Helen of Troy Limited (HELE) Q2 2009 Earnings Report, Transcript and Summary

Welcome ladies and gentlemen to the Helen of Troy second quarter conference call for fiscal 2009. (Operator Instructions) Our speakers for this morning’s call are Gerald Rubin, Chairman and Chief Executive Officer and President, Thomas Benson, Senior Vice President and Chief Financial Officer, Robert Spear, Senior Vice President and Chief Information Officer. Now, I would like to turn the conference over to your host Mr. Robert Spear.

Welcome to Helen of Tory’s second quarter financial results conference call for fiscal 2009. The agenda for this morning’s conference call is as follows: we’ll have a brief overlooking statement review followed by Mr. Rubin who will discuss our second quarter earnings release and related results of operations for Helen of Troy followed by a financial review of our income statement and balance sheet for the quarter by Tom Benson our Chief Financial Officer. Finally, we’ll open it up for questions and answers for those of you with any further questions. Safe Harbor; 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. A number of risks or uncertainties could cause actual results to differ materially from historical or anticipated results. Generally, the words anticipates, believes, expects and other similar words identify forward-looking statements. The company cautions listeners to not place undue reliance on forward-looking statements. Forward-looking statements are subject to risks that could cause such statements to differ materially from actual results. Factors that could cause actually results to differ from those anticipated are described in the company’s Form 10Q, filed with the Securities & Exchange Commission for the year ended February 29, 2008. Before I turn the conference call over to our Chairman Mr. Rubin, I would like to inform all interested parties that a copy of today’s earnings release has been posted to our website at www.hotus.com. The release can be accessed by selecting the investor relations tab on our home page and then the news tab. I’ll now turn the conference over to Mr. Gerald Rubin, Chairman, CEO and President of Helen of Troy.

Today Helen of Troy reported results for the second quarter ended August 31, 2008. Second quarter sales were $153, 543,000 versus sales of $157,924,000 in the same period of the prior year. Second quarter net earnings were $10,598,000 or $0.34 per fully diluted share compared with $18,253,000 or $0.56 per fully diluted share for the same period a year earlier. Last year’s second quarter includes the favorable impact of the tax settlement of $7,950,000 or $0.24 per fully diluted share. Second quarter net earnings were $10,598,000 or $0.34 per fully diluted share compared with non-GAAP earnings which excludes the benefit of the tax settlement of $10,303,000 or $0.32 per fully diluted share in the same period, an increase of 6.3% in earnings per fully diluted share. You’ll note that we did $0.02 better this quarter than last year’s same quarter. Sales for the six months ended August 31, 2008 increased slightly to $298,546,000 versus $298 million for the previous year. Net earnings for the first half of this year which includes several significant first quarter items were $16,156,000 or $0.52 per fully diluted share versus $28,370,000 or $0.88 per fully diluted share in the same period of last year. Excluding the significant first quarter items, year-to-date non-GAAP earnings were $23,642,000 or $0.76 per fully diluted share versus $20,420,000 or $0.64 per fully diluted share which excludes the tax settlement in the same period last year, an increase of 18.8% in earnings per fully diluted share. Net sales for the housewares segment increased 19.6% to $47,134,000 in the second quarter compared with $39,422,000 for the same period last year due to the product line and geographic expansion. Our OXO brand has continued its growth and leadership position in its retail categories. Net sales for the personal care segment decreased 10.2% to…

In the second quarter we experienced a year-over-year sales decline of 2.8% reflecting the difficult retail environment where many of our retail partners face slowing same store sales trends. We experienced sales growth in our housewares and grooming, skin care and hair product businesses which grew 19.6% and 5.6% respectively compared to the same quarter last year. This growth was offset by declines in our personal care appliance and brush, combs and accessory product categories. Gross profit margins declined by .8 percentage points year-over-year. Second quarter selling, general and administrative expense as a percentage of sales improved by .6 percentage points year-over-year. And, we finalized the settlement of the consolidated securities class action lawsuits against the company and the two offers. Second quarter net sales decreased 2.8% year-over-year. Net sales in the second quarter of fiscal 2009 were $153.5 million compared to $157.9 million in the second quarter of the prior year. This represents a dollar decrease of $4.4 million or 2.8%. Our second quarter operating income decreased by 4.2% in dollar terms year-over-year. Operating income for the second quarter of fiscal 2009 was $14.9 million which is 9.7% of sales compared to $15.5 million or 9.8% of sales in the prior year quarter. This represents a decrease of $640,000 or 4.2%. Second quarter net earnings decreased 41.9% in dollar terms year-over-year. Net earnings from the second quarter fiscal 2009 were $10.6 million or 6.9% of sales compared to $18.3 million or 11.6% of sales in the prior year quarter. This is a decrease of $7.7 million or 41.9%. The prior year second quarter included a tax provision reversal related to a tax settlement which provided the benefit of $7.9 million. Excluding the impact of the settlement from the prior year, net earnings increased 2.9%. Net earnings before the prior…

Operator we’d like to entertain questions.

(Operator Instructions) Our first question comes from [Gary Giblin]. [Gary Giblin]: I’m just wondering, can you quantify or roughly quantify the Bed Head channel sales that represented extra sales last year so that we can calculate what the normalize sales percentage was for personal care?

I don’t have the number available but, as you know, when you do fill pipeline you do get larger orders when you ship in the merchandise. But, that’s true of any introduction we do and we have other introductions that we’re doing now also so that was a good quarter of shipping the Bed Head because it was pipeline fill. [Gary Giblin]: Within personal care you mentioned private label, now on the last call you mentioned there was beginning to be some private label activity but perhaps it was happening because of retailers or salons’ bad experience with private label. So, has the private label presence increased in the last three months?

One of our major customers that did go private label and has now reversed some of that and we’ll be shipping that product in the third quarter. Also, one of major retailers that did go private label is also in the process to changing to our branded merchandise because it didn’t sell as well as they thought last year so that will be coming in the first quarter of next year. There are very positive trends where retailers are getting away from private label and going to branded merchandise. [Gary Giblin]: Are we talking primarily appliances here?

Primarily appliances, yes. [Gary Giblin]: Just a couple more, you mentioned or Tom mentioned lower advertising expense as a SG&A factor. Was that a purposeful reduction or was that just the comparison working out that way in terms of this quarter versus same quarter a year ago?

Well, it just happened in one of our divisions, where we sponsored a car last year and we decided this year that we didn’t get our bank for the bucks so we discontinued the sponsorship of the car. But, all the other advertising is still going on as normal. As a matter of fact, we just have finished a big national advertising program for our Vidal Sassoon answers and it was run nationwide in thousands of spots that we put out. It’s not that we’re cutting down on advertising it is just that if some advertising doesn’t work, we cut it out which is good business and looking for other ways to spend the money. [Gary Giblin]: Finally, is the inventory management practices that were mentioned, the retailers and I guess destocking and stuff like that, is that appliances or the full line of personal care products?

I think it’s the full line of personal care. Retailers are not overbuying, matter of fact they’re always hesitant to buy thinking that business is going to be slow. I haven’t heard of any retailer that says that they’re overstocked on merchandise. I think it’s the reverse. We’ve had a couple of accounts that are looking at their inventory to beef it up because they feel like they don’t have enough inventory coming in to the fall season. [Gary Giblin]: Is there SKU reduction that affects Helen of Troy? Or, just talking about days on hand?

There hasn’t been any SKU reduction, it’s just days on hand. They go in to this temperament of lowering all their inventory, then they get it too low and they build it back up. I think they’re now back in to the phase of trying to build it back up for the fall season. I think some of the retailers that I’ve talked to have low inventories.

Our next question comes from Mimi Noel – Sidoti & Company, LLC. Mimi Noel – Sidoti & Company, LLC: Tom, I was wondering if you had available the volume increase in OXO in the quarter?

The overall sales dollar increase was 19.6% and it was $7.7 million. Mimi Noel – Sidoti & Company, LLC: But, the volume increase is what I was looking for.

That will be in the Q that we’ll file either late today or tomorrow. Mimi Noel – Sidoti & Company, LLC: Not something you have handy now?

No. Mimi Noel – Sidoti & Company, LLC: Can you elaborate a little more on the growth that OXO realized in the quarter? How much of that is from international expansion?

OXO continues to expand internationally. We actually don’t provide the exact percentage but they’re growing by a greater percentage in both the UK and Japan than their overall growth rate. Mimi Noel – Sidoti & Company, LLC: Is UK and Japan more than 10% of segment sales?

No, they’re not. Mimi Noel – Sidoti & Company, LLC: Can you elaborate a little bit more on the gross margin erosion in the quarter and perhaps in the context of Belson? Has that been fully resourced? Are we seeing the benefits of that now or is that yet to come?

We’ve seen some benefit of the Belson resourcing but it is not completed and overtime we expect to get additional benefits. Mimi Noel – Sidoti & Company, LLC: In your prepared remarks you mentioned opening price point lines. Is that low margin business that you walked away from similar to the prior quarter or is this something different?

Opening price point, what we needed to do is due to cost increases, we needed to increase some of our selling prices and I guess we came to a mutual agreement with our customer that they weren’t going to buy from us. We don’t try to walk away from business, we try to work with our customers. Mimi Noel – Sidoti & Company, LLC: Two questions, did you prepay some debt in the quarter?

We did not. Let me just explain that, $75 million of our debt is due next June so we reclassed some debt from long term to short term so maybe that’s why you’re asking. That’s what happened. Mimi Noel – Sidoti & Company, LLC: Then the last one I wanted to ask about and maybe this is Gerry for you to chime in, can you comment on any trends in the personal care segment, particularly appliances in September?

Well, as you know, our personal care segment was down but I think in this environment I think we did very, very well. We haven’t loss any shelf space or any SKUs and things look very, very positive from some of the major customers that we will have increased SKUs going in to the next planograms. These planograms will start somewhere around February, April and May. So, we’re finishing up that now and what they’re going to be handling for next year and it looks very, very positive for us. I’m real optimistic that starting in the first quarter we’re going to overcome the decreases that we have in the personal care segment. Mimi Noel – Sidoti & Company, LLC: Is that your commentary regarding September, the last month we just had subsequent to quarter end?

Well, interesting enough, and I don’t know if it is indicative of the quarter, but September was a very good month for us. We’re in the first week of October and hopefully it continues.

Since there are no further questions, I’d like to turn the conference back over to Mr. Gerald Rubin to conclude.

Thank you everyone for participating in our second quarter earnings report. I look forward to seeing and hearing from all of you and talking to you at our third quarter. Thank you again.