HELE 2Q27 Earnings Call Webcast - HELEN OF TROY LTD

Explicit Guidance:

• Full Year Fiscal 2027 Net Sales: Narrowed range to $1.768 billion – $1.822 billion (split: Home & Outdoor $851M–$876M; Beauty & Wellness $917M–$946M).
• Full Year Fiscal 2027 Adjusted EBITDA: Base business maintained at $193M–$196M; Consolidated raised to $203M–$210M to include estimated net pre-tax tariff refund benefit ($10M–$14M).
• Full Year Fiscal 2027 Adjusted EPS: Base business narrowed to $3.30–$3.70; Consolidated raised to $3.60–$4.15 to include estimated after-tax tariff benefit (30–45 cents).
• Full Year Fiscal 2027 Free Cash Flow: Raised to $120M–$140M.
• Full Year Fiscal 2027 Capital Expenditures: Revised upward by $9 million.
• Full Year Fiscal 2027 Effective Tax Rate: Estimated adjusted effective tax rate of 24%–27% (expected to normalize after Q2's 66.4% GAAP rate).
• Full Year Fiscal 2027 Diluted Shares Outstanding: Estimated 24.2 million (H2 estimate: 24.5 million).
• Q3 Fiscal 2027 Net Sales: Projected range of $478.3M–$504.5M.
• Q3 Fiscal 2027 Adjusted EPS: Projected range of $2.05–$2.40 (includes net after-tax tariff refund benefit of 66–77 cents; base business EPS $1.39–$1.63).
• Tariff Refund Outlook: Full year gross benefit expected at $80.5M; net benefit expected $10M–$14M pre-tax ($30–45 cents EPS) after intended reinvestment of $66.5M–$70.5M.
• Balance Sheet Target: Net leverage ratio expected to be 2.7x or lower by end of Fiscal 2027.

Business-Segment Outlook:

• Home & Outdoor: Anticipates revenue growth deceleration in H2 due to channel saturation, promotional environment pressure, and inventory correction needs in the insulated beverage category; expects stronger performance from OXO and Osprey.
• Beauty & Wellness: Expects continued challenging conditions in H2, though trends are improving; highlights strength in Wellness (VIX, Bron) and Olive & June; notes softer demand in prestige hair tools and mass beauty (Revlon).
• International: Growth of 3.7% in Q2 expected to continue, driven by new distributor in Australia, expanded distribution, and execution improvements in select markets.
• Product Launches & Expansions:
  • OXO: Full launch of pet category product line in August.
  • Osprey: Launch of Ozone Hardside ultra-lightweight four-wheel luggage collection in August.
  • Hydroflask: New innovations (lunch totes, soft coolers, limited edition bottles) for back-to-school; Microhydro growth driven by wider placement.
  • Pure: Achieved certification as only water filter reducing lead, microplastics, and PFAS in pitcher/dispenser formats.
  • Olive & June: Exclusive influencer collaboration with Avery Woods at Ulta Beauty; 10th Allure Best of Beauty Award.

Market and Competitive Outlook:

• Pricing & Promotion: Anticipates a more promotional retail environment than previous years; managing price elasticity under pressure from consumers; considering pricing recalibration for certain brands (e.g., Revlon).
• Inventory Management: Targeting a 12 percentage point improvement in active inventory composition by year-end; addressing elevated inventory in select channels via closeout/liquidation.
• Competitive Landscape: Observes increased investment from competitors in the beauty space; notes competitor (Hydroflask) targeting high single-digit growth and margins; intends to avoid deep discounting to maintain premium positioning despite category saturation.
• Share Dynamics: Gaining share in OXO, Osprey, Olive & June, and Braun; facing pressure in beverage, hair care, and water filtration categories, though seeing improving trends.

Macro / Industry Outlook:

• Economic Environment: Consumer sentiment viewed as "choppy" with headwinds from fuel prices, higher interest rates, and cost-of-living pressures, particularly for the North American middle market; expects these to persist into FY28.
• Cost Inflation: Product cost inflation from commodities, fuel (gas/diesel), freight, currency, and supply scarcity anticipated to continue; management views costs as largely stabilized relative to Q1 estimates despite Middle East conflict.
• Regulatory: Increased packaging disposal costs due to U.S. and international legislation shifting costs from municipalities to producers; intends to offset initial costs via tariff refunds and redesign packaging for environmental compliance.
• Tariffs: Gross pre-tax tariff refunds of $80.5M included in outlook; acknowledges cumulative tariff impacts have not been fully offset (some costs incurred not refunded, higher interest on cash outlay, supply chain diversification costs).

Strategic Initiatives:

• Tariff Reinvestment: Intention to reinvest $66.5M–$70.5M of the $80.5M gross tariff benefit over FY27 into foundational investments, including brand marketing, product innovation, and inventory cleanup to clear slow-moving stock.
• Operating Model Restructuring: Implementing new General Manager structure to decentralize decision-making and align closer to the consumer/marketplace; progress made with new leaders appointed.
• Organizational Changes: Appointed new leader for Beauty & Wellness segment to strengthen accountability and accelerate stabilization.
• Supply Chain: Diversifying supply base to mitigate geopolitical risks and lead times; addressing inventory obsolescence to improve working capital.
• Timeline: Foundation building phase (FY27) focused on "markers of progress" to set up sustained growth for FY28.

Risks and Headwinds to Outlook:

• Consumer Demand: Potential softness in discretionary categories and price sensitivity due to macroeconomic pressure (interest rates, fuel costs).
• Geopolitical & Supply Chain: Ongoing conflict in the Middle East potentially impacting fuel prices and supply disruptions; escalating gas/diesel costs.
• Inventory Dynamics: Need for channel inventory correction, particularly in insulated beverage, which may dampen H2 sales.
• Competitive Pressure: Increased promotional activity and investment from competitors in beauty and beverage sectors.
• Regulatory Costs: Rising costs associated with single-use plastic legislation and extended producer responsibility (EPR) programs.
• Seasonality: Conservative outlook avoiding dependency on a strong cold/flu season for wellness sales.
• Execution Risk: "Recovery will not be linear"; continued pressure in specific beauty brands and potential delays in realizing ROI from longer-term strategic investments.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic; expresses confidence in brand fundamentals and team execution ("things we control"), but acknowledges the dynamic and challenging external environment.
• Strategic Focus: Emphasis on "making a better Helen of Troy" before "a bigger" one; focus on foundational investments and balance sheet productivity over short-term top-line growth.
• Guidance Changes: Narrowed revenue ranges and raised EBITDA/EPS guidance based on tariff refund realization, but lowered Q2/H2 sales expectations for Home & Outdoor due to market saturation.
• Cadence Expectations: Anticipates Q3 EPS lift from tariff recognition, compressing Q4 EPS as strategic reinvestments hit the P&L.
• Overall Sentiment: "Disciplined and appropriately cautious"; focus on stabilizing pressured brands and rebuilding the organization for long-term success.

Miscellaneous:

• Non-GAAP Measures: Adjusted EPS and EBITDA exclude net tariff refund benefits from the "base business" guidance to show organic performance.
• Litigation Costs: SG&A includes ongoing costs related to the divestiture of the North American personal care business from five years ago.
• Divestiture: Completed sale of North American personal care business; litigation costs remain in current P&L.