HELE 2Q27 Earnings Call Webcast - HELEN OF TROY LTD

Financial Performance:

• Consolidated net sales increased 2.1% year-over-year to $468 million, aligning with guidance; Home & Outdoor grew 9.2% while Beauty & Wellness declined 4.5%.
• Adjusted diluted EPS beat expectations, driven by a $26.9 million gross pre-tax tariff refund benefit; net benefit after reinvestment was approximately $4 million ($0.12/share).
• Consolidated gross profit margin expanded 800 bps to 52.2%, though inflated by tariff refunds; adjusted EBITDA margin improved 280 bps.
• GAAP effective tax rate was 66.4% (non-recurring litigation costs), while adjusted effective tax rate is expected to normalize to 24–27% for the full year.
• First-half free cash flow was $38 million; net debt reduced by $108 million to $673 million, lowering net leverage to 3.0x from 3.5x.
• Inventory decreased $49 million year-over-year to $480 million, with active inventory percentage rising seven points.

Guidance and Future Outlook:

• Revised full-year 2027 net sales guidance narrowed to $1.768 billion–$1.822 billion; adjusted EPS raised to $3.60–$4.15 (base business $3.30–$3.70).
• Q3 2027 net sales guidance set at $478.3 million–$504.5 million; adjusted EPS guidance raised to $2.05–$2.40 due to a concentrated $51.8 million tariff refund recognition.
• Full-year adjusted EBITDA raised to $203–$210 million (base $193–$196 million) to reflect net tariff benefits.
• Free cash flow guidance increased to $120–$140 million; capital expenditure guidance raised by $9 million.
• Net leverage target lowered to 2.7x or below by end of fiscal 2027.
• Share count expected to increase to 24.2 million for the full year and 24.5 million for the second half.

Business Segments and Product Lines:

• Home & Outdoor: All three brands (Osprey, OXO, Hydroflask) drove growth; Osprey led via new product introductions and international distribution.
• Beauty & Wellness: Mixed performance; Wellness grew on VIX and Braun strength; Olive & June saw distribution gains and Ulta collaboration; Revlon and Hot Tools face softer demand.
• New Launches: OXO launched full pet product line; Osprey introduced Ozone Hardside luggage; Hydroflask expanded Microhydro and new coolers; Pure became first water filter certified for lead, microplastics, and PFAS removal.
• International: Sales grew 3.7% driven by Hydroflask, OXO, and Osprey; new distributor partnership established in Australia.
• Operational Shifts: New general manager structure implemented to decentralize decision-making closer to brands and consumers.

Market and Competitive Landscape:

• Insulated beverage category described as "saturated" and increasingly promotional, leading to a conservative view on H2 growth despite strong Q2.
• Management views competitors' high-growth targets as achievable due to sustained premium positioning, whereas Helen of Troy prioritizes margin protection over volume in a promotional environment.
• North American port-of-sale trends improved in Beauty and Wellness, though the broader category remains competitive and promotional.
• Supply chain disruptions from Middle East conflict and escalating fuel prices are impacting cost structures, though costs are largely stabilizing.

Risks and Challenges:

• Elevated inventory levels in select channels for certain brands requiring liquidation efforts.
• Input cost inflation driven by commodities, fuel, freight, and currency fluctuations remains a pressure, partially offset by tariff refunds.
• Regulatory costs regarding single-use plastics legislation increasing packaging expenses.
• Soft demand in specific prestige beauty and mass beauty brands (e.g., Revlon) requires stabilization and potential pricing recalibration.
• Macro headwinds including high interest rates, fuel costs, and discretionary spending pressure on the middle-market consumer.

Management Commentary and Tone:

• Tone is confident yet cautious, emphasizing a multi-year "make a better, then bigger" strategy rather than immediate aggressive growth.
• Management highlighted progress in three pillars: Consumer-first innovation, Commercial & Operational Excellence, and People & Culture.
• Leadership expressed optimism about brand fundamentals improving but acknowledged the non-linear nature of the recovery.
• Scott Ezell (CEO) emphasized discipline in investment, focusing on "foundational" work to prepare for Fiscal 28.
• Brian Grass (CFO) noted that while tariff refunds are helpful, the company is not yet "made whole" due to cumulative prior impacts.

Analyst Questions and Answers:

• UBS (Peter Grom): Asked about consumer behavior and inflation; Management confirmed consumer pressure but noted innovation continues to drive wins; cost inflation estimates remain stable despite Middle East conflict.
• CJS Securities (Bob Labick): Inquired about beauty segment recovery and tariff reinvestment; Management detailed reinvestment into foundational costs (inventory cleanup, packaging) and growth strategy to benefit Fiscal 28.
• Raymond James (Olivia Tong): Asked about H2 sales deceleration in Home & Outdoor and Hydroflask outlook; Explained saturated category dynamics and competitive promotional pressure led to conservative H2 guidance.
• Canaccord Genuity (Susan Anderson): Clarified drivers of Home & Outdoor growth (equal mix of new products, distribution, international) and beauty recovery timeline; Management expects beauty to remain challenging this year with improvements building.

Other Key Points:

• Approximately 25% of the tariff refund reinvestment is targeted for near-term ROI in Fiscal 27, with the remainder allocated to foundational, longer-term investments.
• Divestiture litigation costs from the North American personal care business sale five years ago are included in SG&A.
• Management is actively managing "channel inventory coverage" to ensure a cleaner balance sheet heading into Fiscal 28.
• A new leader has been appointed for the Beauty and Wellness business to strengthen accountability and accelerate stabilization.
• The company plans to use tariff refunds to offset initial packaging disposal costs while proactively redesigning for environmental friendliness.