumers responded well to the new launches. OXO Good Grips, Softworks, OXO Tot, and OXO Steel all made healthy contributions to the quarterly growth. OXO's market share growth was broad-based, gaining ground across all the categories we track. OXO share gains across the past three, six, and 12 months reinforce our belief that the trend seen with younger consumers and new households buying more OXO items are sticky. We also expect to capitalize on the expected surge in weddings that were postponed during COVID. Hydroplast continues to be very strong, rolling both domestically and internationally in the quarter. We are focused on building it into a global brand with an industry-leading sustainability and environmentally forward profile that contribute to the authenticity consumers adore. Domestically, we saw a broad Internationally, Hydro grew even faster. Canada was a growth leader, while EMEA, the Asia Pacific, and Latin America also experienced significant growth as we further build out Hydroflask's distribution footprint. We are seeing healthy domestic point-of-sale returns as well as inventory replenishment orders corresponding to the strong sell-through rate for those customers where we have visibility. Hydroflask grew its market share considerably during the quarter. It continues to lead the U.S. insulated water bottle category by well more than double the share of its nearest competitor. New Hydro Flask items that go beyond the bottle began shipping and contributed to the quarter, including the outdoor kitchen collection, hydration hip pack, and dry storage. The brand also fed the excitement on the bottle side to attract new consumers and encourage loyal Hydro Flask users to add just one or even two more to their collection by launching new colors and designs in its trail series. Health and home delivered sales growth of just over 2%, climbing over the especially strong 29% growth in the year-ago comparison period. The growth this quarter came from a continued high-level demand for air purifiers. Demometer sales were essentially flat despite the elevated year-over-year base. In Europe, our biggest thermometer market, sales in the quarter remained high as the vaccination rates are below that of the United States, and data suggests those rates will peak at lower levels. Looking at channels and new products, the business saw an upturn at key brick and mortar retailers this quarter that improved store traffic and new distribution both domestically and internationally. Current and new product introductions contributed to the growth as prior investments in innovation in fans, in blood pressure monitors, in Honeywell's true HEPA air purifiers, and in the new VIX non-contact thermometers were favorably received by retailers and by consumers. Given the tailwind from COVID in health and home tier ago base, we believe it is instructive to look at the first quarter and full fiscal year on a two-year stack. That would imply sales are up over 30% versus two years ago and a clear indication of the higher installed base of products that use our high-margin replacement filters, such as Vicks and Honeywell humidifiers, fewer water filtration pitchers, and fewer faucet mounts, and on Honeywell air filtration devices. While the threat of COVID itself may be receding in much of the world, we believe the heightened levels of overall awareness regarding the need and the importance for cleaner air and water will remain sticky in homes, in workplaces, businesses, hotels, and institutions. This is also expected to be a significant factor for schools and universities as they reopen this fall. Important to keep in mind that health and home operates across a diverse set of categories. As an example, the heat waves seen in some parts of the United States and Europe this summer have been accelerating recent fan sales. Demand has also been elevated for air filtration devices as severe drought conditions in much of the western United States increase the risk of wildfire. Our ability to serve that demand will depend on how quickly we can resume shipments of our air filtration products. Rounding out the business results, I would like to touch on international. Doubling down on international is an important strategic choice in our Phase 2 strategy. Despite stay-at-home orders in many markets, our international business grew faster than the company in the core. We grew in all three business segments, with housewares and beauty leading the way. The international business continues to benefit from the stepped-up investments we made in the second half of fiscal 21 that supported new distribution in continental Europe, added further support to our UK businesses, and increased awareness of our broad no-touch thermometers in Asia. As we now start our third year of Phase 2, we remain ahead of the glide path for international growth that we announced at our 2019 Investor Day to create at least $100 million of incremental organic sales outside of the United States by the end of Phase 2. With the operating margin improvements we have made in the international market so far in phase two, we can continue making new investments with attractive ROIs to accelerate growth outside of the U.S. Looking ahead, we are now in a position to provide our outlook for fiscal 22, which Matt will walk you through shortly. As expected, our housewares and beauty segments are each projecting healthy growth in revenue and profitability on top of the elevated base they laid down last year. We expect to use this revenue growth and the plans to mitigate the cost inflation discussed earlier to feed the reinvestment flywheel for these segments, to help sustain their momentum, and to expand their margins for the full fiscal year. Our projection in health and home includes the estimated impact related to the EPA matter. As mentioned earlier, we are working with all speed on that front. I do want to emphasize that excluding the impact of the EPA matter, we were on track to achieve growth of this fiscal year in line with the thinking we communicated in April. I would also like to note that we have faced tough times before. In the past three years alone, tariffs, COVID-19, and the current environment of cost inflation and of supply chain disruption have been major challenges. In each case, our high-performance organization has stayed relentlessly focused on problem solving. They have worked together to protect our business and brands. and we have stayed the course to deliver compelling multi-year results. Looking at the longer term, we remain committed to our phase two transformation plan. It has delivered excellent results, and we believe it still has considerable opportunity to drive the sales and profitability growth that can create significant additional long-term shareholder value. We expect to return to our Phase 2 average annual organic revenue and adjusted EPS growth targets in Fiscal 23 and in Fiscal 24, and we remain actively focused on acquisition opportunities as a major part of the transformation plan that can further accelerate long-term value creation. Turning now to other matters, many of you have told us you are highly interested in hearing more about ESG at Helen of Troy. I am pleased to announce that last month we published our first-ever ESG report, It is available on our corporate website. As discussed in the past, we see ESG as a strategic priority for our company's sustained success. In fiscal 2019, we began to embed it into the broader Phase 2 Strategic Transformation Plan that drives all we do at Helena Troy. We believe this approach best allows us to make a difference in our business, brands, and organization and closely reflects our purpose to elevate lives and soar together. We also believe that an integrated approach to ESG and the new disclosures in the report are being acknowledged externally. Just one example is institutional shareholder services. Our ISS environmental score improved significantly over the past year, now placing us in the top 30% of firms they compare us to. Our social score is now in the top 20%, and our governance score has consistently remained in the top 10% for the past several years. While we still have many miles to go, we are very proud of the progress we have made so far. Before finishing my remarks, I would like to update you on a few key areas, including how we are handling back to office, how we are further rewarding and motivating our people, and on CFO succession. Starting with back to the office, the many Helen of Troy associates who have been working from home since last April will begin operating under a new hybrid model beginning in September. Our goal is to utilize the learnings from the past year that have had a positive impact on productivity and wellness for some associates and also address gaps seen during the 100% work-from-home era. We will continue to focus on safety, on honoring the principles that make our culture so powerful, and on advancing our strategy, which is to attract, retain, unify, include, and train the best people. With the safety of our people as our first priority, early last quarter, Helen of Troy rolled out cash payments and additional vacation time to incentivize vaccination. So far, over 70% of our worldwide associates are now fully vaccinated. In the United States, that percentage is higher, and several of our largest sites are approaching 90%. The main feature of the 2-3 hybrid model are optional work from partners work from office Wednesdays through Fridays. Having all associates scheduled for the same work from home and office days worldwide avoids the productivity drag from mismatched individual remote days and ensures collaboration, which is so important to how we work. Frontline essential workers will continue to work in sites With regard to further rewarding and motivating our people, I am very pleased to announce that in May we awarded associates worldwide with a grant of 30 shares of Helen of Troy stock that vest over the remaining three years of phase two. We call these awards transformation shares as they are designed to recognize the tremendous success so far in phase two and provide motivation to execute the initiatives that will drive the back half of phase two with excellence. The Phase 2 Transformation Share Grant was made to associates at all levels and all tenures. We made a similar grant toward the end of Phase 1 and saw its power to help unify our people to further recognize their hard work and to provide a currency that aligns them even further with the interests of our long-term shareholders. On CFO succession, I would like to share some news on our progress since Brian's previous announcement that he plans to retire on November 1st. I am very pleased to announce that effective November 1st, Matt Osborne will be appointed CFO of Helen of Troy. Most of you have had exposure to Matt over the past year. He has done an outstanding job over five years in his role as senior vice president of corporate finance and has distinguished himself as an important contributor to many of the results during both phase one and phase two. Matt has been the primary architect of the transformation of the finance department into an even more capable global shared services team. He has upgraded the team and brought them together under our strategic plan. He was central to the culture work we undertook several years ago and has earned a reputation as a constructive collaborator. Matt has also been a central driver of system and process improvements as we standardized and simplified to drive efficiency through the transformation into a much larger, much more profitable, and much more global company as we are today. Over the past year or so, he has been working extremely closely with me and our global leadership team as we build and execute Phase 2. He has been battle-tested many times as we work through major challenges such as tariffs, the recent input cost inflation, structuring the build-out of our DTC business, and developing better reporting for international. He has led the budget, forecasting, and strategic review processes that are now part of the basic fabric of the company. He brings significant public accounting and international experience at major firms such as Ernst & Young and Best Buy before joining Helena Troy. He is ready to take on the CFO role with my strong support and with the unanimous backing of our board. Brian will remain CFO until November and will be instrumental in the rest of the transition. We will celebrate Brian much more when his retirement gets closer. Meanwhile, I hope you will join me in congratulating Matt and in thanking Brian for his excellent work across all aspects of Helen of Troy for over 15 years. With that, I will now turn the call over to both of them, starting with Brian. Thank you, Julian. Good morning, everyone, and thank you for joining us. I'd like to make some high-level comments before handing it over to Matt Osberg, who will review the first quarter's results and our outlook for the full fiscal year 22 in more detail. It was an excellent quarter with consolidated sales growth of almost 29% on a base that grew almost 12% in the same period last year. Our first quarter growth benefited from robust consumer demand for our products, brick and mortar strength, international expansion, healthy levels of supply, a shift in timing of Amazon Prime Day, and shipments that spilled into the first quarter due to winter storm Yuri at the end of the fourth quarter. First quarter sales growth also benefited from incremental investments made in the fourth quarter of fiscal 21. By accelerating the investments into the prior year, we were also able to drive greater profitability in the first quarter of this year. We expanded adjusted operating margin by 60 basis points and increased adjusted diluted EPS by over 37%. on a base that grew almost 23% in the same period last year and included significant temporary cost reductions due to COVID-19. The first quarter was not without its challenges, especially the unprecedented global supply chain disruption and inflationary cost pressures. Although the EPA matter presents another challenge to overcome, we've made considerable progress towards this being a transitory event and resuming our phase two growth trajectory. We were pleased to initiate our fiscal 22 full-year outlook after deferring last quarter to allow supply chain and cost inflation trends to more fully develop.

Prior to the EPA stop shipment action we initiated on May 27th, we were in a position to provide a fiscal 22 outlook with core net sales and adjusted diluted EPS growth off of the highly elevated base of fiscal 21,

despite approximately $55 to $60 million of estimated inflationary cost increases. Quite an accomplishment in light of the circumstances, with only the estimated impact of the EPA matter holding us back from core net sales and adjusted EPS growth. We believe this is an indication of the underlying strength of our business and the power of our diversified portfolio. Finally, with Julian's announcement today regarding Matt's succession into the CFO role upon my retirement on November 1st, I'd like to take a moment to congratulate Matt and express my gratitude for all that he has done to support me and the company over the last five years. His promotion into the CFO position is well-deserved, and the company couldn't be in better hands. Matt, I'm really proud of you, and I'm thrilled for you and your family. And with that, I'm going to hand it over to you to take us through the first quarter and fiscal 22 outlook in more detail. Thank you, Brian. I appreciate the kind words and the tremendous support that you and many others in the organization have given you along the way. You're leaving very big shoes to fill in November, and I'm looking forward to the opportunity to continue to build on your success. I also want to thank Julian and the board of directors for entrusting me with this leadership role and the financial stewardship of the company. I'm excited to be part of the global leadership team that will help the company continue its successful progress through phase two and beyond. Before reviewing our results and outlook, I'd like to give a little more color on the EPA matter that impacted our GAAP gross profit operating income and diluted EPS during the quarter. The stopped shipment actions did not have a material impact on our first quarter sales. However, we recorded a $13.1 million charge to write off the obsolete packaging for the impacted products and inventory on hand and in transit as of the end of the first quarter of fiscal 22. The charge was recognized in cost of goods sold and is referred to in the earnings release as EPA compliance costs. We are implementing a number of cost control measures in the health and home segment to offset a portion of the impact from the anticipated revenue decline. Later in my remarks regarding our fiscal 22 outlook, I will expand on how we estimate this matter will impact the rest of the fiscal year. Now turning to our first quarter results. Consolidated organic sales growth of 27.3% was driven by our beauty and houseware segment. our sales benefited from higher consolidated brick and mortar sales due to the favorable comparative impact of store closures and reduced store traffic in the prior year period. An increase in international sales, higher sales in the club and closeout channels, growth in online sales, and the favorable impact of approximately $15 million from orders that were not able to be shipped at the end of the fourth quarter of fiscal 21 due to winter storm URIE. The impact of these orders was roughly spread evenly across each of the segments. Gross profit margin declined 1.8 percentage points in the first quarter, primarily due to higher inbound freight expense and EPA compliance costs. These items were partially offset by a more favorable product mix within the beauty segment. Our SG&A ratio decreased 0.2 percentage points to 28.8%. because we benefited from operating leverage on higher sales, reduced royalty expense, lower amortization, and a decrease in bad debt expense. These items were partially offset by the unfavorable impact, more normalized levels of personnel and advertising expenses compared to the first quarter of fiscal 21 when levels of spending in these areas were restricted due to temporary COVID-related cost reduction initiatives. GAAP operating income was $64.8 million, or 12% of net sales. On an adjusted basis, operating margin improved 60 basis points to 17.5%. This increase primarily reflects a more favorable product mix in the beauty segment, operating leverage, reduced royalty expense, and a decrease in bad debt expense. These factors were partially offset by higher inbound freight expense, a less favorable channel mix in the house for a segment, and higher personnel and advertising expenses. Income tax expense as a percentage of income before tax was 8%, compared to an income tax benefit of 13% for the same period last year, primarily due to the benefit of the CARES Act in fiscal 21. Net income was $57 million, or $2.31 per diluted share. Non-GAAP adjusted diluted EPS increased 37.5% to $3.48. This includes a positive impact from winter storm URI of approximately 20 cents per share. Now moving on to our financial position and liquidity. Net cash used by operating activities was $63.4 million compared to cash provided by operations of $92.8 million in the prior year. The change in cash flow was primarily due to continued investment in inventory to help mitigate supply chain disruption and the timing of working capital changes. We received proceeds related to the sale of our personal care business of $44.7 million at the beginning of the second quarter, and we intend to use the net cash proceeds to pay down debt or make capital expenditures. Total short and long-term debt was $511 million compared to $324.9 million. This is a sequential increase from the $343.6 million at the end of the fourth quarter. A leverage ratio as defined in our debt agreements was 1.4 times compared to 1.1 times at the same time last year and 1.0 times at the end of the fourth quarter. Our net leverage ratio, which nets our cash and cash equivalents with our outstanding debt, was 1.3 times at the end of the first quarter compared to 0.9 times at the end of the fourth quarter. Now turning to our four-year outlook for fiscal 22. Due to the sale of the majority of the personal care business during the second quarter of fiscal 22 and the expected continued classification of the remaining Latin America and Caribbean personal care business as non-core for fiscal 22, the outlook we are providing is on both a consolidated and core business basis. We believe the core outlook provides the best comparability between historical and future periods, and I will therefore focus on core in my following remarks. Our outlook includes the current estimated impact of the duration of the EPA-related stop shipment action previously discussed, which is based on the estimated timing of approval and implementation of our compliance plan. Our outlook includes an estimated unfavorable sales revenue impact of $110 to $135 million and an unfavorable adjusted diluted EPS impact of $0.70 to $1 related to the expected lost sales volume and earnings due to the EPA matter. The adjusted diluted EPS impact is met of the favorable impact of cost reduction actions being taken in the health and home segment, which include reductions in personnel, marketing, and select new product development costs with a goal of preserving key long-term growth initiatives. It is important to note that the vast majority of our cost reduction actions will be within the health and home segment so that we can continue to support the expected growth in both the beauty and houseware segments. We incurred $13.1 million of EPA compliance costs in the first quarter of fiscal 22 in conjunction with the implementation of our compliance plans. These costs are included in our GAAP operating results but are excluded from our non-GAAP adjusted operating results. We expect to incur additional EPA compliance costs, which may include costs to repackage existing inventory as well as incremental freight and storage costs, among other things. We expect to continue to exclude these costs from our non-GAAP adjusted operating results and they have been excluded from the annual outlook for non-GAAP adjusted diluted EPS. We expect consolidated net sales revenue in the range of $1.93 to $1.98 billion, which implies a decline of 8% to 5.5%. We expect core net sales revenue in the range of $1.9 to $1.95 billion which implies a decline of 6% to 3.5% and includes 6.7% to 5.4% of unfavorable impact related to the EPA matter. Our net sales outlook reflects the following expectations by segment. Housewares net sales growth of 7% to 9%. Health and home net sales decline of 27% to 24%. including 15.2% to 12.4% of decline related to the EPA matter, beauty consolidated net sales growth of 4.2% to 6.3%, and beauty core net sales growth of 17% to 19%. We expect consolidated gap diluted EPS of $6.80 to $7.49, and core diluted EPS of $6.60 to to $7.28. We expect consolidated non-GAAP adjusted diluted EPS in the range of $10.46 to $10.97 and core adjusted diluted EPS in the range of $10.25 to $10.75, which excludes any EPA compliance costs, asset impairment charges, restructuring charges, tax reform, share-based compensation expense, and intangible asset amortization expense. Our core adjusted diluted EPS outlook implies a decline of 7% to 2.5%, which includes 9.1% to 6.3% of impact due to the EPA matter. Not including the EPA matter, our outlook implies year-over-year adjusted EPS growth of 2.1% to 3.8%. Our outlook also includes year-over-year inflationary cost pressures of approximately $55 to $60 million, or approximately $2.25 to $2.45 of adjusted delivered EPS, much of which we believe we have mitigated through a combination of improved product mix, price increases, forward buying of inventories to delay cost impacts, utilizing previously negotiated shipping contracts at rates below current market prices, and implementing other cost reduction initiatives. Our consolidated and core net sales and EPS outlooks reflect the following. The assumption that the severity of the cough cold flu season will be in line with pre-COVID historical averages, the assumption that June 2021 foreign currency exchange rates will remain constant for the remainder of the fiscal year, and an estimated weighted average diluted shares outstanding of 24.4 million. We expect a reported core gap effective tax rate range of 12.8 to 13.8% and core adjusted effective tax rate range of 9.9 to 10.9%. This range incorporates the previously disclosed adverse impact of 1.5 to 2 percentage points due to changes in tax law impacting our Macau sourcing operation. Even though we expect the tax plan outlined by the Biden administration to continue to evolve, I will make some comments based on the current interpretation. Although there is a proposed increase to the U.S. corporate tax rate, we are less impacted by these changes due to our lower amount of income subject to tax in the U.S., which is generally 20 to 25 percent of our worldwide income before tax. We do not expect any of the proposed changes related to the global intangible low-tax income, often referred to as GILTI, to have a meaningful impact on our consolidated tax expense, as many of our foreign subsidiaries are not directly or indirectly owned by a U.S. parent and are not subject to GILTI or U.S. taxation. The G7 recently announced a commitment to pursue a 15% global minimum tax. Last week, the OECD gained further support for these changes, and their proposal will be brought to the G20 this week. If the OECD successfully gains consensus on a global minimum tax, they have discussed potential implementation of changes as early as 2023. In the event any changes become law that are meaningful to us but cannot be mitigated, we would expect any impact beginning in our fiscal 24. At this stage, it is still unclear what tax laws will be passed and in what form, as well as when they would take effect. Nevertheless, we are not expecting a meaningful impact from tax legislation changes in fiscal 22. We will continue to assess the impacts as proposed legislation is considered and provide updates in the future. We expect capital asset expenditures of $100 to $125 million for fiscal 22, which includes expected initial expenditures related to a new 2 million square foot distribution facility with state-of-the-art automation for the houseware segment. Preliminary estimates of the total cost of the new distribution center and equipment are in the range of $200 to $225 million spread over fiscal years 22 and 23, assuming construction and equipment costs remain at current levels. Due to the strong growth comparison and COVID-related events in fiscal 21 and the timing of the estimated impacts of the shipping restrictions related to the EPA matter, we expect consolidated core net sales growth for fiscal 22 to be concentrated entirely in the first quarter of the fiscal year. We also expect core adjusted EPS growth for fiscal 22 to be concentrated in the first and fourth quarters of the fiscal year, with the second quarter being the most impacted by the shipping restrictions, as well as having the most challenging growth comparison to the prior fiscal year. Although our outlook calls for an overall net sales decline, we are proud of the results we were able to deliver in the first quarter in all three segments and are excited about the expected growth in beauty and houseware segments in fiscal 22. For perspective, excluding the forecasted unfavorable impact of the EPA stop shipping action, our outlook would imply 0.7% to 1.9% of core sales growth. in line with our initial goal of growing from our elevated fiscal 21 base. From a core adjusted diluted EPS perspective, although we are forecasting a decline in fiscal 22, our outlook includes unfavorable impacts of $2.95 to $3.45 related to inflationary cost pressures and the EPA matter. We expect our mitigation plans to offset much of the cost inflation. However, we do not expect to fully mitigate the estimated sales volume impact of the EPA matter through cost reductions in health and home or other segments, as doing so would significantly impact the attractive longer-term growth prospects of the company. Excluding the estimated impact of the EPA matter, our outlook implies core adjusted diluted EPS growth of 2.1% to 3.8%. As Brian mentioned, we believe that this outlook is quite an accomplishment in light of the circumstances with only the estimated impact of the EPA matter holding us back from core net sales and adjusted EPS growth. We believe we can return to our average annual long-term growth rate targets of 2.5% to 3.5% organic sales growth and adjusted EPS growth of at least 8% in fiscal 23 and fiscal 24. If we are able to deliver our fiscal 22 outlook and return to our long-term growth rates for fiscal 23 and 24, that would equate to phase two compound annual growth rates for sales of approximately 6%, and adjusted EPS of approximately 10%, which are well ahead of the phase two targets we first presented during our investor day in May 2019. In closing, despite the challenges we've seen, we believe we have a set of strategies, capabilities, and competitive advantages that have allowed Helen of Troy to perform in tough times and in good times. I believe we are well positioned to return to our stated long-term targets and deliver continued value for our consumers, associates, customers, communities, and shareholders during the remainder of phase two. The foundation of our business is strong, and with our diversified portfolio, scalable operating platform, and strong balance sheet, we believe we can continue to be successful even in the most challenging external environments. And with that, I'd like to turn it back to the operator for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Bob Labic with CJS Securities. Please proceed with your questions.