HELEN OF TROY LIMITED
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with our condensed
consolidated financial statements included under Part I, Item 1., "Financial
Statements." The various sections of this MD&A contain a number of
forward-looking statements, all of which are based on our current expectations.
Actual results may differ materially due to a number of factors, including those
discussed in Part II, Item 1A.,"Risk Factors," and in the section entitled
"Information Regarding Forward-Looking Statements" following this MD&A, and in
Part I, Item 3., "Quantitative and Qualitative Disclosures About Market Risk" in
this report, as well as in Part I, Item IA., "Risk Factors" in the Company's
most recent annual report on Form 10-K for the fiscal year ended February 28,
2022 ("Form 10-K") and its other filings with the Securities and Exchange
Commission (the "SEC"). When used in this MD&A, unless otherwise indicated or
the context suggests otherwise, references to "the Company", "our Company",
"Helen of Troy", "we", "us", or "our" refer to Helen of Troy Limited and its
subsidiaries. Throughout this MD&A, we refer to our Leadership Brands, which are
brands that have number-one and number-two positions in their respective
categories and include OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR,
Hot Tools and Drybar .
This MD&A, including the tables under the headings "Operating Income, Operating
Margin, Adjusted Operating Income (non-GAAP), and Adjusted Operating Margin
(non-GAAP) by Segment" and "Net Income, Diluted EPS, Adjusted Income (non-GAAP),
and Adjusted Diluted EPS (non-GAAP)," reports operating income, operating
margin, net income and diluted earnings per share ("EPS") without the impact of
acquisition-related expenses, EPA compliance costs, gain from insurance
recoveries, restructuring charges, amortization of intangible assets, and
non-cash share-based compensation for the periods presented, as applicable.
These measures may be considered non-GAAP financial information as set forth in
SEC Regulation G, Rule 100. The tables reconcile these measures to their
corresponding GAAP-based measures presented in our condensed consolidated
statements of income. We believe that adjusted operating income, adjusted
operating margin, adjusted income, and adjusted diluted EPS provide useful
information to management and investors regarding financial and business trends
relating to our financial condition and results of operations. We believe that
these non-GAAP financial measures, in combination with our financial results
calculated in accordance with GAAP, provide investors with additional
perspective regarding the impact of such charges and benefits on applicable
income, margin and earnings per share measures. We also believe that these
non-GAAP measures facilitate a more direct comparison of our performance to our
competitors. We further believe that including the excluded charges and benefits
would not accurately reflect the underlying performance of our operations for
the period in which the charges and benefits are incurred, even though such
charges and benefits may be incurred and reflected in our GAAP financial results
in the near future. The material limitation associated with the use of the
non-GAAP financial measures is that the non-GAAP measures do not reflect the
full economic impact of our activities. Our adjusted operating income, adjusted
operating margin, adjusted income, and adjusted diluted EPS are not prepared in
accordance with GAAP, are not an alternative to GAAP financial information and
may be calculated differently than non-GAAP financial information disclosed by
other companies. Accordingly, undue reliance should not be placed on non-GAAP
information. These non-GAAP measures are discussed further and reconciled to
their applicable GAAP-based measures contained in this MD&A beginning on page
46.
There were no material changes to the key financial measures discussed in our Form 10-K.
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Overview
We incorporated as Helen of Troy Corporation in Texas in 1968 and were
reorganized as Helen of Troy Limited in Bermuda in 1994. We are a leading global
consumer products company offering creative products and solutions for our
customers through a diversified portfolio of brands. We have built leading
market positions through new product innovation, product quality and competitive
pricing. We currently operate three segments consisting of Home & Outdoor,
Health & Wellness, and Beauty.
During the fourth quarter of fiscal 2023, we made changes to the structure of
our organization in connection with our global restructuring plan (as further
described below) that resulted in the Health & Wellness and Beauty operating
segments being combined into a single reportable segment, which will be referred
to as "Beauty & Wellness." In connection with these organizational structure
changes, corresponding changes were made to how our business is managed, how
results are reported internally and to how our Chief Executive Officer ("CEO"),
our chief operating decision maker, assesses performance and allocates
resources. We believe that these changes better align internal resources and
external go to market activities in order to create a more efficient and
effective organizational structure. There were no changes to the products or
brands included within our Home & Outdoor reportable segment as part of these
organizational changes nor to the way in which our CEO assesses performance and
allocates resources for the Home & Outdoor segment. Therefore, beginning with
our fiscal 2023 Form 10-K, our future disclosures will reflect two reportable
segments, Home & Outdoor and Beauty & Wellness, and we will recast the prior
period segment information to conform to the change in the composition of these
reportable segments. Accordingly, our external reportable segments will continue
to align with our internal reporting to enable users of the financial statements
to better understand our performance, better assess our prospects for future net
cash flows, and make more informed judgements about the Company as a whole.
In fiscal 2015, we launched a five-year transformational strategy designed to
improve the performance of our business segments and strengthen our shared
service capabilities. Fiscal 2019 marked the completion of Phase I of our
multi-year transformation strategy, which delivered performance across a wide
range of measures. We improved organic sales growth by focusing on our
Leadership Brands, made strategic acquisitions, became a more efficient
operating company with strong global shared services, upgraded our organization
and culture, improved inventory turns and return on invested capital, and
returned capital to shareholders.
Fiscal 2020 began Phase II of our transformation, which was designed to drive
the next five years of progress. The long-term objectives of Phase II include
improved organic sales growth, continued margin expansion, and strategic and
effective capital deployment. Phase II includes continued investment in our
Leadership Brands, with a focus on growing them through consumer-centric
innovation, expanding them more aggressively outside the United States of
America (the "U.S."), and adding new brands through acquisition. We are building
further shared service capability and operating efficiency, as well as focusing
on attracting, retaining, unifying and training the best people. Additionally,
we are continuing to enhance and consolidate our environmental, social and
governance efforts and accelerate programs related to diversity, equity,
inclusion and belonging to support our Phase II transformation.
During the second quarter of fiscal 2023, we focused on developing a global
restructuring plan intended to expand operating margins through initiatives
designed to improve efficiency and reduce costs (referred to as "Project
Pegasus"). Project Pegasus includes initiatives to further optimize our brand
portfolio, streamline and simplify the organization, accelerate cost of goods
savings projects, enhance the efficiency of our supply chain network, optimize
our indirect spending, and improve our cash flow and working capital, as well as
other activities. We anticipate these initiatives will create operating
efficiencies, as well as provide a platform to fund future growth investments.
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As part of the Project Pegasus initiative focused on streamlining and
simplifying the organization, we are announcing plans to further change the
structure of our organization, which include the creation of a North America
Regional Market Organization ("RMO") responsible for sales and go to market
strategies for all categories and channels in the U.S. and Canada , and further
centralization of certain functions under shared services, particularly in
operations and finance to better support our business segments and RMOs. This
new structure, inclusive of the organizational structure changes described above
resulting in the reportable segment change, will reduce the size of our global
workforce by approximately 10%. The majority of the role reductions are expected
to be completed by March 1, 2023 . Nearly all of the remaining role reductions
are expected to be completed before the end of fiscal year 2024. We believe that
these changes better focus business segment resources on brand development,
consumer-centric innovation and marketing, the RMOs on sales and go to market
strategies, and shared services on their respective areas of expertise while
also creating a more efficient and effective organizational structure.
Consistent with the second quarter of fiscal 2023, we continue to have the
following expectations regarding Project Pegasus:
•Targeted annualized pre-tax operating profit improvements of approximately
$75 million to $85 million , which we expect to begin in fiscal 2024 and be
substantially achieved by the end of fiscal 2026.
•Estimated cadence of the recognition of the savings will be approximately 25%
in fiscal 2024, approximately 50% in fiscal 2025 and approximately 25% in fiscal
2026.
•Total profit improvements to be realized approximately 60% through reduced cost
of goods sold and 40% through lower selling, general and administrative expense
("SG&A").
•Total one-time pre-tax restructuring charges of approximately $85 million to
$95 million over the duration of the plan, which is expected to be completed
during fiscal 2025 and will primarily be comprised of severance and employee
related costs, professional fees, contract termination costs, and other exit and
disposal costs.
•All of our operating segments and shared services will be impacted by the plan.
In addition, we have implemented plans to reduce inventory levels, increase
inventory turns, and improve cash flow and working capital. Improvements related
to these initiatives began in the third quarter of fiscal 2023 and we expect
improvements to continue during the remainder of fiscal 2023 and into fiscal
2024. Expectations regarding our Project Pegasus initiatives and our ability to
realize targeted savings, including expectations concerning costs and savings,
are based on management's estimates available at the time and are subject to a
number of assumptions that could materially impact our estimates.
During the three and nine month periods ended November 30, 2022 , we incurred
$10.5 million and $15.2 million , respectively, of pre-tax restructuring costs in
connection with Project Pegasus, which were recorded as "Restructuring charges"
in the condensed consolidated statements of income. See Note 8 to the
accompanying condensed consolidated financial statements for additional
information.
Consistent with our strategy of focusing resources on our Leadership Brands,
during the fourth quarter of fiscal 2020, we committed to a plan to divest
certain assets within our Beauty segment's mass channel personal care business,
which included liquid, powder and aerosol products under brands such as Pert,
Brut, Sure and Infusium ("Personal Care"). On June 7, 2021 , we completed the
sale of our North America Personal Care business to HRB Brands LLC , for
$44.7 million in cash and recognized a gain on the sale in SG&A totaling $0.5
million . On March 25, 2022 , we completed the sale of the Latin America and
Caribbean Personal Care business to HRB Brands LLC , for $1.8 million in cash and
recognized a gain on the sale in SG&A totaling $1.3 million . The net assets sold
included intangible assets, inventory, certain net trade receivables, fixed
assets and certain accrued sales discounts and allowances relating to our
Personal Care business. As a result of these dispositions, we no longer have any
assets or liabilities classified as held for sale.
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OnApril 22, 2022 , we completed the acquisition ofRecipe Products Ltd. , a producer of innovative prestige hair care products for all types of curly and wavy hair under the Curlsmith brand ("Curlsmith"). The Curlsmith brand and products were added to the Beauty segment. The total purchase consideration was$147.9 million in cash, net of a final net working capital adjustment and cash acquired. We incurred pre-tax acquisition expenses of$2.7 million during the nine months endedNovember 30, 2022 , which were recognized in SG&A within our condensed consolidated statement of income. OnDecember 29, 2021 , we completed the acquisition ofOsprey Packs, Inc. ("Osprey"), a longtimeU.S. leader in technical and everyday packs, for$409.3 million in cash, net of a final net working capital adjustment and cash acquired. Osprey is highly respected in the outdoor industry with a product lineup that includes a wide range of backpacks and daypacks for hiking, mountaineering, skiing, climbing, mountain biking, trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories. The Osprey brand and products were added to the Home & Outdoor segment. OnMarch 30, 2022 , a third-party facility that we utilize for inventory storage incurred severe damage from a weather-related incident. The inventory that was stored at this facility primarily related to our Health & Wellness and Beauty segments. While the inventory is insured, some seasonal inventory and inventory designated for specific customer promotions was not accessible and subsequently determined to be damaged, and as a result, unfavorably impacted our net sales revenue during the first quarter of fiscal 2023. As a result of the damages to the inventory stored at the facility, during the first quarter of fiscal 2023, we recorded a charge to write-off the damaged inventory totaling$34.4 million , of which$29.9 million and$4.5 million related to our Health & Wellness and Beauty segments, respectively. These charges were fully offset by probable insurance recoveries of$34.4 million also recorded during the first quarter of fiscal 2023, which represented anticipated insurance proceeds, not to exceed the amount of the associated losses, for which receipt was deemed probable. The charges for the damaged inventory and the expected insurance recoveries are included in cost of goods sold in our condensed consolidated statement of income for the nine months endedNovember 30, 2022 . During the third quarter of fiscal 2023, we received proceeds of$34.5 million from our insurance carriers related to this incident which are included in cash flows from operating activities in our condensed consolidated statement of cash flows for the nine months endedNovember 30, 2022 . The Company also received final confirmation from our insurance carriers during the third quarter of 2023 of an additional$11.5 million in proceeds, which was collected duringDecember 2022 . As a result, during the third quarter of fiscal 2023, the Company recorded a gain of$9.7 million , net of costs incurred to dispose of the inventory, as a reduction of SG&A expense in our condensed consolidated statements of income, of which$8.2 million and$1.5 million was related to our Health & Wellness and Beauty segments, respectively. Any potential future proceeds from our business interruption insurance will be recognized when received. We have a credit agreement (the "Credit Agreement") withBank of America, N.A ., as administrative agent, and other lenders that provides for an unsecured total revolving commitment of$1.25 billion and matures onMarch 13, 2025 . OnJune 28, 2022 , we entered into an amendment to the Credit Agreement to, among other things, replace LIBOR with Term SOFR (as defined in the Credit Agreement) as the reference interest rate. Accordingly, we updated our interest rate swap contracts associated with the Credit Agreement borrowings to replace LIBOR with Term SOFR as the reference interest rate. In connection with the amendment, we also (i) exercised the accordion under the Credit Agreement and borrowed$250 million as term loans, and (ii) provided a notice relating to a qualified acquisition, which triggered temporary adjustments to the maximum leverage ratio as further described below. The Credit Agreement was subsequently amended onNovember 2, 2022 , to, among other things, permit the Company to enter into certain supply chain financing programs, structured vendor payable programs, payable financing programs or other similar financing programs, subject to certain conditions. The amendment also provides that these permitted supply chain arrangements are excluded for purposes of 32 -------------------------------------------------------------------------------- Table of Contents determining compliance with the maximum leverage ratio. In addition, we have an unsecured loan agreement with theMississippi Business Finance Corporation (the "MBFC"), which was entered into in connection with the issuance by MBFC of taxable industrial development revenue bonds (the "MBFC Loan"). OnAugust 26, 2022 , we entered into an amendment to the loan agreement for the unsecured MBFC Loan to, among other things, replace LIBOR with Term SOFR (as defined in the loan agreement) as the reference interest rate. For additional information, see Note 10 to the accompanying condensed consolidated financial statements and below under "Credit Agreement and Other Debt Agreements."
Significant Trends Impacting the Business
Impact of Macroeconomic Trends Beginning inMarch 2020 , interest rates were at historically low levels, primarily due to impacts to theU.S economy caused by COVID-19. More recently, higher consumer demand, lower interest rates, global supply chain disruption, and other factors have contributed to rapidly accelerating economic inflation. To offset the impacts of inflation, sinceMarch 2022 , theFederal Open Market Committee has been raising interest rates, and has stated it intends to continue to raise rates into 2023. During 2023 we have incurred higher average interest rates compared to the same period last year, and we expect this trend to continue during the remainder of fiscal year 2023. While the actual timing and extent of the future increases in interest rates remains unknown, higher long-term interest rates are expected to significantly increase interest expense on our outstanding debt. The financial markets, the global economy and global supply chain may also be adversely affected by the current or anticipated impact of military conflict, including the current conflict betweenRussia andUkraine , or other geopolitical events. High inflation and interest rates have also negatively impacted consumer disposable income, credit availability and spending, among others, which have adversely impacted our business, financial condition, cash flows and results of operations and may continue to have an adverse impact during the remainder of fiscal year 2023. See further discussion below under "Consumer Spending and Changes in Shopping Preferences." We expect continued uncertainty in our business and the global economy due to pressure from inflation, supply chain disruptions, volatility in employment trends and consumer confidence, ongoing uncertainties related to any new surges and responses to COVID-19, any of which may adversely impact our results. Consumer Spending and Changes in Shopping Preferences Our business depends upon discretionary consumer demand for most of our products and primarily operates within mature and highly developed consumer markets. The principal driver of our operating performance is the strength of theU.S. retail economy. Approximately 74% and 79% of our consolidated net sales revenue was fromU.S. shipments during the three month periods endedNovember 30, 2022 and 2021, respectively. For the nine month periods endedNovember 30, 2022 and 2021,U.S. shipments were approximately 74% and 77% of our consolidated net sales revenue. Among other things, high levels of inflation and interest rates may negatively impact consumer disposable income, credit availability and spending. Consumer purchases of discretionary items, including the products that we offer, generally decline during recessionary periods or periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Additionally, the ongoing COVID-19 pandemic increases this uncertainty and may further impact the global supply chain, capital and financial markets and consumer confidence and spending. Dynamic changes in consumer spending and shopping patterns are also having an impact on retailer inventory levels. Our ability to sell to retailers is predicated on their ability to sell to the end consumer. During the second and third quarters of fiscal year 2023, we experienced an adverse impact on orders from customers as they aimed to rebalance their inventory levels due to lower consumer demand and shifts in consumer spending patterns. If orders from our retail customers continue to be adversely impacted, our sales, results of operations and cash flows may continue to be adversely impacted. We expect continued uncertainty in our business and the global economy due to inflation, changes in consumer spending 33 -------------------------------------------------------------------------------- Table of Contents patterns, and global supply chain disruptions. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today. Our concentration of sales reflects the evolution of consumer shopping preferences to online or multichannel shopping experiences. Our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 26% and 23% of our total consolidated net sales revenue for the three and nine month periods endedNovember 30, 2022 , respectively, and grew approximately 3% and 1%, respectively, as compared to the same periods in the prior year. For the three and nine month periods endedNovember 30, 2021 , our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 23% and 22% of our total consolidated net sales revenue, respectively, and both declined approximately 7%, compared to the same periods in the prior year. With the continued growth in online sales across the retail landscape, many brick and mortar retailers are aggressively looking for ways to improve their customer delivery capabilities to be able to meet customer expectations. As a result, it will become increasingly important for us to leverage our distribution capabilities in order to meet the changing demands of our customers, as well as to increase our online capabilities to support our direct-to-consumer sales channels and online channel sales by our retail customers. Continuing Impact of COVID-19 The COVID-19 pandemic continues to disrupt certain parts of our supply chain, which in certain cases has limited our ability to fulfill demand and may limit our ability to fulfill demand in the future. Surges in demand and shifts in shopping patterns related to COVID-19, as well as other factors, have strained the global freight network, which has resulted in higher costs, less capacity, and longer lead times. During fiscal 2023, we have been adversely impacted by COVID-19 related global supply chain disruptions and cost increases. The extent of COVID-19's impact on the demand for certain of our product lines in the future will depend on continuing future developments, including any new variants and surges in the spread of COVID-19, our continued ability to source and distribute our products, the impact of COVID-19 on capital and financial markets, and the related impact on consumer confidence and spending, all of which are uncertain and difficult to predict considering the continuously evolving landscape. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today. Global Supply Chain and Related Cost Inflation Trends During fiscal 2021 and 2022, surges in demand and shifts in shopping patterns related to COVID-19, as well as other factors, strained the global supply chain network, which resulted in carrier-imposed capacity restrictions, carrier delays, and longer lead times. This increased demand for Chinese imports and COVID-19 illness and protocols withinChina caused disruptions to global supply chains. This increased demand led to the market cost of inbound freight increasing by several multiples compared to calendar year 2020 averages. The disruptions in the global supply chain and freight networks also resulted in shortages of qualified drivers, which limited inbound and outbound shipment capacity and increased our costs of goods sold and certain operating expenses. Demand for raw materials, components and semiconductor chips impacted by the supply chain challenges described above has created surges in prices and shortages of these materials may become more significant which could further increase our costs. Further, in theU.S. , the surge in demand for labor and rising hourly labor wages have created labor shortages and higher labor costs. During fiscal 2023, as consumer demand has slowed in reaction to a highly inflationary economic environment, global supply chain capacity has improved and freight costs have begun to recede from their previous peaks. These global supply chain disruptions and related inflationary cost trends have adversely impacted our business, financial condition, cash flows and results 34 -------------------------------------------------------------------------------- Table of Contents of operations. Continuation of adverse trends, or more pronounced adverse impacts may arise which could have further negative impacts to our business, results of operations and financial condition.EPA Compliance Costs Some product lines within our Health & Wellness segment are subject to product identification, labeling and claim requirements, which are monitored and enforced by regulatory agencies, such as theU.S. Environmental Protection Agency (the "EPA "),U.S. Customs and Border Protection , theU.S. Food and Drug Administration , and theU.S. Consumer Product Safety Commission . During fiscal 2022, we were in discussions with theEPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Health & Wellness segment that are sold in theU.S. TheEPA did not raise any product quality, safety or performance issues. As a result of these packaging compliance discussions, we voluntarily implemented a temporary stop shipment action on the impacted products as we worked with theEPA towards an expedient resolution. Our fiscal 2022 consolidated, and Health & Wellness segment's, net sales revenue, gross profit and operating income was materially and adversely impacted by the stop shipment actions and the time needed to execute repackaging plans. We previously resumed normalized levels of shipping of the affected inventory and, during the third quarter of fiscal 2023, we completed the repackaging of our existing inventory of impacted products. Additionally, as a result of continuing dialogue with theEPA , we executed further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products, which were also completed during the third quarter of fiscal 2023. We recorded charges to cost of goods sold to write-off obsolete packaging for the affected products in our inventory on-hand and in-transit. We have also incurred additional compliance costs comprised of obsolete packaging, storage and other charges from vendors, which were recognized in cost of goods sold and incremental warehouse storage costs and legal fees, which were recognized in SG&A. We refer to these charges as "EPA compliance costs." A summary ofEPA compliance costs incurred during the periods presented follows: Three Months Ended November 30, Nine Months Ended November 30, (in thousands) 2022 2021 2022 2021 Cost of goods sold $ 370$ 306 $ 16,928 1$ 13,775 2 SG&A 1,733 4,620 5,173 7,223 TotalEPA compliance costs $ 2,103$ 4,926 $ 22,101$ 20,998 (1)Includes a$4.4 million charge to write-off the obsolete packaging for the affected additional humidifier products and affected additional air filtration products in our inventory on-hand and in-transit as of the end of the first quarter of fiscal 2023.
(2)Includes a
In addition, we incurred and capitalized into inventory costs to repackage a portion of our existing inventory of the affected products beginning in the second quarter of fiscal 2022 through completion of the repackaging in the third quarter of fiscal 2023. We also expect to incur additional compliance costs, which may include incremental warehouse storage costs, charges from vendors, and legal fees, among other things. Such potential incrementalEPA compliance costs will be expensed as incurred and could materially and adversely impact our consolidated and Heath & Wellness segment's gross profit and operating income. Additional impacts or more pronounced adverse impacts may arise that we are not currently aware of today. Accordingly, our business, results of operations and financial condition could be adversely and materially impacted in ways that we are not able to predict today.
Although, we are not aware of any fines or penalties related to this matter
imposed against us by the
See Note 9 to our condensed consolidated financial statements for additional information.
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Foreign Currency Exchange Rate Fluctuations
Due to the nature of our operations, we have exposure to the impact of
fluctuations in exchange rates from transactions that are denominated in a
currency other than our functional currency (the U.S. Dollar). Such transactions
include sales, certain inventory purchases and operating expenses. The most
significant currencies affecting our operating results are the British Pound,
Euro, Canadian Dollar, Mexican Peso and Norwegian Kroner.
For the three months ended November 30, 2022 , changes in foreign currency
exchange rates had an unfavorable year-over-year impact on consolidated U.S.
Dollar reported net sales revenue of approximately $7.1 million , or 1.1%,
compared to a favorable year-over-year impact of $1.2 million , or 0.2% for the
same period last year. For the nine months ended November 30, 2022 , changes in
foreign currency exchange rates had an unfavorable year-over-year impact on
consolidated U.S. Dollar reported net sales revenue of approximately $14.8
million , or 0.9%, compared to a favorable year-over-year impact of $8.8 million ,
or 0.6% for the same period last year.
Variability of the Cough/Cold/Flu Season
Sales in several of our Health & Wellness segment categories are highly
correlated to the severity of winter weather and cough/cold/flu incidence. In
the U.S. , the cough/cold/flu season historically runs from November through
March, with peak activity normally in January to March. The 2021-2022
cough/cold/flu season was below historical averages, but higher than the
2020-2021 season, which experienced historically low incidence levels due to
COVID-19 prevention measures including mask-wearing, remote learning, work from
home, and reduced travel, brick and mortar shopping, and group gatherings.
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RESULTS OF OPERATIONS
The following tables provide selected operating data, in
Three Months Ended
November 30, % of Sales Revenue, net
(in thousands) 2022 (1)(2) 2021 $ Change % Change 2022 2021
Sales revenue by segment, net
Home & Outdoor $ 228,937 $ 246,135 $ (17,198) (7.0) % 41.0 % 39.4 %
Health & Wellness 180,483 203,900 (23,417) (11.5) % 32.3 % 32.6 %
Beauty 149,186 174,849 (25,663) (14.7) % 26.7 % 28.0 %
Total sales revenue, net 558,606 624,884 (66,278) (10.6) % 100.0 % 100.0 %
Cost of goods sold 301,930 351,051 (49,121) (14.0) % 54.1 % 56.2 %
Gross profit 256,676 273,833 (17,157) (6.3) % 45.9 % 43.8 %
SG&A 169,020 183,788 (14,768) (8.0) % 30.3 % 29.4 %
Restructuring charges 10,463 5 10,458 * 1.9 % - %
Operating income 77,193 90,040 (12,847) (14.3) % 13.8 % 14.4 %
Non-operating income, net 5 52 (47) (90.4) % - % - %
Interest expense 13,149 3,206 9,943 * 2.4 % 0.5 %
Income before income tax 64,049 86,886 (22,837) (26.3) % 11.5 % 13.9 %
Income tax expense 12,223 11,203 1,020 9.1 % 2.2 % 1.8 %
Net income $ 51,826 $ 75,683 $ (23,857) (31.5) % 9.3 % 12.1 %
Nine Months Ended
November 30, % of Sales Revenue, net
(in thousands) 2022 (1)(2) 2021 $ Change % Change 2022 2021
Sales revenue by segment, net
Home & Outdoor $ 703,759 $ 654,997 $ 48,762 7.4 % 44.3 % 39.9 %
Health & Wellness 529,930 549,475 (19,545) (3.6) % 33.4 % 33.5 %
Beauty 354,395 436,863 (82,468) (18.9) % 22.3 % 26.6 %
Total sales revenue, net 1,588,084 1,641,335 (53,251) (3.2) % 100.0 % 100.0 %
Cost of goods sold 898,791 936,322 (37,531) (4.0) % 56.6 % 57.0 %
Gross profit 689,293 705,013 (15,720) (2.2) % 43.4 % 43.0 %
SG&A 515,974 482,467 33,507 6.9 % 32.5 % 29.4 %
Restructuring charges 15,241 380 14,861 * 1.0 % - %
Operating income 158,078 222,166 (64,088) (28.8) % 10.0 % 13.5 %
Non-operating income, net 185 185 - - % - % - %
Interest expense 26,688 9,508 17,180 * 1.7 % 0.6 %
Income before income tax 131,575 212,843 (81,268) (38.2) % 8.3 % 13.0 %
Income tax expense 24,482 28,873 (4,391) (15.2) % 1.5 % 1.8 %
Net income $ 107,093 $ 183,970 $ (76,877) (41.8) % 6.7 % 11.2 %
(1)The three and nine month periods ended November 30, 2022 include
approximately thirteen and thirty-two weeks of operating results from Curlsmith,
respectively, which was acquired on April 22, 2022 . For additional information
see Note 4 to the accompanying condensed consolidated financial statements.
(2)The three and nine month periods ended November 30, 2022 include operating
results from Osprey, which was acquired on December 29, 2021 . For additional
information see Note 4 to the accompanying condensed consolidated financial
statements.
* Calculation is not meaningful.
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Third Quarter Fiscal 2023 Financial Results
•Consolidated net sales revenue decreased 10.6%, or $66.3 million , to $558.6
million for the three months ended November 30, 2022 , compared to $624.9 million
for the same period last year.
•Consolidated operating income decreased 14.3%, or $12.8 million , to $77.2
million for the three months ended November 30, 2022 , compared to $90.0 million
for the same period last year. Consolidated operating margin decreased 0.6
percentage points to 13.8% of consolidated net sales revenue for the three
months ended November 30, 2022 , compared to 14.4% for the same period last year.
•Consolidated adjusted operating income decreased 12.7%, or $13.4 million , to
$92.7 million for the three months ended November 30, 2022 , compared to $106.1
million for the same period last year. Consolidated adjusted operating margin
decreased 0.4 percentage points to 16.6% of consolidated net sales revenue for
the three months ended November 30, 2022 , compared to 17.0% for the same period
last year.
•Net income decreased 31.5%, or $23.9 million , to $51.8 million for the three
months ended November 30, 2022 , compared to $75.7 million for the same period
last year. Diluted EPS decreased 30.6% to $2.15 for the three months ended
November 30, 2022 , compared to $3.10 for the same period last year.
•Adjusted income decreased 26.9%, or $24.4 million , to $66.3 million for the
three months ended November 30, 2022 , compared to $90.6 million for the same
period last year. Adjusted diluted EPS decreased 26.1% to $2.75 for the three
months ended November 30, 2022 , compared to $3.72 for the same period last year.
Year-To-Date Fiscal 2023 Financial Results
•Consolidated net sales revenue decreased 3.2%, or
•Consolidated operating income decreased 28.8%, or$64.1 million , to$158.1 million for the nine months endedNovember 30, 2022 , compared to$222.2 million for the same period last year. Consolidated operating margin decreased 3.5 percentage points to 10.0% of consolidated net sales revenue for the nine months endedNovember 30, 2022 , compared to 13.5% for the same period last year. •Consolidated adjusted operating income decreased 17.1%, or$48.2 million , to$234.2 million for the nine months endedNovember 30, 2022 , compared to$282.5 million for the same period last year. Consolidated adjusted operating margin decreased 2.4 percentage points to 14.8% of consolidated net sales revenue for the nine months endedNovember 30, 2022 , compared to 17.2% for the same period last year. •Net income decreased 41.8%, or$76.9 million , to$107.1 million for the nine months endedNovember 30, 2022 , compared to$184.0 million for the same period last year. Diluted EPS decreased 40.8% to$4.45 for the nine months endedNovember 30, 2022 , compared to$7.52 for the same period last year. •Adjusted income decreased 25.6%, or$61.8 million , to$179.1 million for the nine months endedNovember 30, 2022 , compared to$240.9 million for the same period last year. Adjusted diluted 38 --------------------------------------------------------------------------------
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EPS decreased 24.5% to
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