Helen Of Troy Ltd 2027 Q2 Earnings Call

Thank you, operator. Good morning, everyone. Welcome to Helen of Troy's second quarter fiscal 2027 earnings conference call. The agenda for the call this morning is as follows. I will begin with a brief description of forward-looking statements. Scott Uzzell, our CEO, will then share his thoughts on progress in the quarter. Brian Grass, our CFO, will provide an overview of our financial performance in the second quarter and our revised expectations for the full year fiscal 2027. Following our prepared remarks, we will open up the call for Q&A. 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 similar words 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 the actual results.

This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information. Before I turn the call over to Scott, I would like to inform everyone that a copy of today's earnings release can be found on the investor relations section of our website by scrolling to the bottom of the homepage. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. We have also posted an investor presentation to our website. I will now turn the call over to Scott.

Thank you, Anne. Good morning, everyone. Thank you for joining us. When we spoke in July, I shared that we were focused on strengthening the critical fundamentals of our company. We continue to make progress to become a better Helen of Troy on the road to becoming a bigger Helen of Troy. Our Q2 results reflect continued execution against the priorities outlined in our multi-year roadmap. Our Q2 sales were in line with our outlook, and our adjusted diluted EPS came in ahead. As I stated over the last several quarters, our recovery will not be linear. In fiscal 2027, we are squarely focused on demonstrating markers of progress to set us up for sustained and repeat strong performance over many years to come. It is about brand growth, driving sales growth through disciplined investment in brands and categories where we believe we have a clear path to win.

It's about marketplace execution, realizing the value of our brands through premium positioning and strong market execution to continue strengthening our gross margin. We're pursuing these priorities through three foundational pillars paired with continued balance sheet discipline. We continue to execute against all these areas. We are two quarters into our plan to making a better Helen of Troy, and we are making progress. The operating environment continues to be dynamic, but I truly believe what we need to do to reach our aspirations is in our control. We are encouraged by what we see across several areas of the business. I want to highlight a few Q2 examples. We grew sales year-over-year across all three Home & Outdoor brands.

Osprey led growth again this quarter, reflecting strong consumer and category performance, new product introductions, continued improvement in our international distribution network. OXO benefited from targeted actions to improve inventory composition, net distribution gains, and new product introductions. Hydro Flask was aided by targeted actions to improve inventory composition, new product innovation, and partial recapture of tariff-related disruption within the corporate channel. Wellness grew, driven primarily by growth in Vicks and Braun, reflecting net distribution gains and lapping tariff-related items and new product introductions. Olive & June produced another solid quarter, reflecting strong consumer demand, higher replenishment orders, and new and expanded distribution. In the rest of Beauty, new product innovations are contributing to sales, although some brands continue to experience softer demand. We know we have more work to do on our commercial execution and demand creation to fully capitalize on our opportunities.

International was another bright spot, with sales growing 3.7% in the quarter, led by Hydro Flask, OXO, and Osprey, reflecting new products, expanded distribution, improving execution in select markets. Our new distributor in Australia is one of our examples of more agile go-to-market approach we discussed last quarter. Importantly, in terms of North American point of sale, Beauty & Wellness showed noticeable improvement in Q2 relative to our longer trends, reflecting continued strength from Olive & June and Braun, along with improving trends across several of our more pressured businesses, including Revlon, Hot Tools, Honeywell, and Curlsmith. For the first half of the fiscal year, we generated free cash flow of $38 million. As of August, we improved our net leverage ratio to 3.0 times, down from 3.5 times at the end of Q1, continuing our multi-quarter trend of debt reduction.

We also made progress normalizing our channel inventory, with aggregate retail inventory coverage for our brands improving compared to a year ago. We continue to address pockets of elevated inventory for certain brands within select channels. That improvement reflects targeted closeout and liquidation efforts to clear slower moving stock. This is the kind of discipline execution we mean when we talk about editing and amplifying our highest impact priorities, focusing our resources where we see the greatest opportunity to strengthen our brands and improve our performance. As I mentioned last quarter, our work continues to be guided by three pillars, consumer-first innovation, commercial and operational excellence, and people and culture. Under consumer-first innovation, we're becoming more deliberate about our products and platforms we prioritize. Across the portfolio, we're focusing resources on the most differentiated consumer opportunities and supporting those opportunities with the right distribution, inventory, and media plans.

In Home & Outdoor, OXO expanded its entry into pet category this quarter. After a limited release launch during Prime Day, the full line officially launched across all channels in August. This was supported with fully integrated campaign across media, digital, e-commerce, influencers, sampling, and experiential events designed to build awareness and connect with pet parents. Osprey is also expanding further into travel with the launch of the Ozone Hardside. It is an ultra-lightweight, four-wheel luggage collection that brings Osprey's expertise in lightweight, durable design to the largest segment of the travel market. These are great examples of further extending brands in attractive adjacencies with additional products and expanded distribution opportunities. Hydro Flask Micro Hydro continues to perform well, driven by wider retail placement and more sizes.

The brand recently launched new innovations including lunch totes, bags, and soft coolers, and limited edition kids' Daydream bottle and lunch box collection in time for back to school. In Beauty & Wellness, I am excited about PUR's latest industry milestone this quarter, becoming the only water filter certified to reduce lead, microplastics, and total PFAS in both pitcher and dispenser formats, addressing three contaminants that consumers say concern them most in their drinking water. Olive & June continued to strengthen its cultural relevance with its first exclusive influencer collaboration at Ulta Beauty, partnering with a digital creator, Avery Woods, to bring fresh, trend-driven offerings to consumers. The brand also celebrated its 10th Allure Best of Beauty award, with its Gel Mani system earning the prestigious honor for the second consecutive year, reinforcing Olive & June's leadership in at-home nails.

Olive & June continues to be a great addition to the Helen of Troy portfolio. Innovation is just the first step. We must sharpen the full commercial process around it. That brings me to the second pillar, commercial and operational excellence. I have shared our intent to be closer to our consumer and move with the speed of the marketplace. We are making this a reality. Last quarter, I introduced our new general manager structure. As we fill these roles, we are moving the strategy and decision-making closer to the consumer, the brand, and the marketplace. We have made progress establishing that structure during the quarter, including putting currently planned leaders in place and clarifying accountability and creating closer alignment around our growth priorities. While this work is still in the early stages, we are seeing benefits from faster decision-maker and greater cross-functional collaboration.

Over time, we believe this structure will strengthen our ability to respond to changing market conditions and improve execution across our portfolio. We are already seeing early evidence of this in our Home & Outdoor business, where sales and brand teams are working more closely together, evaluating distribution, customer relationships, and capacity earlier in the product development process. This closer alignment is also accelerating how we share consumer and retailer insights to further improve the development process and respond quicker to promotional programs. We continue to sharpen our pricing, promotion, channel management, digital shelf, retail media, and demand planning capabilities, meeting consumers on a modern shopping journey through stronger omni-channel capabilities. We are using current point of sale and inventory signals to update our assumptions more quickly. Our incremental investment is more selective, with clear expectations of measurable results. This discipline is particularly important in the current environment.

I am pleased how our teams are managing through geopolitical costs and supply chain challenges with the impacts we anticipated largely tracking in line with our expectations. Our third pillar is people and culture. Building a stronger company starts with building a stronger organization. Throughout the year, we continue to simplify how we operate, strengthen ownership, and ensure our teams are focused on opportunities with the greatest potential to create value. As a part of that work, we recently appointed a new leader for our Beauty & Wellness business. This is an important step in strengthening our leadership and accountability within this segment as we work to build on improving trends we're seeing and accelerate the actions needed across the brands where we still are working to stabilize performance.

We're also continuing to cascade our culture work throughout the organization, helping create a common set of behaviors, expectations, and ways of working that support our strategy and position us for long-term success. I am encouraged by the focus, urgency, and collaboration I see across the organization. To bring it all together, Q2 was another step in our journey to become a better Helen of Troy before becoming a bigger Helen of Troy. Continued balance sheet productivity alongside the progress we've made across the portfolio gives us more flexibility to keep investing in our brands and position our company for sustained long-term growth. Our priorities for the rest of the year are clear: accelerating the brands showing the strongest consumer momentum, building on improving trends across Beauty & Wellness, and taking targeted actions where performance remains under pressure.