Helen of Troy Limited — Form 10-K Summary
Reporting period: Fiscal year ended February 28, 2021. The filing is an annual report, although the request metadata references 2020 Q4. Results are presented in U.S. dollars and primarily reflect continuing operations.
Business Context
Helen of Troy is a global consumer products company operating through three segments: Housewares, Health & Home, and Beauty. Key brands include OXO, Hydro Flask, PUR, Vicks, Braun, Honeywell, Hot Tools and Drybar. Approximately 79% of fiscal 2021 sales originated from the United States, and online-channel sales represented approximately 26% of consolidated revenue.
Fiscal 2021 included a full year of Drybar Products results following its January 2020 acquisition for approximately $255.9 million. The company also classified its mass-channel Personal Care business as held for sale and expected the divestiture during the first quarter of fiscal 2022.
Financial Performance and Liquidity
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Net sales | $2,098.8 million | $1,707.4 million | Up 22.9% |
| Gross profit | $927.3 million | $734.5 million | Up 26.3% |
| Gross margin | 44.2% | 43.0% | Up 1.2 points |
| Operating income | $281.5 million | $178.3 million | Up 57.9% |
| Operating margin | 13.4% | 10.4% | Up 3.0 points |
| Adjusted operating income | $334.4 million | $269.3 million | Up 24.2% |
| Adjusted operating margin | 15.9% | 15.8% | Up 0.1 point |
| Net income | $253.9 million | $152.3 million | Up 66.7% |
| Diluted EPS | $10.08 | $6.02 | Up 67.4% |
| Cash flow from operations | $314.1 million | $271.3 million | Up $42.8 million |
Segment sales were $727.4 million for Housewares, $890.2 million for Health & Home, and $481.3 million for Beauty. Health & Home was the largest growth contributor, benefiting from demand for healthcare, air filtration and healthy-living products. Leadership Brand sales increased 25.5% to $1.71 billion.
At February 28, 2021, cash and cash equivalents were $45.1 million, working capital was $357.0 million, and the current ratio was 1.6 to 1. Total principal debt was approximately $347.6 million, consisting primarily of $329.0 million outstanding under the revolving credit facility and $18.6 million under the MBFC Loan. The company had $901.8 million of borrowing availability under its amended $1.25 billion revolving facility and was in compliance with debt covenants.
Investing cash outflows were $98.7 million, including $72.5 million for the upfront Revlon trademark license fee and $26.2 million of capital expenditures. Financing activities used $194.8 million, including $203.3 million for repurchases and retirement of 1.03 million common shares. The company paid no cash dividends.
Material Changes Versus the Prior Comparable Period
- Revenue growth accelerated across all three segments, with Health & Home up 29.9%, Beauty up 26.3% and Housewares up 13.5%.
- Beauty returned to reported operating profitability, with operating income of $64.9 million versus a $13.1 million operating loss in fiscal 2020. The comparison was significantly affected by the prior-year $41.0 million impairment charge and acquisition-related expenses.
- Consolidated gross margin improved due to favorable product, channel and segment mix, including the Drybar acquisition, partly offset by higher inbound freight and tariff-related effects.
- Reported operating income benefited from lower unusual charges: fiscal 2021 included $8.5 million of impairment charges and $0.4 million of restructuring charges, compared with $41.0 million of impairment charges, $3.3 million of restructuring charges and $2.5 million of acquisition-related expenses in fiscal 2020.
- Online-channel sales increased to approximately 26% of consolidated revenue from 24% in fiscal 2020.
- Inventory increased to $481.6 million from $256.3 million, reflecting strong demand, supply-chain constraints and efforts to support customer fulfillment.
- The Revlon license agreement eliminated ongoing royalties in exchange for a $72.5 million upfront fee, recorded as an intangible asset and amortized over the 40-year initial term.
Outlook, Commentary, Risks and Unusual Items
Management stated that favorable COVID-19 effects outweighed unfavorable effects in fiscal 2021, particularly for healthcare, filtration, healthy-living, home-use and online products. However, COVID-19 continued to create store closures, lower traffic, supply disruptions, freight capacity constraints, longer lead times and higher transportation costs.
The filing does not provide clear fiscal 2022 revenue or earnings guidance. Management expects fiscal 2022 capital and intangible asset expenditures of approximately $100 million to $125 million, including construction and equipment for a planned 2 million-square-foot distribution center expected to become operational around fiscal 2023. Management believes operating cash flow and available financing will fund foreseeable liquidity needs.
- Supply-chain exposure is concentrated in the Far East, which supplied approximately 80% of finished goods purchased in fiscal 2021. Freight costs, tariffs, port congestion, labor disruptions and container shortages may pressure margins and fulfillment.
- Customer concentration is significant: Amazon represented approximately 20% of sales, Walmart 13%, Target 11%, and the top five customers approximately 52%.
- The Personal Care disposal group remains subject to valuation risk. Fiscal 2021 included an $8.5 million non-cash impairment charge, following a $41.0 million impairment charge in fiscal 2020.
- Macau tax-law changes are expected to increase the company’s annual effective tax rate by approximately 1.5 to 2.0 percentage points beginning in fiscal 2022.
- Most debt bears floating rates; interest-rate swaps fixed rates on $225 million of the revolving debt. LIBOR discontinuation may require amendments to debt and swap agreements and could affect interest expense.
- Project Refuel is expected to be completed in fiscal 2022. Total restructuring charges are estimated at approximately $10.3 million, of which $9.2 million had been incurred through fiscal 2021.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor reported no critical audit matters.
Investor Verification Checklist
- Verify fiscal 2022 revenue, earnings and margin guidance when subsequently disclosed, as this 10-K provides no clear numerical earnings outlook.
- Assess whether COVID-related demand remains durable after normalization of consumer behavior and cough, cold and flu patterns.
- Monitor freight, tariff, foreign-exchange and sourcing costs, particularly the company’s dependence on Chinese and other Far East suppliers.
- Review the timing, proceeds and final accounting treatment of the Personal Care divestiture.
- Evaluate the planned distribution-center investment and its effect on capital spending, depreciation and liquidity.
- Track debt maturities, covenant headroom, floating-rate exposure and the transition away from LIBOR.
- Reconcile GAAP results with management’s adjusted measures, particularly impairment, restructuring, amortization, share-based compensation and tax-reform adjustments.
- Monitor customer concentration and the increasing dependence on Amazon, Walmart, Target and online retail channels.