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| HELE > SEC Filings for HELE > Form 10-Q on 10-Oct-2012 | All Recent SEC Filings |
10-Oct-2012
Quarterly Report
This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially due to a number of factors, including those discussed in Part I, Item 3. "Quantitative and Qualitative Disclosures about Market Risk" and "Information Regarding Forward Looking Statements" in this report and "Risk Factors" in the Company's most recent annual report on Form 10-K and its other filings with the Securities and Exchange Commission (the "SEC"). This discussion should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1 of this report.
OVERVIEW OF THE QUARTER'S RESULTS:
Retail sales in the U.S. began to strengthen in July, and overall retail sales in August showed growth in comparison to the prior year. Housing starts and new mortgage applications, a strong leading indicator for many of our product lines, appear to be trending modestly upward. However, recent moves in the Consumer Confidence Index are mixed, which we believe is due in large part to coverage of economic conditions, weak job growth and the uncertainty created by future potential tax increases and government spending cuts. The impact of these issues could put a damper on holiday spending.
U.S. macroeconomic conditions marginally improved over the fiscal quarter. However, global macroeconomic conditions, including a pullback in the Chinese economy, recession in parts of Europe and Latin America and continued uncertainty surrounding European sovereign debt issues, continue to signal caution for the remainder of the year.
In our second fiscal quarter, we continued to be constrained by the current economic conditions. We believe the increases in consumer spending are concentrated in non-discretionary purchases. Consumers continue to be thrifty and promotion oriented, which has reduced consumption and impacted sales mix in many of our product categories. Against this backdrop, our top-line performance did not meet our expectations for the quarter in many of our product categories. Promotional pressure, soft takeaway at retail, shelf placement challenges, cost pressures from our suppliers, and the general economic uncertainties discussed above continue to keep us cautious regarding our outlook for the remainder of fiscal 2013.
Consolidated net sales revenue for the three- and six-month periods ended August 31, 2012 increased $9.99 and $38.74 million to $287.41 and $587.62 million, respectively, compared to $277.42 and $548.89 million, respectively, for the same periods last year. Net sales revenue in our Personal Care segment decreased $2.93 million, or 2.5 percent, for the three month period ended August 31, 2012, and decreased $8.10 million, or 3.4 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. Net sales revenue in our Housewares segment increased $0.72 million, or 1.1 percent, for the three month period ended August 31, 2012, and increased $8.03 million, or 6.9 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. Net sales revenue in our Healthcare / Home Environment segment increased $12.20 million, or 12.4 percent, for the three month period ended August 31, 2012, and increased $38.81 million, or 20.0 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. The Healthcare / Home Environment segment's results for the three- and six-month periods ended August 31, 2012 include $26.25 and $50.54 million, respectively, of incremental net sales revenue from our PUR water filtration business, which was acquired on December 30, 2011. In addition to our net sales revenue performance discussed above, key results for the three- and six-month periods ended August 31, 2012 include the following:
† Consolidated gross profit margin as a percentage of net sales revenue for the fiscal quarter ended August 31, 2012 increased 0.2 percentage points to 40.7 percent compared to 40.5 percent for the same period last year. Consolidated gross profit margin as a percentage of net sales for the six month period ended August 31, 2012 of 40.5 percent was flat compared to the same period last year.
† Selling, general and administrative expense ("SG&A") as a percentage of net sales increased 0.5 percentage points to 30.0 percent for the three months ended August 31, 2012 compared to 29.5 percent for the same period last year. SG&A as a percentage of net sales for the six months ended August 31, 2012 increased 0.6 percentage points to 30.0 percent compared to 29.4 percent for the same period last year.
† For the three- and six- month periods ended August 31, 2012, operating income increased to $30.84 and $61.99 million compared to $30.35 and $61.00 million, respectively, for the same periods last year. For the three- and six-month periods ended August 31, 2012, this represents a year-over-year increase of 1.6 percent for each period.
† For the three- and six-month periods ended August 31, 2012, our net income was $22.97 and $46.44 million, respectively, compared to $23.59 and $48.20 million, respectively, for the same periods last year, a decrease of 2.6 and 3.6 percent, respectively. For the three- and six-month periods ended August 31, 2012, our diluted earnings per share was $0.72 and $1.46 compared to $0.74 and $1.52, respectively, for the same periods last year.
RESULTS OF OPERATIONS
Comparison of the three- and six-month periods ended August 31, 2012 to the same periods ended August 31, 2011
The following table sets forth, for the periods indicated, our selected operating data, in U.S. Dollars, as a year-over-year percentage change and as a percentage of net sales revenue.
SELECTED OPERATING DATA
(dollars in thousands)
% of Sales Revenue,
Three Months Ended August 31, net
2012 2011 $ Change % Change 2012 2011
Sales revenue, net
Personal Care $ 112,364 $ 115,296 $ (2,932 ) -2.5% 39.1 % 41.6 %
Housewares 64,570 63,848 722 1.1% 22.5 % 23.0 %
Healthcare / Home
Environment ** 110,477 98,276 12,201 12.4% 38.4 % 35.4 %
Total sales revenue,
net 287,411 277,420 9,991 3.6% 100.0 % 100.0 %
Cost of goods sold 170,381 165,138 5,243 3.2% 59.3 % 59.5 %
Gross profit 117,030 112,282 4,748 4.2% 40.7 % 40.5 %
Selling, general, and
administrative
expense 86,189 81,933 4,256 5.2% 30.0 % 29.5 %
Operating income 30,841 30,349 492 1.6% 10.7 % 10.9 %
Nonoperating income
(expense), net 31 (658 ) 689 * 0.0 % -0.2 %
Interest expense (3,130 ) (3,265 ) 135 -4.1% -1.1 % -1.2 %
Total other income
(expense) (3,099 ) (3,923 ) 824 -21.0% -1.1 % -1.4 %
Income before income
taxes 27,742 26,426 1,316 5.0% 9.7 % 9.5 %
Income tax expense 4,774 2,833 1,941 68.5% 1.7 % 1.0 %
Net income $ 22,968 $ 23,593 $ (625 ) -2.6% 8.0 % 8.5 %
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% of Sales Revenue,
Six Months Ended August 31, net
2012 2011 $ Change % Change 2012 2011
Sales revenue, net
Personal Care $ 229,916 $ 238,014 $ (8,098 ) -3.4% 39.1 % 43.4 %
Housewares 124,819 116,794 8,025 6.9% 21.3 % 21.3 %
Healthcare / Home
Environment ** 232,887 194,079 38,808 20.0% 39.6 % 35.3 %
Total sales revenue,
net 587,622 548,887 38,735 7.1% 100.0 % 100.0 %
Cost of goods sold 349,444 326,692 22,752 7.0% 59.5 % 59.5 %
Gross profit 238,178 222,195 15,983 7.2% 40.5 % 40.5 %
Selling, general, and
administrative
expense 176,189 161,192 14,997 9.3% 30.0 % 29.4 %
Operating income 61,989 61,003 986 1.6% 10.5 % 11.1 %
Nonoperating income
(expense), net 54 (515 ) 569 * 0.0 % -0.1 %
Interest expense (6,442 ) (6,694 ) 252 -3.8% -1.1 % -1.2 %
Total other income
(expense) (6,388 ) (7,209 ) 821 -11.4% -1.1 % -1.3 %
Income before income
taxes 55,601 53,794 1,807 3.4% 9.5 % 9.8 %
Income tax expense 9,161 5,596 3,565 63.7% 1.6 % 1.0 %
Net income $ 46,440 $ 48,198 $ (1,758 ) -3.6% 7.9 % 8.8 %
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* Calculation is not meaningful
** Includes PUR net sales revenues for the three- and six-month periods ended August 31, 2012 of $26.25 and $50.54 million, respectively.
Consolidated net sales revenue:
Consolidated net sales revenue for the three- and six-month periods ended August 31, 2012 increased $9.99 and $38.74 million to $287.41 and $587.62 million, respectively, compared to $277.42 and $548.89 million, respectively, for the same periods last year. Net sales revenue in our Personal Care segment decreased $2.93 million, or 2.5 percent, for the three month period ended August 31, 2012, and decreased $8.10 million, or 3.4 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. Net sales revenue in our Housewares segment increased $0.72 million, or 1.1 percent, for the three month period ended August 31, 2012, and increased $8.03 million, or 6.9 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. Net sales revenue in our Healthcare / Home Environment segment increased $12.20 million, or 12.4 percent, for the three month period ended August 31, 2012, and increased $38.81 million, or 20.0 percent, for the six month period ended August 31, 2012, when compared to the same periods last year. The Healthcare / Home Environment segment's results for the three- and six-month periods ended August 31, 2012 include $26.25 and $50.54 million, respectively, of incremental net sales revenue from our PUR water filtration business, which was acquired on December 30, 2011.
Impact of acquisitions on net sales revenue:
Net sales revenue from the PUR acquisition contributed 9.5 and 9.2 percentage points, respectively, or $26.25 and $50.54 million, respectively to our consolidated net sales revenue growth for the three- and six-month periods ended August 31, 2012. The PUR business operates as part of the Healthcare / Home Environment segment. Organic growth in our Housewares segment was offset by declines in our Personal Care and Healthcare / Home Environment segments' core businesses. The following tables set forth the impact acquisitions had on our net sales revenue:
IMPACT OF ACQUISITIONS ON NET SALES REVENUE
(in thousands)
Three Months Ended August 31,
2012 2011
Prior year's sales revenue, net $ 277,420 $ 174,823
Components of net sales revenue change
Core business (16,261 ) 4,321
Incremental net sales revenue from acquisitions:
Kaz (three months in fiscal 2012) - 98,276
PUR (three months in fiscal 2013) 26,252 -
Change in sales revenue, net 9,991 102,597
Sales revenue, net $ 287,411 $ 277,420
Total net sales revenue growth 3.6% 58.7%
Core business -5.9% 2.5%
Acquisitions 9.5% 56.2%
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IMPACT OF ACQUISITIONS ON NET SALES REVENUE
(in thousands)
Six Months Ended August 31,
2012 2011
Prior year's sales revenue, net $ 548,887 $ 334,976
Components of net sales revenue change
Core business (11,808 ) 13,319
Incremental net sales revenue from acquisitions:
Pert Plus & Sure (one month in fiscal 2012) - 6,513
Kaz (six months in fiscal 2012) - 194,079
PUR (six months in fiscal 2013) 50,543 -
Change in sales revenue, net 38,735 213,911
Sales revenue, net $ 587,622 $ 548,887
Total net sales revenue growth 7.1% 63.9%
Core business -2.2% 4.0%
Acquisitions 9.2% 59.9%
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In the above tables, core business is net sales revenue associated with product lines or brands after the first twelve months from the date a business, product line or brand was acquired. Net sales revenue from internally developed brands or product lines are always considered core business. Net sales revenue from acquisitions is net sales revenues associated with product lines or brands that we have acquired and operated for less than twelve months during each period presented.
Impact of foreign currencies on net sales revenue:
During each of the three- and six-month periods ended August 31, 2012, we transacted approximately 16 percent of our net sales revenues in foreign currencies. During the three- and six-month periods ended August 31, 2011, we transacted approximately 17 and 19 percent, respectively, of our net sales revenues in foreign currencies. These transactions were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Japanese Yen, Australian Dollars, Chilean Pesos, Peruvian Soles, and Venezuelan Bolivares Fuertes. For the three- and six-month periods ended August 31, 2012, the impact of net foreign currency exchange rates decreased our international net sales revenue by approximately $3.28 and $5.93 million, respectively. Most of the impact of these fluctuations affected sales in our Personal Care and Healthcare / Home Environment segments.
Segment net sales revenue:
We operate our business under three segments: Personal Care, Housewares and Healthcare / Home Environment. Our Personal Care segment's products include electric hair care, beauty care and wellness appliances; grooming tools and accessories; and liquid, solid- and powder-based personal care and grooming products. Our Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation and storage, cleaning, organization, and baby and toddler care products. The Healthcare / Home Environment segment focuses on health care devices such as thermometers, blood pressure monitors, humidifiers, and heating pads; water filtration systems; and small home appliances such as air purifiers, portable heaters, fans, and bug zappers.
Personal Care Segment - Net sales revenue in the Personal Care segment for the three month period ended August 31, 2012 decreased $2.93 million, or 2.5 percent, to $112.36 million compared with $115.30 million for the same period last year. Net sales revenue in the Personal Care segment for the six month period ended August 31, 2012 decreased $8.10 million, or 3.4 percent, to $229.92 million compared with $238.01 million for the same period last year.
Personal Care net sales revenue continues to be negatively impacted by the following factors:
† A difficult U.S. retail sales environment, resulting in soft consumer spending;
† Challenging macroeconomic conditions in Europe and Latin America;
† Increases in competitive trade promotional activities, including a major hair category launch by a significant competitor;
† The impact of inventory reductions and shifts in category emphasis by certain retailers;
† A difficult year-over-year comparison due to new product distribution fill-in with a key customer during the same period last year, compared with reorder activity for the same product in the current year;
† Unforecasted demand and product availability issues with certain suppliers; and
† The impact of foreign currency fluctuations on U.S. Dollar reported net sales.
We continue to expect that net sales revenue performance in our Personal Care segment will be heavily dependent on the direction of consumer sentiment, which requires continued improvements in employment, housing markets and consumers' personal finances.
Housewares Segment - Segment net sales revenue for the three months ended August 31, 2012 increased $0.72 million, or 1.1 percent, to $64.57 million compared with $63.85 million for the same period last year. Segment net sales revenue for the six months ended August 31, 2012 increased $8.03 million, or 6.9 percent, to $124.82 million compared with $116.79 million for the same period last year. Modest net sales revenue growth in the second fiscal quarter was the result of:
† A difficult retail sales environment, resulting in soft consumer spending;
† Increased competition from competitors who are offering heavy promotional price discounts to capture market share;
† Loss of distribution volume due to pricing, and
† The impact of our first quarter aggressive seasonal closeout sales.
As we reported last quarter, some level of sales were concentrated in the first fiscal quarter of this fiscal year that might otherwise normally occur over the remainder of the fiscal year. We believe that most of the unfavorable impact of this closeout acceleration was experienced in the second fiscal quarter of this fiscal year. The segment continues to experience growth in its food preparation, bath, cleaning, and baby and toddler categories.
Healthcare / Home Environment - Segment net sales revenue for the three months ended August 31, 2012 increased $12.20 million, or 12.4 percent, to $110.48 million compared with $98.28 million for the same period last year. Segment net sales revenue for the six months ended August 31, 2012 increased $38.81 million, or 20.0 percent, to $232.89 million compared with $194.08 million for the same period last year. The Healthcare / Home Environment segment's results for the three- and six-month periods ended August 31, 2012 include $26.25 and $50.54 million, respectively, of incremental net sales revenue from our PUR water filtration business, which was acquired on December 30, 2011. The core business categories in the segment experienced sales declines of $14.05 million, or 14.3 percent and $11.74 million, or 6.0 percent, respectively for the three- and six-month periods ended August 31, 2012 compared to the same periods last year. Healthcare / Home Environment
net sales revenue over both periods was negatively impacted by the following factors:
† Difficult U.S. and European retail sales environments;
† The impact of high seasonal inventory levels at retail due to the previous warm winter and mild cold and flu season. This will also impact the coming cold and flu seasons early orders as prior year inventory stocks at retailers are sold off before replenishment orders are placed;
† Lost shelf placement on certain key products due to competitive pricing pressures; and
† The impact of foreign currency fluctuations on U.S. Dollar reported net sales.
Strong summer season fan sales and early season thermometer sales helped to offset some of the core business category declines.
Consolidated gross profit margin:
Consolidated gross profit margin as a percentage of net sales revenue for the three months ended August 31, 2012 increased 0.2 percentage points to 40.7 percent compared to 40.5 percent for the same period last year. Consolidated gross profit margin as a percentage of net sales revenue for the six months ended August 31, 2012 of 40.5 percent was flat compared to same period last year. In the second fiscal quarter and for the fiscal year-to-date, our consolidated gross profit margin continued to be unfavorably impacted by the combined effects of foreign currency exchange rates on net sales and general product cost increases across all segments. These unfavorable impacts were offset by the PUR water filtration acquisition, which has favorably impacted consolidated gross profit margins.
Our product sourcing mix is heavily dependent on imports from China. China's currency is no longer pegged solely to the U.S. dollar. As a result, we believe China's currency may continue to appreciate against the U.S. Dollar in the short-to-intermediate-term, resulting in increased product costs over time. Furthermore, if increases in the underlying costs of labor and commodities in China continue, we expect that they would also result in future increases in our product costs.
Selling, general and administrative expense:
SG&A increased 0.5 percentage points, or $4.26 million in dollar terms, to 30.0 percent of net sales revenue for the three month period ended August 31, 2012, compared to 29.5 percent for the same period last year. SG&A increased 0.6 percentage points, or $15.00 million in dollar terms, to 30.0 percent of net sales revenue for the six month period ended August 31, 2012, compared to 29.4 percent for the same period last year. The year-over-year increases in SG&A as a percentage of net sales revenue are primarily due to:
† Higher overall media advertising costs;
† Transition service fees incurred through June 2012 in connection with the acquisition of the PUR business, which we did not incur during the first two fiscal quarters last year;
† Higher incentive compensation expense associated with a new performance bonus plan for our Chief Executive Officer;
† Higher depreciation as a result of an upgrade of our Enterprise Resource Planning system; and
† Higher amortization of intangible assets as a result of the PUR acquisition.
Operating income by segment:
The following table sets forth, for the periods indicated, our operating income by segment as a year-over-year percentage change and as a percentage of net sales revenue for each segment and the Company overall:
OPERATING INCOME BY SEGMENT
(dollars in thousands)
% of Sales Revenue,
Three Months Ended August 31, net
2012 2011 $ Change % Change 2012 2011
Personal Care $ 11,880 $ 11,155 $ 725 6.5% 10.6% 9.7 %
Housewares 12,078 11,973 105 0.9% 18.7% 18.8 %
Healthcare / Home
Environment * 6,883 7,221 (338 ) -4.7% 6.2% 7.3 %
Total operating income $ 30,841 $ 30,349 $ 492 1.6% 10.7% 10.9 %
% of Sales Revenue,
Six Months Ended August 31, net
2012 2011 $ Change % Change 2012 2011
Personal Care $ 23,760 $ 31,007 $ (7,247 ) -23.4% 10.3% 13.0 %
Housewares 23,355 22,838 517 2.3% 18.7% 19.6 %
Healthcare / Home
Environment * 14,874 7,158 7,716 107.8% 6.4% 3.7 %
Total operating income $ 61,989 $ 61,003 $ 986 1.6% 10.5% 11.1 %
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* Includes three- and six-months of PUR operating income in fiscal 2012
We compute operating income for each segment based on net sales revenue, less cost of goods sold and any SG&A associated with the segment. The SG&A used to compute each segment's operating income is comprised of SG&A directly associated with the segment, plus overhead expenses that are allocable to the segment. We make allocations of overhead between operating segments using a number of relevant allocation criteria, depending on the nature of the expense, the most significant of which are relative revenues, estimates of relative labor expenditures, headcount, and facilities square footage. In fiscal 2013, we began making certain additional cost allocations to the Healthcare / Home Environment segment that were not made in fiscal 2012. These allocations are costs of corporate and operating functions that are shared by the segments. We made this change because we now have a complete fiscal year's operating experience with the Healthcare / Home Environment segment. In the past year, we have integrated certain of the segment's corporate and operating functions into consolidated corporate and shared operating functions. For the three- and six-month periods ended August 31, 2012, the allocation totaled $4.10 and $8.22 million, respectively, compared to $1.51 and $3.01 million, respectively, for the same periods last year.
The Personal Care segment's operating income increased $0.73 million, or 6.5 percent, for the three month period ended August 31, 2012 compared to the same period last year. The Personal Care segment's operating income decreased $7.25 million, or 23.4 percent, for the six month period ended August 31, 2012 . . .
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