HELEN OF TROY LIMITED
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with our condensed
consolidated financial statements included under Part I, Item 1., "Financial
Statements." The various sections of this MD&A contain a number of
forward-looking statements, all of which are based on our current expectations.
Actual results may differ materially due to a number of factors, including those
discussed in Part II, Item 1A.,"Risk Factors," and in the section entitled
"Information Regarding Forward-Looking Statements" following this MD&A, and in
Part I, Item 3., "Quantitative and Qualitative Disclosures About Market Risk" in
this report, as well as in Part I, Item IA., "Risk Factors" in the Company's
most recent annual report on Form 10-K for the fiscal year ended February 28,
2022 ("Form 10-K") and its other filings with the Securities and Exchange
Commission (the "SEC"). When used in this 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 this MD&A, we refer to our Leadership Brands, which are
brands that have number-one and number-two positions in their respective
categories and include OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR,
Hot Tools and Drybar .
This MD&A, including the tables under the headings "Operating Income (Loss),
Operating Margin, Adjusted Operating Income (non-GAAP), and Adjusted Operating
Margin (non-GAAP) by Segment" and "Net Income, Diluted EPS, Adjusted Income
(non-GAAP), and Adjusted Diluted EPS (non-GAAP)," reports operating income
(loss), operating margin, net income and diluted earnings per share ("EPS")
without the impact of acquisition-related expenses, EPA compliance costs,
restructuring charges, amortization of intangible assets, and non-cash
share-based compensation for the periods presented, as applicable. These
measures may be considered non-GAAP financial information as set forth in SEC
Regulation G, Rule 100. The 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, and adjusted diluted EPS 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 and benefits on applicable
income, margin and earnings per 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 and benefits
would not accurately reflect the underlying performance of our operations for
the period in which the charges and benefits are incurred, even though such
charges and benefits 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, and adjusted diluted EPS 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 non-GAAP measures are discussed further and reconciled to
their applicable GAAP-based measures contained in this MD&A beginning on page
43.
There were no material changes to the key financial measures discussed in our Form 10-K.
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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 brands. We have built leading
market positions through new product innovation, product quality and competitive
pricing. We currently operate in three segments consisting of Home & Outdoor,
Health & Wellness, 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 organic 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, which was 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. Phase II includes continued investment in our
Leadership Brands, with a focus on growing them through consumer-centric
innovation, expanding them more aggressively outside the United States of
America (the "U.S."), and adding new brands through acquisition. We are building
further shared service capability and operating efficiency, as well as focusing
on attracting, retaining, unifying and training the best people. Additionally,
we are continuing to enhance and consolidate our environmental, social and
governance efforts and accelerate programs related to diversity, equity,
inclusion and belonging to support our Phase II transformation.
During the second quarter of fiscal 2023, we focused on developing a global
restructuring plan intended to expand operating margins through initiatives
designed to improve efficiency and reduce costs (referred to as "Project
Pegasus"). Project Pegasus includes initiatives to further optimize our brand
portfolio, streamline and simplify the organization, accelerate cost of goods
savings projects, enhance the efficiency of our supply chain network, optimize
our indirect spending, and improve our cash flow and working capital, as well as
other activities. We anticipate these initiatives will create operating
efficiencies, as well as provide a platform to fund future growth investments.
We have the following expectations regarding Project Pegasus:
•Targeted annualized pre-tax operating profit improvements of approximately
$75 million to $85 million , which we expect to begin in fiscal 2024 and be
substantially achieved by the end of fiscal 2026.
•Estimated cadence of the recognition of the savings will be approximately 25%
in fiscal 2024, approximately 50% in fiscal 2025 and approximately 25% in fiscal
2026.
•Total profit improvements to be realized approximately 60% through reduced cost
of goods sold and 40% through lower selling, general and administrative expense
("SG&A").
•Total one-time pre-tax restructuring charges of approximately $85 million to
$95 million over the duration of the plan, which is expected to be completed
during fiscal 2025 and will primarily be comprised of severance and employee
related costs, professional fees, contract termination costs, and other exit and
disposal costs.
•All of our operating segments and shared services will be impacted by the plan.
In addition, we have implemented plans to reduce inventory levels, increase inventory turns, and improve cash flow and working capital. We expect improvements related to these initiatives to begin in the second half of fiscal 2023 and to continue into fiscal 2024. Expectations regarding our Project Pegasus initiatives and our ability to realize targeted savings, including expectations concerning costs and savings,
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are based on management's estimates available at the time and are subject to a
number of assumptions that could materially impact our estimates.
During both the three and six month periods ended August 31, 2022 , we incurred
$4.8 million of pre-tax restructuring costs in connection with Project Pegasus,
which were recorded as "Restructuring charges" in the condensed consolidated
statements of income. See Note 8 to the accompanying condensed consolidated
financial statements for additional information.
Consistent with our strategy of focusing resources on our Leadership Brands,
during the fourth quarter of fiscal 2020, we committed to a plan to divest
certain assets within our Beauty segment's mass channel personal care business,
which included liquid, powder and aerosol products under brands such as Pert,
Brut, Sure and Infusium ("Personal Care"). On June 7, 2021 , we completed the
sale of our North America Personal Care business to HRB Brands LLC , for
$44.7 million in cash and recognized a gain on the sale in SG&A totaling $0.5
million . On March 25, 2022 , we completed the sale of the Latin America and
Caribbean Personal Care business to HRB Brands LLC , for $1.8 million in cash and
recognized a gain on the sale in SG&A totaling $1.3 million . The net assets sold
included intangible assets, inventory, certain net trade receivables, fixed
assets and certain accrued sales discounts and allowances relating to our
Personal Care business. As a result of these dispositions, we no longer have any
assets or liabilities classified as held for sale.
On April 22, 2022 , we completed the acquisition of Recipe Products Ltd. , a
producer of innovative prestige hair care products for all types of curly and
wavy hair under the Curlsmith brand ("Curlsmith"). The Curlsmith brand and
products were added to the Beauty segment. The total purchase consideration was
$149.7 million in cash, net of a preliminary closing net working capital
adjustment and cash acquired. We incurred pre-tax acquisition expenses of $2.7
million during the six months ended August 31, 2022 , which were recognized in
SG&A within our condensed consolidated statement of income.
On December 29, 2021 , we completed the acquisition of Osprey Packs, Inc.
("Osprey"), a longtime U.S. leader in technical and everyday packs, for
$409.3 million in cash, net of a final net working capital adjustment and cash
acquired. Osprey is highly respected in the outdoor industry with a product
lineup that includes a wide range of backpacks and daypacks for hiking,
mountaineering, skiing, climbing, mountain biking, trail running, commuting, and
school, as well as rugged adventure travel packs, wheeled luggage, and travel
accessories. The Osprey brand and products were added to the Home & Outdoor
segment.
On March 30, 2022 , a third-party facility that we utilize for inventory storage
incurred severe damage from a weather-related incident. The inventory that was
stored at this facility primarily related to our Health & Wellness and Beauty
segments. While the inventory is insured, some seasonal inventory and inventory
designated for specific customer promotions was not accessible and subsequently
determined to be damaged, and as a result, unfavorably impacted our net sales
revenue during the first quarter of fiscal 2023. As a result of the damages to
the inventory stored at the facility, during the first quarter of fiscal 2023,
we recorded a charge to write-off the damaged inventory totaling $34.4 million ,
of which $29.9 million and $4.5 million related to our Health & Wellness and
Beauty segments, respectively. These charges were fully offset by probable
insurance recoveries of $34.4 million also recorded during the first quarter of
fiscal 2023, which represent anticipated insurance proceeds, not to exceed the
amount of the associated losses, for which receipt was deemed probable. The
charges for the damaged inventory and the expected insurance recoveries are
included in cost of goods sold in our condensed consolidated statement of income
for the six months ended August 31, 2022 . Any potential future proceeds from our
property insurance, above the amount of associated losses, and our business
interruption insurance will be recognized when received.
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We have a credit agreement (the "Credit Agreement") with Bank of America, N.A .,
as administrative agent, and other lenders that provides for an unsecured total
revolving commitment of $1.25 billion and matures on March 13, 2025 . On June 28,
2022 , we entered into an amendment to the Credit Agreement to, among other
things, replace LIBOR with Term SOFR (as defined in the Credit Agreement) as the
reference interest rate. Accordingly, we updated our interest rate swap
contracts associated with the Credit Agreement borrowings to replace LIBOR with
Term SOFR as the reference interest rate. In connection with the amendment, we
also (i) exercised the accordion under the Credit Agreement and borrowed
$250 million as term loans, and (ii) provided a notice relating to a qualified
acquisition, which triggered temporary adjustments to the maximum leverage ratio
as further described below. In addition, we have an unsecured loan agreement
with the Mississippi Business Finance Corporation (the "MBFC"), which was
entered into in connection with the issuance by MBFC of taxable industrial
development revenue bonds (the "MBFC Loan"). On August 26, 2022 , we entered into
an amendment to the loan agreement for the unsecured MBFC Loan to, among other
things, replace LIBOR with Term SOFR (as defined in the loan agreement) as the
reference interest rate. For additional information, see Note 10 to the
accompanying condensed consolidated financial statements and below under "Credit
Agreement and Other Debt Agreements."
Significant Trends Impacting the Business
Impact of Macroeconomic Trends Beginning inMarch 2020 , interest rates had remained at historically low levels, primarily due to impacts to theU.S economy caused by COVID-19. More recently, higher consumer demand, lower interest rates, global supply chain disruption, and other factors have contributed to rapidly accelerating economic inflation. To offset the impacts of inflation, sinceMarch 2022 , theFederal Open Market Committee has been raising interest rates, and has stated it intends to continue to raise rates throughout the remainder of 2022 and possibly into 2023. During the first and second quarters of fiscal 2023, we incurred higher average interest rates compared to the same period last year, and we expect this trend to continue throughout fiscal year 2023. While the actual timing and extent of the future increases in interest rates remains unknown, higher long-term interest rates are expected to significantly increase interest expense on our outstanding debt. The financial markets, the global economy and global supply chain may also be adversely affected by the current or anticipated impact of military conflict, including the current conflict betweenRussia andUkraine , or other geopolitical events. High inflation and interest rates have also negatively impacted consumer disposable income, credit availability and spending, among others, which have adversely impacted our business, financial condition, cash flows and results of operations and may continue to have an adverse impact throughout fiscal year 2023 . See further discussion below under "Consumer Spending and Changes in Shopping Preferences." We expect continued uncertainty in our business and the global economy due to pressure from inflation, supply chain disruptions, volatility in employment trends and consumer confidence, ongoing uncertainties related to any new surges and responses to COVID-19, any of which may adversely impact our results. 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 theU.S. retail economy. Approximately 74% and 78% of our consolidated net sales revenue was fromU.S. shipments during the three month periods endedAugust 31, 2022 and 2021, respectively. For the six month periods endedAugust 31, 2022 and 2021,U.S. shipments were approximately 74% and 76% of our consolidated net sales revenue. Among other things, high levels of inflation and interest rates may negatively impact consumer disposable income, credit availability and spending. Consumer purchases of discretionary items, including the products that we offer, generally decline during recessionary periods or periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Additionally, the ongoing COVID-19 pandemic increases this uncertainty and may further impact the 30 -------------------------------------------------------------------------------- Table of Contents global supply chain, capital and financial markets and consumer confidence and spending. Dynamic changes in consumer spending and shopping patterns are also having an impact on retailer inventory levels. Our ability to sell to retailers is predicated on their ability to sell to the end consumer. During the second quarter of fiscal year 2023, we experienced an adverse impact on orders from customers as they aimed to rebalance their inventory levels due to lower consumer demand and shifts in consumer spending patterns. If orders from our retail customers continue to be adversely impacted, our sales, results of operations and cash flows may continue to be adversely impacted. We expect continued uncertainty in our business and the global economy due to inflation, changes in consumer spending patterns, and global supply chain disruptions. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today. Our concentration of sales reflects the evolution of consumer shopping preferences to online or multichannel shopping experiences. Our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 22% of our total consolidated net sales revenue for both the three and six month periods endedAugust 31, 2022 and grew approximately 8% for the three month period endedAugust 31, 2022 and declined approximately 0.3% for the six month period endedAugust 31, 2022 as compared to the same periods in the prior year. For both the three and six month periods endedAugust 31, 2021 , our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 22% of our total consolidated net sales revenue, and declined approximately 18% and 7%, respectively, compared to the same periods in the prior 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. Continuing Impact of COVID-19 COVID-19 has continued to spread throughout theU.S. and the world with new variants and surges. The COVID-19 pandemic continues to disrupt certain parts of our supply chain, which in certain cases has limited our ability to fulfill demand and may limit our ability to fulfill demand in the future. Surges in demand and shifts in shopping patterns related to COVID-19, as well as other factors, have strained the global freight network, which has resulted in higher costs, less capacity, and longer lead times. During the first and second quarters of fiscal 2023, we were adversely impacted by COVID-19 related global supply chain disruptions and cost increases. The extent of COVID-19's impact on the demand for certain of our product lines in the future will depend on continuing future developments, including any new variants and surges in the spread of COVID-19, our continued ability to source and distribute our products, the impact of COVID-19 on capital and financial markets, and the related impact on consumer confidence and spending, all of which are uncertain and difficult to predict considering the continuously evolving landscape. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today. Global Supply Chain and Related Cost Inflation Trends Surges in demand and shifts in shopping patterns related to COVID-19, as well as other factors, have continued to strain the global supply chain network, which has resulted in carrier-imposed capacity restrictions, carrier delays, and longer lead times. Demand for Chinese imports has caused shipment receiving and unloading backlogs at manyU.S. ports that have been unable to keep pace with unprecedented inbound container volume. The situation has been further exacerbated by COVID-19 illness and protocols at many port locations. Due to the backlog and increasing trade imbalance with 31 -------------------------------------------------------------------------------- Table of ContentsChina , many shipping containers are not being sent back toChina , or are being sent toChina empty. With continued increases in demand for containers, limited supply and freight vendors bearing the cost of shipping empty containers, the market cost of inbound freight has increased by several multiples compared to calendar year 2020 averages. The disruptions in the global supply chain and freight networks are also resulting in shortages of qualified drivers, which has, and may continue to limit inbound and outbound shipment capacity and increase our costs of goods sold and certain operating expenses. In addition to increasing cost trends, our third party manufacturing partners are not equipped to hold meaningful amounts of inventory and if shipping container capacity remains limited or unavailable, they could pause manufacturing, which could ultimately impact our ability to meet consumer demand on a timely basis. Demand for raw materials, components and semiconductor chips impacted by the supply chain challenges described above has created surges in prices and shortages of these materials may become more significant which could further increase our costs. Further, in theU.S. , the surge in demand for labor and rising hourly labor wages have created labor shortages and higher labor costs. The majority of our hourly labor is employed in our distribution centers and these factors have, and may further, increase our costs and negatively impact our ability to attract and retain qualified associates. Global supply chain disruptions and related inflationary cost trends have adversely impacted our business, financial condition, cash flows and results of operations. Continuation of current trends, or more pronounced adverse impacts may arise which could have further negative impacts to our business, results of operations and financial condition. EPA Compliance Costs Some product lines within our Health & Wellness segment are subject to product identification, labeling and claim requirements, which are monitored and enforced by regulatory agencies, such as theU.S. Environmental Protection Agency (the "EPA"),U.S. Customs and Border Protection , theU.S. Food and Drug Administration , and theU.S. Consumer Product Safety Commission . During fiscal 2022, we were in discussions with the EPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Health & Wellness segment that are sold in theU.S. The EPA did not raise any product quality, safety or performance issues. As a result of these packaging compliance discussions, we voluntarily implemented a temporary stop shipment action on the impacted products as we worked with the EPA towards an expedient resolution. Our fiscal 2022 consolidated, and Health & Wellness segment's, net sales revenue, gross profit and operating income was materially and adversely impacted by the stop shipment actions and the time needed to execute repackaging plans. While we have resumed normalized levels of shipping of the affected inventory, we are still in process of repackaging our existing inventory of impacted products. Additionally, as a result of continuing dialogue with the EPA, we are executing further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products. If we are not able to execute our repackaging plans on schedule to meet demand, our net sales revenue, gross profit and operating income could continue to be materially and adversely impacted. In addition, our net sales revenue could be materially and adversely impacted by customer returns, an increase in sales discounts and allowances and by the potential impact of distribution losses at certain retailers. We recorded charges to cost of goods sold to write-off obsolete packaging for the affected products in our inventory on-hand and in-transit. We have also incurred additional compliance costs comprised of obsolete packaging, storage and other charges from vendors, which were recognized in cost of goods sold and incremental warehouse storage costs and legal fees, which were recognized in SG&A. We refer to these charges as "EPA compliance costs." A summary of EPA compliance costs incurred during the periods presented follows: 32 --------------------------------------------------------------------------------
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Three Months Ended August 31, Six Months Ended August 31,
(in thousands) 2022 2021 2022 2021
Cost of goods sold $ 7,103 $ 357 $ 16,558 1 $ 13,469 2
SG&A 1,251 2,603 3,440 2,603
Total EPA compliance costs $ 8,354 $ 2,960 $ 19,998 $ 16,072
(1)Includes a $4.4 million charge to write-off the obsolete packaging for the
affected additional humidifier products and affected additional air filtration
products in our inventory on-hand and in-transit as of the end of the first
quarter of fiscal 2023.
(2)Includes a
In addition, we have incurred and capitalized into inventory costs to repackage a portion of our existing inventory of the affected products since the second quarter of fiscal 2022 and expect to continue to incur and capitalize such costs as we continue to repackage inventory. We also expect to incur additional compliance costs, which may include incremental warehouse storage costs, charges from vendors, and legal fees, among other things. Such potential incremental EPA compliance costs will be expensed as incurred and could materially and adversely impact our consolidated and Heath & Wellness segment's gross profit and operating income. Additional impacts or more pronounced adverse impacts may arise that we are not currently aware of today. Accordingly, our business, results of operations and financial condition could be adversely and materially impacted in ways that we are not able to predict today.
Although, we are not aware of any fines or penalties related to this matter imposed against us by the EPA, there can be no assurances that such fines or penalties will not be imposed.
See Note 9 to our condensed consolidated financial statements for additional information.
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 functional currency (theU.S. Dollar). Such transactions include sales, certain inventory purchases and operating expenses. The most significant currencies affecting our operating results are the British Pound, Euro, Canadian Dollar, Mexican Peso and Norwegian Kroner. For the three months endedAugust 31, 2022 , changes in foreign currency exchange rates had an unfavorable year-over-year impact on consolidatedU.S. Dollar reported net sales revenue of approximately$4.2 million , or 0.9%, compared to a favorable year-over-year impact of$2.1 million , or 0.4% for the same period last year. For the six months endedAugust 31, 2022 , changes in foreign currency exchange rates had a unfavorable year-over-year impact on consolidatedU.S. Dollar reported net sales revenue of approximately$7.7 million , or 0.8%, compared to a favorable year-over-year impact of$7.6 million , or 0.8% for the same period last year. Variability of the Cough/Cold/Flu Season Sales in several of our Health & Wellness segment categories are highly correlated to the severity of winter weather and cough/cold/flu incidence. In theU.S. , the cough/cold/flu season historically runs from November through March, with peak activity normally in January to March. The 2021-2022 cough/cold/flu season was below historical averages, but higher than the 2020-2021 season, which experienced historically low incidence levels due to COVID-19 prevention measures including mask-wearing, remote learning, work from home, and reduced travel, brick and mortar shopping, and group gatherings. 33 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
The following tables provide selected operating data, in
Three Months Ended August 31, % of Sales Revenue, net
(in thousands) 2022 (1)(2) 2021 $ Change % Change 2022 2021
Sales revenue by segment, net
Home & Outdoor $ 240,559 $ 215,218 $ 25,341 11.8 % 46.1 % 45.3 %
Health & Wellness 180,506 141,479 39,027 27.6 % 34.6 % 29.8 %
Beauty 100,335 118,531 (18,196) (15.4) % 19.3 % 24.9 %
Total sales revenue, net 521,400 475,228 46,172 9.7 % 100.0 % 100.0 %
Cost of goods sold 299,954 264,640 35,314 13.3 % 57.5 % 55.7 %
Gross profit 221,446 210,588 10,858 5.2 % 42.5 % 44.3 %
SG&A 169,724 142,928 26,796 18.7 % 32.6 % 30.1 %
Restructuring charges 4,776 369 4,407 * 0.9 % 0.1 %
Operating income 46,946 67,291 (20,345) (30.2) % 9.0 % 14.2 %
Non-operating income, net 113 31 82 * - % - %
Interest expense 9,166 3,307 5,859 * 1.8 % 0.7 %
Income before income tax 37,893 64,015 (26,122) (40.8) % 7.3 % 13.5 %
Income tax expense 7,221 12,700 (5,479) (43.1) % 1.4 % 2.7 %
Net income $ 30,672 $ 51,315 $ (20,643) (40.2) % 5.9 % 10.8 %
Six Months Ended August 31, % of Sales Revenue, net
(in thousands) 2022 (1)(2) 2021 $ Change % Change 2022 2021
Sales revenue by segment, net
Home & Outdoor $ 474,822 $ 408,862 $ 65,960 16.1 % 46.1 % 40.2 %
Health & Wellness 349,447 345,575 3,872 1.1 % 34.0 % 34.0 %
Beauty 205,209 262,014 (56,805) (21.7) % 19.9 % 25.8 %
Total sales revenue, net 1,029,478 1,016,451 13,027 1.3 % 100.0 % 100.0 %
Cost of goods sold 596,861 585,271 11,590 2.0 % 58.0 % 57.6 %
Gross profit 432,617 431,180 1,437 0.3 % 42.0 % 42.4 %
SG&A 346,954 298,679 48,275 16.2 % 33.7 % 29.4 %
Restructuring charges 4,778 375 4,403 * 0.5 % - %
Operating income 80,885 132,126 (51,241) (38.8) % 7.9 % 13.0 %
Non-operating income, net 180 133 47 35.3 % - % - %
Interest expense 13,539 6,302 7,237 * 1.3 % 0.6 %
Income before income tax 67,526 125,957 (58,431) (46.4) % 6.6 % 12.4 %
Income tax expense 12,259 17,670 (5,411) (30.6) % 1.2 % 1.7 %
Net income $ 55,267 $ 108,287 $ (53,020) (49.0) % 5.4 % 10.7 %
(1)The three and six month periods ended August 31, 2022 include approximately
thirteen and nineteen weeks of operating results from Curlsmith, respectively,
which was acquired on April 22, 2022 . For additional information see Note 4 to
the accompanying condensed consolidated financial statements.
(2)The three and six month periods ended
* Calculation is not meaningful.
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Second Quarter Fiscal 2023 Financial Results
•Consolidated net sales revenue increased 9.7%, or $46.2 million , to $521.4
million for the three months ended August 31, 2022 , compared to $475.2 million
for the same period last year.
•Consolidated operating income decreased 30.2%, or $20.3 million , to $46.9
million for the three months ended August 31, 2022 , compared to $67.3 million
for the same period last year. Consolidated operating margin decreased 5.2
percentage points to 9.0% of consolidated net sales revenue for the three months
ended August 31, 2022 , compared to 14.2% for the same period last year.
•Consolidated adjusted operating income decreased 11.2%, or $9.1 million , to
$72.3 million for the three months ended August 31, 2022 , compared to $81.4
million for the same period last year. Consolidated adjusted operating margin
decreased 3.2 percentage points to 13.9% of consolidated net sales revenue for
the three months ended August 31, 2022 , compared to 17.1% for the same period
last year.
•Net income decreased 40.2%, or $20.6 million , to $30.7 million for the three
months ended August 31, 2022 , compared to $51.3 million for the same period last
year. Diluted EPS decreased 39.3% to $1.28 for the three months ended August 31,
2022 , compared to $2.11 for the same period last year.
•Adjusted income decreased 15.2%, or $9.8 million , to $54.7 million for the
three months ended August 31, 2022 , compared to $64.5 million for the same
period last year. Adjusted diluted EPS decreased 14.3% to $2.27 for the three
months ended August 31, 2022 , compared to $2.65 for the same period last year.
Year-To-Date Fiscal 2023 Financial Results
•Consolidated net sales revenue increased 1.3%, or$13.0 million , to$1,029.5 million for the six months endedAugust 31, 2022 , compared to$1,016.5 million for the same period last year. •Consolidated operating income decreased 38.8%, or$51.2 million , to$80.9 million for the six months endedAugust 31, 2022 , compared to$132.1 million for the same period last year. Consolidated operating margin decreased 5.1 percentage points to 7.9% of consolidated net sales revenue for the six months endedAugust 31, 2022 , compared to 13.0% for the same period last year. •Consolidated adjusted operating income decreased 19.7%, or$34.8 million , to$141.6 million for the six months endedAugust 31, 2022 , compared to$176.3 million for the same period last year. Consolidated adjusted operating margin decreased 3.5 percentage points to 13.8% of consolidated net sales revenue for the six months endedAugust 31, 2022 , compared to 17.3% for the same period last year. •Net income decreased 49.0%, or$53.0 million , to$55.3 million for the six months endedAugust 31, 2022 , compared to$108.3 million for the same period last year. Diluted EPS decreased 48.2% to$2.29 for the six months endedAugust 31, 2022 , compared to$4.42 for the same period last year. •Adjusted income decreased 24.9%, or$37.4 million , to$112.9 million for the six months endedAugust 31, 2022 , compared to$150.3 million for the same period last year. Adjusted diluted EPS 35
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Table of Contents decreased 23.6% to$4.69 for the six months endedAugust 31, 2022 , compared to$6.14 for the same period last year.
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