Helen of Troy Limited — Form 10-K Summary
Reporting period: Fiscal year ended February 28, 2022. The request identifies “2021 Q4,” but the filing is an annual report covering fiscal 2022, not a quarterly filing. Results are presented in U.S. dollars.
Business context
Helen of Troy is a global consumer products company operating through three segments: Home & Outdoor, Health & Wellness, and Beauty. Key brands include OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools and Drybar. The company sells in more than 95 countries, with approximately 78% of fiscal 2022 sales generated from U.S. shipments.
- Home & Outdoor includes housewares, hydration, food storage, backpacks and outdoor gear.
- Health & Wellness includes thermometers, filtration products, humidifiers, fans and other healthcare devices.
- Beauty includes hair appliances, grooming tools, accessories and prestige hair-care products.
The company renamed the former Housewares and Health & Home segments to Home & Outdoor and Health & Wellness, respectively, without changing their underlying products or brands.
Financial performance
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Net sales | $2,223.4 million | $2,098.8 million | Up 5.9% |
| Gross profit | $953.2 million | $927.3 million | Up 2.8% |
| Gross margin | 42.9% | 44.2% | Down 1.3 points |
| Operating income | $272.6 million | $281.5 million | Down 3.2% |
| Operating margin | 12.3% | 13.4% | Down 1.1 points |
| Net income | $223.8 million | $253.9 million | Down 11.9% |
| Diluted EPS | $9.17 | $10.08 | Down 9.0% |
| Adjusted operating income | $355.1 million | $334.4 million | Up 6.2% |
| Adjusted operating margin | 16.0% | 15.9% | Up 0.1 point |
| Adjusted diluted EPS | $12.36 | $11.65 | Up 6.1% |
Reported results were affected by $32.4 million of EPA compliance costs, $2.4 million of acquisition-related expenses and $0.4 million of restructuring charges. Fiscal 2021 included an $8.5 million asset impairment charge and $0.4 million of restructuring charges. Adjusted measures exclude specified items and are non-GAAP measures.
Segment results
| Segment | Fiscal 2022 sales | Year-over-year sales | Fiscal 2022 operating margin |
|---|---|---|---|
| Home & Outdoor | $865.8 million | Up 19.0% | 15.6% |
| Health & Wellness | $777.1 million | Down 12.7% | 5.0% |
| Beauty | $580.4 million | Up 20.6% | 17.0% |
- Home & Outdoor growth included $24.4 million of approximately nine weeks of Osprey sales, organic growth of 15.6% and favorable foreign exchange.
- Health & Wellness declined primarily because of the EPA packaging matter, related stop shipments, and lower comparison-period demand for thermometers and air filtration products following COVID-19-driven demand in fiscal 2021.
- Beauty benefited from stronger brick-and-mortar and online sales, new products, expanded distribution and international growth.
- Leadership Brand sales increased 6.1% to $1.81 billion.
Cash flow, liquidity and debt
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Cash provided by operating activities | $140.8 million | $314.1 million |
| Cash used in investing activities | $438.9 million | $98.7 million |
| Cash provided by financing activities | $286.4 million | Cash used of $194.8 million |
| Cash and equivalents at year-end | $33.4 million | $45.1 million |
| Working capital | $479.4 million | $357.0 million |
| Current ratio | 1.8 to 1 | 1.6 to 1 |
| Ending debt-to-equity ratio | 61.3% | 27.7% |
- Capital and intangible asset expenditures were $78.0 million, including $55.8 million for land and initial construction of a new two-million-square-foot distribution center.
- The company paid $410.9 million, net of cash acquired, for Osprey and funded the acquisition with cash and revolving-credit borrowings.
- Debt principal outstanding at February 28, 2022 was $816.2 million, consisting primarily of $799.5 million under the revolving Credit Agreement and $16.7 million under the MBFC Loan.
- The Credit Agreement provides a $1.25 billion unsecured revolving commitment maturing March 13, 2025. Available borrowing capacity was $417.8 million at year-end, after considering outstanding borrowings and letters of credit.
- The company repurchased and retired 854,959 shares for $188.2 million during fiscal 2022. No cash dividends have been paid since inception.
- All debt carries floating interest rates, with interest-rate swaps fixing rates on $125 million of Credit Agreement borrowings at year-end. The company was in compliance with its debt covenants.
Material changes and unusual items
- Osprey acquisition: Completed December 29, 2021 for $410.9 million. Osprey contributed $24.4 million of sales and $0.7 million of net income during the approximately nine weeks included in fiscal 2022. Preliminary acquisition accounting recorded $209.0 million of goodwill, $170.0 million of indefinite-lived trade names and $22.0 million of customer relationships.
- EPA compliance matter: The company temporarily stopped shipments of certain air filtration, water filtration and humidifier products while packaging claims were revised. The EPA did not identify product quality, safety or performance issues. Fiscal 2022 included $13.1 million of obsolete-packaging write-offs and $19.3 million of additional compliance costs. Further repackaging and compliance costs may occur.
- Personal Care divestitures: North American Personal Care was sold for $44.7 million on June 7, 2021, generating a $0.5 million gain. The Latin America and Caribbean Personal Care businesses were sold for $1.8 million on March 25, 2022, after year-end.
- Tax rate: The effective tax rate increased to 13.9% from 5.7%, primarily because fiscal 2021 benefited from a $9.4 million CARES Act-related tax benefit and different jurisdictional income mix.
- Working capital: Inventory increased to $558.0 million from $481.6 million, while inventory turnover declined to 2.3 times from 3.2 times. Operating cash flow fell substantially as inventory, receivables and customer incentives consumed cash.
- Subsequent acquisition: Curlsmith was acquired on April 22, 2022 for $150.0 million in cash, funded with cash on hand and a new revolving-credit borrowing. Remaining Credit Agreement availability was $192.8 million as of April 20, 2022.
- Weather-related incident: A third-party inventory storage facility was severely damaged on March 30, 2022. Seasonal and promotional inventory was temporarily inaccessible and may adversely affect first-half fiscal 2023 sales. The inventory was insured, but the ultimate financial impact was not yet determined.
Outlook, risks and contingencies
Management believes operating cash flows and available financing will be sufficient to fund foreseeable liquidity requirements. Planned fiscal 2023 capital and intangible asset expenditures were estimated at $180 million to $205 million, including the new distribution center. Management did not provide a clear consolidated fiscal 2023 revenue or EPS guidance value in the provided filing text.
- Continuing COVID-19 effects, supply-chain disruptions, freight costs, labor shortages, inflation and raw-material constraints may pressure sales, margins and cash flow.
- Approximately 88% of fiscal 2022 finished goods purchases came from Asia, increasing exposure to tariffs, geopolitical events, supplier concentration, transportation constraints and currency movements.
- Amazon, Walmart and Target accounted for approximately 19%, 11% and 11% of fiscal 2022 sales, respectively; the top five customers represented approximately 49% of sales.
- Brita LP filed patent infringement litigation and an International Trade Commission action concerning PUR gravity-fed water filtration systems. The company cannot predict the outcome or potential loss, and an adverse result could materially affect operations.
- The company faces variable-rate debt exposure and must replace one-month LIBOR, scheduled to cease after June 30, 2023, with an alternative benchmark that could increase interest expense.
- Goodwill and intangible assets totaled approximately $1.49 billion at year-end and depend on management forecasts, discount rates and future operating performance. Fiscal 2022 had no impairment charges.
- The company reported effective internal control over financial reporting and received unqualified audit opinions. Osprey was excluded from the internal-control assessment for the acquisition year.
Investor verification checklist
- Verify the sustainability of Home & Outdoor and Beauty growth and the recovery trajectory of Health & Wellness after EPA-related disruptions.
- Assess whether additional EPA repackaging, storage, freight, returns or penalties could reduce future margins and cash flow.
- Review post-acquisition performance, integration progress and valuation assumptions for Osprey and Curlsmith.
- Reconcile reported and adjusted earnings, including the treatment of EPA costs, acquisition expenses, amortization and share-based compensation.
- Monitor inventory levels, turnover, customer receivables and operating cash conversion.
- Evaluate leverage, the fiscal 2026 debt maturity of approximately $799.5 million, covenant headroom and the impact of the Curlsmith borrowing.
- Track the Brita patent and ITC proceedings and potential effects on PUR product imports and sales.
- Determine the extent of damage and insurance recovery related to the March 2022 warehouse incident.
- Review customer concentration, Asian sourcing exposure, tariffs, foreign exchange and LIBOR transition risks.