Helen of Troy(HELE) - 2023 Q4 - Annual Report

Distribution and Logistics - Approximately 56% of the company's consolidated gross sales volume shipped from three distribution facilities in northern Mississippi in fiscal 2023[74] - The company completed the construction of an additional distribution facility in Gallaway, Tennessee, which became operational in the first quarter of fiscal 2024[74] - The company's geographic concentration of U.S. distribution facilities increases the risk of disruptions affecting timely product delivery[74] - The company completed the construction of a new distribution facility in Gallaway, Tennessee, which became operational in the first quarter of fiscal 2024[34] - The company completed construction of a new distribution facility in Gallaway, Tennessee, operational in Q1 fiscal 2024, featuring state-of-the-art automation[176] Customer Concentration - Sales to the company's two largest customers accounted for approximately 27% of consolidated net sales revenue in fiscal 2023[79] - Sales to the top five customers in aggregate accounted for approximately 43% of fiscal 2023 consolidated net sales revenue[79] Manufacturing and Sourcing - Finished goods manufactured in Asia comprised approximately 87% of total finished goods purchased in fiscal 2023[80] - The company relies on third-party manufacturers, primarily located in Asia, exposing it to risks such as global public health crises and changing international political relations[80] - The company is diversifying its supplier base by exploring sourcing alternatives outside of China to mitigate risks associated with supplier closures and economic pressures[81] - The company's top two vendors fulfilled approximately 13%, 16%, and 20% of product requirements for fiscal 2023, 2022, and 2021, respectively[377] Cybersecurity and IT Risks - The company faces risks from cybersecurity breaches, obsolescence, or interruptions in its central global Enterprise Resource Planning (ERP) systems[73] Geopolitical and Trade Risks - The company's operations are subject to risks from trade barriers, exchange controls, and geopolitical tensions, including the conflict between Russia and Ukraine[63] - International operations in Asia, EMEA, and Latin America are exposed to risks such as economic instability, political changes, and global conflicts, including the Russia-Ukraine conflict[86][87] - The company successfully obtained tariff exclusions from the USTR on certain products imported from China, but these exclusions may expire, potentially leading to higher tariffs[188] Innovation and Competition - The company's ability to compete depends on developing a continuous stream of innovative new products to meet changing consumer preferences[75] Supply Chain and Freight Costs - Global supply chain disruptions during fiscal 2021 and 2022 led to higher inbound freight costs and raw material price surges, impacting operating costs, but freight costs have begun to recede in fiscal 2023[82] - The company faces risks of inaccurate demand forecasting, which could lead to difficulties in fulfilling customer orders or liquidating excess inventories[83] - Delivery delays due to vendor production issues, shipping difficulties, and third-party logistics risks could harm the company's reputation and result in lost customers[84][85] - The company's net expense for shipping and handling was $162.0 million,$173.4 million, and 140.1 million during fiscal 2023, 2022, and 2021, respectively[401] Licensing and Trademarks - The company's reliance on licensed trademarks for a significant portion of sales revenue poses risks if license agreements are terminated or trademark value diminishes[90] - The Beauty & Wellness segment relies heavily on licensed trademarks, which require licensor approval for new products and packaging, and some agreements mandate minimum royalty payments[27] - The company sold several trademarks, including Brut, Pert, Sure, and Infusium, as part of the divestiture of its Personal Care businesses[28] Seasonal and Weather Impact - Sales in the Beauty & Wellness segment are influenced by weather conditions and seasonal trends, which can cause fluctuations in operating results[91] - The 2022-2023 cough/cold/flu season was above historical averages, contributing to higher sales in the Beauty & Wellness segment[191] Strategic Initiatives and Restructuring - The company is evaluating strategic opportunities, including acquisitions, divestitures, and global restructuring plans like Project Pegasus, to drive long-term growth and operating efficiencies[93][94] - The company incurred 27.4 million in pre-tax restructuring costs during fiscal 2023 as part of Project Pegasus, aimed at improving efficiency and reducing costs[159] - Organizational restructuring reduced the global workforce by approximately 10%, with most reductions completed by March 1, 2023[167] - The company incurred $27.4 million in pre-tax restructuring costs related to Project Pegasus in fiscal 2023[169] Tax and Compliance - Potential changes in global tax laws, such as the OECD's Inclusive Framework project, could increase the company's effective tax rate and compliance costs[96] - The company is subject to global privacy and data security laws, which could result in increased compliance costs and operational challenges[104] - Changes in U.S. federal income tax laws regarding controlled foreign corporations could impact the company's largest U.S. shareholders and its business operations[106] - Effective income tax rate decreased to 16.4$3.1 million at the end of fiscal 2023, down from $3.2 million in fiscal 2022[530] Environmental and Regulatory Compliance - The company faced compliance challenges with the EPA regarding packaging claims for certain products, leading to temporary stop shipments and repackaging efforts[103] - EPA compliance costs totaled$23.6 million in fiscal 2023, including $16.9 million in cost of goods sold and$6.6 million in SG&A[186] - The company completed repackaging and relabeling plans for certain humidifier and air filtration products in fiscal 2023, following discussions with the EPA[183] Financial Performance - Consolidated net sales revenue decreased 6.8% to $2,072.7 million in fiscal 2023, compared to$2,223.4 million in fiscal 2022[200] - Consolidated operating income decreased 22.3% to $211.8 million in fiscal 2023, compared to$272.6 million in fiscal 2022[200] - Net income decreased 36.0% to $143.3 million in fiscal 2023, compared to$223.8 million in fiscal 2022[200] - Home & Outdoor segment net sales revenue increased 5.8% to $915.7 million in fiscal 2023, compared to$865.8 million in fiscal 2022[210] - Beauty & Wellness segment net sales revenue decreased 14.8% to $1,156.982 million in fiscal 2023, compared to$1,357.511 million in fiscal 2022[194] - Net sales revenue from Leadership Brands decreased 3.1% to $1,753.7 million in fiscal 2023, compared to$1,810.2 million in fiscal 2022[206] - Consolidated adjusted operating income decreased 15.3% to $300.9 million in fiscal 2023, compared to$355.1 million in fiscal 2022[200] - Adjusted diluted EPS decreased 23.5% to $9.45 in fiscal 2023, compared to$12.36 in fiscal 2022[200] - Net sales revenue for fiscal year 2023 was $2.07 billion, a decrease from$2.22 billion in fiscal year 2022[348] - Gross profit for fiscal year 2023 was $899.4 million, down from$953.2 million in fiscal year 2022[348] - Net income for fiscal year 2023 was $143.3 million, compared to$223.8 million in fiscal year 2022[348] - Diluted earnings per share (EPS) for fiscal year 2023 was $5.95, down from$9.17 in fiscal year 2022[348] Asset and Liability Management - Total assets as of February 28, 2023 were $2.91 billion, compared to$2.82 billion as of February 28, 2022[347] - Total liabilities as of February 28, 2023 were $1.42 billion, down from$1.50 billion as of February 28, 2022[347] - U.S. long-lived assets increased to $357.6 million in fiscal 2023, up from$213.5 million in fiscal 2022[512] - The company repatriated $48.3 million of cash from U.S.-owned foreign subsidiaries without incurring additional U.S. federal income tax[521] - Deferred tax assets decreased to$65.085 million in fiscal 2023 from $65.816 million in fiscal 2022, with a valuation allowance of$10.706 million[527] - Weighted average diluted shares outstanding decreased to 24.090 million in fiscal 2023 from 24.410 million in fiscal 2022[533] - Allowance for credit losses increased to $1.678 million in fiscal 2023 from$843 million in fiscal 2022, with additions of $1.798 million and deductions of$963 million[534] - The company's property and equipment, net, as of February 28, 2023, was $351.793 million, up from$205.378 million in 2022[417] - The company's construction in progress for property and equipment increased significantly from $61.168 million in 2022 to$209.068 million in 2023[417] - The company's total accrued expenses and other current liabilities for fiscal 2023 and 2022 were $200.718 million and$271.675 million respectively[418] Acquisitions and Divestitures - The company completed the sale of its Latin America and Caribbean Personal Care business at the beginning of fiscal 2023, following the sale of its North America Personal Care business in fiscal 2022[25] - The company divested its North America Personal Care business for $44.7 million and its Latin America and Caribbean Personal Care business for$1.8 million[163] - The company completed the acquisition of Osprey Packs, Inc. for $409.3 million in cash on December 29, 2021[361] - The company sold its North America Personal Care business for$44.7 million in cash on June 7, 2021[362] - The company completed the sale of its North America Personal Care business for $44.7 million in cash and recognized a gain of$0.5 million, and the Latin America and Caribbean Personal Care business for $1.8 million in cash with a gain of$1.3 million[415] - The company completed the acquisition of Curlsmith for $147.9 million in cash, net of a final net working capital adjustment of$2.1 million and cash acquired[419] - The company incurred pre-tax acquisition-related expenses of 2.7 million during fiscal 2023, recognized in SG&A[419] Interest Rates and Debt - The Federal Open Market Committee increased the benchmark interest rate by 450 basis points during fiscal 2023, leading to higher average interest rates[172] - A hypothetical 1% increase in interest rates would increase annual interest expense by approximately 5.1 million in fiscal 2023[320] - The company borrowed $250 million as term loans under the Credit Agreement, with quarterly repayments of 0.625$928.4 million drawn under the Credit Agreement and $1.9 million of long-term debt[278] - The company updated its interest rate swap contracts to replace LIBOR with Term SOFR, with a credit spread of 0.10$203.02 per share for a total of $18.4 million in fiscal 2022[274] - The company repurchased and retired 1,030,023 shares of common stock at an average price of$197.37 per share, totaling $203.3 million[278] - Total stockholders' equity increased to$1.49 billion as of February 28, 2023, compared to $1.33 billion as of February 28, 2022[347] Cash Flow and Financing - Operating activities provided net cash of$208.2 million in fiscal 2023, compared to $140.8 million in fiscal 2022, driven by decreased inventory purchases and accounts receivable[265] - Investing activities used$319.3 million, $438.9 million, and$98.7 million in cash for fiscal 2023, 2022, and 2021, respectively[267] - Financing activities provided $106.8 million and$286.4 million in cash for fiscal 2023 and 2022, respectively, while using $194.8 million in fiscal 2021[271] - The company drew$685.8 million in revolving loans and repaid 795.3 million under its Credit Agreement in fiscal 2022[274] Advertising and R&D - The company incurred total advertising costs of 98.5 million, $96.4 million, and$110.7 million during fiscal 2023, 2022, and 2021, respectively[399] - The company incurred total research and development expenses of $47.8 million,$54.0 million, and $53.4 million during fiscal 2023, 2022, and 2021, respectively[400] Leases and Intangible Assets - Operating lease expense for fiscal 2023, 2022, and 2021 was$16.3 million, $13.3 million, and$9.5 million respectively, including short-term lease expense of $6.4 million,$3.7 million, and $2.5 million[410] - Total future lease payments as of February 28, 2023, amount to$63.134 million, with a present value of lease liability at $49.792 million[411] - The company amortizes intangible assets over their economic useful lives, ranging from 5 to 40 years for licenses, 15 to 30 years for trademarks, and 4.5 to 24 years for other definite-lived intangible assets[388] - The company's weighted average discount rate for leases as of February 28, 2023, was 5.62$34.4 million write-off, fully offset by insurance recoveries of $34.4 million[162] Foreign Exchange Impact - Foreign currency exchange rate fluctuations had an unfavorable impact on consolidated net sales revenue of approximately$17.0 million, or 0.8%, in fiscal 2023[190] - The Chinese Renminbi weakened against the U.S. Dollar by approximately 6.0% in fiscal 2023 compared to fiscal 2022[316] Internal Controls and Reporting - No material changes in internal control over financial reporting were identified during fiscal 2023[542] Customer Programs and Variable Consideration - The company recorded $40.2 million,$39.0 million, and $27.1 million in customer-related programs as variable consideration in fiscal 2023, 2022, and 2021, respectively[397] Depreciation and Amortization - The company recorded$26.4 million, $23.1 million, and$20.1 million of depreciation expense for fiscal 2023, 2022, and 2021 respectively[417] Goodwill and Intangible Assets - Goodwill increased to $1.07 billion as of February 28, 2023, up from$948.9 million as of February 28, 2022[347] - Capital and intangible asset expenditures totaled $174.9 million in fiscal year 2023, including$147.0 million for a new 2 million square foot distribution facility[268] - In fiscal 2021, the company invested $98.7 million in capital and intangible assets, including a$72.5 million one-time fee for the Revlon License extension[270] ESG and Regulatory Challenges - Increased focus on ESG matters could lead to higher costs and regulatory compliance challenges, potentially impacting the company's business and reputation[99] Leadership and Workforce - The company faces risks related to the loss of key senior officers, which could disrupt operations and have a material adverse effect on the business[92] Online and Multichannel Sales - Online and multichannel sales comprised 23% of total consolidated net sales revenue in fiscal 2023, a decrease of 8.9% from fiscal 2022[175]