Helen of Troy Limited (HELE) Q3 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Helen of Troy Limited Third Quarter 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Jack Jancin, Senior Vice President of Corporate Senior Development. Please go ahead, sir.

Thank you, Operator. Good afternoon, everyone, and welcome to Helen of Troy's Third 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 in 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 differ materially from 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 to not 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 can be 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, and good afternoon to everyone. Thank you for joining us today. I'd like to wish everyone a happy new year. I look forward to a successful and prosperous 2020 for all of us. During this afternoon's call, I will discuss our third quarter results and then take the opportunity to share progress we have made on our strategic plan and in the business segments. Following my remarks, Brian will provide a deeper look into our financials, and then we'll open the line for your questions. As you saw in our earnings release this afternoon, we concluded our third quarter with excellent business momentum. We delivered strong top line and bottom line results driven by our Phase II transformation plan, which continues to drive everything we do at Helen of Troy. The results this quarter were ahead of our expectations. Consolidated core business sales grew 10.7%. Leadership Brand sales increased 10.6%, and our online channel sales grew approximately 30% to now represent 24% of total sales. International sales also demonstrated high -- healthy growth in the quarter, especially in EMEA and Asia, the international regions we are most focused on in Phase II. We increased our gross margin by 2 percentage points, expanded adjusted operating margin in all 3 business segments, and grew adjusted EPS by 30% to $3.12. Due to the strong performance this quarter, we are increasing our full fiscal year outlook for sales and EPS. I am pleased to raise our outlook even as we execute our planned incremental investments in the business and absorb higher costs to support our distribution centers as we meet the growing demand for our products. Our balance sheet remains strong with significant progress on further reducing our already low debt and a reduction in inventory during the quarter. Cash flow from these and other working capital efficiency efforts helped us ensure dry powder to execute our strategic objective of adding accretive businesses we believe fit strategically within our portfolio. Our secondary capital deployment strategy remains opportunistic shareholder purchases as a vehicle to return capital to shareholders. Before I provide color on each business segment, I would like to take a few moments to focus on one of our major Phase II strategic choices, selective and strategic M&A. As discussed during our May 2019 Investor Day, M&A is expected to be a key component of our growth in Phase II. Our primary M&A goal continues to be adding critical mass to our flywheel by adding leaders -- acquiring leadership brands that are the right fit for our portfolio and wheelhouse and where we can add significant value. As many of you are likely already aware, in December, we announced an agreement to acquire Drybar Products LLC. Upon closing of the transaction, we expect Drybar will be immediately accretive to key measures, and we anticipate ending fiscal 2020 with a low leverage ratio. The Drybar Products acquisition will add a multicategory leader in prestige hair care that will complement our Revlon and Hot Tools brands and extend our Beauty portfolio across the good, better, and now best segments. Helen of Troy believes it can add significant value to the brand through our expertise in new product development, sourcing, sales, marketing, digital, brick-and-mortar category development, and international. Concurrently with the closing of the transaction, we will enter into a relationship with Drybar Holdings LLC, the owner and long-time operator of the highly successful and growing fleet of Drybar salons. They will license our newly acquired Drybar brand in their continued management of all Drybar salons. We believe this relationship will provide a better-together combination that will strengthen a powerhouse brand. Our capabilities and existing infrastructure combined with the expertise and brand experience of the Drybar Products team makes for what we believe will be a compelling combination with a business model unlike any other brand in the industry. We remain disciplined as we actively search for additional acquisition opportunities that we believe could provide the right strategic fit and the right financial fit for our dry powder and our company. Turning now to our business segments, Housewares delivered another outstanding quarter with core business net sales increasing 28.5%. Housewares grew in brick-and-mortar and online, gained new distribution, benefited from new products and delivered strong POS at key retailers. We also saw international expansion for both OXO and Hydro Flask. Standout categories during the quarter were specialty hydration, food storage, cleaning, and baking. We continue to make incremental marketing investments to build out digital content and online support that engages consumers on the outstanding innovation, design, and performance of OXO and Hydro Flask products. Our investments online and across the consumer journey continue to pay off. For example, based on third-party data, Hydro Flask continued to add significant incremental market share to its #1 position in the insulated beverage bottle category over the past 12 months. It was also the #1 most-searched brand on Amazon for the entire month of October and named REI's vendor partner of the year in the camp category. Focusing on OXO, its online presence continued to impress with social media engagement that far exceeds industry averages, millions of online searches each year, and a long string of awards for its business performance and product innovation. At Target, OXO was recently named Vendor of the Year across the entire home category. Hydro Flask’s eco-friendly vacuum-insulated bottles and its accessories and its soft cooler packs continue to grow in popularity as an everyday essential with broad groups of consumers and outdoor enthusiasts, making the brand a staple for retailers. During the quarter, Hydro Flask growth was broad-based, domestically and internationally across all channels and key retailers, including online, active lifestyle, specialty outdoor, natural foods and collegiate. Hydro Flask sales growth at a major sporting goods retailer, where we gained new distribution last year, represented only about a quarter of total Housewares segment growth. Hydro Flask grew at other retailers and channels where our POS exceeded the category average growth rate, and we added new doors and shelf space, particularly in the Eastern United States. In addition, some retailers accelerated orders to support holiday demand as well as expected shelf replenishment needs based on POS trends. As we look forward to the fourth quarter, we expect year-over-year growth to naturally moderate as we anniversary the previously mentioned distribution gains at the major sporting goods retailer. Brian will provide a bit more detail shortly. Beyond the current fiscal year, Hydro Flask has multiple key growth drivers, including new product introductions; expansion into new categories as the brand expands beyond the bottle; additional distribution gains not only in the U.S. but also internationally, where the brand is currently underpenetrated; and, of course, our just-one-more strategy to further penetrate the households of our existing consumers. Based on its market-leading position with rapidly growing consumer appeal, awareness and equity, we expect the brand to grow at a healthy rate on an annual basis and continue to be a key driver of top and bottom line growth for the Housewares segment and for the total company. In Health & Home, core business net sales declined slightly due to net retail distribution changes year-over-year and more wildfire activity in the year-ago base more than offsetting strength internationally. Health & Home's international growth came from expanded distribution, including early wins from the Braun thermometer expansion in China and e-commerce growth, especially during Singles' Day, the largest shopping event in China occurring annually each November 11. Focused on the Braun thermometer expansion, this past October, I was proud to join leaders from our Health & Home division, our new President of International and our Asia Pacific regional market leaders to formally announce the expansion of Braun's flagship ear thermometers in China. This initiative broadens our footprint from the China cross-border exchange market, where it is already market leader for Braun, to the national markets online and in brick-and-mortar off-line. Now families across all of the key channels in China will have access to the world's most trusted, accurate and reliable ear thermometer technology. Turning to the start of the current cough/cold/flu season, reported incidence levels are slightly above historical averages. As discussed in the past, our sales of thermometers correlate to most -- correlate most to pediatric fever, and Vicks humidifier sales correlate most closely to congestion and cough. Our sales depend not only on point of sale but also on whether retailers bought ahead of the season via direct import or are placing replenishment orders to our warehouse now that the season is beginning to progress closer to its likely peak in the Northern hemisphere. The exact timing and duration of the season for each symptom can vary, but most types of respiratory illness, including influenza, usually begin to increase in October, peak between December and March and wind down by early spring. This year's illness rates are following this same pattern so far, with some increased fever, cough and congestion incidents in recent weeks. Our outlook continues to assume a normal season for the balance of fiscal 2020 in line with historical averages. Now turning to Beauty. I am pleased to share that our Beauty segment delivered another strong quarter, with core business net sales increasing by 5.4%. We are raising our outlook for Beauty, which we believe is now on track to deliver growth in the range of 3% to 5% this fiscal year. Based on that outlook, we expect fiscal '20 will mark the third consecutive year of Beauty appliance growth. During the third quarter, beauty sales were driven by consumer-centric appliance innovation that continues to sell ahead of expectations domestically and is now getting significant traction internationally. Our Beauty appliances gained further share in the quarter in both brick-and-mortar and online as the momentum and appeal of our volumizer franchise continues to build. Our Revlon volumizer has now earned nearly 20,000 online reviews, with an average rate of 4.3 stars. Our volumizers have gained considerable share online and have earned positive media attention online, on TV and through consumer word of mouth. Our Beauty team strategically developed investments during black -- deployed investments during Black Friday's week that performed very well. Based upon third-party syndicated data, Revlon appliances point-of-sale dollars grew strong double digits compared to last year's 2018 Black Friday week. Our Beauty organization is focused on maintaining our market position and on building it further. As we look at our long-term trajectory, we are hard at work on adding new consumer-centric innovation to our pipeline of appliances, increasing international expansion and investing more in the marketing efforts that we have found performed best. We are proud of our progress and are excited about the prospects in Beauty, including the addition of Drybar in the prestige segment. Before turning the call over to Brian, I would like to call your attention to the excellence of our associates as they continue to bring to Helen of Troy every day, operating the business and living our culture. I am very pleased with their ability to deliver significant results in a highly dynamic environment. On top of their day jobs of meeting the needs of our customers, keeping our Leadership Brands healthy, introducing outstanding new products, developing and executing the key Phase II initiatives and working nimbly in a highly competitive category, they are also successfully navigating the volatility from changes in tariffs, currencies, commodities and the retail landscape. I believe our Phase II choices position our company for continued long-term profitable growth, not only profitable but responsible and sustainable growth that delivers on the expectations and needs of our outstanding consumers, customers, suppliers and associates. With that, I will now turn the call over to Brian.

Thank you, Julien. Good afternoon, everyone. We are pleased with our third quarter results and to be in a position to raise our full year consolidated outlook. We achieved strong results with adjusted diluted EPS growth above our expectations, largely due to stronger-than-expected net sales in the Housewares segment. Consolidated sales revenue was $474.7 million, a 10.1% increase over the prior year, driven by strong demand in Beauty appliances and across the Housewares segment, both in the online and brick-and-mortar channels. Growth was partially offset by a slight decline in core business sales in the Health & Home segment, a decline in Personal Care within Beauty and unfavorable foreign currency. Consolidated sales in the online channel grew approximately 30% year-over-year to comprise approximately 24% of our consolidated net sales in the third quarter, and sales from our Leadership Brands grew 10.6% in the quarter. This was another strong quarter for our Housewares segment, which posted a core business increase of 28.5% on top of 11.6% core business growth in the same period last year. The segment continues to see strong demand for both the OXO and Hydro Flask brands online and in-store. Health & Home core business net sales declined slightly due to lower domestic sales driven by net retail distribution changes year-over-year and the unfavorable comparative impact from more wildfire activity in the same period last year, partially offset by growth in international. Beauty core business net sales increased 6.2% primarily due to increased demand in new product introductions and appliances, growth in the online channel and an increase in international sales. These factors were partially offset by a decline in Personal Care. Before discussing gross profit, I'd like to touch upon the impact of tariffs based on the most recent information we have available to us. As discussed on our second quarter call, List 4A tariffs became effective on September 1. List 4B tariffs were scheduled to become effective on December 15, with the great majority of increases that will impact our product categories falling in List 4B. However, in December 2019, the U.S. and China announced an interim trade agreement to halt these additional tariff increases and reverse some tariff increases that became effective in September 2019. The specific details of the interim trade agreement are unclear as is the ultimate outcome of the broader trade negotiations. In anticipation of List 4B taking effect and prior to the announcement of the interim trade agreement, we did forward buy some inventory in selected categories during the third quarter in order to defer the impact on our cost of goods sold as long as possible. If List 4B is ultimately implemented, we anticipate taking the same approach that we'd taken in the past. The goal would be to offset the gross profit dollar impact with the combination of pricing, cost reductions, supplier consolidation, other sourcing changes, exclusions and other mitigation efforts. Consolidated gross profit margin was 44.2% compared to 42.2%. The 2 percentage point increase is primarily due to higher mix of Housewares sales at a higher overall gross profit margin and a favorable product and channel mix within the Housewares segment. These factors were partially offset by a lower mix of Personal Care sales in the Beauty segment. SG&A was 27.5% of net sales compared to 28%. The 0.5 percentage point decrease is primarily due to lower advertising expense, the impact of tariff-related pricing actions taken with retail customers, the impact of higher overall sales had on net operating leverage and the favorable impact of foreign currency exchange and forward contract settlements. These factors were partially offset by higher incentive compensation expense, acquisition-related expenses associated with the Drybar transaction, higher amortization expense and higher freight and distribution expense. GAAP operating income grew to $79.3 million or 16.7% of net sales. This compares to $61.3 million or 14.2% of net sales in the same period last year. On an adjusted basis, consolidated operating margin was 19%, a 2.6 percentage point increase compared to 16.4% in the same period last year. Advertising expense in the third quarter was below the same period last year, which benefited operating margin by approximately 1.2 percentage points. The decrease in advertising expense is entirely timing related and does not change our growth investment expectations for the full fiscal year. As we have discussed in the past, our quarterly results are variable due to the seasonality of our various businesses and the timing of investment spend, which is based on strategic marketing and commercial initiatives and will not necessarily fall in the quarters with the highest revenue or follow historical patterns. Despite the quarterly variability, we are pleased with the strength and consistency of our annual results and our ability to increase growth investments year-over-year in the best opportunities for our Leadership Brands. Housewares adjusted operating margin increased 1.5 percentage points to 24.3%, primarily reflecting the margin impact of a more favorable product and channel mix, lower advertising expense and the impact that higher sales had on operating leverage. These factors were partially offset by higher incentive compensation expense and higher freight and distribution expense to support increased retail customer shipments and strong direct-to-consumer demand. Health & Home adjusted operating margin increased 2.5 percentage points to 15.5%, primarily reflecting lower advertising expense and the margin impact of a more favorable product mix. These factors were partially offset by unfavorable operating leverage from the decline in sales. Beauty adjusted operating margin increased 2.5 percentage points to 16% primarily due to a more favorable product mix within the appliance category, lower advertising expense and the impact that higher sales had on operating leverage. These factors were partially offset by higher incentive compensation expense and the unfavorable margin impact of the lower mix of Personal Care sales. Our effective tax rate was 10.3% compared to 6.9%. The year-over-year increase in our effective tax rate is primarily due to shifts in the mix of taxable income in our various tax jurisdictions and increases in certain statutory tax rates. Income from continuing operations was $68.7 million or $2.71 per diluted share compared to $54.3 million or $2.06 per diluted share. Non-GAAP adjusted income from continuing operations grew to $79.1 million or $3.12 per diluted share compared to $63.2 million or $2.40 per diluted share. This represents a 30% increase in adjusted diluted EPS. EPS growth was primarily driven by strong growth in the Housewares segment. EPS growth also benefited from the timing-related advertising decrease in the third quarter referred to previously. With consolidated sales growth of 10.1%, we would normally expect adjusted diluted EPS growth of close to 20% with operating leverage and our targeted margin expansion, but it was higher because of the advertising decrease that fell into the third quarter. Because the advertising decrease was timing related, we expect an offsetting impact in the fourth quarter. Despite the quarterly variability, the adjusted diluted EPS growth implied in our revised outlook is 9% to 14% for the second half of fiscal 2020 compared to 12% in the first half. Now moving on to our financial position. Accounts receivable turnover decreased to 68.9 days for the third quarter compared to 69.4 days in the same period last year. Our accounts receivable balance at the end of the third quarter was $365.5 million compared to $339.1 million at the same time last year. Trailing 12-month inventory turnover was 2.9x compared to 3.4x in the prior year period. Inventory was $333.7 million compared to $300.6 million at the same time last year. This includes approximately $11.6 million of additional value related to higher tariff rates as well as higher inventory levels due to lower direct import sales year-to-date in fiscal year 2020. The remaining increase largely reflects additional inventory to support strong demand and shipment volume as well as for risk management as we progress through supplier consolidation, complete and optimize integration activities and implement systems and processes to increase capacity and throughput for future growth. It also reflects some tariff-related forward buying of inventory in the third quarter. We expect to continue to improve our inventory levels in the fourth quarter of the fiscal year and believe we remain on track to meet our stated cash flow objectives for the full fiscal year. Net cash provided by operating activities from continuing operations for the first 9 months of fiscal 2020 was $101.4 million compared to $109.5 million in the same period last year. The decrease is primarily due to an increase in cash used for accounts receivable, accounts payable and accrued expenses. It was partially offset by increased income from continuing operations and year-over-year improvement in cash used for inventory. Total short- and long-term debt was $244.2 million compared to $339.7 million. Our leverage ratio was 0.9x at the end of the third quarter of fiscal 2020 compared to 1.4x for the same period last year. Consistent with our comments at the time we announced the agreement to acquire Drybar, we expect to end fiscal 2020 with the post-acquisition pro forma debt to adjusted EBITDA ratio just slightly above the preacquisition debt to adjusted EBITDA ratio we reported at the end of the second quarter ended August 31, 2019. The strong cash flow generation will allow us to keep our debt at very comfortable levels while providing significant dry powder to make additional acquisitions or opportunistically repurchase shares in the future. Turning to our outlook, our strong business performance year-to-date gives us the opportunity to raise our full year sales and earnings outlook even as we continue to make incremental growth investments. This is consistent with our stated objective of maintaining a healthy balance of margin expansion and growth investment. For fiscal 2020, we now expect consolidated net sales revenue to be in the range of $1.65 billion to $1.675 billion, which implies consolidated sales growth of 5.5% to 7.1%. This compares to our prior expectation of 2.9% to 4.8%. Our net sales outlook reflects an increase in Housewares net sales growth to 19% to 21% and compared to our prior expectation of 13% to 15%, the Health & Home net sales decline of 2.4 -- of 2% to 4% compared to the prior expectation of a low single-digit decline and Beauty net sales growth of 3% to 5% compared to the prior expectation of growth in the low single digits. As Julien touched on, we expect the Housewares growth rate to moderate in the fourth quarter due to a combination of factors, some of which are short term or nonrecurring in nature. There were orders from certain key Hydro Flask retailers that were accelerated into the third quarter due to retail expectations of strong holiday demand, their additional promotional activity and to meet their expected replenishment needs after the holiday season. Hydro Flask will also fully anniversary significant new incremental distribution fill-in at a key sporting goods retailer in the fourth quarter. Finally, we expect Hydro Flask to experience some supply constraints in the fourth quarter due to stronger-than-expected demand and transitions out of old product versions and into new ones. Despite the quarterly variability, we are extremely pleased with Housewares' expected growth for the full fiscal year and anticipate healthy growth from this segment going forward. We now expect consolidated GAAP diluted EPS from continuing operations of $7.29 to $7.45, and non-GAAP adjusted diluted EPS from continuing operations in the range of $8.90 to $9.10, which excludes any asset impairment charges, acquisition-related expenses, restructuring charges, share-based compensation expense and intangible asset amortization. Our outlook does not include any results related to the pending acquisition of Drybar Products LLC as the exact timing of closing is not known and there are conditions to closing that must be met, including regulatory approvals. Assuming the transaction close on January 31, 2020, we expect that it will result in additional sales of $5 million to $6 million and adjusted diluted EPS of $0.02 to $0.03 in fiscal 2020. The Drybar business is seasonal in nature, with revenue and earnings heavily weighted in the second half of the calendar year. As such, results for the month of February are expected to be below the average for the full year. Our net sales and diluted EPS outlook assumes the severity of upcoming cough/cold/flu season will be in line with historical averages. However, we are prepared to meet the demand of a stronger season if one should occur. Our outlook also assumes that December 2019 foreign currency exchange rates will remain constant for the remainder of the year. We continue to expect the year-over-year comparison of adjusted diluted EPS from continuing operations to be impacted by an expected increase in growth investments of 13% to 18% in fiscal 2020. The diluted EPS outlook is based on estimated weighted average diluted shares outstanding of $25.3 million. The increase in adjusted diluted EPS outlook for fiscal 2020 reflects the company's strong performance year-to-date, partially offset by an expected increase in growth investments and distribution center and direct-to-consumer capacity investments. As referred to earlier, we expect the shift in the timing of advertising expense from the third to the fourth quarter of approximately $5 million after tax as compared to the prior year but still expect to meet our gross investment targets for the full fiscal year. We now expect a reported GAAP effective tax rate range of 9.7% to 9.9% and an adjusted effective tax rate range of 9.1% to 9.2% for the full fiscal year 2020. The likelihood and potential impact of any additional fiscal 2020 acquisitions or divestitures, future asset impairment charges, future foreign currency fluctuations, further tariff increases or future share repurchases are unknown and cannot be reasonably estimated. Therefore, they are not included in our sales and earnings outlook. And now I'd like to turn the call back to the operator for questions.

[Operator Instructions]. Our first question today is coming from Olivia Tong from Bank of America.

First, I just want to touch on Housewares and the impressive growth there. I appreciate the color on timing of Q3 versus Q4. That's certainly very helpful. So can we talk a little bit about the pipeline because it doesn't sound like you see major factors that suggest that the trend is slowing, yet you are looking for the 2-year stack to have in Housewares [Technical Difficulty]. So maybe can you compare and contrast the growth between either same-store sales versus new distribution, the domestic versus international, the core strength versus the extensions like coolers and how much you're driving the category versus [Technical Difficulty]. Thanks.

Let me start, and Brian might have some build here. And Hi Olivia, the growth is continuing. We do expect it to moderate a bit, as Brian outlined, and you'd expect that after the pace that we've been on. The pipeline is very strong in both Hydro Flask and OXO, and I would say that the pipeline in Hydro Flask keeps getting stronger and stronger. We have done an enormous amount of work as we divisionalize the entire Housewares operation, and so the engineering oversight, the design capability, the consumer know-how, the oversight on the manufacturing, and it is just ever stronger as the Housewares division -- 2 brands come together. That's a big change even versus 1.5 years ago. The pipeline itself, if you look at the products in Hydro Flask, is significant. And in OXO, it has had a very long history of 100-plus products a year that we bring to market. So, we're not at all worried about pipeline, and we like our prospects. There are some terrific new bottle designs, shapes, lightweighting of materials, all different types of approaches that we feel strong in the core. In beyond-the-bottle stuff, there's quite a lot -- a bit of good stuff coming forward like the hydro packs that you saw, there's more things of that general nature and some new areas that we believe can continue to go beyond the bottle. And on the international and domestic side, there's still yet retailer distribution available to us. So, we are not worried about the anniversary concern. It does slow the growth rate a little bit, but we see lots of reasons why the brand should keep growing when it comes to Hydro Flask. In the case of OXO, it's been growing the whole time. So, we like our prospects in that regard. Brian, you may have some for the build.

Yes. I mean just to try and answer the question about point-of-sale versus distribution, I characterize the growth has been more about point-of-sale than distribution. We tried to give you a data point in Julien's prepared remarks that DICK's Sporting Goods is really the biggest new incremental distribution that we have, and that really -- DICK's entire growth for the quarter represented only a quarter of Housewares' growth for the quarter. So, if that's by far our biggest distribution gain year-over-year and it represents only a quarter, I think the conclusion is that the point-of-sale is driving the majority of the growth.

Yes, that's showing up in the share. I think you heard in the prepared remarks, there's not only number one in the insulated beverage bottles but by a significant margin and added significant share in the quarter. So, it's not just new distribution and new doors it sells through, and sell through at an accelerated rate relative to the category, and with no arrogance of any kind largely driving the growth of the category itself.

And just to be clear, we only called out the distribution anniversary, so to -- it is a factor in why there will be a moderation of the growth rate in the fourth quarter, because the fill-in anniversaries compared to the same period last year, so we called it out only so that you are aware of one of the things impacting the growth rate in the fourth quarter.

I think you already did the calculation because you mentioned about 10% in the fourth quarter in your question. So, you've already figured it out and that’s a very healthy rate and that's even with those factors and even with a little bit of supply constraint. And as we get into the forecasting work for fiscal '21, we'll come back in April with specific numbers at the divisional level, but we like our prospects.

Got it. That's really helpful. Can we talk a little bit about the flu season because it looks like, at least from the data that I see, that's -- good or bad, the flu season is off to a pretty strong start compared to last year and two years ago. So, to the extent that flu does come in better and the demand for your product comes in better than anticipated, how flexible are you in terms of getting product to the store whether it's brick-and-mortar or online? Have there been enough changes to make sure that there are no supply constraints, all these kinds of things?

Yes, we -- yes, should it -- so it's a great question. And it's early in the season. So we all see those projections, we see those curves and we all see the many articles even from people with MD and Ph.D and other things like that after their titles saying that it's not clear how things will pan out, how -- which strains, how effective the flu shot, it’s temperature related. It's even humidity related. There are so many variables that's kind of beyond the scope of current science to just put a number on the whole thing. As Brian mentioned in his prepared remarks, he mentioned that we're prepared to meet the demand of a stronger season if one should occur. And that is definitely the case. Some customers take product direct import, and they are largely prepared for a normal season. And if they see the sell-out going faster than they expected because of these demand curves, they will order from us, and we will replenish from a warehouse, and there's enough product there to take on a pretty decent spike. It would have to be pandemic kind of situation for us to run out. And in the case of those that just order in the natural replenishment, so they didn't take a lot of direct import or DI, you hear us sometimes say early in the season, that's what our warehouse inventory is largely there for, to fill that demand in on pretty quick timing. Especially given the fact that different markets peak, and when they peak, the people there are sick, and in terms of incidents as they will be that year, and we want to make sure there's plenty of product. And we have no interest in people getting sick, but we certainly have an interest in helping them get better. And it's important to be there for them and not have empty store shelves. So we're very focused on that.

Your next question today is coming from Linda Bolton-Weiser from D.A. Davidson.

Congratulations. So can you talk about -- I get a lot of -- tons of questions from investors about, does the underlying fundamentals that drive the demand for Hydro Flask bottles, would you say that you're experiencing a lot of growth because of this phenomenon of people having multiple bottles, it being a fashion statement, et cetera? Or is it just truly that the household penetration is rising? And can you give any numbers around household penetration or any of that to help us understand what's really driving the underlying demand?

Sure. Let me take a stab here. The Hydro Flask category itself or the metal hydration bottle category, whether it's single wall or, like Hydro Flask and some of its competitors, double wall and insulated, so this is providing -- stays hot longer, stays cold longer type of benefit. That category in general is just taking hold. So 10 years ago, people might have carried around a SIGG bottle or a plastic Nalgene bottle, CamelBak bottle, something like this and be happy, and that trend has been going on for a long time. There is an acceleration of the benefits of the insulation, bringing the hot and the cold, and there is a further very welcome reaction from consumers against single-use plastic water bottles, which are difficult from an environmental standpoint, and they demonstrate disdain in some way, almost like smoking a cigarette was back in the day for the environment and for your fellow human being. And that kind of thing, it was increasingly taboo. So there's an underlying fundamental trend in that regard. In terms of the fashion aspect and the penetration of household. Hydro Flask, I think, has done a great job getting consumers to understand that the brand itself is very authentic. It's organic. It's very real, and we don't do anything but show consumers other ways that they can benefit. So we're not pounding our chest or making it artificial in any way. It's organic. It's natural. It's grass roots. We've put a lot of money online. And we've put a lot of money into our social media and other areas to help people see this. We've been supporting Parks for All for years and years and years as a charitable benefit and really being in touch with those consumers. As the household penetration and awareness have increased to the levels that you're seeing today that are driving these big gains, it's become a bit of a phenomenon among certain crowds. Young people, even Halloween costumes this year, there were lots of people dressed up as Hydro Flask bottles, lots of home-made costumes with the logo painted on them. Because it was just very natural, very organic. We're also finding that as you go to homes and sort of talk to people, this phenomenon of just one more has become quite significant. And that's why we mention it regularly, because lots of households are buying bottles of different shapes, different sizes, bringing out new colors that we have. They want them. New caps, new collections and accessories are now becoming a big deal in Hydro Flask. And that's made a big difference for the brand. And then we also find that gifting has become a big deal for Hydro Flask. Sports team and, increasingly, customization and now also the collegiate channel. You go in a college campus and you see this all the time. I spend a lot of time in the Boston area, and I can say that the number of consumers that just have this type of insulated bottle, and largely Hydro Flask, is exploding. The bottle itself is becoming a bit of an accessory for a lot of people. And therefore, the color matters, the next collection matters. Being similar to your friends if you're a young kid and similar -- having the same kind of ones that your cool friends have, all these things are big drivers. So those are the big fundamentals that are making the category grow. In Hydro Flask itself, we've done a lot of things right. We have some extremely good competitors. They've done some very good things as well. We like the way the trade has supported it, and we've provided as much support as we humanly can to them. And then lastly, we're innovating as much as we can and as fast as we can. And we're bringing product through the manufacturing process at ever higher quality as fast as we can. And even so, we find ourselves a little bit constrained in supply because the demand has been so explosive. So hopefully, that gives you a little sense of the fundamentals, the underlying, the dynamics. And then from a market share standpoint, I can't emphasize enough the degree to which Hydro Flask is not only the leader of the segment that's been mentioned but picking up share in handfuls at this point and appreciating the ability to build on our position.

Can I also just ask about the Health & Home segment? I think you maybe said in one of your comments last quarter that you did expect it would be up in the third fiscal quarter. So it was just a little off. Could you like give us a little color on whether it was the thermometer piece or another part of the business that was the part that was maybe a little worse than you expected? And I think you said something about a distribution change. Is that some distribution that you actually lost? So can you give us a little more color?

Yes. So let me go through a couple of areas. It is true that Health & Home performed slightly behind our expectations during Q3 and slightly behind the year-ago period by about 0.5 point when you take into account foreign exchange. Foreign exchange worked against Health & Home. It's a bit more international than our other segments. And so about a further 0.5 or exactly 0.6 of a percentage point was related to foreign exchange.

Well, and just to put some perspective about being below expectations, I'd say that's only about $3 million or $4 million. So yes, we did expect it to have growth in the third quarter, but the difference between what we're expecting and what we realized is really small in dollar amounts.

Yes.

Julien, go ahead.

No, I appreciate that because it dimensionalizes and it's important people understand the degree. In terms of the distribution changes, we say the word changes rather than just losses or wins because it's a net situation. We gain and lose distribution based on each season as it comes and goes. So as the, for example, heater and fan shelf, which if you go into most retailers, you'll see that it's the same stores, the same part of the shelf. The fans come on, the heaters go off. And 6 months later, the heaters go up and the fans go on. So there's line reviews of what that shelf will look like every 6 months or so, and the question of whether you gain or lose this particular SKU or that particular SKU happens all the time. So there's net changes in distribution. Sometimes you win, sometimes you lose. It also depends on your new products. It depends on the mix of products. It depends what the competitors have to offer. Pricing, tariffs, there's so many variables there.

Well, and I would just add that it can also depend on what the store is doing with their format and shelf and those types of things. So sometimes we can lose and not lose to competition necessarily in our space but lose because the store has decided to emphasize a different product category or reconfigure the shelf for the store itself. And so those changes are included in this netting concept that Julien is describing.

And so -- and the word, it's not a euphemism to say net distribution changes of loss distribution. It's simply that there are wins and losses in every season. And in this particular one, there's more losses than wins when you net it all down. And in the case of foreign exchange, we talked already. In the case of Health & Home, we've seen that year-over-year, the wildfires made a difference in Q3 of this year and last year. And you might think, hey, just a minute, there was significant wildfire this year during Q3, which is true. But you might remember that in the year-ago period, especially in the southern part of California and even also in the northern part of California, there were not only big fires, but they were in populated areas. And so you might think, oh, how many acres burned and how -- therefore, how much smoke, so how much compromise and where people might need to buy air purifiers or fans. It turns out there was a lot more in populated areas last year. So the sort of net position of wildfire to the extent that it's a seasonal effect was more last year than it was this year, it turned out. And on the international side, Health & Home not only grew, it grew nicely. And Braun did particularly well. And you heard the remarks already, I think, on China, where we see not only significant growth opportunities for China, but we had a breakthrough during Q3, which is the ability to bring the Braun thermometers on the Chinese market, both online and also off-line beyond just the cross-border exchange market, where we're already the market leader, but we've been limited to that channel only for the last couple of years. And with the China equivalent of the FDA's approval now of the product for distribution across all channels, we started getting some gains there, and we anticipate that being a meaningful building block going forward, which is why we brought it up in the call.

Our next question today is coming from Steve Marotta from CL King & Associates.

I wanted to ask a little bit about the tariff deltas, Brian, that you delineated earlier on in the prepared remarks. Were there price increases in effect in the third quarter for products that were ultimately not tariffed? And if so, what would you attribute that capture to? And how do you suspect pricing will flow, if you will, over the next quarter to two quarters to three quarters based on the likelihood of 4B not being implemented?

Well, to answer, the first part of the question there, what I would call pockets of price increases that we took when the original tariffs came out, List 1, 2 and, 3, where we have the opportunity to raise price, kind of irrespective of the tariffs. And I would say that, that was largely in the Housewares part of the business. So we took advantage of those. And changes to tariffs that could occur later, those price increases would remain in effect. However, they are not talking about rolling back, at least that I've heard or seen available in the public domain, rolling back anything on List 1, 2 or 3. The discussion that I've seen is rolling back increases on List 4A in only halfway and then 4B entirely. The tariff increases in List 4 that affect us are almost entirely in List 4B. So because 4B has -- was never even implemented, it was only discussed in the middle of December, we took no pricing action related to 4B, and we didn't really have much on the list of 4A. So I hope that answers your question. We took no price increases on List 4. We do have price increases from List 1, 2 and 3 in place, and I would say they largely match the tariffs that are still in place today. But in the case of Housewares, if they were to roll those tariffs back, we would likely keep the price increases in place because we have the opportunity to do so. Does that answer the question?

Yes. Yes, it does. I guess my follow-up question has to do a little bit with Housewares. I believe you mentioned, trying to put a fine point on it, the Hydro Flask, there was demand pull-forward this year into the third quarter from the fourth quarter. Can you talk a little bit about OXO? And was there any shifts in demand through the wholesale channel on a quarterly basis in or out of the third quarter more specific to OXO?

For OXO, I would say nothing worth calling out. I mean we have this occur from time to time in smaller amounts, and there probably was some. But I would say it's not worth mentioning.

Yes, these are -- we're getting into small strokes there. A retailer says, well, you've done a bit more in Black Friday, so I'll take that stuff a little earlier than I might have done for Christmas time because I see the promotional activity move from one period to another, and it just happens to cross the quarterly line for us by 2 weeks. It gets into kind of almost weekly chatter in the warehouse.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Well, thanks for joining us today. We look forward to speaking to many of you in the coming weeks and to meeting those of you who will be attending next week's ICR conference in Orlando. Beyond that, we expect to host our fourth quarter and fiscal year to date -- I'm sorry, fiscal year-end call in late April, at which time, we will also provide our outlook for FY '21. Thanks very much, and have a great evening.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.