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| HELE > SEC Filings for HELE > Form 10-Q on 9-Jan-2013 | All Recent SEC Filings |
9-Jan-2013
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 ("SEC"). This discussion should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1 of this report.
RECENT DEVELOPMENTS:
In December 2012, the Company entered into a series of agreements with various parties for the acquisition and construction of a new 1.3 million square foot distribution facility to be built to our specifications on approximately 84 acres of land in Olive Branch, Mississippi. The total cost of the project after certain incentives and sales tax exemptions is approximately $37.00 million, including distribution equipment and IT infrastructure. These costs are subject to usual and customary adjustments. The new facility will consolidate the operations of our U.S. based Personal Care and Healthcare / Home Environment appliance businesses. This will allow for continued expansion of our U.S. based Housewares and Personal Care liquid, solid- and powder-based personal care and grooming products within our existing 1.2 million square foot distribution facility in Southaven, Mississippi. We expect to fund the project out of a combination of cash from operations, our existing revolving line of credit and new long-term debt. The new facility is expected to become operational during the third quarter of fiscal year 2014. At that time, we will vacate an existing leased facility in Memphis, Tennessee.
OVERVIEW OF THE QUARTER'S RESULTS:
Our business is dependent on discretionary consumer demand for most of our products. Consumer demand is sensitive to a number of factors that influence consumer spending including general economic conditions, disposable income, fluctuating food, fuel and energy costs, recession and the possibility of recession, unemployment, housing market activity, and the uncertainty surrounding the U.S. "Fiscal Cliff" negotiations along with widespread skepticism about the related implementation of any resulting agreements. We have now been operating under a protracted environment of economic challenges driving consumer uncertainty since the 2008-2009 economic downturn. In the U.S., the economic recovery remains sluggish and holiday retail sales are reported to be lower than expected, although marginally improved over last year. Most longer-term economic forecasts suggest moderate domestic growth the rest of this decade. With respect to our international businesses, the recession in Europe continues to impact major markets, while in Latin America modest growth has begun in countries such as Mexico, Chile and Peru.
In our third fiscal quarter, we continued to be constrained by the current economic conditions. We continue to believe that increases in consumer spending are concentrated in non-discretionary categories. Consumers are cautious, thrifty and promotion oriented, which has reduced consumption and impacted sales mix in many of our product categories. During the latest quarter, our top-line performance was primarily driven by solid growth in our Housewares segment, the impact of our recent PUR acquisition, and modestly improved sales in the remaining core of our Healthcare / Home Environment segment. Net sales revenue in our Personal Care segment was essentially flat in comparison to the same period last year, which is an improvement in the segment's recent year-over-year trend. 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 nine-month periods ended November 30, 2012 increased $35.81 and $74.55 million to $374.60 and $962.22 million, respectively, compared to $338.79 and $887.67 million, respectively, for the same periods last year. Net sales revenue in our Personal Care segment decreased $0.35 million, or 0.2 percent, for the three month period ended November 30, 2012, and decreased $8.44 million, or 2.2 percent, for the nine month period ended November 30, 2012, when compared to the same periods last
year. Net sales revenue in our Housewares segment increased $6.56 million, or 10.7 percent, for the three month period ended November 30, 2012, and increased $14.59 million, or 8.2 percent, for the nine month period ended November 30, 2012, when compared to the same periods last year. Net sales revenue in our Healthcare / Home Environment segment increased $29.60 million, or 23.0 percent, for the three month period ended November 30, 2012, and increased $68.40 million, or 21.2 percent, for the nine month period ended November 30, 2012, when compared to the same periods last year. The Healthcare / Home Environment segment's results for the three- and nine-month periods ended November 30, 2012 include $28.08 and $78.62 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 nine-month periods ended November 30, 2012 include the following:
† Consolidated gross profit margin as a percentage of net sales revenue for the fiscal quarter ended November 30, 2012 increased 0.3 percentage points to 39.6 percent compared to 39.3 percent for the same period last year. Consolidated gross profit margin as a percentage of net sales revenue for the nine month period ended November 30, 2012 increased 0.2 percentage points to 40.2 percent compared to 40.0 percent for the same period last year.
† Selling, general and administrative expense ("SG&A") as a percentage of net sales revenue increased 0.1 percentage points to 27.1 percent for the three months ended November 30, 2012 compared to 27.0 percent for the same period last year. SG&A as a percentage of net sales revenue for the nine months ended November 30, 2012 increased 0.3 percentage points to 28.8 percent compared to 28.5 percent for the same period last year.
† For the three- and nine- month periods ended November 30, 2012, operating income increased to $47.05 and $109.04 million compared to $41.83 and $102.83 million, respectively, for the same periods last year. For the three- and nine-month periods ended November 30, 2012, this represents a year-over-year increase of 12.5 and 6.0 percent for each period, respectively.
† For the three- and nine-month periods ended November 30, 2012, our net income was $37.72 and $84.16 million, respectively, compared to $32.88 and $81.08 million, respectively, for the same periods last year, a increase of 14.7 and 3.8 percent, respectively. For the three- and nine-month periods ended November 30, 2012, our diluted earnings per share was $1.18 and $2.64 compared to $1.04 and $2.56, respectively, for the same periods last year.
RESULTS OF OPERATIONS
Comparison of the three- and nine-month periods ended November 30, 2012 to the same periods ended November 30, 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)
Three Months Ended November 30, % of Sales Revenue, net
2012 2011 $ Change % Change 2012 2011
Sales revenue, net
Personal Care $ 148,638 $ 148,984 $ (346 ) -0.2 % 39.7 % 44.0%
Housewares 67,787 61,223 6,564 10.7 % 18.1 % 18.1%
Healthcare / Home Environment
** 158,174 128,578 29,596 23.0 % 42.2 % 37.9%
Total sales revenue, net 374,599 338,785 35,814 10.6 % 100.0 % 100.0%
Cost of goods sold 226,146 205,603 20,543 10.0 % 60.4 % 60.7%
Gross profit 148,453 133,182 15,271 11.5 % 39.6 % 39.3%
Selling, general, and
administrative expense 101,401 91,354 10,047 11.0 % 27.1 % 27.0%
Operating income 47,052 41,828 5,224 12.5 % 12.6 % 12.3%
Nonoperating income (expense),
net (16 ) 190 (206 ) * 0.0 % 0.1%
Interest expense (3,232 ) (2,958 ) (274 ) 9.3 % -0.9 % -0.9%
Total other income (expense) (3,248 ) (2,768 ) (480 ) 17.3 % -0.9 % -0.8%
Income before income taxes 43,804 39,060 4,744 12.1 % 11.7 % 11.5%
Income tax expense 6,085 6,181 (96 ) -1.6 % 1.6 % 1.8%
Net income $ 37,719 $ 32,879 $ 4,840 14.7 % 10.1 % 9.7%
Nine Months Ended November 30, % of Sales Revenue, net
2012 2011 $ Change % Change 2012 2011
Sales revenue, net
Personal Care $ 378,554 $ 386,998 $ (8,444 ) -2.2 % 39.3 % 43.6%
Housewares 192,606 178,017 14,589 8.2 % 20.0 % 20.1%
Healthcare / Home Environment
** 391,061 322,657 68,404 21.2 % 40.6 % 36.3%
Total sales revenue, net 962,221 887,672 74,549 8.4 % 100.0 % 100.0%
Cost of goods sold 575,590 532,295 43,295 8.1 % 59.8 % 60.0%
Gross profit 386,631 355,377 31,254 8.8 % 40.2 % 40.0%
Selling, general, and
administrative expense 277,590 252,546 25,044 9.9 % 28.8 % 28.5%
Operating income 109,041 102,831 6,210 6.0 % 11.3 % 11.6%
Nonoperating income (expense),
net 38 (325 ) 363 * 0.0 % 0.0%
Interest expense (9,674 ) (9,652 ) (22 ) 0.2 % -1.0 % -1.1%
Total other income (expense) (9,636 ) (9,977 ) 341 -3.4 % -1.0 % -1.1%
Income before income taxes 99,405 92,854 6,551 7.1 % 10.3 % 10.5%
Income tax expense 15,246 11,777 3,469 29.5 % 1.6 % 1.3%
Net income $ 84,159 $ 81,077 $ 3,082 3.8 % 8.7 % 9.1%
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* Calculation is not meaningful
** Includes PUR net sales revenues for the three- and nine-month periods ended November 30, 2012 of $28.08 and $78.62 million, respectively.
Consolidated net sales revenue:
Consolidated net sales revenue for the three- and nine-month periods ended November 30, 2012 increased $35.81 and $74.55 million to $374.60 and $962.22 million, respectively, compared to $338.79 and $887.67
million, respectively, for the same periods last year. Net sales revenue in our Personal Care segment decreased $0.35 million, or 0.2 percent, for the three month period ended November 30, 2012, and decreased $8.44 million, or 2.2 percent, for the nine month period ended November 30, 2012, when compared to the same periods last year. Net sales revenue in our Housewares segment increased $6.56 million, or 10.7 percent, for the three month period ended November 30, 2012, and increased $14.59 million, or 8.2 percent, for the nine month period ended November 30, 2012, when compared to the same periods last year. Net sales revenue in our Healthcare / Home Environment segment increased $29.60 million, or 23.0 percent, for the three month period ended November 30, 2012, and increased $68.40 million, or 21.2 percent, for the nine month period ended November 30, 2012, when compared to the same periods last year. The Healthcare / Home Environment segment's results for the three- and nine-month periods ended November 30, 2012 include $28.08 and $78.62 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 8.3 and 8.9 percentage points, respectively, or $28.08 and $78.62 million, respectively, to our consolidated net sales revenue growth for the three- and nine-month periods ended November 30, 2012. The PUR business operates as part of the Healthcare / Home Environment segment. For the three months ended November 30, 2012, there was organic growth in our Housewares and Healthcare / Home Environment segments, and our Personal Care segment's core business was essentially flat. For the nine month period ended November 30, 2012, 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 November 30,
2012 2011
Prior year's sales revenue, net $ 338,785 $ 205,001
Components of net sales revenue change
Core business 7,738 5,206
Incremental net sales revenue from acquisitions:
Kaz (three months in fiscal 2012) - 128,578
PUR (three months in fiscal 2013) 28,076 -
Change in sales revenue, net 35,814 133,784
Sales revenue, net $ 374,599 $ 338,785
Total net sales revenue growth 10.6% 65.3%
Core business 2.3% 2.5%
Acquisitions 8.3% 62.7%
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IMPACT OF ACQUISITIONS ON NET SALES REVENUE
(in thousands)
Nine Months Ended November 30,
2012 2011
Prior year's sales revenue, net $ 887,672 $ 539,977
Components of net sales revenue change
Core business (4,070 ) 18,525
Incremental net sales revenue from acquisitions:
Pert Plus & Sure (one month in fiscal 2012) - 6,513
Kaz (nine months in fiscal 2012) - 322,657
PUR (nine months in fiscal 2013) 78,619 -
Change in sales revenue, net 74,549 347,695
Sales revenue, net $ 962,221 $ 887,672
Total net sales revenue growth 8.4% 64.4%
Core business -0.5% 3.4%
Acquisitions 8.9% 61.0%
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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 the three- and nine-month periods ended November 30, 2012, we transacted approximately 18 and 17 percent, respectively, of our net sales revenues in foreign currencies. During the three- and nine-month periods ended November 30, 2011, we transacted approximately 20 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 nine-month periods ended November 30, 2012, the impact of net foreign currency exchange rates decreased our international net sales revenue by approximately $0.41 and $6.34 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 November 30, 2012 decreased $0.35 million, or 0.2 percent, to $148.64 million compared with $148.98 million for the same period last year. Net sales revenue in the Personal Care segment for the nine month period ended November 30, 2012 decreased $8.44 million, or 2.2 percent, to $378.55 million compared with $387.00 million for the same period last year.
For the three- and nine-month periods ended November 30, 2012, Personal Care net sales revenue was negatively impacted by the following factors:
† A difficult worldwide 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 product rationalization, inventory reduction and shifts in category emphasis by certain retailers; and
† The impact of foreign currency fluctuations on U.S. Dollar reported net sales revenue.
For the nine month period ended November 30, 2012, Personal Care net sales revenue was negatively impacted by the following factors, in addition to the factors listed above:
† A difficult year-over-year comparison due to new product roll-out with a key customer during the same period last year, compared with reorder activity for the same product in the current year; and
† Unforecasted demand and product availability issues with certain suppliers.
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 November 30, 2012 increased $6.56 million, or 10.7 percent, to $67.79 million compared with $61.22 million for the same period last year. Segment net sales revenue for the nine months ended November 30, 2012 increased $14.59 million, or 8.2 percent, to $192.61 million compared with $178.02 million for the same period last 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 November 30, 2012 increased $29.60 million, or 23.0 percent, to $158.17 million compared with $128.58 million for the same period last year. Segment net sales revenue for the nine months ended November 30, 2012 increased $68.40 million, or 21.2 percent, to $391.06 million compared with $322.66 million for the same period last year. The Healthcare / Home Environment segment's results for the three- and nine-month periods ended November 30, 2012 include $28.08 and $78.62 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 a net sales revenue increase of $1.52 million, or 1.2 percent and a net sales revenue decline of $10.22 million, or 3.2 percent, respectively for the three- and nine-month periods ended November 30, 2012 compared to the same periods last year. While the Healthcare / Home Environment fiscal 2013 net sales revenue has benefited from strong Braun thermometry sales and strong summer season fan sales, net sales revenue over the three- and nine-month periods continued to be negatively impacted by the following factors:
† A difficult worldwide retail sales environment;
† The impact of high seasonal inventory levels at retail due to the previous warm winter and mild cold and flu season last year, which continues to impact early orders for the upcoming winter and cold and flu seasons;
† 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 revenue.
Consolidated gross profit margin:
Consolidated gross profit margin as a percentage of net sales revenue for the three months ended November 30, 2012 increased 0.3 percentage points to 39.6 percent compared to 39.3 percent for the same period last year. Consolidated gross profit margin as a percentage of net sales revenue for the nine months ended November 30, 2012 increased 0.2 percentage points to 40.2 percent compared to 40.0 percent for the same period last year. In the third 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 revenue 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 0.1 percentage point to 27.1 percent of net sales revenue for the three month period ended November 30, 2012, compared to 27.0 percent for the same period last year. SG&A increased 0.3 percentage points to 28.8 percent of net sales revenue for the nine month period ended November 30, 2012, compared to 28.5 percent for the same period last year.
The year-over-year increase in SG&A as a percentage of net sales revenue for the third fiscal quarter is primarily due to:
† Higher overall media advertising costs;
† Higher depreciation as a result of an upgrade of our Enterprise Resource Planning system;
† Higher amortization of intangible assets as a result of the PUR acquisition; and
† A product packaging litigation expense in our Healthcare / Home Environment segment.
The fiscal year-to-date increase in SG&A as a percentage of net sales revenue is primarily due to the factors listed above and the following:
† Transition service fees incurred through June 2012 in connection with the acquisition of the PUR business, which we did not incur last year; and
† Higher incentive compensation expense associated with a new performance bonus plan for our Chief Executive Officer.
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 November 30, net
2012 2011 $ Change % Change 2012 2011
Personal Care $ 21,802 $ 17,292 $ 4,510 26.1% 14.7% 11.6 %
Housewares 13,927 11,016 2,911 26.4% 20.5% 18.0 %
Healthcare / Home
Environment * 11,323 13,520 (2,197 ) -16.3% 7.2% 10.5 %
Total operating income $ 47,052 $ 41,828 $ 5,224 12.5% 12.6% 12.3 %
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