Good day and welcome to the Helen of Troy Limited First Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jack Jancin, Senior Vice President of Corporate Business Development. You may begin.

Thank you, operator. Good afternoon everyone, and welcome to Helen of Troy's first quarter fiscal 2020 earnings conference call. The agenda for the call this afternoon is as follows. I'll begin with a brief discussion of forward-looking statements. Mr. Julien Mininberg, the company's CEO, will comment on the financial performance of the quarter and specific progress on our strategic initiatives. Then Mr. Brian Grass, the company's CFO, will review the financials in more detail and comment on the company's outlook for fiscal 2020. Following this, Mr. Mininberg and Mr. Grass will take your questions you have for us today. 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 defer 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. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information. Before I turn the call over to Mr. Mininberg, 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 conference call over to Mr. Mininberg.

Thank you, Jack. Good afternoon everyone and thank you for joining us. This afternoon we reported a great start to our fiscal year. Also a great start to Phase II of our transformation plan, which we detailed during our May 21 Investor Day in New York. Consolidated core business sales grew 6.8% and adjusted diluted EPS grew 10.2% in the quarter, both ahead of our expectations, given the especially high year ago base. Sales growth was driven by our leadership brands, which grew 7.4%. Our continued focus and investments in innovation and marketing paid off handsomely. We gained further ground online with sales growing 28% now representing 23% of consolidated sales for the quarter. These operating results give us the fuel to further increase our spending behind attractive investment opportunities for the balance of the year and also raise our revenue and EPS outlook for fiscal 2020. Before continuing my discussion on the quarter’s results, I'd like to express my sincere appreciation for those of you who attended or listened to our Investor Day. In addition to presenting our Phase II plans, we introduced you to some of the outstanding leaders in our company, shared our long-term financial goals for Phase II, and gave you a flavor of the culture and level of engagement that our people bring to work every day. We believe their passionate commitment powers Helen of Troy, and is a key driver of success as our Phase II plans come to life. As outlined during Investor Day, Phase II builds on the accomplishments of Phase I by focusing on eight key strategic priorities. These are investing in leadership brands; doubling down on international; selective and strategic M&A; consumer centric; unifying and elevating the best people; accelerating shared service excellence; maximizing operating efficiency and optimizing capital deployment.…

Thank you, Julien and good afternoon, everyone. We're pleased with our first quarter results and to be in a position to raise our full year outlook. Before discussing the quarter in more detail, I'd like to further discuss the impact of tariffs, since I know this is an important topic for many of you as it is for us. As I outlined during our Investor Day in May, we have been planning for the List 3 tariff increase from 10% to 25% for some time and believe we're in a good position to take pricing and supply chain actions to mitigate the impact of those increases. In terms of the recently announced List 4 these tariffs were introduced for public comment, but have now been postponed pending a potential trade deal with China. As List 4 has not been implemented, we have not considered any changes to our fiscal 2020 outlook at this point. If ultimately implemented, we anticipate taking the same approach that we've taken in the past. The goal would be to offset the vast majority of the gross profit dollar impact with pricing, cost reductions, supplier consolidation, and other mitigation efforts. I'd also like to explain the impacts of the new UK Offshore Receipts in respective of Intangible Property Tax commonly referred to as the ORIP tax and foreign currency fluctuations that I will be discussing during the call. Beginning with the new UK ORIP tax, where intangible property is held offshore, and that property is used to facilitate sales in the UK, sales could be subject to UK gross receipts tax of 20%. The tax came into effect during the middle of the first quarter, and there are still many aspects of the legislation and implementation that remain unclear. We intend to treat this as a…

Thank you. [Operator Instructions] We’ll go first to Frank Camma with Sidoti.

Hey, good afternoon, guys.

Yes, hey, Frank, how you’re doing?

Good. Thanks for taking the question. A couple of things, can you start -- I know you gave some color on this, but can you talk a little bit more about the cadence of the quarter given the size of the beat here. I mean, it obviously you called out Housewares and Beauty and it sounds like it was really backend weighted, was that replenishment, was that new distribution, can you go a little bit more into that by segment?

Sure. I think there's -- while we don't expect 23% growth in that segment on an ongoing basis I would say there's not a lot of unusual things driving sales there, it’s been driven by strong demand for both Hydro Flask and OXO products and solid distribution, but not what I would call a lot of pipeline filled. It's really mostly being driven by demand. And, maybe is a little bit lumpy based on the timing of some of the programs that's going on at the retailers. But I would call nothing incredibly unusual. And you're right, it was concentrated more in the back half of the quarter…

And there was no club channel either it sounded like or a less how I should say.

Less, there were club channel in both periods, but actually less in the first quarter of this year compared to the same quarter last year.

Okay, --. Go ahead. I’m sorry.

I apologize, Julien here. And sorry to interrupt either of you. I want to say also that in the Beauty segment, we just really had very strong demand in the appliances. And as product came in, especially late in the quarter as Brian mentioned, even just the last few weeks, a lot of product went out of the door to meet pent up demand. So this is not inventory or pipeline, this is just pure sell through and filling in suction from the market for some really good products. And those innovations are drawing that viral stuff that you heard me talk about in the prepared remarks. And the result is not just a big beat, but surprised us as especially in the back half of the quarter.

Well, Beauty makes sense to me because you had success in the first -- the last quarter. So I kind of see kind of the pull through on that. But your numbers or guidance for Housewares for the balance of year would suggests no matter how you look at it a huge deceleration in revenue growth. So can you explain like how that work through your system?

You mean versus the big number that was just delivered...

Yes, I mean, your 23%, well, yes, I get that it's an increase in the year. But to get to a -- I thought you said a top end of growth for the year of revenue growth was 8%. Is that correct?

Correct. It’s still early in the year…

Mathematically, you have to grow, like in a range of 4% to 5% for the balance of the year.

Well, keep in mind that the first quarter is a smaller quarter comparatively in absolute dollars. So the following quarters have much more ability to influence the results. So, I mean, you got to do the math in dollars, you can't just look at percentages to be able to get there.

And not only the size of the base in the different quarters, but the year-over-year of the prior year. So if you look at Q2 of Housewares, so when you're asking about in the second quarter of last year, the growth from the year before was substantial. So to grow over that is a big number we will and then to grow further for the rest of the year than we originally pointed out. Some of it’s rolling through the beat that we just had to your question. And some of it is just early days, we haven't seen the whole year play out yet. I'm not saying we’ll do better, I'm simply saying might even turn out up from there was the how the year plays out Frank.

Historically the first quarter is their smallest sales quarter.

No, I get that and you comp -- but you did comp against your pretty much your biggest quarter from a year-over-year. So unless my numbers are wrong. So I think you had 19% year-over-year last year that you went to about 19% and then by fourth quarter it decelerated to 8% correct for Housewares…

Yes, but careful with what Brian is saying. It's one thing to do the percentages and you’re right...

Yes, I get the numbers, no I do. I get the numbers. No, I don't want to beat that point up. But okay. Can you just -- then I'll get out of the line on this. But can you explain why the Beauty margin given the sales now I'm just looking at net of restructuring expenses. Why the margin wouldn't have expanded more?

Right. There's a fairly -- we called it out. There's fairly significant amount of freight expense that we made the decision to incur to -- in order to fulfill against the strong demand that we have for some of the products. And so we had to use expedited freight in order to meet that strong demand. And we chose out of the options to make that choice, even though it does have a temporary drag on margins. We're out of the position where we'll need to incur that expense on a go forward basis.

Okay. So it normalizes...

Yes, correct.

And remember, we're consumer centric, and there's a lot of draw for those products in the market. So it's one thing to say no to a customer, we don't have the product at the full level of order and allocate. It's another thing to make the choice to supply the market, satisfy the consumer with a product that we know is a winner. And in several of those innovations, it's just a lot of demand. And we made that choice. And as Brian mentioned, with the supply now significantly increased, we don't see that going forward. So there's a normalization.

You also had a -- Frank, the mix factor of the decline in Personal Care, which has got a much stronger margin that decreasing will have an impact on the overall margin.

Okay, great. Thanks, guys.

Yes, you bet. Thanks, Frank.

And we'll go next to Olivia Tong with Bank of America.

Great, thanks.

Yes, hey, Olivia. Hi. Your first call with us. Welcome. We're thrilled. I know you’ve been following the company for a long time, but great to see you.

First question is just around the incremental investment dollars. It sounds like, you obviously had a nice quarter. So it sounds like you're on growth investments. Can you talk about where that incremental dollar is going forth?

Yes, great question. And we are increasing we’re very pleased to do that, the fuel from the first quarter result gives us the confidence. There's a lot of opportunities across the leadership brands. So it's concentrated in those seven brands. It's primarily going online, there's some money going into international expansion. And there's a fair amount focused on the digital marketing side of online, as opposed to just the e-commerce support. So you'll see us very active on the Amazons of the world, on the e-commerce or etail side, because that's where the consumer is, and we are consumer centric. And the rest of that digital money is going against marketing campaigns for new items, feeding some of the viral stuff that has just been so strong that we almost couldn't pour enough money into it at this point. And then as the seasons come up, whether it's cold flu, or the hot summer, for example, so those are places where we didn't have to put marketing money against things like fans they sold themselves. Things like the cold flu season or the upcoming heaters, we'll see how the wildfires and all that stuff if there are any turnout. So these are the places where the money will be spent. And on the social media side, we found some really good levers with attractive ROI and now that we have some more money to pour into them, we will increase the investments.

All right, super helpful. And then I want to talk a little bit about the [indiscernible] about Housewares. It sounds like there's nothing one time or temporary and there is great demand. So if you could perhaps breakdown a little bit the POS growth you just presented? And is this distribution plus one or we should anticipate more quarters of elevated growth or in this also layering in prior gains, our prior gains approximately.

Yes, understood. So we talked about both brands OXO and the Hydro Flask that’s Housewares, there's both positive, but also different stories. So starting with OXO, OXO is fairly well penetrated in this country in United States. It does have lots of opportunities overseas, and we are making progress overseas. And we like what we see, on the one hand. On the other hand in the United States, some of the new products just earned incremental distribution at some of the biggest customers. And we are doing well on shelf. They're making decisions about rationalizing what they want on shelf and OXO is strong enough in its POS performance, that it's emerging the victor in plenty of those decisions at buyer. So there's some incremental distribution there. We're leaning in online, online is doing very well for OXO and that incremental spending that I just referred to is helping to feed in and we're learning every day and just getting sharper and sharper on how we spend. And the new products themselves, they're just appealing to consumers and they are generally selling through very well. You heard us talk about food storage and personal household organization stuff as two examples in the prepared remarks this quarter POP 2.0 Containers as specific and I think you saw those in the innovation showcase in the Investor Day and they're pretty cool. The new Coffee Grinders are tearing up the track. They're winning all kinds of awards, as well. So these are things that we're leaning into. In the case of Hydro Flask, Hydro Flask is earned a lot of new distribution, especially in the East Coast to the couple of big retailers, who have leaned in on the category and specifically leaned in on the brand. And then we've earned more shelf…

Got it, thank you very much.

Thank you, Olivia. Thank you for the questions.

We’ll go next to Linda Bolton Weiser with D.A. Davidson.

Hi.

Yes, hi Linda.

Hi. So just keeping on that topic of the growth of Housewares, in terms of what inning Hydro Flask is in terms of distribution gains, what inning would you say it's in?

I would say in the U.S., it's probably in the later part of the middle innings. So think like sixth inning, something like that.

But just with respect to bottles, its core category, it has new categories that where distribution still began.

Yes, I'm talking about bottles. So if you back up like two, three years of primarily West Coast heavy brand, which is just crushing it on the West Coast, expanded into the Midwest, started expanding into the Southwest, and then into the East. The Southeast is still even still a little underdeveloped, the Northeast just a year ago was underdeveloped. So this is the trip from call it the second inning to the third, fourth, fifth like that. It's probably more like the sixth now and I think there's incremental distribution yet to be earned for Hydro Flask. It is setting trends, and I myself was just in Northern California for some business things a week or so ago, I was on a campus of a major university there, there were tons of kids and doing all kinds of sports things at teams of the 20 30 kids were walking by and they were easily 15 and 18 Hydro Flask in a pot of 20 kids and a lot of them were the newer colors. So even in a place where the distribution is in its higher innings like California where a lot of this started, you're seeing the new items penetrate far, and all kinds of users coming in and buying into the trend and want these products. So it's not just about innings of distribution, it's about new items that are driving existing distribution into new sell-through. And then when you talk about International, even though we're doing very well, the whole doubling down thing I’d tell you will be shorter to say all the opportunities and to see places where we are, there’s just so many ways to grow. I'd say they were probably in the second inning at most on the subject of maybe first on the subject of distribution opportunities in the developed part of the world and then the specific countries where we've chosen. And obviously for competitive reasons, we wouldn't list them all. But the intention is to drive far in the international where eight of the nine innings are left to play.

Okay. And then, can I just ask on the Health & Home, I think your prior year comparison gets even tougher in the second quarter. So, I mean, even like could core sales be down actually, like 10% or more in the second quarter? And then if so, it really has to be a big ramp in the second half. Is there any particular new product launch or any kind of comparison issue that would give us confidence, you can really see a much higher growth rate in the second half of the fiscal?

For Health & Home in particular.

Yeah, that’s what she's asking.

Yes, you mentioned 10%. I would say we're not expecting a 10% decline in the second quarter. I think it's safe to assume we're expecting a decline. But, somewhere in the range of 0% to 5% for Health & Home.

But to be clear that's not because of some sort of huge weakness, it's because of -- your point that you just made that base is a monster in the year ago period. We're very proud of that result. Now we’re over it that's a hard thing to do. And so that's what's doing the math of that decline that he is talking about.

Does that answer all the questions?

Yes, it did. Yes. Excellent. And then, on the tariffs, can you just remind us on the List 3, which I guess is the 25%, correct, when is that effective?

It's already effective, and our pricing is already effective.

Yes and the moves on the…

Sorry, maybe you're talking about List 4 not 3? There's a List 4 that's on a very large group of items including iPhones and things like that, that has not been put into play. So it's been -- it was announced and then it was delayed pending a potential trade deal negotiation. There was the List 3 that was announced and implemented to go from 10% to 25%. It has been put in place and we have implemented our pricing actions on it.

Okay. And then just on the $0.20 difference between your beat and your guidance raise for those three things, is there any way to break down the $0.20 by FX the UK taxing and the investment increase?

They actually work out to be kind of equal, roughly equal amongst all three. So if you want to work with that you can.

Okay, thank you very much. I appreciate

Yes, thanks. And Linda, one thing I want to say before we move to the next question, and a lot of you have asked about Housewares sustainability because of the big beat and the total guidance for the year. I wanted to emphasize a point that I know we hit in the prepared remarks, but not in the response to your question, which is, this concept of just one more is a very powerful one on Hydro Flask, and so is the idea of beyond the bottle. And so we're ramping up our ability in the categories we're already strong, like the beverage bottles to bring it -- it's probably not just one more but just several more into many people's households. And for those of you who have teenagers or something like that in your house or their friends, I don't know how many times you've heard something along the lines of yes but the new one, meaning the new size or the new color, or I've seen my friend has this cool thing and I'm interested in it too. I can tell you it's very true on the college campuses and there's people now that are going to inflated bottles, Hydro Flask is winning. And then you're even seeing some of those kids with multiple Hydro Flask. You’ll think of a gym one and versus the one you take to the classes, different sizes and caps and things like that. And on the subject of beyond the bottle, the soft lines, we talked about them in the call. But I really want to emphasize that any new distribution there is just incremental distribution. And because we’ve started off small there, it's not our heritage, our heritage was in the bottles. That's all incremental growth for us. And that we are innovating and those hydration packs that we just called out today for like mountain biking and hiking and also the women's version. These are innovative, and we'll see how it all sells through. But we like our prospects on the subject of beyond the bottom.

Thank you.

You bet.

At this time, I'd like to pass it back to management for any additional or closing comments.

Yes, thank you, operator. And thank you to everyone for being with us on the call today. We very much appreciate your support. And we know we'll be talking with many of you in the coming weeks. So thanks for attending. And have a great evening.

That does include today's conference. We thank you for your participation.