edited transcript of hele earnings conference call or presentation 8-jan-19 2:00pm gmt - household air purifier reviews

Third quarter January 15, 2019 earnings of 2019 Troy Co. , Ltd. Helen (
Thomson StreetEvents)--
Tuesday, January 8, 2019, at 2:00:00 in the afternoon, the editorial record of the conference call or presentation of Troy Limited Helen proceeds
Grashren of Troy Limited
Chief financial officer and chief accounting officer, Troy Limited
Senior Vice President of Business Development
MininbergHelen of Troy Limited-
CEO and director Merrill conference call participant Christopher Michael CareyBofA Merrill Lynch from Christopher * research
Linda Ann Bolton, research analystWeiserD. A. Davidson & Co.
Research Department-
Robert James LabickCJS Securities, Inc. -
Steven Louis MarottaCL King & Associates, Inc.
Research Department-
Senior vice president and senior research analyst, stock research-------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------
Hello everyone, welcome to the third quarter 2019 earnings call of Troy Helen Co. , Ltd.
Today's meeting is being recorded.
At this point, I want to hand over the meeting to Jack Jenkin, senior vice president of business development of the company. You may begin. --------------------------------------------------------------------------------
Helen Jack Jenkin of Troy Limited
Senior Vice President of Business Development2]--------------------------------------------------------------------------------
Good Morning, everyone. welcome to Helen, the earnings conference call for Troy's fiscal 2019 in the third quarter.
The agenda for this morning's meeting is as follows.
Let me briefly discuss forward-
Look at the report; Mr.
Company CEO Julian mingberg will comment on the financial performance of the quarter and then introduce you to the focus areas of the fiscal year 2019; then Mr.
Brian Grass, the company's chief financial officer, will review the financial situation in more detail and comment on the company's outlook for the fiscal year 2019.
After that, sir.
Mr. mingberg
You have a question today.
Some forwarding may be included in this conference call-
Forward-looking statements based on management's current expectations for future events or financial performance.
Usually, words anticipates, believes, pects, and other similar words that recognize forward
Look at the report. Forward-
The outlook statements will be affected by some risks and uncertainties that may lead to significant delays between the expected results and the actual results.
This conference call may also include what may be considered non-
Accounting financial information. These non-
GAAP measures are not an alternative to GAAP financial information and may differ from the calculation of non-GAAP Financial Information
GAAP financial information disclosed by other companies.
The company reminds listeners not to rely too much on forwarding
Report or non
Information on accepted accounting principles.
Before I transfer the call to Mr.
Minberg, I would like to inform all interested people that a copy of today's earnings release has been posted on the company's website. helenoftroy. com.
Income release includes reconciliation
According to its corresponding GAAP-based measures.
You can get a press release by selecting the investor relations tab on the company's home page and then selecting the press release tab.
I will hand over the call to Sir now. Mininberg. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director3]--------------------------------------------------------------------------------Thanks, Jack.
Good morning, thank you all for joining us today.
Before we start, I want to wish everyone a happy new year.
I look forward to the success of all of us and the 2019 prosperity.
On the phone this morning I will discuss our results and then take this opportunity to share the progress we have made on our strategic plan, because we are preparing to start with Helen, the second phase of the Troy transformation program, which is the beginning of our 2020 fiscal year.
Brian will then delve into our financial situation and then we will open up clues to your questions.
As you can see in your earnings report this morning, our net sales in the third quarter continue to grow. We grew 2.
4%, including 2 core business growth. 9%.
Adjustment of continued operation in the third quarter diluted earnings per share decreased by 4% year on yearover-
Consistent with our expectations and reflecting the factors we highlighted in our last earnings call.
These factors include the concentration of incremental marketing spending in the third quarter to support our leading brands and match our seasonality, the initial impact of tariffs before we take mitigation measures, and some mixed effects
Leading brands and online sales this quarter.
Net sales growth of leading brands.
9% of quarterly sales and online sales increased by 6%, currently accounting for 18% of the company's total sales.
Our seven leading brands currently account for 80% of sales.
The strategic choices we make around digital marketing investments and online support for our leading brands are critical and rewarded as sales grow, at all the touch points of the consumer journey, growth and Improvement of some market share.
By investing more and better content and using more and more sophisticated marketing strategies, we are creating
Online business is stronger.
Many studies have confirmed that consumers are spending more and more time surfing, searching, socializing and shopping on digital devices. As a consumer-
Company-centric, we are committed to ensuring that our brands and products stand out in the Hearts, Hearts and cash registers of consumers around the world.
Even if we grow faster online than we do in physical stores
Store support is still a key investment for us to control the shelves, keep prices competitive and help customers maintain a growing e-commerce
Business.
At the end of the day, no matter where consumers spend their time and money, we focus on maintaining the highest mentality.
Consumer demand for our products remains strong. In the U. S.
Where most of our sales take place, with the increase in employment and labor participation rates, the increase in wages and the reduction in taxes in general, more families have additional discretionary income.
We see that this reflects that we have access to point-of-
Market share data. Outside the U. S.
We see the pressure on Chinese consumers, especially online consumers, as their rapid economic growth slows and the uncertainty of the trade war touches all the coasts.
Even as we begin to rebalance the supply chain, we are still confident in China's long-term economy.
The strategic source of commodities and the growth carrier of Helen Troy.
We see a growing middle class, a rising birth rate, a new family structure as the main driver of growth for our brand, and inspiration for new products.
As we continue to build brands in these markets, the entire Asian region remains our top priority.
When we balance the need to manage the cost of a trade war, some foreign exchange resistance, and continue to invest in the most promising opportunities for our leading brands, we have been raising prices, focus mainly on products affected by higher tariffs.
Overall, our conversation with our customers about pricing is constructive, and we believe that pricing will successfully reduce a large part of the higher cost.
We also implement productivity initiatives internally and among suppliers, leveraging changes in commodity costs and foreign exchange, to strive to achieve a new procurement balance between China, the Americas and Europe.
Although retail prices have been relatively stable for many years, retailers may test consumer price sensitivity through some increases.
Speaking of our strategic progress, I would like to report on the key steps taken to further improve our portfolio and asset efficiency since the last earnings call.
In the third quarter, we put strong cash flow and capital allocation strategies into practice.
We returned $100 million to shareholders by buying back 800,000 shares.
We use the remaining free cash flow to reduce Troy's leverage to 1 from Helen.
4 times, keeping us in a strong financial position for additional acquisitions.
As the transformation program continues to strengthen our shared service platform, we have never been better prepared to add new businesses to our portfolio in terms of operations.
Still, when we look for the right assets to expand our leadership brand, we remain highly selective and build-
Our regional footprint and take advantage of our scale.
The project refuel also made progress as expected and continued to achieve an annual savings of approximately $8 million to $10 million during the planned period.
We are re-investing some of them and giving up some to strengthen the bottom line of beauty.
The reinvestment focuses on developing new products, new home appliances, attracting new talents from outside, and strengthening our marketing support, especially in key areas such as online marketing support.
Now moving to our business area, net sales of household goods have increased by 11 quarters, another outstanding quarter. 4%.
The outstanding categories for the quarter are professional water and coffee Collection, cooking preparation, and kitchen organization.
As mentioned earlier, we continue to invest in incremental marketing to build digital content and engage consumers in excellence in innovation, design and performance of OXO and Flask products, they are all very concerned about the return on investment and the challenging competitive environment.
The water battery continued to win. Third-
Party data confirmed that the brand continues to maintain a 1 market share in the insulated metal water bottle sector and has seen a significant increase in its share over the past 12 months.
The water battery continues to enjoy better ~of-
Sales performance across a wide range of distribution channels we track, including NPD, SSI, active lifestyle industries, natural foods, online and specific customers. Stronger in-
Our store presentation of bottles and accessories at the beginning of the holiday shows early encouraging results.
We see healthy consumer takeout, and the complementary sales of accessories are notable.
Hydro Flask also continues to acquire new distribution channels and expand its geographical footprint.
In our health and home sector, which is the largest and the largest in the world, net sales fell by 0.
7%, mainly due to dragging 0.
6% Foreign exchange is not favorable.
Core business is basically flat-over-
Compared with strong results in the third quarter of last year, we benefited from new product launches and international distribution growth last year.
At home, we further expanded the distribution of health and families and saw growth in some seasonal categories.
Another devastating wildfire season on the West Coast took place at the end of November, leading to a mild year --over-
Annual sales growth in our market
Leading Honeywell air purifier.
It should be reminded that in last October, the West Coast also felt the impact of the reburning season, which increased the annual sales of air purifiers --ago base.
In addition, the historic Thomas fire in the fourth quarter of last year also occurred at the base.
Given the current cough/cold and flu season, we have experienced a more normal start and there is no indication at the moment that the incidence of influenza was particularly high last year.
The exact time and duration of each symptom may vary, but most respiratory diseases, including the flu, usually start to peak between December and February, and they end in the early spring.
So far, the incidence of this season has also followed this pattern, and the incidence of symptoms such as fever, cough and congestion has increased in recent weeks.
These are closely related to the consumer's purchase of thermometers, humidifiers and inhaler under the name Vicks and Braun.
The specific impact on our shipments depends on the customer's stock inventory model and replenishment rate as they are pre-sourcing through direct import or sales from our warehousethrough.
Given the pattern so far this year, our outlook continues to assume that the rest of fiscal 2019 is the normal season.
Turn to beauty now.
Net sales fell 3% this quarter.
We have seen some improvements in our strategic efforts to stabilize home appliances.
While there was a slight decline in the first quarter after certain brands and products were discontinued, appliances benefited from the growth of new products, international sales and online channels.
We are also increasing our share of online devices.
Lulu volume is a particularly popular seller and a good example for consumers --
Work-centered innovation.
It meets consumer demand for speed, styling and drying in a convenient timesaving product.
It's been making 4-to 5-
Star reviews, and has attracted considerable attention in the media and online as an it project.
Look at what we have achieved so far this fiscal year. to-
We have a lot to be proud.
The third quarter was built on a very strong first half.
Throughout the year, we expect to show strong growth even in tough stages compared to last year's particularly strong cough/cold and flu season.
Nine months later, we returned value to shareholders by buying back more than 1 pound of stock.
2 million shares, while reducing leverage.
We are still able to deploy funds for further acquisitions.
We now expect net sales to grow by 3 for fiscal 2019. 8% to 4.
Compared with fiscal 8%, fiscal 2018 is also a year of strong sales growth, for five years. 9%.
All in all, we have raised our adjusted earnings per share for fiscal 2019 to $7. 70 to $7.
95 shares per share, reflecting the recent stock repurchase, represents the growth of 6 shares. 4% to 9.
8% compared to fiscal 2018
As we look forward to the beginning of fiscal 2020, we have made strategic choices for the second phase of Troy's transformation.
The next stage of design is based on the success of the past 5 years.
We will focus on driving further improvements in our existing business and expanding our geographic footprint, and our global shared services will progress and the overall strength of our organization will increase.
We will also seek to increase our leadership brand portfolio through further acquisitions.
We believe we have our balance sheet, our ability, our culture and our passionate boss --
Take our transformation to a new level.
We look forward to sharing more information on the next investor day, which is currently scheduled for later in the spring.
With this, I'm transferring the phone to Brian now. --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer4]--------------------------------------------------------------------------------
Thank you, Julian.
Good Morning, everyone.
Before discussing this quarter in more detail, I would like to start with a few broad points of view.
First of all, unless otherwise stated, my comments today will be about the results of our continued operations in fiscal 2019 and fiscal 2018 for the third quarter.
Second Quarter--
In the first quarter of fiscal 2019, we adopted new accounting standards for revenue recognition.
Therefore, we re-classify certain expenses from SG & a as a decrease in net sales revenue.
The corresponding amount for the previous period has been re-classified to comply with the current period, so that both periods are comparable.
For more information, please see the relevant forms and footnotes in the attached press release.
Finally, the tariff increase began to affect the cost of goods sales in our third quarter.
While we have implemented pricing actions and other mitigation measures, most of these actions have not achieved substantial results in the third quarter.
Our pricing actions will start a meaningful offset on tariffs in the fourth quarter of fiscal 2019, and we expect these actions to be effectively completed in the first quarter of fiscal 2020.
This is due to the negotiation and notification period involved in the pricing action.
The company's goal is to offset most of the total tariffs ---
The dollar has the greatest impact on gross profit.
However, the impact of the 25% tariff on costs means that the retailer's product prices have risen by 11% to 13%.
So even if we keep the overall gross margin at gross margin, the gross margin will fall.
Also, while pricing actions are designed to keep us as a whole from a gross profit dollar perspective, there is no guarantee that they will not reduce retail consumption or customer orders in the short term.
We have not solved the product pricing problem of one of the major retailers in the two product categories.
We do not ship these specific items to this customer at the moment.
While we expect some disruption to pricing action in the short term, including the fourth quarter of fiscal 2019, we are confident that we are making the right choice for long-term goals
Our products continue to offer attractive value propositions at higher prices.
Now move to quarterly review.
Compared with the same period last year, we released the adjusted diluted EPS at the range midpoint of the specified flat to a decrease of 8%, which is in line with our expectations.
As we highlighted in our call in the second quarter, this is mainly due to the planned increase in marketing spending in fiscal 2019, coupled with the concentration of spending in the third quarter, with the increase in tariffs, we started in the third quarter.
Turn to more detailed comments.
Consolidated sales revenue was $431. 1 million, a 2.
An increase of 4% over the previous year.
Core business revenue growth 2. 9%.
Revenue growth is mainly driven by brick-and-
Mortar Sales in our home products department and consolidate the growth of online sales.
Online Channel sales increased by about 6% year on yearover-
Net sales in the third quarter of this year accounted for about 18% of our combined net sales.
The continuous decline in online sales growth is mainly due to the slowdown in our e-commerce growth in China.
The corresponding increase in commercial business and channel inventory, mainly affecting health and families, and the reduction in inventory levels of major online retailers that mainly affect household goods. Online sell-
Continue to maintain health and double-digit growth through and household supplies.
Sales of leading brands increased by about 4. 9%.
Our leading brand sales currently account for about 80% of consolidated net sales for the quarter, compared to about 78% in the same period last year.
Net sales of household goods increased by 11.
4%, reflection point-of-
Sales advantages and incremental distribution with existing domestic customers, as well as an increase in online sales and new product introductions.
Net sales of Health & Family decreased by 0.
7%, the decline was primarily due to the adverse effects of the net foreign currency fluctuations of $1. 1 million or 0. 6%.
The core business of health and family decreased slightly to 0.
2%, reflecting the decline in online sales and the adverse Comparative effects of the previous year's growth in international distribution, the launch of new products and the cough/cold/flu season.
These factors were partially offset by strong seasonal category growth and growth in distribution and shelf space with existing domestic customers.
As Julian mentioned, this part does see a strong point --of-
Aviation category sales activities related to recent wildfires;
However, it is basically the same as the same period last year.
Net sales of beauty makeup fell by 3%, mainly due to the decline in personal care categories and the suspension of production of certain brands and products.
These factors not only offset the continued growth of online channels, the introduction of new products in the retail home appliance category and the growth of international sales.
Some net sales were adversely affected by net foreign exchange fluctuations of about $0. 6 million or 0. 6%.
The gross profit margin is 42.
Compared to 42 2%.
The same period last year was 3%. The 0.
The decline of 1 percentage point is mainly due to the fact that the product mix is not very favorable and the impact of the tariff increase, which is partially offset by the increase in profit margin of our leading brand growth.
SG & A net sales were 28% compared to 26.
The same period last year was 1%. The 1.
The increase of 9 percentage points was mainly due to the increase in advertising costs, the increase in freight costs and the increase in share.
Claims based on compensation and higher product costs.
These factors were partially offset by favorable foreign exchange and forward contract settlement, favorable Comparative effects of restructuring costs for the same period last year, and lower amortization costs.
Main drivers of higher share
The basic compensation fee for this quarter was due to the issuance of transition shares to every Helen at Troy Associates, which we highlighted at our last earnings call.
More than 3 of these transformation shares-year period.
GAAP operating income is $61. 3 million or 14Net sales of 2%.
By contrast, $67.
Net sales for the same period last year were 3 million or 16%, including a $1 restructuring fee. 1 million.
Adjusted operating income is $70. 6 million or 16
4% of net sales, compared to $77. 6 million or 18Net sales of 4%.
The adjusted operating profit margin decreased by 2 percentage points, mainly reflecting the impact of increased advertising costs, increased tariffs and increased freight charges.
These factors are partially offset by favorable foreign exchange and forward contract settlement, lower amortization, and the favorable profit impact of leading brand growth.
Now move to the adjusted operating profit margin by segment.
The adjusted operating profit margin is 22.
8% compared to 24. 7%. The 1. 9% --
The decline in percentage points mainly reflects an increase in advertising costs, an increase in annual incentive compensation costs associated with this year's performance, an increase in freight costs, and an increase in rental costs associated with the previously announced new office space.
These factors are partially offset by more favorable marginal effects ---
More favorable product and channel mix and increase operating leverage from net sales growth.
The adjusted operating profit margin for health and home compared to 13% was 17%.
The decline of 4 percentage points mainly reflects the increase in advertising expenses, the increase in promotional expenses, trade support with retail customers, the impact of increased tariffs, the product and channel mix is not very favorable, and the personnel cost is higher, this has an impact on profits.
These factors are partially offset by favorable foreign exchange and settlement of forward contracts.
The profit margin of surgery after beauty adjustment is 13.
Compared to 13 5%. 3%. The 0.
The increase of 2 percentage points mainly reflects amortization and personal-
Refueling the project saves personnel costs.
These factors are partially offset by higher advertising and higher freight charges.
Our actual tax rate is 6.
9% contrast 8.
The same period last year was 2%.
The reduction is due to changes in the taxable income portfolio in our tax jurisdictions.
Revenue from continuing operations is $54. $3 million or $2.
06 per share after dilution.
That's $58, by contrast. $6 million or $2.
15 shares per share after dilution in the same period last year, including
$0 tax restructuring costs. 04 a share. Non-
GAAP's adjusted continued operating income is $63. $2 million or $2.
After dilution, $40 per share and $68. $1 million or $2.
50 per share after dilution.
The adjusted diluted EPS decreased by 4%, mainly reflecting the impact of increased advertising costs, increased tariffs and increased freight costs, partially offset by better operating leverage and increased profit from leading brand growth, the impact of lower interest expenditure, lower tax expenditure and lower weighted average diluted stock.
The loss from the discontinued business was $4.
Compared to the loss of $89, it was 9 million.
The same period last year was 1 million.
The loss for the third quarter of fiscal 2019 reflects the impact of the settlement of supplementary payment amounts related to sales health instructions.
In the current quarter, we reduced the estimated value of supplementary payments to $10.
8 million and recorded.
$4 tax. 4 million.
The amount is adjusted according to the settlement calculated for the performance of the health direction as of February 28, 2018.
We also reported this quarter.
$0 tax.
5 million arising from the resolution of certain incidents.
Last year's losses in the same quarter were mainly reflected in
Tax Impairment fees recorded before divestiture.
Now start our financial situation.
Turnover of accounts receivable increased to 69.
Compare 65 in 4 days.
Four days in the same period last year.
Inventory is $300.
$6 million, compared to $278.
The same period last year was 1 million.
Inventory turnover increased to 3.
4 X compared to 2.
Eight times during the previous year.
Net cash provided for continuing operating activities in the 9 months of fiscal 2019 increased by $6.
$6 million to $109. 5 million.
The main reason for the increase is the increase in continuing operating income and the increase in share
Compensation and cash increase based on accounts payable.
These factors were partially offset by an increase in cash used for inventory and a $15 million dispute resolution payment made in the first quarter of the fiscal year of 2019.
Total length-
Regular debt was reduced by $86.
$5 million to $339.
$7 million, compared to $426.
The third quarter ended last year at 2 million.
We ended the third quarter with a 1 leverage ratio.
4 X comparison 1.
As previously reported at the end of last year's third quarter.
We can continue to develop well. -
At the same time, we also bought back nearly 814,000 ordinary shares at an average price of less than $100 million per share for $123.
We are satisfied with our quarterly and annual results. to-
We are confident that this will allow us to continue to maintain strong growth momentum in terms of revenue and adjusted EPS growth.
For fiscal 2019, we now expect the combined net sales revenue to be within $1.
Between $535 billion and $1.
55 billion, which means consolidation of sales growth of 3. 8% to 4. 8%.
Our sales outlook now also includes the following projects that collectively led to a $10 million drop in our high-end outlook, with a major impact on the Health and Family sectors.
One of our two product categories of key customers did not address the expected adverse effects of pricing actions.
And the slowdown in China's economic growth, the corresponding increase in channel inventory, and the impact we believe that trade tensions have on the United States and the United States. S.
Chinese consumers.
We are still very optimistic about our prospects in China and the growth opportunities in the region, and continue to see this as a key strategic initiative for the company's future.
Our net sales outlook continues to assume that the severity of the cough/cold/flu season will be consistent with the historical average, which adversely affects sales throughout the year, compared to fiscal 2018, 1. 1%.
Our net sales outlook also assumes that the exchange rate for December 2018 will remain unchanged for the rest of the year.
We have updated our market segment growth forecast for the entire fiscal year and now expect net sales of household goods to grow to 11% to 13%;
Net growth in health and household sales was 2% to 4%, including the adverse effects of approximately 2.
3% of the average cough/cold/flu hypothesis;
And beauty net sales fell from low to medium
The number of digits that remain unchanged.
Although our net sales outlook range has declined in the high end, we are increasing the earnings per share outlook to reflect a lower share of open market buybacks this quarter.
We now expect the consolidated GAAP to dilute earnings per share from ongoing operations of $6. 35 to $6.
51, and adjusted the diluted EPS for continuous operation within $7. 70 to $7.
95 based on a weighted average diluted stock estimate of $26 million outstanding in the fourth quarter of fiscal 2019.
We of EPS prospects continue to including 2019 fiscal year 18% to 22% fiscal year growth investment --over-
As we invest in this year's strengths, support new product launches and accelerate investment in digital asset development and digital marketing to drive future growth.
Our outlook also includes the impact of expected commodity and freight inflation on the cost of goods we sell, as well as the expected impact of tariff changes on current forms.
Although we currently expect to achieve the revised outlook for the full year of fiscal 2019, the current USS.
China's trade environment is certainly a concern, and if we finally recognize the full-year impact of tariff changes on current forms, it could bring meaningful headwinds in the next fiscal year.
Look at our expectations of taxes.
We now expect the effective rate range of the GAAP reported to be 7. 3% to 8.
4%, the adjusted effective tax rate range is 6. 9% to 7.
The entire fiscal year of 2019 was EUR 7%.
Please refer to the schedule in the press release form entitled "effective tax rate and adjusted effective tax rate.
Our outlook for diluted earnings per share for ongoing operations assumes that, for the remainder of this fiscal year, the exchange rate for December 2018 will remain unchanged.
Other EPS assumptions are consistent with our previous guidance.
The possibility and potential impact of any fiscal 2019 acquisition or additional divestiture, future asset impairment charges, future foreign currency fluctuations or further share buybacks are unclear and cannot be reasonably estimated.
Therefore, they are not included in the sales and revenue outlook of the company.
Now, I want to give it back to the operator for a question.
Questions and Answers--------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------(
Operator instructions)
We now answer the first question from Bob Labick of CJS Securities. --------------------------------------------------------------------------------
Robert James Rawick, CJS Securities Co. , Ltd. -
President and Director of Research2]--------------------------------------------------------------------------------
I would like to start with two quick clarifications and I will ask a topic and then line up and go back.
You mentioned a pricing dispute with one of the two categories of customers.
Can you tell us the percentage of sales that are affected there? Or is there really any clarification?
Is this normal or is it happening there? --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director3]--------------------------------------------------------------------------------
Yes, let me start here.
Brian may have more to say.
Pricing is a complicated process.
It is easy to say in a conference room or business meeting that we will take some pricing measures.
That is to say, there has been no pricing action for years in these categories in our industry.
So entering the market, pricing is a process.
Our customers understand.
I think consumers understand the trade war.
We are successful to a large extent.
In fact, it's just a customer, and only 2 of the 10 or 11 categories we trade are in the health and family area.
I think that even in that customer, 8 to 9 categories have been accepted, we ship normally. --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer4]--------------------------------------------------------------------------------
While we did not consider the price increase for all categories, since not all categories were affected by tariffs.
However, in addition to the two categories affected by tariffs, we have succeeded in achieving price increases for all categories. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director5]--------------------------------------------------------------------------------Correct.
We also raised tariffs on household goods.
There are also no major concerns about the categories affected.
We hold on to our position in this client.
We did the right thing.
We are doing the right thing for the brand.
We did the right thing in the market, we did the right thing with other customers, and frankly they did the right thing too.
So this is the right thing to do.
In terms of dimensions, you heard Brian say that the main driving force of our small chain stores is only our sales guidance, and $10 million is mainly due to this project, so you have a sense of dimension. --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer6]--------------------------------------------------------------------------------
Well, so this is due to this and. . . --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director7]--------------------------------------------------------------------------------
China's economic slowdown--------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer8]--------------------------------------------------------------------------------
China's economic slowdowncommerce.
So if you want 50
50. you may not be that far.
However, we will not give specific guidance, but this is expected to help you dimension it. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director9]--------------------------------------------------------------------------------Yes.
So the price--
I just wanted to confirm on the public call that while we are officially on the record, there is absolutely no misconception.
Our pricing actions have been successful so far.
We are able to price in categories that traditionally do not have price increases as part of the normal cycle, a statement in annual terms.
We have been able to price with the vast majority of customers in the vast majority of affected categories.
We are lowering the guidance to deal with the two projects Brian is talking about.
This is one of them. we are transparent.
We want you to know.
My final comment is that pricing is a complicated process.
It's not that you send a note saying this is our new price, when will we give you a new higher price, what is your order.
Customers want to discuss, they want to push back, they want to see math, they want to have a meeting, they want to see what competitors do, they want to see what their options are.
This is a market.
Things have solutions in the market, but it's not just from day to day. --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer10]--------------------------------------------------------------------------------
Well, I just want to add one thing about doing the right thing.
Imagine if you talk to retail customer A, they find that retail customer B does not have to raise the price.
Retail Customer A will not be happy about this. It's really --
The only choice is to stick to our position. -
Stick to our position and accept the price, even if it is a bit confusing and disruptive to sales in the short term.
We believe this is a short time.
In the long run, this will be a good place in terms of pricing and profitability in the long run. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director11]--------------------------------------------------------------------------------
In most categories, we are already in most customers. --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer12]--------------------------------------------------------------------------------Right. --------------------------------------------------------------------------------
Robert James Rawick, CJS Securities Co. , Ltd. -
President and Director of Research13]--------------------------------------------------------------------------------Okay, super.
Then maybe only 2 seconds on Chinese email
Business problems here.
It may sound like just some inventory in the Channel.
Can you please tell us what you are selling there and what categories you will sell if you can?
Then, the bigger question I really want to ask is that international has become a bigger theme for you in the last few quarters.
Can you talk about how big the opportunity is and maybe how you see it now compared to a few years ago?
What is the difference and growth in that area? --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director14]--------------------------------------------------------------------------------
Yes, two great questions.
First of all, clarify about China, about e-commercecommerce. E-
Business is an important part of the Chinese market.
China is an important part of Asia, and Asia is our winning place.
We will not disclose Asia as a specific category or a specific breakthrough, but I will tell everyone on the public phone here that we are talking about thermometers, which are mostly online in China.
We have achieved great success.
If you have really listened to us in the last few years, not just a few quarters, we often emphasize success in China and Asia as well as online and thermometer.
What is happening here is that there has been some slowdown, so the increase in inventory in the category will have to continue.
The price is also being adjusted.
On the whole, some exciting growth in China is just slowing down. in China, the number of 6%, 8% and 9% has been going on for many years and I believe it will come down.
We saw a little of it.
But you have to see the picture below.
About 16 million people are born in China every year.
This is a growing number.
This is about four times the number of births in the United States every year.
Many of these babies are new to the family.
Those rising families in the middle class have more discretionary income, they want to do the right thing for their families like anyone else in the world, they want the best.
When it comes to thermometers, it is well known that Bolang's products are very capable.
They are usually better than any other ear thermometer on the market.
They are not made in China. Chinese consumers prefer this product, especially health products.
We have always been the market leader.
So nice to see it.
Seeing that the speed is a little slower and the inventory is a little bit higher, that's what we're talking about.
If you take the $10 million I mentioned-
The split we mentioned in the guide and Brian mentioned, you can get a little sense of size here.
And then, because it involves Asia and International--
Sorry, in general, Asia and International, International is a very underdeveloped part of Troy's business.
In the first phase of the transformation in the past five years, we have paid more attention to the domestic, not the International, over the last few years you 've heard all the key topics I 've talked about in detail about Helen of Troy have been very successful playing with some people.
We are now at a stage of development where we can export more success from our business model.
We have better integration and operational capabilities than ever before.
The shared service platform is becoming more standardized and synchronized, and the background around the world is in a very standard process.
With the development of digital marketing, the front of the house has become better and better, and our leadership brand strategy has also been rewarded.
So it makes sense for us to do more in places where we are highly underdeveloped, and Asia and Europe are two clear and obvious focus areas.
We have good infrastructure, we have the right brand, the right consumer market, just like China I just described.
We are active in most of Europe's markets, but frankly they may have a bigger footprint.
So this is an area where we want to see future action, and in the second phase of the transformation that I mentioned in my comments, we are very excited about our international outlook. --------------------------------------------------------------------------------Operator [15]--------------------------------------------------------------------------------
We now answer the next question from Chris Carey of Bank of America. --------------------------------------------------------------------------------
Christopher Michael Carey, Bank of America Merrill Lynch, Research Department-
Research analyst [16]--------------------------------------------------------------------------------
So I know it's too early for us now, and it sounds like we're going to get a broader strategic overview on investor day.
But we think--
As we think about fiscal 20, given tough competitors, especially in the first half, would you imagine growing core sales next year?
In order to get the lift, is it necessary for the international component you just mentioned in the second phase?
Then any updates you have on your ability to pay the tariffs will also help. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director17]--------------------------------------------------------------------------------Yes, sure.
So for our 20 fiscal year, we will give guidance in April, which is our traditional window. So we won't --
I know everyone is looking for it and I believe everyone wants to know when is the forecast for the company in fiscal 20-
We will not be able to provide this service at the end of the third quarter.
I don't think so many companies are doing this and we gave guidance in April.
From the big picture of fiscal 20, we believe we can continue to grow.
History is on our side.
We have a good record on this issue, we have building blocks.
Nevertheless, we are now completing the budget cycle.
This is the time of the year.
We are right. we still have a lot to say in April.
As far as the quarter comparison is concerned, I know a lot of people are looking at it, just like this quarter, last quarter, last half quarter.
In the first half of this year, we spent a spectacular first half and we will introduce a year between the ages of 3. 8% and 4.
This year, it has increased by 8%, which is above 5.
Last year was 9%, up from the previous year.
The story continues.
I think, my point is that when we predict, we will be in 5-
The second phase is 5-when we develop our strategy-
The thoughts of the year and our guidance are always in 1-year chunks.
We will do it again.
So in terms of the first half of the year, we are not worried about whether we can celebrate the anniversary in one particular quarter or another.
In fact, in the fourth quarter, I believe you all have finished math.
You will see that under the guidance we have just given, this will give us a very strong year, in fact, stronger than the year we originally predicted at the beginning of the year.
It turns out that there will be a lot of this happening in the first half.
We just added two more.
4% of net sales this quarter, we will get 3. 8% to 4. 8% year.
So everyone is aware that this means that the tough comparison in the fourth quarter will not give you all the quarterly growth due to the cold and flu season.
So we're not worried about it.
I know the market is upset about things like this, but our business is chaotic and the season is chaotic and you can never predict all of these things.
That's why we didn't give quarterly guidance in the first place.
And then in this case,
Annual Plan, I don't want to make too much commitment to the long-term plan
But we have given us a long-term future.
Term guidance, which we intend to align with for many years. --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer18]--------------------------------------------------------------------------------
I think you have a second question about the tariff, Chris, I can start asking him if Julian wants, maybe he can add.
Our pricing action is designed to offset the full impact of rising tariffs on gross profit in the US dollar.
But that doesn't mean 100% of our success.
As we noted in our prepared comments, this may have some impact on consumption and customer orders, which we believe will happen in the short term.
But in the long run, we do not expect stability and legacy problems. The --
So in a perfect world, if we can achieve all the price increases, they are designed to offset 100% of the gross profit impact ---dollar impact.
We won't stop there, though. We are --
Initial mitigation actions have been taken with respect to procurement and many of them are continuing as some of them take longer to be in place.
So we started the process.
I think that due to the whole tariff issue, it will be a rebalancing of our procurement structure, and it will be more balanced in some other areas outside of China, which may be a healthy result, because we will have more supplies closer to the United States. S.
We will have a diversified purchasing base and in some cases we may be dual sourcing.
For example, we will produce the same products in Mexico and China.
So I think I said before that the procurement action is expected to be seen as a icing on the cake, in addition to the pricing action we are taking.
So I just want to make it clear that the purpose is to offset 100%.
We may not be able to do this completely, but I think we will get a high percentage of the tariff offset and then any procurement action will be icing on the cake. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director19]--------------------------------------------------------------------------------
Yes, I think you got it.
The only thing I want to do is never waste a good crisis.
Look at our footprints when there is a chance to look in the mirror.
So when you think about the second phase of our plan and ask us how we look at the various categories and geographical locations that will end, then we look at our procurement footprint and the current tariff structure, and the opportunity to shorten the lead time and other things Brian mentioned, it creates an opportunity for us to understand what we already have, to make some adjustments and re-optimize.
This is what happened to Helen of Troy. --------------------------------------------------------------------------------
Christopher Michael Carey, Bank of America Merrill Lynch, Research Department-
Research analyst [20]--------------------------------------------------------------------------------Got it. Very helpful.
And then just a quick follow-up-
Then I go in again.
So what impressed me was that the market was so volatile and weak to some extent.
I would like to know when you consider your ability to make a merger and how you can consider the ability to get a better price in some transactions, does this improve your ability to negotiate and have found what you find attractive? --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director21]--------------------------------------------------------------------------------
Are you talking about mergers and acquisitions, or are you talking about purchasing when you ask? --------------------------------------------------------------------------------
Christopher Michael Carey, Bank of America Merrill Lynch, Research Department-
Research analyst [22]--------------------------------------------------------------------------------Sorry.
This will be your M & A strategy, whether you have the ability to acquire potential assets at a better price, and then deploy any updates to your capital for this purpose. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director23]--------------------------------------------------------------------------------Yes, okay.
Let's start with the big picture of capital deployment.
It hasn't been on the phone yet, but I'm sure everyone saw it in our press release and heard it in the comments.
We made a statement last quarter and we tried to be very clear about the $122 market.
We think of our stock as a strong buy. We bought it.
We bought 800,000 shares, actually a little more, and over the years, we didn't have a bigger repo than this, except for the tender offer a few years ago.
So there's a message inside.
Buying back is also good for math.
Still, our main capital strategy is acquisition.
As you may see, even though we are paying $100 million, we are also reducing our debt by $85 million. -
Sorry, $80/million this quarter, our ratio is now 1. 4.
Therefore, we are not only in the best position on the acquisition theme in terms of operation, but also financially we are ready.
In terms of looking for assets, we have been very active on this issue.
I think we 've told different people in various discussions, different versions, but it all boils down to the common theme, which is to make sure we have the right assets and we're a little picky.
It's not so much about price, it's about the suitability and quality of assets, not how much we pay and how we raise money.
Our balance sheet is able to fund what we are working on.
As far as nitpicking is concerned, I just want to say that there are actually a few very good ones, on the surface we are engaged and engaged.
But once you're covered in the dark, they have enough hair on them, and if we buy them, I think you'll be disappointed and frankly we won't go further.
So we never went where it was. -
You will get the best price in the market there.
I think we can buy any of these assets and we are willing to do so if it is appropriate for us.
On pricing, I don't know if Jeff or Brian has something on this. --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer24]--------------------------------------------------------------------------------
Well, I just wanted to add, but I think it's too early to see any reflection of the price from the recent stock market volatility.
So we haven't seen it yet.
But I think it's too early to reflect in pricing. --------------------------------------------------------------------------------Operator [25]--------------------------------------------------------------------------------
We now answer the next question from Linda Bolton. Weiser of D. A. Davidson. --------------------------------------------------------------------------------
Linda Ann BoltonWeiser, D. A. Davidson & Co.
Research Department-
Senior Research Analyst]26]--------------------------------------------------------------------------------
So I believe, in the last call, when you gave us a very good list of all the tariff effects and everything, I think, you said the worst --
If I recall correctly, the impact of the case scenario on profit growth in fiscal 20 will be 5 percentage points.
So what you're saying right now is that you actually want to offset all the impact with pricing. So. . . --------------------------------------------------------------------------------Brian L.
Helen of Troy Limited
Chief Financial Officer and Chief Accounting Officer27]--------------------------------------------------------------------------------Yes.
Linda, this is Brian.
I think we gave the dollar. -
We have to give two ranges, one is whether the last round is kept at 10% or 25%. So we --
I never put it in the terms of percentage points and I can't tell you what percentage is.
We give the range of dollars. -
We tried to clarify this and said that the 100% did not ease, just to get people to know something about it, because we have not yet completed pricing negotiations and have not explored all of our other mitigation options.
We are now going further in pricing.
I mean offset the 100% tariff increase by pricing and try to say that we can't guarantee full reach of the target, which may be for consumption and customer orders in the short term. But, yes, in --
One way of thinking is that the goal is to offset the $ 100% impact by pricing, and then if we can get an extra win in the purchase. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director28]--------------------------------------------------------------------------------
In terms of purchasing, this is not simple. let's look at the price and we can go back into the supply chain.
We also mentioned this in our prepared statement, and we have always had productive initiatives both internally and externally, but, some of the specific goals we are pursuing in China and Mexico have created opportunities, and saved some money to help ease the pressure.
Then commodities and foreign exchange are moving, but they are in our favor, frankly.
For example, when the cost of goods drops, you will see the price of oil in the past few months.
In the past two months, you have seen the price of copper and--
We use a variety of forms of plastic, as well as a large number of motor and metal windings that use copper.
These are opportunities to gain some advantage in disruptive pricing, or to prevent growth that may come from suppliers who face some growth in goods that are moving in the wrong direction, such as cardboard, cartons.
As we all know, carton is a kind of goods that is constantly upgraded.
Then, in terms of foreign exchange, the renminbi has been weaker than the United States. S.
For some time, the dollar has been triggered or exacerbated by the trade war and China's macroeconomic slowdown.
When we trade in US dollars in China, our dollar will buy more RMB, which gives us an opportunity to help ease the price difference.
So these things, before you move into the factory, or move SKUs between Chinese factories, not to mention multi-regional moves like under the new NAFTA law.
So there's a lot more than just the price tag. --------------------------------------------------------------------------------
Linda Ann BoltonWeiser, D. A. Davidson & Co.
Research Department-
Senior Research Analyst]29]--------------------------------------------------------------------------------
Very helpful.
Then, when you talk about the possibility of consumption or order falling or softening due to rising prices, can you give more about which categories of colors? Because I think most of your stuff is smaller gadgets.
I don't think consumers value that much. sensitive over.
So, what are you referring to, are you referring more to competition, or are you not accepting price increases?
As you said, the consumption decline due to these price increases? --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director30]--------------------------------------------------------------------------------Yes.
To be clear, we did not expect a decline in consumption.
Our products provide excellent value.
They are usually market leaders.
They have some of the best attributes, the best quality, the best brand, the best features.
Our products are the winners.
Consumers know this, you can see it from the online rating, you can see it in our market share, you can see it in our premium, compared to similar competitors, we often master it.
So we are very confident in the value equation we give.
We are confident, too. S.
Consumers now have a lot of downwind.
Those things that I mentioned in my prepared speech.
Taxes are usually lower depending on the specific route and circumstances.
There are more people with jobs.
After reading the labor report last week, the three main indicators are positive.
What I am talking about is the number of jobs created, the wage growth and labor participation rate of people who have jobs, which means that they are just more people working.
So all this stuff puts money in people's pockets and now they go to the shelves.
But for the first time in years, they will see some product inflation, and in the last few years there has been no meaningful inflation in this country, certainly not in our category.
There are a lot of competitors but I don't think they can say the same positive thing about our products.
Some of them are very good, some of them are not very good.
There are other options for customers, and so do consumers.
This is a competitive market.
It also needs to be tested, and that's the only comment we're really trying to make on the new price that retailers might choose to put on the shelves, what is the consumer's response.
So before you choose a gadget, choose something with a lower dollar value, choose something like a carrot peeler or a can opener, that's $10, $12 from us.
There's always a $3 to $5 replacement in the discount store.
This has nothing to do with tariffs and pricing.
This has always been the case.
That is to say, if our goods are up $1 now and the other is up only $0.
This relative equation has not yet been re-tested, and it is also possible to cross a price point, for example, where something is more than $10 or $25, or on our more expensive products, like air purifiers, you could be more than $200 or $250, similar
So at some point consumers have opinions about what they are willing to buy and how much they are willing to spend, how much they have in their pockets, etc.
I think Christmas is very encouraging on this issue, and while all the figures have not been published since Christmas, I think it is well known that Christmas is usually positive, consumers use their wallets to show that they are willing to spend the money in their pockets to buy what they want.
Therefore, when prices rise slightly, when prices move around, there will be a re-test of whether there is a new normal in the new process.
That's what we said. --------------------------------------------------------------------------------
Linda Ann BoltonWeiser, D. A. Davidson & Co.
Research Department-
Senior Research Analyst]31]--------------------------------------------------------------------------------Okay.
Then I can follow-
The topic of M &.
We know that you are generally successful in M & A and are doing well, especially on things like Flask.
But I just want to know what we might see from the perspective of China's economic slowdown penetrating into the US. S.
Are you thinking about keeping your balance sheet clean and keeping your powder dry, just not doing something for the time being and not doing something because at this point, investors may value having a truly clean, unleveraged balance sheet, which may be
In other words, I just want to know if you should be vigilant before a potential recession, and that's what I want to know. --------------------------------------------------------------------------------Julien R.
Helen mingberg Troy Limited
CEO and director32]--------------------------------------------------------------------------------
Yes, this is a great question.
We sometimes debate internally, which is a very safe route.
Look at our leverage ratio, it's low, it just gets lower.
Look at our stock repurchase behavior, about 1.
We bought back 2 million shares in the fiscal year alone, and we reduced leverage.
So the strategy creates value.
That is to say, in operation, when we find the right assets, even if there are some greater macro concerns, we should be able to increase the value of the assets in any reasonable economic environment.
As you are concerned, if there is a situation like recession or infection, on the one hand, everything becomes more difficult.
On the other hand, winners tend to win in the recession, as we have seen before.
For example, in the last recession, especially in terms of health and family, we have just become stronger.
I think my point is that we will move on if we find the right thing.
We would be more cautious if there were a lot of macro data to show.
But our balance sheet and our operations, we will take action if we find the right assets, but we are very clear about the environment you are talking about.
At the same time, as I have said many times in many meetings, the money did not burn a hole in our pocket.
We have not purchased any assets in large quantities since 2016.
This is the acquisition of Hydro Flask, we have been actively buying back stock since then, especially when the market looks at us and does not see much value, we think they are crazy, we see a lot of valuable things.
So we bought the stock back.
So, as they say, we are not afraid to go both ways, we will not only do the right thing for the balance sheet, but we will also do the right thing for our portfolio and operations, and maintain a keen eye on the macro level. ----------------------------------------------------------