See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
The accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our consolidated financial position as of November 30, 20182019 and February 28, 2018,2019, and the results of our consolidated operations for the interim periods presented. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 28, 2018,2019, and our other reports on file with the Securities and Exchange Commission (“SEC”).
When used in these notes, 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. We refer to our common shares, par value $0.10 per share, as “common stock.” References to the "FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to United States (“U.S.”) generally accepted accounting principles. References to “ASU” refer to the codification of GAAP in the Accounting Standards Updates issued by the FASB. References to "ASC" refer to the codification of GAAP in the Accounting Standards Codification issued by the FASB.
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 global designer, developer, importer, marketer, and distributor of an expanding portfolio of brand-name consumer products. We have three3 segments: Housewares, Health & Home, and Beauty. Our Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation tools and storage containers; cleaning, bath and garden tools and accessories; infant and toddler care products; and insulated beverage, food containers and food containers.coolers. The Health & Home segment focuses on health care devices such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration systems; and small home appliances such as portable heaters, fans, air purifiers, and insect control devices. Our Beauty segment 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 condensed consolidated financial statements are prepared in U.S. Dollars. All intercompany accounts and transactions are eliminated in consolidation.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results may differ materially from those estimates.
We have reclassified, combined or separately disclosed certain amounts in the prior years’ condensed consolidated financial statements and accompanying footnotes to conform with the current period’s presentation, including discontinued operations (see Note 4) and the adoption of ASU 2014-09,Revenue from Contracts with Customers (Topic 606) (see Notes 2 and 3).presentation.
We adopted the provisions of ASU 2014-9 in the first quarter of fiscal 2019, and we elected to adopt the standard using the retrospective method. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Our revenue is primarily generated from the sale of non-customized consumer products to customers. Revenue is recognized when control of, and title to, the product sold transfers to the customer. Therefore, the timing and amount of revenue recognized was not materially impacted by the new guidance. We have thus concluded that the adoption of the guidance did not have a material impact on our consolidated financial statements. The provisions of the new guidance did however impact the classification of certain consideration paid to our customers. We therefore have reclassified an immaterial
amount of such payments from SG&A to a reduction of net sales revenue for all periods presented. Also, in accordance with the guidance, we reclassified an immaterial amount of estimated sales returns from a reduction of receivables to accrued expenses and other current liabilities for all periods presented. We elected to adopt the guidance using the full retrospective method.
We measure revenue as the amount of consideration for which we expect to be entitled, in exchange for transferring goods. Certain customers may receive cash incentives such as customer discounts (including volume or trade discounts), advertising discounts and other customer-related programs which are accounted for as variable consideration. In some cases, we apply judgment, such as contractual
rates and historical payment trends, when estimating variable consideration. In accordance with the guidance, most variable consideration is classified as a reduction to net sales.
Sales taxes and other similar taxes are excluded from revenue. We elected to account for shipping and handling activities as a fulfillment cost as permitted by the guidance. We do not have unsatisfied performance obligations since our performance obligations are satisfied at a single point in time.
In December 2017, we completed the divestiture of the Nutritional Supplements segment through the sale of Healthy Directions LLC and its subsidiaries ("Healthy Directions") to Direct Digital, LLC. The purchase price from the sale was comprised of $46.0 million in cash, which was paid at closing, and a supplemental payment with a target value of $25.0 million, payable on or before August 1, 2019. TheDuring fiscal 2019, the final amount of the supplemental payment has beenwas adjusted to $10.8 million based on a settlement with respect to the calculation of the performance of Healthy Directions through February 28, 2018. During the third quarter of fiscal 2019, we reduced the estimated value of the supplemental payment to $10.8 million and recordedThe adjustment resulted in a corresponding pre-tax charge of $5.8 million ($4.4 million after tax) to discontinued operations. Also,The supplemental payment of $10.8 million was received during the thirdsecond quarter of fiscal 2020. Also, during fiscal 2019, we recorded an additional charge of $0.5$1.5 million (before and($1.3 million after tax) to discontinued operations, resulting from the resolution of certain contingencies. In conjunction with the sale of the business, we have agreed to provideprovided certain transition services for up to an eighteen-month period followingthat ceased during the closingsecond quarter of the transaction.fiscal 2020.
We perform annual impairment tests each fiscal year during the fourth quarter and also perform interim impairment tests, if and when necessary. We did not record any impairment charges for the nine month periods ended November 30, 2019 or 2018, respectively.
The following table summarizes the amortization expense attributable to intangible assets recorded in SG&A in the condensed consolidated statements of income for the periods shown below, as well as our estimated amortization expense for fiscal 20192020 through 2024:2025:
We have equity awards outstanding under several share-based compensation plans. During the three-three and nine-monthsnine months ended November 30, 2018,2019, we had the following share-based compensation activity:
We recorded the following share-based compensation expense in SG&A for the periods shown below:
Our current equity-based compensation plans include provisions that allow for the “net exercise” of share-settled awards by all plan participants. In a net exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the equity holder can be paid for by having the equity holder tender back to the Company a number of shares at fair value equal to the amounts due. Net exercises are treated as purchases and retirements of shares.
In October 2017, we announced that we had approved a restructuring plan (referred to as “Project Refuel”) intended to enhance the performance of primarily the Beauty and former Nutritional Supplements segments.. Project Refuel includes a reduction-in-force and the elimination of certain contracts and operating expenses. During the first quarter of fiscal 2019, we expanded Project Refuel to include the realignment and streamlining of our supply chain structure. We are targeting total annualized profit improvements of approximately $8.0 to $10.0 million over the duration of the plan. We estimate the plan will be completed by the first quarter ofduring fiscal 2020, and expect to incur total restructuring charges in the range of approximately $5.0 to $5.5$7.0 million duringover the periodduration of the plan. Restructuring provisions are determined based on estimates prepared at the time the restructuring actions are approved by management and are revised periodically.
The following table summarizes our long-term debt as of the end of the periods shown:
All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. Our debt agreements require the maintenance of certain financial covenants, including
We classify our various assets and liabilities recorded or reported at fair value under a hierarchy prescribed by GAAP that prioritizes inputs to fair value measurement techniques into three broad levels:
Assets and liabilities subject to classification are classified upon acquisition. When circumstances dictate the transfer of an asset or liability to a different level, our policy is to recognize the transfer at the beginning of the reporting period in which the event resulting in the transfer occurred.
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value because of the short maturity of these items.
We use derivatives for hedging purposes and our derivatives are primarily interest rate swaps, foreign currency contracts and cross-currency debt swaps. See Notes 1112 and 1314 to these condensed consolidated financial statements for more information on our hedging activities.
We classify our floating rate debt as a Level 2 item because the estimation of the fair market value requires the use of a discount rate based upon current market rates of interest for obligations with comparable remaining terms. Such comparable rates are considered significant other observable market inputs. The book value of the floating rate debt approximates its fair value as of the reporting date.
Our other non-financial assets include goodwill and other intangible assets, which we classify as Level 3 items. These assets are measured at fair value on a non-recurring basis as part of our impairment testing. Note 67 to these condensed consolidated financial statements contains additional information related to intangible asset impairments.
In our condensed consolidated statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities are recognized in their respective income tax lines, and all other foreign exchange gains and losses are recognized in SG&A. During the three and nine monthsmonth periods ended November 30, 2018,2019, we recorded net foreign exchange gains and (losses) from remeasurement, including the impact of foreign currency hedges
The following table summarizes the fair values of our derivative instruments as of the end of the periods shown:
The following table summarizes the pre-tax effect of derivative instruments for the periods shown:
We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A, restructuring charges, and any asset impairment charges associated with the segment. The SG&A used to compute each segment’s operating income is directly associated with the segment, plus shared service and corporate overhead expenses that are allocable to the segment. We have reallocated corporate overhead that was previously allocated to our former Nutritional Supplements segment. We do not allocate nonoperatingnon-operating income and expense, including interest or income taxes, to operating segments.
Due to our organization in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate.
For interim periods, our income tax expense and resulting effective tax rate are based upon an estimated annual effective tax rate adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions and other items. We considered the provisions of the Tax Act in calculating the estimated annual effective tax rate.
During fiscal 2017, we received an assessment from a state tax authority which adjusted taxable income applicable to the particular state resulting from interpretations of certain state income tax provisions applicable to our legal structure. We believe we have accurately reported our taxable income and are vigorously protesting the assessment through administrative processes with the state. We believe it is unlikely that the outcome of these matters will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.
We compute basic earnings per share using the weighted average number of shares of common stock
outstanding during the period. We compute diluted earnings per share using the weighted average
number of shares of common stock outstanding plus the effect of dilutive securities. Dilutive securities at any given point in time may consist of outstanding options to purchase common stock and issued and contingently issuable unvested RSUs, PSUs, RSAs, PSAs and PSUs.other stock based awards. See Note 78 to these condensed consolidated financial statements for more information regarding RSUs, PSUs and other performance based stockstock-based awards. Options for common stockAnti-dilutive securities are excluded fromnot included in the computation of diluted earnings per share if their effect is antidilutive.under the treasury stock method.
The following table presents our weighted average basic and diluted shares for the periods shown:
Note 19 - Subsequent Events
On December 19, 2019, we entered into a definitive agreement to acquire Drybar Products LLC, which includes the Drybar trademark and other intellectual property assets associated with Drybar’s products, as well as certain related production assets and working capital. As part of the transaction, we will grant a worldwide license to Drybar Holdings LLC, the owner and long-time operator of Drybar blowout salons, to use the Drybar trademark in their continued operation of Drybar salons. The salons will exclusively use, promote, and sell Helen of Troy’s Drybar products globally. The total purchase consideration is $255.0 million in cash, subject to certain customary closing adjustments. We expect to finance the acquisition with cash on hand and borrowings from our existing revolving credit facility. The acquisition is expected to close by January 31, 2020, subject to customary closing conditions, including regulatory approvals.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussionManagement’s Discussion and analysisAnalysis of Financial Condition and Results of Operations (“MD&A”) 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 3.3 of this report. “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 for the fiscal year ended February 28, 20182019 (“Form 10-K”) and its other filings with the Securities and Exchange Commission (the “SEC”). This discussion should be read in conjunction with our condensed consolidated financial statements included under Part I, Item 1.1 of this report. When used in the 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 MD&A, we refer to our Leadership Brands, which are brands that have number-one and number-two positions in their respective categories and consist of the OXO, Honeywell, Braun, PUR, Hydro Flask, Vicks, and Hot Tools brands.
ThroughoutThis MD&A, we refer to certain measures used by management to evaluate financial performance. We also may refer to a number of financial measures that are not defined under GAAP, but have corresponding GAAP-based measures. Where non-GAAP measures appear, we provide tables reconciling these to their corresponding GAAP-based measures and refer to a discussion of their use. We believe these measures provide investors with important information that is useful in understanding our business results and trends.
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 well-recognized and widely-trusted brands. We have built leading market positions through new product innovation, product quality and competitive pricing. We currently operate in three segments consisting of Housewares, Health & Home, and Beauty. In fiscal 2015, we launched a transformational strategy to improve the performance of our business segments and strengthen our shared service capabilities. We believe we continue to make progress on achieving our strategic objectives.
In October 2017, we announced that we had approved a restructuring plan (referred to as “Project Refuel”) intended to enhance the performance of primarily the Beauty and former Nutritional Supplements segments. Project Refuel includes a reduction-in-force and the elimination of certain contracts and operating expenses. During the first quarter of fiscal 2019, we expanded Project Refuel to include the realignment and streamlining of our supply chain structure. For additional information regarding Project Refuel, see Note 9 to the accompanying condensed consolidated financial statements.
In December 2017, we completed the divestiture of the Nutritional Supplements segment through the sale of Healthy Directions LLC and its subsidiaries ("Healthy Directions") to Direct Digital, LLC. The purchase price from the sale is comprised of $46.0 million in cash, which was paid at closing, and a supplemental payment with a target value of $25.0 million, payable on or before August 1, 2019. The final amount of the supplemental payment has been adjusted based on a settlement with respect to the calculation of the performance of Healthy Directions through February 28, 2018. During the third quarter of fiscal 2019, we reduced the estimated value of the supplemental payment to $10.8 million and recorded a corresponding pre-tax charge of $5.8 million ($4.4 million after tax) to discontinued operations. Also, during the third quarter of fiscal 2019, we recorded an additional charge of $0.5 million (before and after tax) to discontinued operations, resulting from the resolution of certain contingencies. Following the sale, we no longer consolidate our former Nutritional Supplements segment's operating results. Unless otherwise indicated, all results presented are from continuing operations.
Significant Trends Impacting the Business
Potential Impact of Tariffs
We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico and the United States. This concentration exposes us to risks associated with doing business globally, including changes in tariffs. The Office of the United States Trade Representative ("USTR") identified certain Chinese imported goods for additional tariffs to address China’s trade policies and practices. The tariffs, could have a material adverse effect on our business and results of operations. This potential impact could be mitigated by a variety of factors. The USTR may also reduce the list of impacted tariff lines before the tariffs are implemented and later may grant specific product exclusions. We are unable to give any assurance as to the scope, duration, or impact of the tariffs, how successful our mitigation efforts will be, or the extent to which mitigation will be necessary.
The tariff increases that have been implemented by the USTR began to impact our cost of goods sold in the third quarter of fiscal 2019. While we have implemented pricing actions in the various product categories impacted by the tariffs, the bulk of these actions did not become meaningfully effective during the third quarter. Our pricing actions will largely become effective during the fourth quarter of fiscal 2019 and the first quarter of 2020. This is due to the negotiation and notice periods involved in taking pricing actions with our retail customers. Although our pricing actions are intended to offset the full gross profit impact of tariff increases, there are no assurances that the pricing action will not reduce retail consumption or customer orders in the short-term. Additionally, we have not resolved pricing with one key retailer in two product categories. We expect some disruption to customer orders and retail consumption from pricing actions in the short-term, including the fourth quarter of fiscal 2019. However, we believe these pricing actions are the right choices for the long-term health of the business.
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 reporting currency (the U.S. Dollar). The most significant currencies affecting our operating results are the Euro, Canadian Dollar, British Pound, and Mexican Peso.
For the three months ended November 30, 2018, changes in foreign currency exchange rates had an unfavorable impact on consolidated U.S. Dollar reported net sales revenue of approximately $1.8 million, or 0.4%, compared to a favorable impact of $2.8 million, or 0.6%, for the same period last year. For the nine months ended November 30, 2018, net foreign currency exchange rate fluctuations favorably impacted our consolidated U.S. dollar reported net sales revenue by approximately $1.4 million, or 0.1%, compared to a favorable impact of $1.1 million, or 0.1%, in the same period last year.
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 the U.S. retail economy. Approximately 80% of our net sales were from U.S. shipments for the three months ended November 30, 2018, compared to approximately 79% for the same period last year. For the nine months ended November 30, 2018 and 2017, U.S. shipments were approximately 78% of our net sales.
Additionally, the shift in consumer shopping preferences to online or multichannel shopping experiences has changed the concentration of our sales. For the three and nine months ended November 30, 2018, our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 18% and 17%, respectively, of our total consolidated net sales revenue, and grew approximately 6% and 16%, respectively, over the same period last year.
For the three and nine months ended November 30, 2017, our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 18% and 15%, respectively, of our total consolidated net sales revenue, and grew approximately 30% and 31%, respectively, over the same periods last 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.
Variability of the Cough/Cold/Flu Season
Sales in several of our Health & Home 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. For the 2017-2018 season, fall and winter weather was unseasonably cold and cough/cold/flu incidence was significantly higher than the 2016-2017 season, which was a below average season.
Third Quarter Fiscal 2019 Financial Results
Consolidated net sales revenue increased 2.4%, or $10.2 million, to $431.1 million for the three months ended November 30, 2018, compared to $420.8 million for the same period last year. Net sales from our Leadership Brands were $343.4 million for the three months ended November 30, 2018, compared to $327.3 million for the same period last year, representing growth of 4.9%.
Consolidated operating income was $61.3 million for the three months ended November 30, 2018, compared to $67.3 million for the same period last year. Consolidated operating income for the three months ended November 30, 2017 included pre-tax restructuring charges of $1.2 million.
Consolidated adjusted operating income decreased 8.9%, or $6.9 million, to $70.6 million for the three months ended November 30, 2018, compared to $77.6 million for the same period last year. Consolidated adjusted operating margin decreased 2.0 percentage points to 16.4% of consolidated net sales revenue for the three months ended November 30, 2018, compared to 18.4% for the same period last year.
Income from continuing operations was $54.3 million for the three months ended November 30, 2018, compared to $58.6 million for the same period last year. Diluted earnings per share (“EPS”) from continuing operations was $2.06 for the three months ended November 30, 2018, compared to $2.15 for the same period last year.
Adjusted income from continuing operations decreased 7.1% to $63.2 million for the three months ended November 30, 2018, compared to $68.1 million for the same period last year. Adjusted diluted EPS from continuing operations decreased 4.0% to $2.40 for the three months ended November 30, 2018, compared to $2.50 for the same period last year.
Loss from discontinued operations was $4.9 million, or $0.18 per diluted share, for the three months ended November 30, 2018, compared to a loss of $89.1 million, or $3.27 per diluted share, for the same period last year.
Net income was $49.5 million for the three months ended November 30, 2018, compared to a net loss of $30.4 million for the same period last year. Diluted EPS was $1.88 for the three months ended November 30, 2018 compared to a loss of $1.12 per diluted share for the same period last year.
Year-To-Date Fiscal 2019 Financial Results
Consolidated net sales revenue increased 8.1%, or $88.0 million, to $1,179.3 million for the nine months ended November 30, 2018, compared to $1,091.3 million for the same period last year. Net sales from our Leadership Brands were $943.2 million for the nine months ended November 30, 2018, compared to $837.0 million for the same period last year.
Consolidated operating income was $155.3 million for the nine months ended November 30, 2018, compared to $137.6 million for the same period last year. Consolidated operating income for the nine months ended November 30, 2018 included pre-tax restructuring charges of $2.6 million related to Project Refuel. Consolidated operating income for the nine months ended November 30, 2017 included pre-tax non-cash impairment charges of $4.0 million, a pre-tax charge of $3.6 million related to the bankruptcy of Toys "R" Us ("TRU"), and pre-tax restructuring charges of $1.2 million.
Consolidated adjusted operating income increased 8.5%, or $14.5 million, to $185.7 million for the nine months ended November 30, 2018, compared to $171.2 million for the same period last year. Consolidated adjusted operating margin increased 0.1 percentage points to 15.8% of consolidated net sales revenue for the nine months ended November 30, 2018, compared to 15.7% for the same period last year.
Income from continuing operations was $136.5 million for the nine months ended November 30, 2018, compared to $120.5 million for the same period last year. Diluted EPS from continuing operations was $5.15 for the nine months ended November 30, 2018, compared to $4.41 for the same period last year.
Adjusted income from continuing operations increased 9.2% to $165.5 million for the nine months ended November 30, 2018, compared to $151.6 million for the same period last year. Adjusted diluted EPS from continuing operations increased 12.4% to $6.24 for the nine months ended November 30, 2018, compared to $5.55 for the same period last year.
Loss from discontinued operations, net of tax, was $5.2 million for the nine months ended November 30, 2018, compared to a loss of $136.1 million for the same period last year. Loss from discontinued operations was $0.20 per diluted share for the nine months ended November 30, 2018 compared to a loss of $4.99 per diluted share for the same period last year.
Net income was $131.3 million for the nine months ended November 30, 2018 compared to a net loss of $15.6 million for the same period last year. Diluted EPS was $4.95 for the nine months ended November 30, 2018 compared to a loss of $0.57 per diluted share for the same period last year.
Adjusted operating income, adjusted operating margin, adjusted income from continuing operations, adjusted diluted EPS from continuing operations and Leadership Brands net sales, as discussed above and on the pages that follow, are non‐GAAP financial measures as contemplated by SEC Regulation G, Rule 100. These measures are discussed further and reconciled to their applicable GAAP based measures contained in this MD&A on pages 27, 30, 31, 33, 34, 37, 38, 39, 40 and 42.
RESULTS OF OPERATIONS
The following tables provide selected operating data, in U.S. Dollars, as a percentage of net sales
revenue, and as a year-over-year percentage change:
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, | | | | | | % of Sales Revenue, net |
| (in thousands) | 2018 | | 2017 | | $ Change | | % Change | | 2018 | | 2017 |
| Sales revenue by segment, net | | | | | | | | | | | |
| Housewares | $ | 142,937 |
| | $ | 128,261 |
| | $ | 14,676 |
| | 11.4 | % | | 33.2 | % | | 30.5 | % |
| Health & Home | 187,863 |
| | 189,240 |
| | (1,377 | ) | | (0.7 | )% | | 43.6 | % | | 45.0 | % |
| Beauty | 100,281 |
| | 103,340 |
| | (3,059 | ) | | (3.0 | )% | | 23.3 | % | | 24.6 | % |
| Total sales revenue, net | 431,081 |
| | 420,841 |
| | 10,240 |
| | 2.4 | % | | 100.0 | % | | 100.0 | % |
| Cost of goods sold | 249,236 |
| | 242,703 |
| | 6,533 |
| | 2.7 | % | | 57.8 | % | | 57.7 | % |
| Gross profit | 181,845 |
| | 178,138 |
| | 3,707 |
| | 2.1 | % | | 42.2 | % | | 42.3 | % |
| Selling, general and administrative expense ("SGA") | 120,524 |
| | 109,633 |
| | 10,891 |
| | 9.9 | % | | 28.0 | % | | 26.1 | % |
| Asset impairment charges | — |
| | — |
| | — |
| | — | % | | — | % | | — | % |
| Restructuring charges | 25 |
| | 1,165 |
| | (1,140 | ) | | (97.9 | )% | | — | % | | 0.3 | % |
| Operating income | 61,296 |
| | 67,340 |
| | (6,044 | ) | | (9.0 | )% | | 14.2 | % | | 16.0 | % |
| Nonoperating income, net | 15 |
| | 34 |
| | (19 | ) | | (55.9 | )% | | — | % | | — | % |
| Interest expense | (2,971 | ) | | (3,505 | ) | | 534 |
| | (15.2 | )% | | (0.7 | )% | | (0.8 | )% |
| Income before income tax | 58,340 |
| | 63,869 |
| | (5,529 | ) | | (8.7 | )% | | 13.5 | % | | 15.2 | % |
| Income tax expense | 4,020 |
| | 5,245 |
| | (1,225 | ) | | (23.4 | )% | | 0.9 | % | | 1.2 | % |
| Income from continuing operations | 54,320 |
| | 58,624 |
| | (4,304 | ) | | (7.3 | )% | | 12.6 | % | | 13.9 | % |
| Loss from discontinued operations (1) | (4,850 | ) | | (89,060 | ) | | 84,210 |
| | * |
| | (1.1 | )% | | (21.2 | )% |
| Net income (loss) | $ | 49,470 |
| | $ | (30,436 | ) | | $ | 79,906 |
| | * |
| | 11.5 | % | | (7.2 | )% |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, | | | | | | % of Sales Revenue, net |
| (in thousands) | 2018 | | 2017 | | $ Change | | % Change | | 2018 | | 2017 |
| Sales revenue by segment, net | | | | | | | | | | | |
| Housewares | $ | 397,738 |
| | $ | 342,050 |
| | $ | 55,688 |
| | 16.3 | % | | 33.7 | % | | 31.3 | % |
| Health & Home | 527,077 |
| | 483,592 |
| | 43,485 |
| | 9.0 | % | | 44.7 | % | | 44.3 | % |
| Beauty | 254,493 |
| | 265,639 |
| | (11,146 | ) | | (4.2 | )% | | 21.6 | % | | 24.3 | % |
| Total sales revenue, net | 1,179,308 |
| | 1,091,281 |
| | 88,027 |
| | 8.1 | % | | 100.0 | % | | 100.0 | % |
| Cost of goods sold | 695,732 |
| | 638,096 |
| | 57,636 |
| | 9.0 | % | | 59.0 | % | | 58.5 | % |
| Gross profit | 483,576 |
| | 453,185 |
| | 30,391 |
| | 6.7 | % | | 41.0 | % | | 41.5 | % |
| SGA | 325,684 |
| | 310,390 |
| | 15,294 |
| | 4.9 | % | | 27.6 | % | | 28.4 | % |
| Asset impairment charges | — |
| | 4,000 |
| | (4,000 | ) | | (100.0 | )% | | — | % | | 0.4 | % |
| Restructuring charges | 2,609 |
| | 1,165 |
| | 1,444 |
| | 123.9 | % | | 0.2 | % | | 0.1 | % |
| Operating income | 155,283 |
| | 137,630 |
| | 17,653 |
| | 12.8 | % | | 13.2 | % | | 12.6 | % |
| Nonoperating income, net | 175 |
| | 281 |
| | (106 | ) | | (37.7 | )% | | — | % | | — | % |
| Interest expense | (8,413 | ) | | (10,984 | ) | | 2,571 |
| | (23.4 | )% | | (0.7 | )% | | (1.0 | )% |
| Income before income tax | 147,045 |
| | 126,927 |
| | 20,118 |
| | 15.9 | % | | 12.5 | % | | 11.6 | % |
| Income tax expense | 10,535 |
| | 6,423 |
| | 4,112 |
| | 64.0 | % | | 0.9 | % | | 0.6 | % |
| Income from continuing operations | 136,510 |
| | 120,504 |
| | 16,006 |
| | 13.3 | % | | 11.6 | % | | 11.0 | % |
| Loss from discontinued operations (1) | (5,231 | ) | | (136,139 | ) | | 130,908 |
| | * |
| | (0.4 | )% | | (12.5 | )% |
| Net income (loss) | $ | 131,279 |
| | $ | (15,635 | ) | | $ | 146,914 |
| | * |
| | 11.1 | % | | (1.4 | )% |
| |
(1) | During fiscal 2018, we divested our Nutritional Supplements segment, which is reported as discontinued operations for all periods presented. For more information see Note 4 to the accompanying condensed consolidated financial statements. |
* Calculation is not meaningful.
Comparison of Third Quarter Fiscal 2019 to Third Quarter Fiscal 2018
Consolidated and Segment Net Sales
The following table summarizes the impact that core business, foreign exchange and acquisitions, as applicable, had on our net sales revenue by segment:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended November 30, |
| (in thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Fiscal 2018 sales revenue, net | $ | 128,261 |
| | $ | 189,240 |
| | $ | 103,340 |
| | $ | 420,841 |
|
| Core business growth (decline) | 14,828 |
| | (313 | ) | | (2,458 | ) | | 12,057 |
|
| Impact of foreign currency | (152 | ) | | (1,064 | ) | | (601 | ) | | (1,817 | ) |
| Change in sales revenue, net | 14,676 |
| | (1,377 | ) | | (3,059 | ) | | 10,240 |
|
| Fiscal 2019 sales revenue, net | $ | 142,937 |
| | $ | 187,863 |
| | $ | 100,281 |
| | $ | 431,081 |
|
| | | | | | | | |
| Total net sales revenue growth | 11.4 | % | | (0.7 | )% | | (3.0 | )% | | 2.4 | % |
| Core business growth (decline) | 11.6 | % | | (0.2 | )% | | (2.4 | )% | | 2.9 | % |
| Impact of foreign currency | (0.1 | )% | | (0.6 | )% | | (0.6 | )% | | (0.4 | )% |
In the above table, core business refers to our net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand is acquired, excluding the
impact that foreign currency had on reported net sales. Net sales revenue from internally developed brands or product lines is considered core business activity.
Leadership Brand and Other Net Sales
The following table summarizes our leadership brand and other net sales:
|
| | | | | | | | | | | | | | |
| | Three Months Ended November 30, |
| (in thousands) | 2018 | | 2017 | | $ Change | | % Change |
| Leadership Brand sales revenue, net | $ | 343,364 |
| | $ | 327,288 |
| | $ | 16,076 |
| | 4.9 | % |
| All other sales revenue, net | 87,717 |
| | 93,553 |
| | (5,836 | ) | | (6.2 | )% |
| Total sales revenue, net | $ | 431,081 |
| | $ | 420,841 |
| | $ | 10,240 |
| | 2.4 | % |
Consolidated Net Sales Revenue
Consolidated net sales revenue increased $10.2 million, or 2.4%, to $431.1 million for the three months ended November 30, 2018, compared to $420.8 million for the same period last year. The increase was primarily driven by a core business increase of $12.1 million, or 2.9%, reflecting an increase in brick and mortar sales in our Housewares segment and growth in consolidated online sales. These factors were partially offset by the discontinuation of certain brands and products in our Beauty segment and a decline in the personal care category within the segment, a deceleration of growth in China ecommerce, and the unfavorable impact from foreign currency fluctuations of approximately $1.8 million, or 0.4%. Net sales from our Leadership Brands were $343.4 million for the three months ended November 30, 2018, compared to $327.3 million for the same period last year, representing growth of 4.9%.
Segment Net Sales Revenue
Housewares
Net sales revenue in the Housewares segment increased $14.7 million, or 11.4%, to $142.9 million for the three months ended November 30, 2018, compared to $128.3 million for the same period last year. Growth was primarily driven by a core business increase of $14.8 million, or 11.6%, due to point of sale growth and incremental distribution with existing domestic customers, an increase in overall online sales and new product introductions. These factors were partially offset by lower club channel sales and a
reduction in inventory by a key online retailer. The impact of net foreign currency fluctuations was not meaningful.
Health & Home
Net sales revenue in the Health & Home segment decreased $1.4 million, or 0.7%, to $187.9 million for the three months ended November 30, 2018, compared to $189.2 million for the same period last year. The decline was primarily driven by the unfavorable impact of net foreign currency fluctuations of $1.1 million, or 0.6%, and a core business decline of $0.3 million, or 0.2%. The core business decline primarily reflects the unfavorable comparative impact from international distribution gains in the prior year period, compounded by a deceleration of growth in China ecommerce and a corresponding buildup of inventory in the channel. These factors were partially offset by incremental distribution and shelf space gains with existing domestic customers and strong seasonal category growth.
Beauty
Net sales revenue in the Beauty segment decreased $3.1 million, or 3.0%, to $100.3 million for the three months ended November 30, 2018, compared to $103.3 million for the same period last year. The decline was primarily driven by a decrease in core business sales of $2.5 million, or 2.4%, reflecting a decrease in brick and mortar sales, a decline in the personal care category and the discontinuation of certain brands and products. These factors more than offset growth in the online channel, an increase in international sales, and new product introductions in the retail appliance category. Segment net sales were unfavorably impacted by net foreign currency fluctuations of approximately $0.6 million, or 0.6%.
Consolidated Gross Profit Margin
Consolidated gross profit margin for the three months ended November 30, 2018 decreased 0.1 percentage point to 42.2%, compared to 42.3% for the same period last year. The decrease in consolidated gross profit margin is primarily due to less favorable product mix and the impact of tariff increases, partially offset by the favorable margin impact from growth in our Leadership Brands.
Consolidated SG&A
Our consolidated SG&A ratio increased 1.9 percentage points to 28.0% for the three months ended November 30, 2018, compared to 26.1% for the same period last year. The increase in the consolidated SG&A ratio is primarily due to higher advertising expense, increased freight costs, increased share-based compensation expense and higher product claim expense.
These factors were partially offset by:
•the favorable comparative impact of foreign currency exchange and forward contract settlements;
the favorable comparative impact of restructuring charges in the same period last year; and
lower amortization expense.
Asset Impairment Charges
We perform annual impairment tests each fiscal year during the fourth quarter and interim impairment tests, if and when necessary. We did not record any asset impairment charges in continuing operations during the three months ended November 30, 2018 or 2017.
Restructuring Charges
During the three months ended November 30, 2018, we incurred an insignificant amount of pre-tax restructuring charges compared to $1.2 million for the same period last year. The charges related primarily to employee severance and termination benefits in our Beauty segment.
Operating income, operating margin, adjusted operating income (non-GAAP), and adjusted operating margin (non-GAAP) by segment
In order to provide a better understanding of the comparative impact of certain items on operating income, the tables that follow report the comparative before tax impact of non-cash asset impairment charges, the TRU bankruptcy charge, restructuring charges, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on operating income and operating margin for each segment and in total for the periods covered below. Adjusted operating income and adjusted operating margin may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100. These measures are discussed further in this MD&A on page 42.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2018 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 29,839 |
| | 20.9 | % | | $ | 19,213 |
| | 10.2 | % | | $ | 12,244 |
| | 12.2 | % | | $ | 61,296 |
| | 14.2 | % |
| Asset impairment charges | — |
| | — | % | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % |
| Restructuring charges | (20 | ) | | — | % | | — |
| | — | % | | 45 |
| | — | % | | 25 |
| | — | % |
| Subtotal | 29,819 |
| | 20.9 | % | | 19,213 |
| | 10.2 | % | | 12,289 |
| | 12.3 | % | | 61,321 |
| | 14.2 | % |
| Amortization of intangible assets | 489 |
| | 0.3 | % | | 2,721 |
| | 1.4 | % | | 90 |
| | 0.1 | % | | 3,300 |
| | 0.8 | % |
| Non-cash share-based compensation | 2,293 |
| | 1.6 | % | | 2,548 |
| | 1.4 | % | | 1,175 |
| | 1.2 | % | | 6,016 |
| | 1.4 | % |
| Adjusted operating income (non-GAAP) | $ | 32,601 |
| | 22.8 | % | | $ | 24,482 |
| | 13.0 | % | | $ | 13,554 |
| | 13.5 | % | | $ | 70,637 |
| | 16.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2017 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 29,809 |
| | 23.2 | % | | $ | 27,584 |
| | 14.6 | % | | $ | 9,947 |
| | 9.6 | % | | $ | 67,340 |
| | 16.0 | % |
| Asset impairment charges | — |
| | — | % | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % |
| Restructuring charges | — |
| | — | % | | — |
| | — | % | | 1,165 |
| | 1.1 | % | | 1,165 |
| | 0.3 | % |
| Subtotal | 29,809 |
| | 23.2 | % | | 27,584 |
| | 14.6 | % | | 11,112 |
| | 10.8 | % | | 68,505 |
| | 16.3 | % |
| Amortization of intangible assets | 489 |
| | 0.4 | % | | 2,797 |
| | 1.5 | % | | 1,374 |
| | 1.3 | % | | 4,660 |
| | 1.1 | % |
| Non-cash share-based compensation | 1,439 |
| | 1.1 | % | | 1,711 |
| | 0.9 | % | | 1,239 |
| | 1.2 | % | | 4,389 |
| | 1.0 | % |
| Adjusted operating income (non-GAAP) | $ | 31,737 |
| | 24.7 | % | | $ | 32,092 |
| | 17.0 | % | | $ | 13,725 |
| | 13.3 | % | | $ | 77,554 |
| | 18.4 | % |
Consolidated
Consolidated operating income was $61.3 million, or 14.2% of net sales, compared to $67.3 million, or 16.0% of net sales, for the same period last year. The decrease was driven by the following factors:
higher advertising expense;
the impact of tariff increases;
higher freight expense; and
increased share-based compensation expense.
These factors were partially offset by:
the favorable comparative impact of foreign currency exchange and forward contract settlements;
the net favorable comparative impact of pre-tax restructuring charges of $1.1 million;
lower amortization expense; and
the favorable margin impact from Leadership Brand growth.
Consolidated adjusted operating income decreased 8.9% to $70.6 million, or 16.4% of net sales, compared to $77.6 million, or 18.4% of net sales, in the same period last year.
Housewares
The Housewares segment’s operating income was $29.8 million, or 20.9% of segment net sales, compared to $29.8 million, or 23.2% of segment net sales, for the same period last year. The 2.3 percentage point decrease in segment operating margin is primarily due to:
higher advertising expense;
higher annual incentive compensation expense related to current year performance;
higher freight expense; and
higher rent expense related to new office space.
These factors were partially offset by:
the margin impact of more favorable product and channel mix; and
the favorable impact of increased operating leverage from net sales growth.
Segment adjusted operating income increased 2.7%to $32.6 million, or 22.8% of segment net sales, compared to $31.7 million, or 24.7% of segment net sales, in the same period last year.
Health & Home
The Health & Home segment’s operating income was $19.2 million, or 10.2% of segment net sales, compared to $27.6 million, or 14.6% of segment net sales in the same period last year. The 4.4 percentage point decrease in segment operating margin is primarily due to:
higher advertising expense;
increased promotional spending and trade support with retail customers;
the impact of tariff increases;
the margin impact of a less favorable product and channel mix; and
higher personnel expense.
These factors were partially offset by the favorable comparative impact of foreign currency exchange and forward contract settlements.
Segment adjusted operating income decreased 23.7% to $24.5 million, or 13.0% of segment net sales, compared to $32.1 million, or 17.0% of segment net sales, in the same period last year.
Beauty
The Beauty segment’s operating income was $12.2 million, or 12.2% of segment net sales, compared to $9.9 million, or 9.6% of segment net sales, in the same period last year. The 2.6 percentage point increase in segment operating margin is primarily due to:
the net favorable comparative impact of pre-tax restructuring charges of $1.1 million;
lower amortization expense; and
personnel cost savings from Project Refuel.
These factors were partially offset by:
higher advertising expense; and
higher freight expense.
Segment adjusted operating income decreased 1.2% to $13.6 million, or 13.5% of segment net sales, compared to $13.7 million, or 13.3% of segment net sales, in the same period last year.
Interest Expense
Interest expense was $3.0 million for the three months ended November 30, 2018, compared to $3.5 million in the same period last year. The decrease in interest expense was primarily due to lower average levels of debt, partially offset by higher average interest rates compared to the same period last year.
Income Tax Expense
The year-over-year comparison of our effective tax rate is impacted by the mix of taxable income in our various tax jurisdictions. Due to our organization in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate. Our effective tax rate is also impacted by the Tax Cuts and Jobs Act (“the Tax Act”) enacted into law on December 22, 2017. See Note 15 of the accompanying condensed consolidated financial statements for a further discussion of the Tax Act.
For the three months ended November 30, 2018, income tax expense as a percentage of income before income tax was 6.9% compared to 8.2% for the same period last year. The year-over-year decline in the effective tax rate is primarily due to shifts in the mix of taxable income in our various tax jurisdictions.
During fiscal 2017, we received an assessment from a state tax authority which adjusted taxable income applicable to the particular state resulting from interpretations of certain state income tax provisions applicable to our legal structure. We believe we have accurately reported our taxable income and are vigorously protesting the assessment through administrative processes with the state. We believe it is unlikely that the outcome of these matters will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.
Income from continuing operations, diluted EPS from continuing operations, adjusted income from continuing operations (non-GAAP), and adjusted diluted EPS from continuing operations (non-GAAP)
In order to provide a better understanding of the impact of certain items on our income and EPS from continuing operations, the analysis that follows reports the comparative after tax impact of non‐cash asset impairment charges, the TRU bankruptcy charge, restructuring charges, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on income from continuing operations, and diluted EPS from continuing operations for the periods covered below. Adjusted income from continuing operations and adjusted diluted EPS from continuing operations may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2018 |
| | Income From Continuing Operations | | Diluted EPS |
| (in thousands, except per share data) | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax |
| As reported (GAAP) | $ | 58,340 |
| | $ | 4,020 |
| | $ | 54,320 |
| | $ | 2.21 |
| | $ | 0.15 |
| | $ | 2.06 |
|
| Restructuring charges | 25 |
| | 2 |
| | 23 |
| | — |
| | — |
| | — |
|
| Subtotal | 58,365 |
| | 4,022 |
| | 54,343 |
| | 2.21 |
| | 0.15 |
| | 2.06 |
|
| Amortization of intangible assets | 3,300 |
| | 46 |
| | 3,254 |
| | 0.13 |
| | — |
| | 0.12 |
|
| Non-cash share-based compensation | 6,016 |
| | 415 |
| | 5,601 |
| | 0.23 |
| | 0.02 |
| | 0.21 |
|
| Adjusted (non-GAAP) | $ | 67,681 |
| | $ | 4,483 |
| | $ | 63,198 |
| | $ | 2.57 |
| | $ | 0.17 |
| | $ | 2.40 |
|
| |
| Weighted average shares of common stock used in computing diluted EPS | 26,366 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2017 |
| | Income From Continuing Operations | | Diluted EPS |
| (in thousands, except per share data) | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax |
| As reported (GAAP) | $ | 63,869 |
| | $ | 5,245 |
| | $ | 58,624 |
| | $ | 2.34 |
| | $ | 0.19 |
| | $ | 2.15 |
|
| Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges | 1,165 |
| | 68 |
| | 1,097 |
| | 0.04 |
| | — |
| | 0.04 |
|
| Subtotal | 65,034 |
| | 5,313 |
| | 59,721 |
| | 2.39 |
| | 0.19 |
| | 2.19 |
|
| Amortization of intangible assets | 4,660 |
| | 211 |
| | 4,449 |
| | 0.17 |
| | 0.01 |
| | 0.16 |
|
| Non-cash share-based compensation | 4,389 |
| | 498 |
| | 3,891 |
| | 0.16 |
| | 0.02 |
| | 0.14 |
|
| Adjusted (non-GAAP) | $ | 74,083 |
| | $ | 6,022 |
| | $ | 68,061 |
| | $ | 2.72 |
| | $ | 0.22 |
| | $ | 2.50 |
|
| | | | | | | | | | | | |
| Weighted average shares of common stock used in computing diluted EPS | | 27,267 |
|
Our income from continuing operations was $54.3 million for the three months ended November 30, 2018 compared to $58.6 million for the same period last year. Our diluted EPS from continuing operations was $2.06 for the three months ended November 30, 2018 compared to $2.15 for the same period last year.
Adjusted income from continuing operations decreased $4.9 million, or 7.1%, to $63.2 million for the three months ended November 30, 2018 compared to $68.1 million the same period last year. Adjusted diluted EPS from continuing operations decreased 4.0% to $2.40 for the three months ended November 30, 2018 compared to $2.50 for the same period last year. Adjusted diluted EPS decreased primarily due to lower operating income from our Health & Home segment compared to the same period last year. This was partially offset by higher adjusted operating income from our Housewares segment and the impact of lower weighted average diluted shares outstanding.
Comparison of First Nine Months of Fiscal 2019 to First Nine Months of Fiscal 2018
Consolidated and Segment Net Sales
The following table summarizes the impact that core business, foreign exchange and acquisitions, as applicable, had on our net sales revenue by segment:
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, |
| (in thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Fiscal 2018 sales revenue, net | $ | 342,050 |
| | $ | 483,592 |
| | $ | 265,639 |
| | $ | 1,091,281 |
|
| Core business growth (decline) | 55,414 |
| | 41,658 |
| | (10,432 | ) | | 86,640 |
|
| Impact of foreign currency | 274 |
| | 1,827 |
| | (714 | ) | | 1,387 |
|
| Change in sales revenue, net | 55,688 |
| | 43,485 |
| | (11,146 | ) | | 88,027 |
|
| Fiscal 2019 sales revenue, net | $ | 397,738 |
| | $ | 527,077 |
| | $ | 254,493 |
| | $ | 1,179,308 |
|
| | | | | | | | |
| Total net sales revenue growth | 16.3 | % | | 9.0 | % | | (4.2 | )% | | 8.1 | % |
| Core business growth (decline) | 16.2 | % | | 8.6 | % | | (3.9 | )% | | 7.9 | % |
| Impact of foreign currency | 0.1 | % | | 0.4 | % | | (0.3 | )% | | 0.1 | % |
In the above table, core business refers to our net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand is acquired, excluding the
impact that foreign currency had on reported net sales. Net sales revenue from internally developed brands or product lines is considered core business activity.
Leadership Brand and Other Net Sales
The following table summarizes our leadership brand and other net sales:
|
| | | | | | | | | | | | | | |
| | Nine Months Ended November 30, |
| (in thousands) | 2018 | | 2017 | | $ Change | | % Change |
| Leadership Brand sales revenue, net | $ | 943,168 |
| | $ | 836,993 |
| | $ | 106,175 |
| | 12.7 | % |
| All other sales revenue, net | 236,140 |
| | 254,288 |
| | (18,148 | ) | | (7.1 | )% |
| Total sales revenue, net | $ | 1,179,308 |
| | $ | 1,091,281 |
| | $ | 88,027 |
| | 8.1 | % |
Consolidated Net Sales Revenue
Consolidated net sales revenue increased $88.0 million, or 8.1%, to $1,179.3 million for the nine months ended November 30, 2018, compared to $1,091.3 million for the same period last year. The growth was primarily driven by:
a core business increase of $86.6 million, or 7.9%, primarily due to point of sale growth in the brick and mortar channel in our Housewares and Health & Home segments, incremental distribution, increased international sales, growth in online sales, and new product introductions; and
the favorable impact from net foreign currency fluctuations of approximately $1.4 million, or 0.1%.
These factors were partially offset by a decline in the personal care category and the discontinuation of certain brands and products in our Beauty segment. Net sales from our Leadership Brands were $943.2 million for the nine months ended November 30, 2018, compared to $837.0 million for the same period last year, representing growth of 12.7%.
Segment Net Sales Revenue
Housewares
Net sales revenue in the Housewares segment increased $55.7 million, or 16.3%, to $397.7 million for the nine months ended November 30, 2018, compared to $342.1 million for same period last year. Growth was primarily driven by a core business increase of $55.4 million, or 16.2%, due to point of sale growth with existing domestic customers, higher sales in the club channel, new product introductions and an increase in online sales. These factors were partially offset by lower closeout sales. Segment net sales benefited from the favorable impact of net foreign currency fluctuations of approximately $0.3 million, or 0.1%.
Health & Home
Net sales revenue in the Health & Home segment increased $43.5 million, or 9.0%, to $527.1 million for the nine months ended November 30, 2018, compared to $483.6 million for the same period last year. The growth was primarily driven by a core business increase of $41.7 million, or 8.6%, due to higher sales of seasonal products, online growth, growth in international sales, and incremental distribution and shelf space gains with existing customers. Segment net sales benefited from the favorable impact of net foreign currency fluctuations of approximately $1.8 million, or 0.4%. These factors were partially offset by the unfavorable comparative impact from the retail fill-in of a new product introduction in the same period last year and declines in the Lawn and Garden category.
Beauty
Net sales revenue in the Beauty segment decreased $11.1 million, or 4.2%, to $254.5 million for the nine months ended November 30, 2018, compared to $265.6 million for the same period last year. The change was primarily driven by a core business decline of $10.4 million, or 3.9%, reflecting a decline in brick and mortar sales, a decrease in the personal care category and the discontinuation of certain brands and products. These factors more than offset growth in the online channel, an increase in international sales, and new product introductions in the retail appliance category. Segment net sales were unfavorably impacted by net foreign currency fluctuations of approximately $0.7 million, or 0.3%.
Consolidated Gross Profit Margin
Consolidated gross profit margin for the nine months ended November 30, 2018 was 41.0%, compared to 41.5% for the same period last year. The decrease in consolidated gross profit margin is primarily due to less favorable channel and product mix, the impact of tariff increases and a higher mix of shipments made on a direct import basis, partially offset by the favorable margin impact from growth in our Leadership Brands and the favorable impact from foreign currency.
Consolidated SG&A
Our consolidated SG&A ratio decreased 0.8% percentage points to 27.6% for the nine months ended November 30, 2018, compared to 28.4% for the same period last year. The decrease in the consolidated SG&A ratio was primarily due to:
lower amortization expense;
the favorable comparative impact of a $3.6 million charge related to the bankruptcy of TRU in the same period last year;
the favorable impact of a higher mix of shipments made on a direct import basis; and
the impact that higher overall net sales had on operating leverage.
These factors were partially offset by higher advertising expense, higher share-based compensation expense related to long-term incentive plans and higher freight expense.
Asset Impairment Charges
We perform annual impairment tests each fiscal year during the fourth quarter and interim impairment tests, if and when necessary. There were no asset impairment charges recorded in continuing operations during the nine months ended November 30, 2018, compared to a pre-tax non-cash asset impairment charge of $4.0 million recorded during the nine months ended November 30, 2017 in our Beauty segment.
Restructuring Charges
During the nine months ended November 30, 2018, we incurred $2.6 million of pre-tax restructuring charges compared to $1.2 million of pre-tax restructuring charges during the same period last year in connection with Project Refuel. These charges related primarily to employee severance and termination benefits in our Beauty segment during both periods, and for our shared service supply chain operations during fiscal 2019.
Operating income, operating margin, adjusted operating income (non-GAAP), and adjusted operating margin (non-GAAP) by segment
In order to provide a better understanding of the comparative impact of certain items on operating income, the tables that follow report the comparative before tax impact of non‐cash asset impairment charges, the TRU bankruptcy, restructuring charges, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on operating income and operating margin for each segment and in total for the periods covered below. Adjusted operating income and adjusted operating margin may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100. These measures are discussed further in this MD&A on page 42.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2018 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 80,351 |
| | 20.2 | % | | $ | 52,501 |
| | 10.0 | % | | $ | 22,431 |
| | 8.8 | % | | $ | 155,283 |
| | 13.2 | % |
| Restructuring charges | 740 |
| | 0.2 | % | | 358 |
| | 0.1 | % | | 1,511 |
| | 0.6 | % | | 2,609 |
| | 0.2 | % |
| Subtotal | 81,091 |
| | 20.4 | % | | 52,859 |
| | 10.0 | % | | 23,942 |
| | 9.4 | % | | 157,892 |
| | 13.4 | % |
| Amortization of intangible assets | 1,474 |
| | 0.4 | % | | 8,129 |
| | 1.5 | % | | 1,219 |
| | 0.5 | % | | 10,822 |
| | 0.9 | % |
| Non-cash share-based compensation | 6,273 |
| | 1.6 | % | | 7,030 |
| | 1.3 | % | | 3,726 |
| | 1.5 | % | | 17,029 |
| | 1.4 | % |
| Adjusted operating income (non-GAAP) | $ | 88,838 |
| | 22.3 | % | | $ | 68,018 |
| | 12.9 | % | | $ | 28,887 |
| | 11.4 | % | | $ | 185,743 |
| | 15.8 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2017 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 71,085 |
| | 20.8 | % | | $ | 49,243 |
| | 10.2 | % | | $ | 17,302 |
| | 6.5 | % | | $ | 137,630 |
| | 12.6 | % |
| Asset impairment charges | — |
| | — | % | | — |
| | — | % | | 4,000 |
| | 1.5 | % | | 4,000 |
| | 0.4 | % |
| TRU bankruptcy charge | 956 |
| | 0.3 | % | | 2,640 |
| | 0.5 | % | | — |
| | — | % | | 3,596 |
| | 0.3 | % |
| Restructuring charges | — |
| | — | % | | — |
| | — | % | | 1,165 |
| | 0.4 | % | | 1,165 |
| | 0.1 | % |
| Subtotal | 72,041 |
| | 21.1 | % | | 51,883 |
| | 10.7 | % | | 22,467 |
| | 8.5 | % | | 146,391 |
| | 13.4 | % |
| Amortization of intangible assets | 1,618 |
| | 0.5 | % | | 8,373 |
| | 1.7 | % | | 4,207 |
| | 1.6 | % | | 14,198 |
| | 1.3 | % |
| Non-cash share-based compensation | 3,380 |
| | 1.0 | % | | 3,971 |
| | 0.8 | % | | 3,268 |
| | 1.2 | % | | 10,619 |
| | 1.0 | % |
| Adjusted operating income (non-GAAP) | $ | 77,039 |
| | 22.5 | % | | $ | 64,227 |
| | 13.3 | % | | $ | 29,942 |
| | 11.3 | % | | $ | 171,208 |
| | 15.7 | % |
Consolidated
Consolidated operating income was $155.3 million, or 13.2% of net sales, compared to $137.6 million, or 12.6% of net sales, for the same period last year. The nine months ended November 30, 2018 includes pre-tax restructuring charges of $2.6 million related to Project Refuel, compared to $1.2 million for the same period last year. Consolidated operating income for the nine months ended November 30, 2017 also included a $3.6 million charge related to the TRU bankruptcy and a pre-tax non-cash asset impairment charge of $4.0 million. The effect of these items favorably impacted the year-over-year comparison of operating margin by 0.6 percentage points. The remaining operating margin comparison is flat year-over-year primarily reflecting:
a higher mix of Leadership Brand sales at a higher operating margin;
lower amortization expense; and
the favorable impact of increased operating leverage from net sales growth.
These factors were partially offset by a less favorable channel and product mix, higher advertising expense, the impact of tariff increases and higher freight expense.
Consolidated adjusted operating income increased 8.5% to $185.7 million, or 15.8% of net sales, compared to $171.2 million, or 15.7% of net sales, for the same period last year.
Housewares
The Housewares segment’s operating income was $80.4 million, or 20.2% of segment net sales, for the nine months ended November 30, 2018, compared to $71.1 million, or 20.8% of segment net sales, in the same period last year. The 0.6 percentage point decrease in segment operating margin is primarily due to:
higher advertising expense;
higher freight expense;
higher annual incentive compensation related to current year performance;
higher rent expense related to new office space; and
the impact of restructuring charges of $0.7 million.
These factors were partially offset by:
the favorable comparative impact of a $1.0 million charge related to the bankruptcy of TRU in the same period last year; and
the favorable impact of increased operating leverage from net sales growth.
Segment adjusted operating income increased 15.3% to $88.8 million, or 22.3% of segment net sales, compared to $77.0 million, or 22.5% of segment net sales, in the same period last year.
Health & Home
The Health & Home segment’s operating income was $52.5 million, or 10.0% of segment net sales, compared to $49.2 million, or 10.2% of segment net sales, in the same period last year. The 0.2 percentage point decrease in segment operating margin is primarily due to:
the margin impact of a less favorable product mix;
the impact of tariff increases;
increased promotional spending and trade support with retail customers;
higher advertising expense; and
the impact of restructuring charges of $0.4 million.
These factors were partially offset by:
the favorable comparative impact of a $2.6 million charge related to the bankruptcy of TRU in the same period last year; and
the favorable impact of foreign currency exchange and forward contract settlements.
Segment adjusted operating income increased 5.9% to $68.0 million, or 12.9% of segment net sales, compared to $64.2 million, or 13.3% of segment net sales, in the same period last year.
Beauty
The Beauty segment’s operating income was $22.4 million, or 8.8% of segment net sales, compared to operating income of $17.3 million, or 6.5% of segment net sales, in the same period last year. The nine months ended November 30, 2018 included pre-tax restructuring charges of $1.5 million, compared to $1.2 million for the same period last year. Consolidated operating income for the nine months ended November 30, 2017 also included a $4.0 million pre-tax non-cash asset impairment charge. The effect of these items favorably impacted the year-over-year comparison of operating margin by 1.3 percentage points. The remaining improvement in segment operating margin is primarily due to:
cost savings from Project Refuel; and
lower amortization expense.
These factors were partially offset by:
the margin impact of less favorable product sales mix;
higher freight expense;
higher share-based compensation expense related to long-term incentive plans; and
the unfavorable impact of decreased operating leverage from the decline in net sales.
Segment adjusted operating income decreased 3.5% to $28.9 million, or 11.4% of segment net sales, compared to $29.9 million, or 11.3% of segment net sales, in the same period last year.
Interest Expense
Interest expense was $8.4 million for the nine months ended November 30, 2018 compared to $11.0 million in the same period last year. The decrease in interest expense is due to lower average levels of debt held during the nine months ended November 30, 2018, partially offset by higher average interest rates.
Income Tax Expense
The year-over-year comparison of our effective tax rate is impacted by the mix of taxable income in our various tax jurisdictions. Due to our organization in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate. Our effective tax rate is also impacted by the Tax Act enacted into law on December 22, 2017. Please see Note 15 of the accompanying condensed consolidated financial statements for a further discussion of the Tax Act.
For the nine months ended November 30, 2018, income tax expense as a percentage of income before income tax was 7.2%, which includes $0.7 million of tax benefits from share-based compensation settlements and a tax benefit of $0.8 million from the lapse of the statute of limitations related to an uncertain tax position. Income tax expense as a percentage of income before income tax was 5.1% for the same period last year, which included $2.6 million of tax benefits from share-based compensation settlements and a tax benefit of $2.8 million related to the resolution of uncertain tax positions.
During fiscal 2017 we received an assessment from a state tax authority which adjusted taxable income
applicable to the particular state resulting from interpretations of certain state income tax provisions
applicable to our legal structure. We believe we have accurately reported our taxable income and are
vigorously protesting the assessment through administrative processes with the state. We believe it is unlikely that the outcome of these matters will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.
Income from continuing operations, diluted EPS from continuing operations, adjusted income from continuing operations (non-GAAP), and adjusted diluted EPS from continuing operations (non-GAAP)
In order to provide a better understanding of the impact of certain items on our income and EPS from continuing operations, the analysis that follows reports the comparative after tax impact of non‐cash asset impairment charges, the TRU bankruptcy charge, restructuring charges, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on income from continuing operations, and diluted EPS from continuing operations for the periods covered below. Adjusted income from continuing operations and adjusted diluted EPS from continuing operations may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2018 |
| | Income From Continuing Operations |
| Diluted EPS |
| (in thousands, except per share data) | Before Tax |
| Tax |
| Net of Tax |
| Before Tax |
| Tax |
| Net of Tax |
| As reported (GAAP) | $ | 147,045 |
|
| $ | 10,535 |
|
| $ | 136,510 |
|
| $ | 5.54 |
|
| $ | 0.40 |
|
| $ | 5.15 |
|
| Restructuring charges | 2,609 |
|
| 185 |
|
| 2,424 |
|
| 0.10 |
|
| 0.01 |
|
| 0.09 |
|
| Subtotal | 149,654 |
|
| 10,720 |
|
| 138,934 |
|
| 5.64 |
|
| 0.40 |
|
| 5.24 |
|
| Amortization of intangible assets | 10,822 |
|
| 236 |
|
| 10,586 |
|
| 0.41 |
|
| 0.01 |
|
| 0.40 |
|
| Non-cash share-based compensation | 17,029 |
|
| 1,021 |
|
| 16,008 |
|
| 0.64 |
|
| 0.04 |
|
| 0.60 |
|
| Adjusted (non-GAAP) | $ | 177,505 |
|
| $ | 11,977 |
|
| $ | 165,528 |
|
| $ | 6.69 |
|
| $ | 0.45 |
|
| $ | 6.24 |
|
|
| Weighted average shares of common stock used in computing diluted EPS | 26,520 |
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2017 |
| | Income From Continuing Operations | | Diluted EPS |
| (in thousands, except per share data) | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax |
| As reported (GAAP) | $ | 126,927 |
| | $ | 6,423 |
| | $ | 120,504 |
| | $ | 4.65 |
| | $ | 0.24 |
| | $ | 4.41 |
|
| Asset impairment charges | 4,000 |
| | 418 |
| | 3,582 |
| | 0.15 |
| | 0.02 |
| | 0.13 |
|
| TRU bankruptcy charge | 3,596 |
| | 204 |
| | 3,392 |
| | 0.13 |
| | 0.01 |
| | 0.12 |
|
| Restructuring charges | 1,165 |
| | 68 |
| | 1,097 |
| | 0.04 |
| | — |
| | 0.04 |
|
| Subtotal | 135,688 |
| | 7,113 |
| | 128,575 |
| | 4.97 |
| | 0.26 |
| | 4.71 |
|
| Amortization of intangible assets | 14,198 |
| | 658 |
| | 13,540 |
| | 0.52 |
| | 0.02 |
| | 0.50 |
|
| Non-cash share-based compensation | 10,619 |
| | 1,178 |
| | 9,441 |
| | 0.39 |
| | 0.04 |
| | 0.35 |
|
| Adjusted (non-GAAP) | $ | 160,505 |
| | $ | 8,949 |
| | $ | 151,556 |
| | $ | 5.88 |
| | $ | 0.33 |
| | $ | 5.55 |
|
| |
| Weighted average shares of common stock used in computing diluted EPS | 27,304 |
|
| |
Our income from continuing operations was $136.5 million for the nine months ended November 30, 2018 compared to $120.5 million for the same period last year. Our diluted EPS from continuing operations was $5.15 for the nine months ended November 30, 2018 compared to $4.41 for the same period last year.
Adjusted income from continuing operations increased $14.0 million, or 9.2%, to $165.5 million for the nine months ended November 30, 2018 compared to $151.6 million the same period last year. Adjusted diluted EPS from continuing operations increased 12.4% to $6.24 for the nine months ended November 30, 2018 compared to $5.55 for the same period last year. Adjusted diluted EPS increased primarily due to the impact of higher adjusted operating income in our Health & Home and Housewares segments,
lower interest expense and lower weighted average diluted shares outstanding compared to the same period last year.
Explanation of Non-GAAP Financial Measures
The tables contained in this MD&A, under the headings “Operating income, operating margin, adjusted
operating income (non-GAAP) and adjusted operating margin (non-GAAP) by segment" and “Income from continuing operations, diluted EPSearnings per share ("EPS") from continuing operations, adjusted income from continuing operations (non-GAAP), and adjusted diluted EPS from continuing operations (non-GAAP),” respectively, reportreports operating income, operating margin, income from continuing operations and diluted earnings per shareEPS from continuing operations without the impact of non-cash asset impairment charges, acquisition-related expenses, restructuring charges, the TRU bankruptcy charge, amortization of intangible assets, and non-cash share-based compensation for the periods presented, as applicable. In addition, we report our Leadership Brand net sales revenue, which are sales from brands that have number-one and number-two positions in their respective categories and consist of the OXO, Honeywell, Braun, PUR, Hydro Flask, Vicks and Hot Tools brands. These measures may be considered non-GAAP financial information as set forth in SEC Regulation G, Rule 100. The preceding 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 from continuing operations, and adjusted diluted EPS from continuing operations and Leadership Brand net sales 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 on netapplicable income, margin and earnings per share.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 would not accurately reflect the underlying performance of our continuing operations for the period in which the charges are incurred, even though such charges 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 from continuing operations, and adjusted diluted EPS from continuing operations and Leadership Brand net sales 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 measures are discussed further and reconciled to their applicable GAAP based measures contained in this MD&A beginning on page 36.
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 well-recognized and widely-trusted brands. We have built leading market positions through new product innovation, product quality and competitive pricing. We currently operate in three segments consisting of Housewares, Health & Home, and Beauty.
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 core 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 and is 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. We expect Phase II will include continued investment in our Leadership Brands, with a focus on growing them through consumer-centric innovation, expanding them more aggressively outside the United States, and adding new brands through acquisition. We anticipate building further shared service capability and operating efficiency, as well as attracting, retaining, unifying and training the best people.
On December 19, 2019, we entered into a definitive agreement to acquire Drybar Products LLC, which includes the Drybar trademark and other intellectual property assets associated with Drybar’s products, as well as certain related production assets and working capital. As part of the transaction, we will grant a worldwide license to Drybar Holdings LLC, the owner and long-time operator of Drybar blowout salons, to use the Drybar trademark in their continued operation of Drybar salons. The salons will exclusively use, promote, and sell Helen of Troy’s Drybar products globally. The total cash consideration is $255.0 million, subject to certain customary closing adjustments. We expect to finance the acquisition with cash on hand and borrowings from our existing revolving credit facility. The acquisition is expected to close by January 31, 2020, subject to customary closing conditions, including regulatory approvals.
In fiscal 2018, we announced that we had approved a restructuring plan (“Project Refuel”). Project Refuel includes a reduction-in-force and the elimination of certain contracts and operating expenses. We are targeting total annualized profit improvements of approximately $8.0 to $10.0 million over the duration of the plan. We estimate the plan will be completed during fiscal 2020, and expect to incur total restructuring charges of approximately $7.0 million over the duration of the plan. Since implementing Project Refuel, we have incurred $6.5 million of pre-tax restructuring costs as of November 30, 2019. For additional information regarding Project Refuel, see Note 10 to the accompanying condensed consolidated financial statements.
In December 2017, we completed the divestiture of the Nutritional Supplements segment through the sale of Healthy Directions LLC and its subsidiaries ("Healthy Directions") to Direct Digital, LLC. The purchase price from the sale was comprised of $46.0 million in cash, which was paid at closing, and a supplemental payment with a target value of $25.0 million, payable on or before August 1, 2019. The final amount of the supplemental payment was adjusted based on a settlement with respect to the calculation of the performance of Healthy Directions through February 28, 2018. During fiscal 2019, we reduced the estimated value of the supplemental payment to $10.8 million and recorded a corresponding pre-tax charge of $5.8 million ($4.4 million after tax) to discontinued operations. The supplemental payment of $10.8 million was received during the second quarter of fiscal 2020. Also, during fiscal 2019,
we recorded an additional charge of $1.5 million ($1.3 million after tax) to discontinued operations, resulting from the resolution of certain contingencies. In conjunction with the sale of the business, we provided certain transition services that ceased during the second quarter of fiscal 2020. Following the sale, we no longer consolidate our former Nutritional Supplements segment's operating results. Unless otherwise indicated, all results presented are from continuing operations.
Significant Trends Impacting the Business
Impact of Tariffs
During fiscal years 2019 and 2020, the Office of the U.S. Trade Representative (‘‘USTR’’) has imposed, and in certain cases subsequently reduced or removed, additional tariffs on products imported from China. We purchase a high concentration of our products from unaffiliated manufacturers located in China. This concentration exposes us to risks associated with doing business globally, including changes in tariffs.
The tariff increases that have been implemented by the USTR began to impact our cost of goods sold in the third quarter of fiscal 2019 and will continue to do so, as long as these tariff increases remain in effect. In December 2019, the U.S. and China announced an interim trade agreement to halt additional tariff increases that were due to become effective before the end of the year and reverse some tariff increases that became effective in September 2019. The specific details of the interim trade agreement are unclear, as is the ultimate outcome of the broader trade negotiations. At this time, we expect to mitigate the impact of tariff increases primarily through pricing actions and product cost reductions in our supply chain. Although our pricing actions are intended to offset the gross profit dollar impact of tariff increases, there are no assurances that the pricing actions will be successful in fully offsetting this impact or will not reduce retail consumption or customer orders in the short-term.
Since July 2018, the USTR has periodically issued lists of products that are excluded from tariffs on Chinese imports. Under the USTR exclusion process, companies have the opportunity to seek to have particular products excluded from the tariff lists and apply for a refund.
Potential Impact of Brexit and Offshore Receipts in Respect of Intangible Property Tax
The potential exit of the United Kingdom (the "U.K.") from European Union ("E.U.") membership (commonly referred to as "Brexit") could cause disruptions to and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations. Negotiations are ongoing to determine the future terms of the U.K.’s relationship with the E.U., including the terms of trade between the U.K. and the E.U. The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. These measures could potentially disrupt the markets we serve and the tax jurisdictions in which we operate, adversely change tax benefits or liabilities in these or other jurisdictions, and may cause us to lose customers, suppliers, and employees. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate.
The U.K.’s Offshore Receipts in respect of Intangible Property ("ORIP") rules were introduced by the Finance Act 2019 and came into effect on April 6, 2019. Under the ORIP rules, where intangible property ("IP") is held in offshore companies, in a territory with which the U.K. does not have a full double taxation arrangement and the IP is used directly or indirectly to enable, facilitate or promote U.K. sales, income derived from that IP could be subject to a U.K. gross receipts tax at 20% of the gross amounts. Based on currently available information, we intend to treat this tax as a transactional tax included in operating expenses. Certain aspects of this legislation and its implementation remain unclear at this time and we expect that additional regulations or guidance may be issued and the accounting treatment of the new tax may be clarified.
While we do not believe the ORIP tax will have a material adverse impact on our consolidated operating results, we do believe that it could be material to the profitability of our EMEA operating unit. As a result, the ORIP tax could cause us to evaluate different strategic choices with respect to our EMEA operating unit, including a rationalization of the product portfolio sold in the U.K. or an exit from the market, which could adversely impact our net sales revenue.
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 reporting currency (the U.S. Dollar). The most significant currencies affecting our operating results are the British Pound, Euro, Canadian Dollar, and Mexican Peso.
For the three months ended November 30, 2019, changes in foreign currency exchange rates had an unfavorable impact on consolidated U.S. Dollar reported net sales revenue of approximately $2.3 million, or 0.5%, compared to an unfavorable impact of $1.8 million, or 0.4% for the same period last year. For the nine months ended November 30, 2019, changes in foreign currency exchange rates had an unfavorable impact on consolidated U.S. dollar reported net sales revenue of approximately $6.8 million, or 0.6%, compared to a favorable impact of $1.4 million, or 0.1% for the same period last year.
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 the U.S. retail economy. For the three month periods ended November 30, 2019 and 2018, U.S. shipments were approximately 80% of our net sales. For the nine months ended November 30, 2019 and 2018, U.S. shipments were approximately 79% and 78% of our net sales, respectively.
Additionally, the shift in consumer shopping preferences to online or multichannel shopping experiences has changed the concentration of our sales. For the three and nine month periods ended November 30, 2019, our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 24% of our total consolidated net sales revenue, and grew approximately 30% and 28%, respectively, over the same periods last year.
For the three and nine month periods ended November 30, 2018, our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 20% of our total consolidated net sales revenue, and grew approximately 9% and 25%, respectively, over the same periods last 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.
Variability of the Cough/Cold/Flu Season
Sales in several of our Health & Home 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. For the 2018-2019 season, fall and winter weather was generally milder than historical averages and cough/cold/flu incidence was significantly lower than the 2017-2018 season, which was an above average season.
RESULTS OF OPERATIONS
The following tables provide selected operating data, in U.S. Dollars, as a percentage of net sales
revenue, and as a year-over-year percentage change:
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, | | | | | | % of Sales Revenue, net |
| (in thousands) | 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 |
| Sales revenue by segment, net | | | | | | | | | | | |
| Housewares | $ | 183,211 |
| | $ | 142,937 |
| | $ | 40,274 |
| | 28.2 | % | | 38.6 | % | | 33.2 | % |
| Health & Home | 185,810 |
| | 187,863 |
| | (2,053 | ) | | (1.1 | )% | | 39.1 | % | | 43.6 | % |
| Beauty | 105,716 |
| | 100,281 |
| | 5,435 |
| | 5.4 | % | | 22.3 | % | | 23.3 | % |
| Total sales revenue, net | 474,737 |
| | 431,081 |
| | 43,656 |
| | 10.1 | % | | 100.0 | % | | 100.0 | % |
| Cost of goods sold | 264,764 |
| | 249,236 |
| | 15,528 |
| | 6.2 | % | | 55.8 | % | | 57.8 | % |
| Gross profit | 209,973 |
| | 181,845 |
| | 28,128 |
| | 15.5 | % | | 44.2 | % | | 42.2 | % |
| Selling, general and administrative expense ("SG&A") | 130,692 |
| | 120,524 |
| | 10,168 |
| | 8.4 | % | | 27.5 | % | | 28.0 | % |
| Restructuring charges | 12 |
| | 25 |
| | (13 | ) | | (52.0 | )% | | — | % | | — | % |
| Operating income | 79,269 |
| | 61,296 |
| | 17,973 |
| | 29.3 | % | | 16.7 | % | | 14.2 | % |
| Non-operating income, net | 92 |
| | 15 |
| | 77 |
| | * |
| | — | % | | — | % |
| Interest expense | (2,767 | ) | | (2,971 | ) | | 204 |
| | (6.9 | )% | | (0.6 | )% | | (0.7 | )% |
| Income before income tax | 76,594 |
| | 58,340 |
| | 18,254 |
| | 31.3 | % | | 16.1 | % | | 13.5 | % |
| Income tax expense | 7,895 |
| | 4,020 |
| | 3,875 |
| | 96.4 | % | | 1.7 | % | | 0.9 | % |
| Income from continuing operations | 68,699 |
| | 54,320 |
| | 14,379 |
| | 26.5 | % | | 14.5 | % | | 12.6 | % |
| Loss from discontinued operations (1) | — |
| | (4,850 | ) | | 4,850 |
| | * |
| | — | % | | (1.1 | )% |
| Net income | $ | 68,699 |
| | $ | 49,470 |
| | $ | 19,229 |
| | 38.9 | % | | 14.5 | % | | 11.5 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, | | | | | | % of Sales Revenue, net |
| (in thousands) | 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 |
| Sales revenue by segment, net | | | | | | | | | | | |
| Housewares | $ | 496,017 |
| | $ | 397,738 |
| | $ | 98,279 |
| | 24.7 | % | | 39.2 | % | | 33.7 | % |
| Health & Home | 499,543 |
| | 527,077 |
| | (27,534 | ) | | (5.2 | )% | | 39.5 | % | | 44.7 | % |
| Beauty | 269,507 |
| | 254,493 |
| | 15,014 |
| | 5.9 | % | | 21.3 | % | | 21.6 | % |
| Total sales revenue, net | 1,265,067 |
| | 1,179,308 |
| | 85,759 |
| | 7.3 | % | | 100.0 | % | | 100.0 | % |
| Cost of goods sold | 723,216 |
| | 695,732 |
| | 27,484 |
| | 4.0 | % | | 57.2 | % | | 59.0 | % |
| Gross profit | 541,851 |
| | 483,576 |
| | 58,275 |
| | 12.1 | % | | 42.8 | % | | 41.0 | % |
| SG&A | 359,794 |
| | 325,684 |
| | 34,110 |
| | 10.5 | % | | 28.4 | % | | 27.6 | % |
| Restructuring charges | 1,061 |
| | 2,609 |
| | (1,548 | ) | | (59.3 | )% | | 0.1 | % | | 0.2 | % |
| Operating income | 180,996 |
| | 155,283 |
| | 25,713 |
| | 16.6 | % | | 14.3 | % | | 13.2 | % |
| Non-operating income, net | 313 |
| | 175 |
| | 138 |
| | 78.9 | % | | — | % | | — | % |
| Interest expense | (9,291 | ) | | (8,413 | ) | | (878 | ) | | 10.4 | % | | (0.7 | )% | | (0.7 | )% |
| Income before income tax | 172,018 |
| | 147,045 |
| | 24,973 |
| | 17.0 | % | | 13.6 | % | | 12.5 | % |
| Income tax expense | 16,530 |
| | 10,535 |
| | 5,995 |
| | 56.9 | % | | 1.3 | % | | 0.9 | % |
| Income from continuing operations | 155,488 |
| | 136,510 |
| | 18,978 |
| | 13.9 | % | | 12.3 | % | | 11.6 | % |
| Loss from discontinued operations (1) | — |
| | (5,231 | ) | | 5,231 |
| | * |
| | — | % | | (0.4 | )% |
| Net income | $ | 155,488 |
| | $ | 131,279 |
| | $ | 24,209 |
| | 18.4 | % | | 12.3 | % | | 11.1 | % |
| |
| (1) | During fiscal 2018, we divested our Nutritional Supplements segment, which is reported as discontinued operations for all periods presented. For more information see Note 5 to the accompanying condensed consolidated financial statements. |
* Calculation is not meaningful.
Third Quarter Fiscal 2020 Financial Results
Consolidated net sales revenue increased 10.1%, or $43.7 million, to $474.7 million for the three months ended November 30, 2019, compared to $431.1 million for the same period last year.
Consolidated operating income increased 29.3%, or $18.0 million, to $79.3 million for the three months ended November 30, 2019, compared to $61.3 million for the same period last year. Consolidated operating margin increased 2.5 percentage points to 16.7% of consolidated net sales revenue for the three months ended November 30, 2019, compared to 14.2% for the same period last year. The three months ended November 30, 2019 included pre-tax acquisition-related expenses of $1.5 million with no comparative expenses for the same period last year.
Consolidated adjusted operating income increased 27.8%, or $19.7 million, to $90.3 million for the three months ended November 30, 2019, compared to $70.6 million for the same period last year. Consolidated adjusted operating margin increased 2.6 percentage points to 19.0% of consolidated net sales revenue for the three months ended November 30, 2019, compared to 16.4% for the same period last year.
Income from continuing operations increased 26.5%, or $14.4 million, to $68.7 million for the three months ended November 30, 2019, compared to $54.3 million for the same period last year. Diluted EPS from continuing operations increased 31.6% to $2.71 for the three months ended November 30, 2019, compared to $2.06 for the same period last year.
Adjusted income from continuing operations increased 25.2%, or $15.9 million, to $79.1 million for the three months ended November 30, 2019, compared to $63.2 million for the same period last year. Adjusted diluted EPS from continuing operations increased 30.0% to $3.12 for the three months ended November 30, 2019, compared to $2.40 for the same period last year.
There were no results from discontinued operations for the three months ended November 30, 2019, compared to a loss from discontinued operations of $4.9 million, or $0.18 per diluted share, for the three months ended November 30, 2018.
Net income increased 38.9%, or $19.2 million, to $68.7 million for the three months ended November 30, 2019 compared to $49.5 million for the same period last year. Diluted EPS increased 44.1% to $2.71 for the three months ended November 30, 2019 compared to $1.88 for the same period last year.
Year-To-Date Fiscal 2020 Financial Results
Consolidated net sales revenue increased 7.3%, or $85.8 million, to $1,265.1 million for the nine months ended November 30, 2019, compared to $1,179.3 million for the same period last year.
Consolidated operating income increased 16.6%, or $25.7 million, to $181.0 million for the nine months ended November 30, 2019, compared to $155.3 million for the same period last year. Consolidated operating margin increased 1.1 percentage points to 14.3% of consolidated net sales revenue for the nine months ended November 30, 2019, compared to 13.2% for the same period last year. The nine months ended November 30, 2019 included pre-tax acquisition-related expenses and pre-tax restructuring charges of $1.5 million and $1.1 million, respectively, compared to zero pre-tax acquisition-related expenses and pre-tax restructuring charges of $2.6 million for the same period last year.
Consolidated adjusted operating income increased 16.0%, or $29.7 million, to $215.4 million for the nine months ended November 30, 2019, compared to $185.7 million for the same period last year. Consolidated adjusted operating margin increased 1.2 percentage points to 17.0% of consolidated net sales revenue for the nine months ended November 30, 2019, compared to 15.8% for the same period last year.
Income from continuing operations increased 13.9%, or $19.0 million, to $155.5 million for the nine months ended November 30, 2019, compared to $136.5 million for the same period last year. Diluted EPS from continuing operations increased 19.4% to $6.15 for the nine months ended November 30, 2019, compared to $5.15 for the same period last year.
Adjusted income from continuing operations increased 13.4%, or $22.2 million, to $187.8 million for the nine months ended November 30, 2019, compared to $165.5 million for the same period last year. Adjusted diluted EPS from continuing operations increased 18.9% to $7.42 for the nine months ended November 30, 2019, compared to $6.24 for the same period last year.
There were no results from discontinued operations for the nine months ended November 30, 2019, compared to a loss from discontinued operations, net of tax of $5.2 million, or $0.20 per diluted share for the same period last year.
Net income increased 18.4%, or $24.2 million, to $155.5 million for the nine months ended November 30, 2019, compared to $131.3 million for the same period last year. Diluted EPS increased 24.2%, to $6.15 for the nine months ended November 30, 2019, compared to $4.95 for the same period last year.
Consolidated and Segment Net Sales
The following tables summarize the impact that core business, foreign exchange and acquisitions, as applicable, had on our net sales revenue by segment:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended November 30, |
| (in thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Fiscal 2019 sales revenue, net | $ | 142,937 |
| | $ | 187,863 |
| | $ | 100,281 |
| | $ | 431,081 |
|
| Core business growth (decline) | 40,768 |
| | (996 | ) | | 6,232 |
| | 46,004 |
|
| Impact of foreign currency | (494 | ) | | (1,057 | ) | | (797 | ) | | (2,348 | ) |
| Change in sales revenue, net | 40,274 |
| | (2,053 | ) | | 5,435 |
| | 43,656 |
|
| Fiscal 2020 sales revenue, net | $ | 183,211 |
| | $ | 185,810 |
| | $ | 105,716 |
| | $ | 474,737 |
|
| | | | | | | | |
| Total net sales revenue growth (decline) | 28.2 | % | | (1.1 | )% | | 5.4 | % | | 10.1 | % |
| Core business growth (decline) | 28.5 | % | | (0.5 | )% | | 6.2 | % | | 10.7 | % |
| Impact of foreign currency | (0.3 | )% | | (0.6 | )% | | (0.8 | )% | | (0.5 | )% |
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, |
| (in thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Fiscal 2019 sales revenue, net | $ | 397,738 |
| | $ | 527,077 |
| | $ | 254,493 |
| | $ | 1,179,308 |
|
| Core business growth (decline) | 99,535 |
| | (23,532 | ) | | 16,566 |
| | 92,569 |
|
| Impact of foreign currency | (1,256 | ) | | (4,002 | ) | | (1,552 | ) | | (6,810 | ) |
| Change in sales revenue, net | 98,279 |
| | (27,534 | ) | | 15,014 |
| | 85,759 |
|
| Fiscal 2020 sales revenue, net | $ | 496,017 |
| | $ | 499,543 |
| | $ | 269,507 |
| | $ | 1,265,067 |
|
| | | | | | | | |
| Total net sales revenue growth (decline) | 24.7 | % | | (5.2 | )% | | 5.9 | % | | 7.3 | % |
| Core business growth (decline) | 25.0 | % | | (4.5 | )% | | 6.5 | % | | 7.8 | % |
| Impact of foreign currency | (0.3 | )% | | (0.8 | )% | | (0.6 | )% | | (0.6 | )% |
In the above tables, core business refers to our net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand is acquired, excluding the impact that foreign currency had on reported net sales. Net sales revenue from internally developed brands or product lines is considered core business activity.
Leadership Brand and Other Net Sales
The following tables summarize our Leadership Brand and other net sales:
|
| | | | | | | | | | | | | | |
| | Three Months Ended November 30, |
| (in thousands) | 2019 | | 2018 | | $ Change | | % Change |
| Leadership Brand sales revenue, net | $ | 379,604 |
| | $ | 343,364 |
| | $ | 36,240 |
| | 10.6 | % |
| All other sales revenue, net | 95,133 |
| | 87,717 |
| | 7,416 |
| | 8.5 | % |
| Total sales revenue, net | $ | 474,737 |
| | $ | 431,081 |
| | $ | 43,656 |
| | 10.1 | % |
|
| | | | | | | | | | | | | | |
| | Nine Months Ended November 30, |
| (in thousands) | 2019 | | 2018 | | $ Change | | % Change |
| Leadership Brand sales revenue, net | $ | 1,012,346 |
| | $ | 943,168 |
| | $ | 69,178 |
| | 7.3 | % |
| All other sales revenue, net | 252,721 |
| | 236,140 |
| | 16,581 |
| | 7.0 | % |
| Total sales revenue, net | $ | 1,265,067 |
| | $ | 1,179,308 |
| | $ | 85,759 |
| | 7.3 | % |
Consolidated Net Sales Revenue
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Consolidated net sales revenue increased $43.7 million, or 10.1%, to $474.7 million, compared to $431.1 million. The growth was driven by a core business increase of $46.0 million, or 10.7%, primarily reflecting:
growth in consolidated online sales;
an increase in brick and mortar sales in our Housewares segment;
higher international sales; and
an increase in sales in the appliance category in the Beauty segment.
These factors were partially offset by:
lower sales in our Health & Home segment;
the unfavorable impact from foreign currency fluctuations of approximately $2.3 million, or 0.5%; and
a decline in the personal care category in the Beauty segment.
Net sales from our Leadership Brands were $379.6 million, compared to $343.4 million for the same period last year, representing growth of 10.6%.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Consolidated net sales revenue increased $85.8 million, or 7.3%, to $1,265.1 million, compared to $1,179.3 million. The growth was driven by a core business increase of $92.6 million, or 7.8%, primarily reflecting:
growth in consolidated online sales;
an increase in brick and mortar sales in our Housewares segment; and
an increase in sales in the appliance category in the Beauty segment.
These factors were partially offset by:
lower sales in our Health & Home segment;
a decline in the personal care category within the Beauty segment; and
the unfavorable impact from net foreign currency fluctuations of approximately $6.8 million, or 0.6%.
Net sales from our Leadership Brands were $1,012.3 million compared to $943.2 million for the same period last year, representing growth of 7.3%.
Segment Net Sales Revenue
Housewares
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Net sales revenue increased $40.3 million, or 28.2%, to $183.2 million, compared to $142.9 million. Growth was driven by a core business increase of $40.8 million, or 28.5%, primarily due to:
point of sale growth with existing domestic brick and mortar customers;
an increase in online sales;
an increase in international sales;
higher club sales; and
new product introductions.
These factors were partially offset by the unfavorable impact of net foreign currency fluctuations of approximately $0.5 million, or 0.3%.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Net sales revenue increased $98.3 million, or 24.7%, to $496.0 million, compared to $397.7 million. Growth was primarily driven by a core business increase of $99.5 million, or 25.0%, due to:
point of sale growth and incremental distribution with existing domestic brick and mortar customers;
an increase in online sales;
higher club and closeout sales; and
new product introductions.
These factors were partially offset by the unfavorable impact of net foreign currency fluctuations of approximately $1.3 million, or 0.3%.
Health & Home
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Net sales revenue decreased $2.1 million, or 1.1%, to $185.8 million, compared to $187.9 million. The decline was driven by a core business decline of $1.0 million, or 0.5% due to lower domestic sales driven by the unfavorable comparative impact from more wildfire activity in the same period last year and net distribution changes year-over-year. These factors were partially offset by revenue from new product introductions and growth in international sales.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Net sales revenue decreased $27.5 million, or 5.2%, to $499.5 million compared to $527.1 million. The decline was primarily driven by a core business decline of $23.5 million, or 4.5%, due to:
lower domestic sales driven by net distribution changes year-over-year, the unfavorable comparative impacts of a strong cough/cold/flu season and more wildfire activity in the same period last year; and
lower international sales.
These factors were partially offset by revenue from new product introductions.
Beauty
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Net sales revenue increased $5.4 million, or 5.4%, to $105.7 million, compared to $100.3 million. The increase was driven by an increase in core business sales of $6.2 million, or 6.2%, primarily due to:
increased demand and new product introductions in the appliance category;
growth in the online channel; and
an increase in international sales.
These factors were partially offset by a decline in net sales in the personal care category and the unfavorable impact of net foreign currency fluctuations of approximately $0.8 million, or 0.8%.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Net sales revenue increased $15.0 million, or 5.9%, to $269.5 million, compared to $254.5 million. The growth was driven by a core business increase of $16.6 million, or 6.5%, primarily due to:
increased demand and new product introductions in the appliance category;
growth in the online channel; and
an increase in international sales.
These factors were partially offset by a decrease in net sales in the personal care category and the unfavorable impact of net foreign currency fluctuations of approximately $1.6 million, or 0.6%.
Consolidated Gross Profit Margin
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Consolidated gross profit margin increased 2.0 percentage points to 44.2%, compared to 42.2%. The increase in consolidated gross profit margin was primarily due to:
a higher mix of Housewares sales at a higher overall gross profit margin; and
a favorable product and channel mix within the Housewares segment.
These factors were partially offset by a lower mix of personal care sales in the Beauty segment.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Consolidated gross profit margin increased 1.8 percentage points to 42.8%, compared to 41.0%. The increase in consolidated gross profit margin was primarily due to:
a higher mix of Housewares sales at a higher overall gross profit margin;
a favorable product mix within the Housewares segment;
a lower mix of shipments made on a direct import basis; and
tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and the first quarter of fiscal 2020.
These factors were partially offset by:
the net margin dilutive impact from tariffs and related pricing actions;
unfavorable foreign currency fluctuations;
a lower mix of personal care sales in the Beauty segment; and
higher inbound freight expense.
Consolidated SG&A
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Consolidated SG&A ratio decreased 0.5 percentage points to 27.5%, compared to 28.0%. The decrease in the consolidated SG&A ratio was primarily due to:
lower advertising expense;
the impact from tariff related pricing actions taken with retail customers;
the impact that higher overall sales had on net operating leverage; and
the favorable impact of foreign currency exchange and forward contract settlements.
These factors were partially offset by:
higher annual incentive compensation expense;
acquisition-related expenses associated with the definitive agreement to acquire Drybar Products LLC;
higher amortization expense; and
higher freight and distribution expense.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Consolidated SG&A ratio increased 0.8 percentage points to 28.4%, compared to 27.6%. The increase in the consolidated SG&A ratio was primarily due to:
higher annual incentive compensation expense;
the unfavorable impact of a lower mix of shipments made on a direct import basis;
acquisition-related expenses;
higher freight and distribution expense; and
•higher amortization expense.
These factors were partially offset by:
•the impact from tariff related pricing actions taken with retail customers;
•the impact that higher overall sales had on net operating leverage;
•lower advertising expense; and
•the favorable impact of foreign currency exchange and forward contract settlements.
Restructuring Charges
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
We incurred insignificant restructuring charges for both periods.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
We incurred $1.1 million of pre-tax restructuring charges, compared to $2.6 million. The charges related primarily to employee severance and termination benefits and contract termination costs.
Operating income, operating margin, adjusted operating income (non-GAAP), and adjusted operating margin (non-GAAP) by segment
In order to provide a better understanding of the comparative impact of certain items on operating income, the tables that follow report the comparative before tax impact of non-cash asset impairment charges, acquisition-related expenses, restructuring charges, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on operating income and operating margin for each segment and in total for the periods covered below. Adjusted operating income and adjusted operating margin may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2019 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 42,272 |
| | 23.1 | % | | $ | 24,372 |
| | 13.1 | % | | $ | 12,625 |
| | 11.9 | % | | $ | 79,269 |
| | 16.7 | % |
| Acquisition-related expenses | — |
| | — | % | | — |
| | — | % | | 1,475 |
| | 1.4 | % | | 1,475 |
| | 0.3 | % |
| Restructuring charges | — |
| | — | % | | — |
| | — | % | | 12 |
| | — | % | | 12 |
| | — | % |
| Subtotal | 42,272 |
| | 23.1 | % | | 24,372 |
| | 13.1 | % | | 14,112 |
| | 13.3 | % | | 80,756 |
| | 17.0 | % |
| Amortization of intangible assets | 815 |
| | 0.4 | % | | 2,492 |
| | 1.3 | % | | 1,483 |
| | 1.4 | % | | 4,790 |
| | 1.0 | % |
| Non-cash share-based compensation | 1,510 |
| | 0.8 | % | | 1,946 |
| | 1.0 | % | | 1,302 |
| | 1.2 | % | | 4,758 |
| | 1.0 | % |
| Adjusted operating income (non-GAAP) | 44,597 |
| | 24.3 | % | | 28,810 |
| | 15.5 | % | | 16,897 |
| | 16.0 | % | | 90,304 |
| | 19.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2018 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 29,839 |
| | 20.9 | % | | $ | 19,213 |
| | 10.2 | % | | $ | 12,244 |
| | 12.2 | % | | $ | 61,296 |
| | 14.2 | % |
| Restructuring charges | (20 | ) | | — | % | | — |
| | — | % | | 45 |
| | — | % | | 25 |
| | — | % |
| Subtotal | 29,819 |
| | 20.9 | % | | 19,213 |
| | 10.2 | % | | 12,289 |
| | 12.3 | % | | 61,321 |
| | 14.2 | % |
| Amortization of intangible assets | 489 |
| | 0.3 | % | | 2,721 |
| | 1.4 | % | | 90 |
| | 0.1 | % | | 3,300 |
| | 0.8 | % |
| Non-cash share-based compensation | 2,293 |
| | 1.6 | % | | 2,548 |
| | 1.4 | % | | 1,175 |
| | 1.2 | % | | 6,016 |
| | 1.4 | % |
| Adjusted operating income (non-GAAP) | 32,601 |
| | 22.8 | % | | 24,482 |
| | 13.0 | % | | 13,554 |
| | 13.5 | % | | 70,637 |
| | 16.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2019 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 109,170 |
| | 22.0 | % | | $ | 51,836 |
| | 10.4 | % | | $ | 19,990 |
| | 7.4 | % | | $ | 180,996 |
| | 14.3 | % |
| Acquisition-related expenses | — |
| | — | % | | — |
| | — | % | | 1,475 |
| | 0.5 | % | | 1,475 |
| | 0.1 | % |
| Restructuring charges | 90 |
| | — | % | | — |
| | — | % | | 971 |
| | 0.4 | % | | 1,061 |
| | 0.1 | % |
| Subtotal | 109,260 |
| | 22.0 | % | | 51,836 |
| | 10.4 | % | | 22,436 |
| | 8.3 | % | | 183,532 |
| | 14.5 | % |
| Amortization of intangible assets | 1,512 |
| | 0.3 | % | | 8,088 |
| | 1.6 | % | | 3,529 |
| | 1.3 | % | | 13,129 |
| | 1.0 | % |
| Non-cash share-based compensation | 5,853 |
| | 1.2 | % | | 7,839 |
| | 1.6 | % | | 5,051 |
| | 1.9 | % | | 18,743 |
| | 1.5 | % |
| Adjusted operating income (non-GAAP) | $ | 116,625 |
| | 23.5 | % | | $ | 67,763 |
| | 13.6 | % | | $ | 31,016 |
| | 11.5 | % | | $ | 215,404 |
| | 17.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2018 |
| (In thousands) | Housewares | | Health & Home | | Beauty | | Total |
| Operating income, as reported (GAAP) | $ | 80,351 |
| | 20.2 | % | | $ | 52,501 |
| | 10.0 | % | | $ | 22,431 |
| | 8.8 | % | | $ | 155,283 |
| | 13.2 | % |
| Restructuring charges | 740 |
| | 0.2 | % | | 358 |
| | 0.1 | % | | 1,511 |
| | 0.6 | % | | 2,609 |
| | 0.2 | % |
| Subtotal | 81,091 |
| | 20.4 | % | | 52,859 |
| | 10.0 | % | | 23,942 |
| | 9.4 | % | | 157,892 |
| | 13.4 | % |
| Amortization of intangible assets | 1,474 |
| | 0.4 | % | | 8,129 |
| | 1.5 | % | | 1,219 |
| | 0.5 | % | | 10,822 |
| | 0.9 | % |
| Non-cash share-based compensation | 6,273 |
| | 1.6 | % | | 7,030 |
| | 1.3 | % | | 3,726 |
| | 1.5 | % | | 17,029 |
| | 1.4 | % |
| Adjusted operating income (non-GAAP) | $ | 88,838 |
| | 22.3 | % | | $ | 68,018 |
| | 12.9 | % | | $ | 28,887 |
| | 11.4 | % | | $ | 185,743 |
| | 15.8 | % |
Consolidated Operating Income
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Consolidated operating income was $79.3 million, or 16.7% of net sales, compared to $61.3 million, or 14.2% of net sales, for the same period last year. The increase was driven by the following factors:
a higher mix of Housewares sales at a higher overall operating margin;
a favorable product and channel mix within the Housewares segment;
the favorable impact that higher overall net sales had on operating expense leverage; and
lower advertising expense.
These factors were partially offset by:
higher annual incentive compensation expense;
acquisition-related expenses;
higher amortization expense; and
higher freight and distribution expense.
Consolidated adjusted operating income increased 27.8% to $90.3 million, or 19.0% of net sales, compared to $70.6 million, or 16.4% of net sales, in the same period last year.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Consolidated operating income was $181.0 million, or 14.3% of net sales, compared to $155.3 million, or 13.2% of net sales, for the same period last year. The increase was driven by the following factors:
tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and the first quarter of fiscal 2020;
a higher mix of Housewares sales at a higher overall operating margin;
a favorable product mix within the Housewares segment;
the favorable impact that higher overall net sales had on operating expense leverage;
lower advertising expense; and
the net favorable comparative impact of pre-tax restructuring charges of $1.5 million.
These factors were partially offset by:
higher annual incentive compensation expense;
higher freight and distribution expense;
acquisition-related expenses in the current period;
higher amortization expense; and
the net unfavorable impact of foreign currency fluctuations.
Consolidated adjusted operating income increased 16.0% to $215.4 million, or 17.0% of net sales, compared to $185.7 million, or 15.8% of net sales, for the same period last year.
Housewares
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Operating income was $42.3 million, or 23.1% of segment net sales, compared to $29.8 million, or 20.9% of segment net sales, for the same period last year. The 2.2 percentage point increase in segment operating margin was primarily due to:
the margin impact of a more favorable product and channel mix;
the impact that higher sales had on operating leverage; and
lower advertising expense.
These factors were partially offset by higher freight and distribution expense to support increased retail customer shipments and strong direct-to-consumer demand.
Adjusted operating income increased 36.8%to $44.6 million, or 24.3% of segment net sales, compared to $32.6 million, or 22.8% of segment net sales, in the same period last year.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Operating income was $109.2 million, or 22.0% of segment net sales, for the nine months ended November 30, 2019, compared to $80.4 million, or 20.2% of segment net sales, in the same period last year. The 1.8 percentage point increase in segment operating margin was primarily due to:
the margin impact of a more favorable product and channel mix;
the impact that higher sales had on operating leverage; and
the net favorable comparative impact of pre-tax restructuring charges of $0.7 million.
These factors were partially offset by:
higher annual incentive compensation expense;
higher advertising expense; and
higher freight and distribution center expense to support increased retail customer shipments and strong direct-to-consumer demand.
Adjusted operating income increased 31.3% to $116.6 million, or 23.5% of segment net sales, compared to $88.8 million, or 22.3% of segment net sales, in the same period last year.
Health & Home
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Operating income was $24.4 million, or 13.1% of segment net sales, compared to $19.2 million, or 10.2% of segment net sales in the same period last year. The 2.9 percentage point increase in segment operating margin was primarily due to:
lower advertising expense; and
the margin impact of a more favorable product mix.
These factors were offset by unfavorable operating leverage from the decline in sales.
Adjusted operating income increased 17.7% to $28.8 million, or 15.5% of segment net sales, compared to $24.5 million, or 13.0% of segment net sales, in the same period last year.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Operating income was $51.8 million, or 10.4% of segment net sales, compared to $52.5 million, or 10.0% of segment net sales, in the same period last year. The 0.4 percentage point increase in segment operating margin was primarily due to:
tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and first quarter of fiscal 2020;
lower advertising expense; and
lower product liability claim expense.
These factors were partially offset by the net unfavorable impact of foreign currency fluctuations, and unfavorable operating leverage from the decline in sales.
Adjusted operating income decreased 0.4% to $67.8 million, or 13.6% of segment net sales, compared to $68.0 million, or 12.9% of segment net sales, in the same period last year.
Beauty
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Operating income was $12.6 million, or 11.9% of segment net sales, compared to $12.2 million, or 12.2% of segment net sales, in the same period last year. The 0.3 percentage point decrease in segment operating margin was primarily due to:
higher annual incentive compensation expense;
acquisition-related expenses;
higher amortization expense; and
the unfavorable margin impact of a lower mix of personal care sales.
These factors were partially offset by lower advertising expense.
Adjusted operating income increased 24.7% to $16.9 million, or 16.0% of segment net sales, compared to $13.6 million, or 13.5% of segment net sales, in the same period last year.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Operating income was $20.0 million, or 7.4% of segment net sales, compared to operating income of $22.4 million, or 8.8% of segment net sales, in the same period last year. The 1.4percentage point decrease in segment operating margin was primarily due to:
the impact of higher freight expense to meet strong demand in the appliance category;
higher annual incentive and share-based compensation expense related to short- and long-term performance;
higher amortization expense;
acquisition-related expenses; and
the unfavorable margin impact of a lower mix of personal care sales.
These factors were partially offset by lower advertising expense and the net favorable comparative impact of pre-tax restructuring charges of $0.5 million.
Adjusted operating income increased 7.4% to $31.0 million, or 11.5% of segment net sales, compared to $28.9 million, or 11.4% of segment net sales, in the same period last year.
Interest Expense
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Interest expense was $2.8 million, compared to $3.0 million. The decrease in interest expense was primarily due to lower average levels of debt outstanding and lower average interest rates.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Interest expense was $9.3 million, compared to $8.4 million. The increase in interest expense was primarily due to higher average interest rates.
Income Tax Expense
The period-over-period comparison of our effective tax rate is impacted by the mix of taxable income in our various tax jurisdictions. Due to our organization in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries, resulting in
proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate.
For the three months ended November 30, 2019, income tax expense as a percentage of income before income tax was 10.3% compared to 6.9% for the same period last year. The year-over-year increase in the effective tax rate is primarily due to shifts in the mix of taxable income in our various tax jurisdictions and increases in certain statutory tax rates.
For the nine months ended November 30, 2019, income tax expense as a percentage of income before income tax was 9.6%, which included $1.0 million of tax benefits from share-based compensation settlements, $1.7 million of expense from the remeasurement of deferred taxes due to tax rate changes, and a $2.8 million benefit from the resolution of an uncertain tax position. Income tax expense as a percentage of income before income tax was 7.2% for the same period last year, which included $0.7 million tax benefits from share-based compensation settlements and a $0.8 million benefit from the lapse of the statute of limitations related to an uncertain tax position. The year-over-year increase in the effective tax rate is primarily due to shifts in the mix of taxable income in our various tax jurisdictions, increases in certain statutory tax rates and the comparative impact of discrete benefits recorded in the same period last year.
During fiscal 2017, we received an assessment from a state tax authority which adjusted taxable income applicable to the particular state resulting from interpretations of certain state income tax provisions applicable to our legal structure. We believe we have accurately reported our taxable income and are vigorously protesting the assessment through administrative processes with the state. We believe it is unlikely that the outcome of these matters will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.
Our Macau subsidiary generates income from the sale of the goods it has sourced and procured. This subsidiary is responsible for the sourcing and procurement of a large portion of the products that we sell. We currently have an indefinite tax holiday in Macau conditioned on the subsidiary meeting certain employment and investment thresholds. The Macau Offshore Law and its supplementary regulations that grant tax incentives to approved offshore institutions will be abolished on January 1, 2021. Existing approved offshore institutions such as ours can continue to operate under the offshore regime until the end of the calendar year 2020. Beginning in calendar year 2021, we believe our Macau subsidiary will become subject to a statutory corporate income tax of approximately 12%. The ultimate impact of this change, if any, on our overall effective tax rate will depend on a variety of factors including our mix of income by jurisdiction, transfer pricing considerations and the specific tax regulations applicable to us when we are no longer under the Macau Offshore regime. It is not practicable for us to determine the potential impact on our financial statements until the tax changes in Macau are fully established and our transfer pricing analysis is complete. Because our Macau subsidiary is not directly or indirectly owned by a U.S. parent, there is no U.S. tax liability associated with the income generated in Macau.
Income from continuing operations, diluted EPS from continuing operations, adjusted income from continuing operations (non-GAAP), and adjusted diluted EPS from continuing operations (non-GAAP)
In order to provide a better understanding of the impact of certain items on our income and EPS from continuing operations, the analysis that follows reports the comparative after tax impact of non-cash asset impairment charges, acquisition-related expenses, restructuring charges, amortization of intangible assets, and non-cash share‐based compensation, as applicable, on income from continuing operations, and diluted EPS from continuing operations for the periods covered below. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2019 |
| | Income From Continuing Operations | | Diluted EPS From Continuing Operations |
| (in thousands, except per share data) | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax |
| As reported (GAAP) | $ | 76,594 |
| | $ | 7,895 |
| | $ | 68,699 |
| | $ | 3.02 |
| | $ | 0.31 |
| | $ | 2.71 |
|
| Acquisition-related expenses | 1,475 |
| | 22 |
| | 1,453 |
| | 0.06 |
| | — |
| | 0.06 |
|
| Restructuring charges | 12 |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
| Subtotal | 78,081 |
| | 7,917 |
| | 70,164 |
| | 3.07 |
| | 0.31 |
| | 2.76 |
|
| Amortization of intangible assets | 4,790 |
| | 252 |
| | 4,538 |
| | 0.19 |
| | 0.01 |
| | 0.18 |
|
| Non-cash share-based compensation | 4,758 |
| | 343 |
| | 4,415 |
| | 0.19 |
| | 0.01 |
| | 0.17 |
|
| Adjusted (non-GAAP) | $ | 87,629 |
| | $ | 8,512 |
| | $ | 79,117 |
| | $ | 3.45 |
| | $ | 0.34 |
| | $ | 3.12 |
|
| |
| Weighted average shares of common stock used in computing diluted EPS | 25,396 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended November 30, 2018 |
| | Income From Continuing Operations | | Diluted EPS From Continuing Operations |
| (in thousands, except per share data) | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax |
| As reported (GAAP) | $ | 58,340 |
| | $ | 4,020 |
| | $ | 54,320 |
| | $ | 2.21 |
| | $ | 0.15 |
| | $ | 2.06 |
|
| Restructuring charges | 25 |
| | 2 |
| | 23 |
| | — |
| | — |
| | — |
|
| Subtotal | 58,365 |
| | 4,022 |
| | 54,343 |
| | 2.21 |
| | 0.15 |
| | 2.06 |
|
| Amortization of intangible assets | 3,300 |
| | 46 |
| | 3,254 |
| | 0.13 |
| | — |
| | 0.12 |
|
| Non-cash share-based compensation | 6,016 |
| | 415 |
| | 5,601 |
| | 0.23 |
| | 0.02 |
| | 0.21 |
|
| Adjusted (non-GAAP) | $ | 67,681 |
| | $ | 4,483 |
| | $ | 63,198 |
| | $ | 2.57 |
| | $ | 0.17 |
| | $ | 2.40 |
|
| | | | | | | | | | | | |
| Weighted average shares of common stock used in computing diluted EPS | | 26,366 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2019 |
| | Income From Continuing Operations | | Diluted EPS From Continuing Operations |
| (in thousands, except per share data) | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax |
| As reported (GAAP) | $ | 172,018 |
| | $ | 16,530 |
| | $ | 155,488 |
| | $ | 6.80 |
| | $ | 0.65 |
| | $ | 6.15 |
|
| Acquisition-related expenses | 1,475 |
| | 22 |
| | 1,453 |
| | 0.06 |
| | — |
| | 0.06 |
|
| Restructuring charges | 1,061 |
| | 68 |
| | 993 |
| | 0.04 |
| | — |
| | 0.04 |
|
| Subtotal | 174,554 |
| | 16,620 |
| | 157,934 |
| | 6.90 |
| | 0.66 |
| | 6.24 |
|
| Amortization of intangible assets | 13,129 |
| | 621 |
| | 12,508 |
| | 0.52 |
| | 0.02 |
| | 0.49 |
|
| Non-cash share-based compensation | 18,743 |
| | 1,434 |
| | 17,309 |
| | 0.74 |
| | 0.06 |
| | 0.68 |
|
| Adjusted (non-GAAP) | $ | 206,426 |
| | $ | 18,675 |
| | $ | 187,751 |
| | $ | 8.16 |
| | $ | 0.74 |
| | $ | 7.42 |
|
| |
| Weighted average shares of common stock used in computing diluted EPS | 25,295 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended November 30, 2018 |
| | Income From Continuing Operations | | Diluted EPS From Continuing Operations |
| (in thousands, except per share data) | Before Tax | | Tax | | Net of Tax | | Before Tax | | Tax | | Net of Tax |
| As reported (GAAP) | $ | 147,045 |
| | $ | 10,535 |
| | $ | 136,510 |
| | $ | 5.54 |
| | $ | 0.40 |
| | $ | 5.15 |
|
| Restructuring charges | 2,609 |
| | 185 |
| | 2,424 |
| | 0.10 |
| | 0.01 |
| | 0.09 |
|
| Subtotal | 149,654 |
| | 10,720 |
| | 138,934 |
| | 5.64 |
| | 0.40 |
| | 5.24 |
|
| Amortization of intangible assets | 10,822 |
| | 236 |
| | 10,586 |
| | 0.41 |
| | 0.01 |
| | 0.40 |
|
| Non-cash share-based compensation | 17,029 |
| | 1,021 |
| | 16,008 |
| | 0.64 |
| | 0.04 |
| | 0.60 |
|
| Adjusted (non-GAAP) | $ | 177,505 |
| | $ | 11,977 |
| | $ | 165,528 |
| | $ | 6.69 |
| | $ | 0.45 |
| | $ | 6.24 |
|
| |
| Weighted average shares of common stock used in computing diluted EPS | 26,520 |
|
Comparison of Third Quarter Fiscal 2020 to Third Quarter Fiscal 2019
Income from continuing operations was $68.7 million, compared to $54.3 million. Diluted EPS from continuing operations was $2.71, compared to $2.06. Diluted EPS increased primarily due to higher operating income in the Housewares segment and the impact of lower weighted average diluted shares outstanding compared to the same period last year. This was partially offset by higher income tax expense.
Adjusted income from continuing operations increased $15.9 million, or 25.2%, to $79.1 million, compared to $63.2 million the same period last year. Adjusted diluted EPS from continuing operations increased 30.0% to $3.12, compared to $2.40.
Comparison of First Nine Months of Fiscal 2020 to First Nine Months of Fiscal 2019
Income from continuing operations was $155.5 million, compared to $136.5 million. Diluted EPS from continuing operations was $6.15, compared to $5.15. Diluted EPS increased primarily due to the impact of higher operating income in our Housewares segment and lower weighted average diluted shares outstanding compared to the same period last year. This was partially offset by lower operating income in our Beauty segment, higher interest expense and higher income tax expense.
Adjusted income from continuing operations increased $22.2 million, or 13.4%, to $187.8 million, compared to $165.5 million. Adjusted diluted EPS from continuing operations increased 18.9% to $7.42, compared to $6.24.
Financial Condition, Liquidity and Capital Resources
Selected measures of our liquidity and capital resources are shown for the periods below :below:
| | | | Nine Months Ended November 30, | Nine Months Ended November 30, |
| | 2018 | | 2017 | 2019 | | 2018 |
| Accounts Receivable Turnover (Days) (1) | 69.4 |
| | 65.4 |
| 68.9 |
| | 69.4 |
|
| Inventory Turnover (Times) (1) | 3.4 |
| | 2.8 |
| 2.9 |
| | 3.4 |
|
Working Capital (in thousands) | $ | 338,008 |
| | $ | 263,537 |
| |
Working Capital (in thousands) | | $ | 411,340 |
| | $ | 338,008 |
|
| Current Ratio | 2.0:1 |
| | 1.7:1 |
| 2.3:1 |
| | 2.0:1 |
|
| Ending Debt to Ending Equity Ratio | 32.9 | % | | 43.3 | % | 21.0 | % | | 32.9 | % |
| Return on Average Equity (1) | 14.1 | % | | 15.3 | % | 18.2 | % | | 14.1 | % |
availability under our credit facility are sufficient to meet our working capital and capital expenditure needs.
