Helen Of Troy (NASDAQ:HELE) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.

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Access the full call at https://events.q4inc.com/attendee/146838339

Summary

Helen Of Troy Limited reported Q2 sales in line with expectations and adjusted diluted EPS ahead, reflecting progress in brand growth and marketplace execution.

Sales growth was driven by all three Home and Outdoor brands, with notable performance from Osprey, OXO, and Olive & June, while Beauty and Wellness saw mixed results.

The company is focusing on Consumer-First Innovation, Commercial and Operational Excellence, and People and Culture as part of its multi-year strategic roadmap.

Tariff refunds significantly impacted financial results, with a net pre-tax benefit of $4 million in Q2 and an expected full-year benefit of $10 to $14 million.

Free cash flow reached $38 million, and the net leverage ratio improved to 3.0 times, with a target of 2.7 times or lower by fiscal year-end.

The full-year fiscal 2027 outlook includes net sales of $1.768 billion to $1.822 billion and adjusted EPS of $3.60 to $4.15, reflecting cautious optimism in a dynamic environment.

Full Transcript

OPERATOR

Greetings, and welcome to Helen Of Troy Limited second quarter 2027 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ann Rakunis, Senior Director, IR and Corporate Communications.

Thank you. You may be

Ann Rakunis, Senior Director, IR and Corporate Communications

Thank you, operator. Good morning, everyone. Welcome to Helen Of Troy second quarter fiscal 27 earnings conference call. The agenda for the call this morning is as follows. I will begin with a brief description of forward-looking statements. Scott Ezell, our CEO, will then share his thoughts on progress in the quarter. Brian Grass, our CFO, will provide an overview of our financial performance in the second quarter and our revised expectations for the full year fiscal 27.

Following our prepared remarks, we'll open up the call for Q&A. This conference call may contain certain forward-looking statements that are based on management's current expectations with respect to future events or financial performance generally. The words anticipates, believes, expects and other similar words are words identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results.

This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information. Before I turn the call over to Scott, I would like to inform everyone that a copy of today's earnings release can be found on the Investor Relations section of our website by scrolling to the bottom of the homepage.

The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. We've also posted an investor presentation to our website. I'll now turn the call over to Scott.

Noel Geoffroy, CEO

Thank you, Ann. Good morning, everyone. Thank you for joining us. When we spoke in July, I shared that we were focused on strengthening the critical fundamentals of our company. We continue to make progress to become a better Helen Of Troy on the road to becoming a bigger Helen Of Troy. Our Q2 results reflect continued execution against the priorities outlined in our multi-year roadmap. Our Q2 sales were in line with our outlook, and our adjusted diluted EPS came in ahead.

But as I stated over the last several quarters, our recovery will not be linear in fiscal '27. We are squarely focused on demonstrating markers of progress to set us up for sustained and repeat strong performance over many years to come. It's about brand growth, driving sales growth through disciplined investment in brands and categories where we believe we have a clear path to win. It's about marketplace execution, realizing the value of our brands through premium positioning and strong market execution to continue strengthening our gross margin.

And it's about balance sheet productivity, paying down debt. Further, we're pursuing these priorities through three foundational pillars, paired with continued balance sheet discipline. We continue to execute against all these areas. We are two quarters into our plan to make a better Helen Of Troy, and we are making progress. The operating environment continues to be dynamic, but I truly believe what we need to do to reach our aspiration is in our control.

We are encouraged by what we see across several areas of the business. I want to highlight a few Q2 examples. We grew sales year over year across all three Home and Outdoor brands. Osprey led growth again this quarter, reflecting strong consumer and category performance, new product introductions, and continued improvement in our international distribution network. OXO benefited from targeted actions to improve inventory composition, net distribution gains, and new product introductions.

Hydro Flask was aided by targeted actions to improve inventory composition, new product innovation, and partial recapture of tariff-related disruption within the corporate channel. Wellness grew, driven primarily by growth in Vicks and Braun, reflecting net distribution gains and lapping tariff-related items and new product introductions. Olive & June produced another solid quarter, reflecting strong consumer demand, higher replenishment orders, and new and expanded distribution.

In the rest of Beauty, new product innovations are contributing to sales, although some brands continue to experience softer demand. We know we have more work to do on our commercial execution and demand creation to fully capitalize on our opportunities. International is another bright spot, with sales growing 3.7% in the quarter, led by Hydro Flask and OXO, reflecting new products, expanded distribution, and improving execution in select markets.

Our new distributor in Australia is one of our examples of the more agile go-to-market approach we discussed last quarter. Importantly, in terms of North American point of sale, Beauty and Wellness showed noticeable improvement in Q2 relative to our longer trends, reflecting continued strength from Olive & June and Braun along with improving trends across several of our more pressured businesses, including Revlon, Hot Tools, Honeywell, and Curlsmith.

For the first half of the fiscal year, we generated free cash flow of $38 million, and as of August we improved our net leverage ratio to 3.0 times, down from 3.5 times at the end of Q1, continuing our multi-quarter trend of debt reduction. We also made progress normalizing our channel inventory, with aggregate retail inventory coverage for our brands improving compared to a year ago. We continue to address pockets of elevated inventory for certain brands within select channels.

That improvement reflects targeted closeout and liquidation efforts to clear slower-moving stock. This is the kind of disciplined execution we mean when we talk about editing and amplifying our highest-impact priorities—focusing our resources where we see the greatest opportunity to strengthen our brands and improve our performance. As I mentioned last quarter, our work continues to be guided by three pillars: Consumer-First Innovation, Commercial and Operational Excellence, and People and Culture.

Under Consumer-First Innovation, we're becoming more deliberate about the products and platforms we prioritize across the portfolio. We're focusing resources on the most differentiated consumer opportunities and supporting those opportunities with the right distribution, inventory, and media plans. In Home and Outdoor, OXO expanded its entry into the pet category this quarter after a limited-release launch during Prime Day. The full line officially launched across all channels in August.

This was supported with a fully integrated campaign across media, digital e-commerce, influencer sampling, and experiential events designed to build awareness and connect with pet parents. Osprey is also expanding further into travel with the launch of the Ozone Hardside. It's an ultra-lightweight four-wheel luggage collection that brings Osprey's expertise in lightweight, durable design to the largest segment of the travel market. These are great examples of further extending brands into attractive adjacencies with additional products and expanded distribution opportunities.

Hydro Flask Micro Hydro continues to perform well, driven by wider retail placement and more sizes. The brand recently launched new innovations, including lunch totes, bags, and soft coolers, and a Limited Edition Daydream bottle and Lunchbox collection in time for back to school. In Beauty and Wellness, I'm excited about PUR's latest industry milestone this quarter, becoming the only water filter certified to reduce lead, microplastics, and total PFAS in both pitcher and dispenser format, addressing three contaminants that consumers say concern them most in their drinking water.

Olive & June continued to strengthen its cultural relevance with its first exclusive influencer collaboration at Ulta Beauty, partnering with digital creator Avery Woods to bring fresh, trend-driven offerings to consumers. The brand also celebrated its 10th Allure Best of Beauty award, with its Gel Mani System earning the prestigious honor for the second consecutive year, reinforcing Olive & June's leadership in at-home nails. Olive & June continues to be a great addition to the Helen Of Troy portfolio.

Innovation is just the first step. We must sharpen the full commercial process around it. That brings me to the second pillar, Commercial and Operational Excellence. I've shared our intent to be closer to our consumer and move with the speed of the marketplace. We are making this a reality. Last quarter, I introduced our new General Manager structure. As we fill these roles, we're moving the strategy and decision-making closer to the consumer, the brand, and the marketplace.

We've made progress establishing that structure during the quarter, including putting currently planned leaders in place and clarifying accountability and creating closer alignment around our growth priorities. While this work is still in the early stages, we're seeing benefits from faster decision-making and greater cross-functional collaboration. Over time, we believe this structure will strengthen our ability to respond to changing market conditions and improve execution across our portfolio.

We are already seeing early evidence of this in our Home and Outdoor business, where sales and brand teams are working more closely together, evaluating distribution, customer relationships, and capacity earlier in the product development process. This closer alignment is also accelerating how we share consumer and retailer insights to further improve the development process and respond more quickly to promotional programs. We continue to sharpen our pricing, promotion, channel management, digital shelf, retail media, and demand-planning capabilities, meeting consumers on a modern shopping journey through stronger omnichannel capabilities.

We're using current point-of-sale and inventory signals to update our assumptions more quickly. Our incremental investment is more selective, with clear expectations of measurable results. This discipline is particularly important in the current environment. I am pleased with how our teams are managing through geopolitical, cost, and supply chain challenges, with the impact we anticipated largely tracking in line with our expectations. Our third pillar is People and Culture.

Building stronger companies starts with building a stronger organization. Throughout the year, we continue to simplify how we operate, strengthen ownership, and ensure our teams are focused on opportunities with the greatest potential to create value. As a part of that work, we recently appointed a new leader for our Beauty and Wellness business. This is an important step in strengthening our leadership and accountability within this segment as we work to build on improving trends we're seeing and accelerate the actions needed across the brands where we still are working to stabilize performance.

We're also continuing to cascade our culture work throughout the organization, helping create a common set of behaviors, expectations, and ways of working that support our strategy and position us for long-term success. I am encouraged by the focus, urgency, and collaboration I see across the organization to bring it all together. Q2 was another step in our journey to become a better Helen Of Troy before becoming a bigger Helen Of Troy. Continued balance sheet productivity alongside the progress we've made across the portfolio gives us more flexibility to keep investing in our brands and position our company for sustained long-term growth.

Our priorities for the rest of the year are clear: accelerating the brands showing the strongest consumer momentum, building on improving trends across Beauty and Wellness, and taking targeted actions where performance remains under pressure. We know there is more work ahead, but I believe we have the right talent and strategies in place, and we will continue to invest with discipline and execute with focus. With that, I want to turn it over to Brian.

Brian Grass, CFO

Thank you, Scott. Good morning, everyone. Our second quarter was another step in the right direction with results at the better end of expectations, reflecting improving business fundamentals and continued progress against our strategic priorities even as we navigate a challenging environment with a lot of moving parts. Sales were in line with our outlook, while adjusted diluted EPS, adjusted EBITDA, and free cash flow were ahead of our expectations for the base business, which does not include the net benefit from tariff refunds.

On the subject of tariff refunds, our results for the second quarter include gross pre-tax tariff refunds of approximately $26.9 million. As stated last quarter, we intend to reinvest a large portion of the gross tariff refund benefit back into the business. After reinvestment, we realized a net pre-tax benefit of approximately $4 million and an after-tax diluted EPS benefit of approximately $0.12, using our estimated annual adjusted effective tax rate.

Our outlook for the full year now includes a gross tariff refund benefit for the full amount of IEEPA tariffs paid of $80.5 million, as well as our intended reinvestment in the range of $66.5 to $70.5 million, leading to an estimated net pre-tax benefit in the range of $10 to $14 million and the net benefit to diluted EPS in the range of $0.30 to $0.45. In our earnings release and the investor presentation posted to our website this morning, we are providing the net tariff benefits separately from our base business for the second quarter and intend to do so for the remainder of the year.

Important to note that while tariff refunds are providing a fiscal 27 benefit that we are largely reinvesting, we have not been made whole from the cumulative tariff impacts to our business. We've paid tariffs that have not been refunded, we've incurred operating and capital expenditures to diversify our supply base and absorb lead times, we've seen certain revenue bases disrupted and not fully recovered, and we've incurred higher interest expense on the cash tariff outlay.

We are also experiencing product cost inflation due to escalating gas and diesel prices, commodities, currency, and supply scarcity. Despite the overall disruption in the environment and the unfavorable impact to our revenue and cost structure, we continue to view the refunds as an opportunity to improve the health of our business, and I'm proud of the organization's agility to mobilize thoughtful and disciplined investment in a very short period of time.

In the investor presentation, we've included a slide that illustrates the nature of the investments we intend to make for the full fiscal year. Turning to financial highlights for the second quarter, consolidated sales increased 2.1% in line with our outlook. For Home and Outdoor, sales increased 9.2% with growth across all three brands. For Beauty and Wellness, sales declined 4.5%, reflecting growth in wellness and nail care, which was more than offset by a decline in the remainder of beauty.

Consolidated gross profit margin increased 800 basis points to 52.2%, reflecting the favorable impact of tariff refunds net of higher tariff costs totaling approximately 560 basis points and lower overall retail trade and promotional expense year over year. These factors were partially offset by inflationary product cost pressures due to commodities, fuel prices, freight, currency, and supply scarcity, and less favorable inventory obsolescence year over year.

SG&A ratio increased 540 basis points to 46.4%, primarily reflecting our stated intention to reinvest tariff refunds as well as base business investments in the organization, go-to-market structure, and brands. The increase also reflects higher packaging costs related to legislation enacted by several U.S. states and foreign geographies to reduce single-use plastics and establish regulatory requirements which include programs designed to transfer the cost of packaging disposal from municipalities to producers of consumer packaged goods.

While we expect this to be a continuing trend, we intend to use tariff refunds as an opportunity to offset some of our initial disposal costs, but more proactively to take a fresh look at our packaging and design it to be more environmentally friendly and more appealing to our consumers and retailers. Finally, SG&A includes divestiture litigation costs related to the divestiture of our North American personal care business that occurred over five years ago.

For a further description of these costs, please refer to today's earnings release. Adjusted EBITDA increased $13.2 million and adjusted EBITDA margin improved by 280 basis points, primarily driven by the favorable impact of tariff refunds net of higher tariff costs, lower overall retail trade and promotional expense, and the impact of favorable operating leverage, partially offset by an increase in personnel expense, higher packaging-related costs, inflationary product cost pressure, increased marketing expense, and less favorable inventory obsolescence expense year over year.

Due to strong cash flow and a cash benefit from net tariff refunds, we are ahead of our debt pay-down expectations at this point in the year, contributing to an interest expense decrease of $3.3 million. Our GAAP effective tax rate was 66.4% and our adjusted effective tax rate 34.1%, primarily due to an increase in tax jurisdictions with losses which are excluded from the estimated annual effective tax rate calculation per U.S. GAAP. We expect our tax rate to normalize in the remainder of the year, resulting in an estimated adjusted effective tax rate of 24% to 27% for the full year.

Moving on to balance sheet highlights and free cash flow performance, inventory ended at $480 million, a $49 million decrease from the same period last year. We also improved the health of our inventory, increasing the overall percentage of active inventory by 7 percentage points during the first half of the year. We reduced our total debt to $673 million at the end of the second quarter, a reduction of $221 million compared to the same period last year and $108 million since the beginning of the fiscal year.

Our net leverage ratio decreased to 3 times compared to 3.5 times at the end of the first quarter, well ahead of our original target for this point of the year. Cash flow from operations was $56.5 million and free cash flow was $38 million for the first half of the year. Turning to our full-year fiscal 27 outlook, we are narrowing the range of our net sales expectations slightly to $1.768 billion to $1.822 billion, with Home and Outdoor net sales of $851 to $876 million and Beauty and Wellness net sales of $917 to $946 million.

We are maintaining our adjusted EBITDA expectations for the base business of $193 to $196 million and raising our consolidated EBITDA expectations to $203 to $210 million to reflect the estimated net pre-tax tariff refund benefit in the range of $10 to $14 million. We are slightly narrowing our adjusted EPS expectations for the base business to a range of $3.30 to $3.70 and raising our consolidated adjusted EPS expectations to a range of $3.60 to $4.15 to reflect the estimated after-tax net tariff refund benefit in the range of $0.30 to $0.45.

We are raising our free cash flow expectations to a range of $120 to $140 million while increasing our planned capital expenditure range by $9 million. Our revised consolidated full-year outlook reflects the estimated unfavorable impact from product cost inflation and potential supply disruption largely driven by the conflict in the Middle East; management's view of continued inflationary pressures including escalating fuel and diesel prices, higher interest and mortgage rates, discretionary categories, conservative retailer inventory management, and an increasingly competitive and promotional landscape; our plans for a higher concentration of foundational and long-term immediate return and an assumed return on shorter-term investments offset by pressure on the consumer and overall price elasticity as well as the assumed impact of increased investment from the competitive set; and an increase in estimated diluted shares outstanding to 24.2 million for the full year and 24.5 million for the second half of the year primarily due to the increase in share price.

In terms of quarterly cadence, we expect net sales in the range of $478.3 million to $504.5 million for the third quarter of fiscal 27. In terms of adjusted EPS, we expect a higher net tariff refund benefit in the third quarter as we expect the remaining IEEPA gross tariff refunds of $51.8 million to be fully recognized in the third quarter, while a portion of our planned strategic reinvestment is expected to fall in the fourth quarter, which will effectively lift third quarter adjusted EPS and compress fourth quarter adjusted EPS.

As a result, for the third quarter of fiscal 27 we expect consolidated adjusted EPS in the range of $2.05 to $2.40, which includes a net after-tax tariff refund benefit in the range of $0.66 to $0.77. Implies adjusted EPS for the base business in the range of $1.39 to $1.63. In closing, we believe our second quarter results demonstrate continued progress, but they also reinforce the need to remain disciplined and appropriately cautious in a very dynamic environment.

We are encouraged by the performance of our strongest brands as well as improving fundamentals across the balance of the portfolio, continued international growth, and effectiveness of our sourcing and supply chain mitigation actions. We're also encouraged by the progress we've made to improve the health of our inventory in the first half of the year and are targeting a 12-percentage-point improvement in our active inventory composition by the end of the year, which we believe sets us up for success in fiscal 28.

We're ahead of schedule in terms of debt pay-down due to strengthening cash flow, and we now expect a net leverage ratio of 2.7 times or lower by the end of fiscal 27. At the same time, we see opportunities for more consistent performance across our portfolio. We have meaningful work ahead to stabilize our more pressured brands, rebuild the organization, and further strengthen the underlying earnings profile of the business. We will continue to allocate our resources toward the highest priority opportunities to feed the flywheel while maintaining flexibility to adjust as demand conditions evolve.

Our focus remains on delivering consistent results, further improving working capital efficiency, and building the capabilities required to support sustainable growth over time. And with that, I'll turn it back to the operator for Q&A.

OPERATOR

Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow-up, and you may requeue for any additional questions after that.

Again, that's star one to register a question at this time. Today's first question is coming from Peter Grom of UBS. Please go ahead.

Peter Grom, Analyst at UBS

Great. Thank you. Good morning, everyone. Hope you're doing well. So maybe just a bigger picture question to start. I wanted to ask on kind of the consumer and just the macro backdrop, and you kind of talked about how choppy it's been. So curious if you can provide a view on what you're seeing from your core consumer. Have you seen any shifts in behavior of late? And then I guess related, you talked about input cost pressure. So can you maybe just unpack your broader cost basket as we see inflation trending from here?

Scott Ezell

Hey Peter, good morning. This is Scott and team. Good to hear from you. I'll jump back and I'll answer your question around the consumer. You know, as I've always said and we continue to believe that 80% of our opportunity is really the things that we control within our building and 20% are things happening around the world and around the consumer. I'll start with us a little bit. We shared that we're focused on three fundamental phases of building our business, and that's what we're focused on right now.

And that's kind of agnostic to the consumer. We believe that's about making a better Helen Of Troy. As we look at the work that we've done in Q2 and Q1 and year to date, we continue to invest in our brands and we're focused on building our commercial muscle, commercial discipline muscle to execute in the marketplace, upping our ability to execute as a company, and driving balance sheet productivity, all of which we've made some progress in quarter two.

And the 20%, the part that's out there outside of the realm of Helen Of Troy, I do believe the consumer is pressured, whether it be fuel prices, interest rates, just the cost of living for the middle market consumer specifically in North America. It's definitely more challenging this year than it was last year. But for companies that deliver amazing innovation, that tell great stories, that execute well, the consumer's still showing up. I also will say from a retailer standpoint, broadly it's definitely a much more promotional environment than in the past, but it's one that we believe that we can continue to compete in.

Brian, anything you want to add?

Brian Grass, CFO

Yeah, I would say, Peter, we made our very best attempt to estimate inflationary costs last quarter. So when we gave you the outlook last quarter, we had made a fulsome effort to make an estimate of what we thought all those inflationary cost movements would mean. I would say while the conflict in the Middle East is still not resolved, costs have largely stabilized as compared to our original estimates. So we're not changing our view of the way we estimated the costs to play out versus what we provided in Q1, and point out that the outlook we gave in Q1 did not have the full tariff refund benefit, but it was our intention for it to include the full inflationary cost impact in the outlook, and that remains the same. So those costs are included in our base business, not in the tariff refund benefit.

Peter Grom, Analyst at UBS

That's very helpful. And then just one follow-up on the illness incidence. So I think previously the expectation would be that it would be in line with the prior three years. I think it's now expected to be slightly low. Is that what's driving that? Is that just simply being more conservative or something you're seeing more real time that's kind of driving that view?

Brian Grass, CFO

Yeah. I would just say initial indications are that it's trending to be lower, and so we're just going to take that as a cue and be a little bit more conservative and not have an outlook that's depending on the strength of a cold and flu season.

Peter Grom, Analyst at UBS

Great. Well, thank you so much. I'll pass it on.

Scott Ezell

Thank you, Peter.

OPERATOR

Thank you. Our next question is coming from Bob Labick of CJS Securities. Please go ahead.

Bob Labick, Analyst at CJS Securities

Hi, good morning. Thanks for taking our questions.

Scott Ezell

Good morning, Bob.

Bob Labick, Analyst at CJS Securities

Yeah, I wanted to discuss—can you talk about, I guess specific to Helen Of Troy and to your brands, your volume and pricing in the quarter, and then kind of category demand, where you're gaining share and losing share? And then I guess finally, what does it take to get consistent growth in Beauty and Wellness going forward?

Scott Ezell

I'll kick off on there. So I'd say this. You asked—the first part was where are we gaining share and where we see strength? I can tell you where we see strength. We definitely see strength in many pockets of home and outdoor business, specifically OXO and Osprey. We see strength in our Olive and June, our nail business. We see strength in our Braun business and many categories that we’re in. From a Beauty and Wellness standpoint, you know, it's a complicated category.

There's a prestige as well as a mass business at the same token. But what I'd say—here are the steps we're taking as I step back to FY27. I know you and I spend time together that we're focused on getting the fundamentals right across our business by showing you markers of progress. And those markers of progress really fall into four buckets: How do we begin to drive brand momentum? Because I fundamentally believe a better Helen Of Troy is one that's built where brands are growing.

Second, how do we drive better commercial discipline? That's how we show up in the marketplace and follow the consumer shopping journey. How do we execute our capabilities across our enterprise better and more seamlessly? And then how do we drive balance sheet productivity. As we are two-fourths into FY27 and two-fourths into our comeback, we're making progress, but it's not even across our whole portfolio. As you can see in our performance, our Home and Outdoor had a very strong quarter.

We had several brands within our Wellness portfolio that advanced. We had our international business make an advance. But when we get to Beauty and Wellness, which I believe I have aspirations for in the future, we're focused on a couple things: getting the right people leading the business—we've made some critical changes there and I'm excited about the team that we have in place; second, the strategy—we've got some good work going on in strategy on how do we participate in the market and engage both prestige and mass in the right way; next, how do we pull new product development forward so we can bring it in front of the consumer at a more rapid pace; and then lastly, how do we bring omnichannel capabilities to market so that the consumer can follow us in the journey. All of those are under construction. I knew this year was going to be still a continued challenge year for our Beauty business, but I can tell you we're doing the work to set ourselves up for the future.

Brian Grass, CFO

I would just add a little bit, Bob, that dollars are better than units for us, but I would say that that's true of the market largely in our category, so not unusual with what the market trend is. We are looking at our price in a few areas to see if we need to recalibrate, and I think we will probably make some adjustments there. But we're showing—we're not where we want to be, but we're showing improving trends across the portfolio. I'd say beverage, hair care, and water filtration are areas where we didn't do so well in the quarter.

But again, we see some indications of improvement kind of across the portfolio.

Bob Labick, Analyst at CJS Securities

Okay, great. And then just on my follow-up, you've talked about it a little bit and I think you have a nice slide—looks like Slide 9—in terms of where you're reinvesting the tariff refund. And I know you paid out more than you're getting back, but it's still new money right now. And I was hoping you could kind of just dig a little deeper and summarize and elaborate for us on the reinvestment and really where and when you expect to see benefits from that reinvestment going forward.

Scott Ezell

Great question. Yeah, and I know Brian and I will tag this. You know, I go back to our strategy that I've been talking about for the last several quarters. Where we are as a company did not happen overnight, and we need to get back to basics on making a better Helen Of Troy. So as we looked at the opportunity of regaining the tariffs, even not all of them that we paid in, we really just said how do we make critical investments to do the fundamentals and the foundational elements of our business around brand investment, packaging, product development—the things that are going to not only pay dividends this year, but play for many, many years to come. And that's where we made our investment while also giving some of it to pretax earnings. What Brian will do is give you a little bit more specificity, but the tariff refunds are really around accelerating the work to build the foundational elements for Helen Of Troy to make us better for the future.

Brian Grass, CFO

Yeah, Bob, I kind of view it as investment and expression. I often use putting problems behind us. If there were things that, in the past with your organic business, were harder to digest, I view tariff refund benefit as an opportunity to digest those costs, put it behind us—things like cleaning up inventory, the packaging. If we can pull things forward, things that we had on the roadmap that we already know that we need to do, if we can pull them forward into this tariff refund period, that's what we're trying to do.

And then there's all of the things Scott was talking about—brand investment and even creating content. You can phase that out over time, or you can kind of pull that forward and do it in a period and get that out of the way, and then you've got your content developed and you can go forward with it. So I kind of think of it as it is an investment—and it's traditional and you get an ROI, all that kind of stuff—but I also view it as trying to be clean going into fiscal 28.

We want our inventory to be clean. We want to pull forward as much cost as possible so that we don't have to bear the cost in fiscal 28. So there's a blend that we tried to break into kind of four buckets of what we call foundational investment—that's just investment that you need to do before you can do the high-return media spending; you’ve got to have your foundation correct, and that’s consumer insights and things like that. Growth strategy—we invested in our growth strategy as a part of this.

And so the weight of the two buckets that won't have an immediate return are kind of the foundational bucket and the longer-term bucket on the slide that I think we do get a huge benefit for and set us up for success in fiscal 28, but aren't going to provide an immediate return. And then there's kind of a near-term bucket that will have a fiscal 27 ROI, and that's about 25% of the spend, and then the remainder goes to pretax earnings. But that's kind of how we tried to bucket the spend.

And it's a lot of investment, but it's also a lot of putting problems behind us.

Bob Labick, Analyst at CJS Securities

Great, appreciate that. Thanks very much.

OPERATOR

Thank you. The next question is coming from Olivia Tong of Raymond James. Please go ahead.

Olivia Tong, Analyst at Raymond James

Great, thanks. Good morning. I want to unpack the revenue outlook a bit. The guide implies growth deceleration in the second half for Home and Outdoor, but some improvement in the rate of decline on. So can you talk about what drives the reversion—sort of reversion to the mean—on both, and then specifically on Home and Outdoor, you saw growth accelerating Q2, but you lowered the full-year outlook. So can you talk about the drivers there? And then just lastly, a key competitor for Hydro Flask outlined long-term targets recently, which I'm sure you saw—mid- to high-single-digit sales, higher margins.

So as you think about the long-term opportunities for Hydro Flask in your drinkware business, what do you think about the growth of the category and then your ability to capture that?

Scott Ezell

Thanks, Olivia, this is Scott.

Olivia Tong, Analyst at Raymond James

Thank you.

Noel Geoffroy, CEO

I'll take a quick part and then Brian will tag team it. I'd say this first from an outlook standpoint. Let me just—it's a lot here. So basically this: I go back to that. This year was about building markers of progress for our company and trying to get the foundational elements right. And we're leveraging Tier 3 funds and really the hard work and the discipline of this team to be sharper on fewer things to drive more impact in the marketplace, all with the intent that we know a healthy Helen Of Troy is one that's built where brands are growing and winning in their categories.

We know that that is not evenly spread across all brands, but we're making progress there. That's kind of one. Two, from an outlook standpoint, when I think about the balance of the year—and we're two quarters into our transformation; it's a multi-year plan—and then I look at the state of the consumer. When I say state of the consumer, I think the consumer will continue to pursue great innovation, great products, great marketplace, but I believe that there are more winds in the consumer space than there were a year ago versus winds at their back, whether it be fuel, interest rates—just running their lives.

As I think about where we are in the stage of our transformation and our comeback, as well as the state of the consumer, it's one of: let's continue to do the basics to build our business and continue to drive markers of progress against commitments we've made to the marketplace. That's been our focus. The next double click around the insulated beverage category, specifically Hydro Flask. I still have really, really confidence in Hydro Flask and confidence in that team.

What I can tell you as we focus on FY27 and FY28 for that brand, it's really around: how do we talk to the consumer that loves the brand, that calls it the OG of the category, that believes that the brand identifies with them from an inclusivity standpoint, from moments outdoors that we know there's a following there? So how do we storytelling-connect with that consumer? And that team's doing work to make sure we're driving the right marketing message.

Second, we're innovating within the category to bring new news like Micro Hydro and other products that are relevant to that category to make sure that we continue to hold our premium position, but making sure we're bringing new news to the category. And then third, which I think is the most significant unlock, is moving to adjacencies where we can take the brand that's already connected with a following to other parts of other needs that build on the ethos of Hydro Flask, not only for today, but for the future.

And that work is underway.

Brian Grass, CFO

Yeah, Libby, I'd add on to that with respect to the slowdown in Home and Outdoor sales in the second half. A slowdown—but the change in our outlook—the beverageware category as a whole is a little bit saturated. And we see that environment being promotional. We want to maintain our positioning. You kind of refer to another competitor that is putting out long-term outlook for high growth. I think that's because they've been able to maintain the positioning, and we want to be able to try and do the same thing.

So we won't participate so much in that promotional environment. And because of the saturation that we see, it'll put pressure on our second half. We also see some inventory correction needed in the channel in the beverageware category. And so we're hoping that will play out in the second half of the year and that we're in a cleaner position going into fiscal '28. And then with respect to Beauty & Wellness, as we've been saying, we've been seeing improving trends, in particular in the wellness part of the business.

And that's playing itself out in us raising our outlook a little bit. We've got some strength that is building in the wellness part of the portfolio.

Olivia Tong, Analyst at Raymond James

Great. Thanks, guys. Appreciate it.

OPERATOR

Thank you. Our next question is coming from Susan Anderson of Canaccord Genuity. Please go ahead.

Susan Anderson, Analyst at Canaccord Genuity

Hi, good morning. Thanks for taking my question. Good to see the progress in the quarter. I guess maybe just a follow-up on Olivia's question really quick, just on the lower sales expectation in the back half for Home and Outdoor. Is it just Hydro Flask, really, that you're expecting to be a little bit more pressured, but the other brands you expect to continue to grow nicely? And then also, just looking at the growth in the quarter for Home and Outdoor, I was just curious how much of it was driven by new space gains and international growth versus the growth in the U.S.

Brian Grass, CFO

So on the first question, yes, Hydro is the driver of the Home and Outdoor revision to our outlook for revenue. The second question, I don't know if we have it broken apart. I would say there was kind of equal use of all levers for growth in terms of new product introductions, distribution, category expansion, international—which is using a combination of those levers to grow. We're excited that in international we've got some new partnerships there that we're really leaning into and are excited about and seeing good traction from.

So it's kind of pulling all the levers, Susan. I wouldn't say there's one that outweighs the other. We're trying to have a balanced growth platform.

Susan Anderson, Analyst at Canaccord Genuity

Okay, great. And then I guess just in Beauty & Wellness, maybe if you could talk about the puts and takes for top-line growth in the back half versus what you saw in the first half. And then just on the prestige beauty side and hair tools, how are you thinking about that sequential trajectory? Are you starting to see sales improve at least sequentially, and when do you think you could get an inflection in the category? Thanks.

Scott Ezell

This is Scott. I always like to step back. When I step back six months ago and I looked at FY27—and at that point, I was six months into my job—I knew that we have a lot of opportunity across our portfolio. And as we approached FY27, as I talked about in the past, I knew there were categories and brands that I felt like were ready for fully funded growth plans for FY27, because the consumer is ready, the team is ready, the pipeline's ready—let's go to market.

And we made those investments. Then we had a group of brands in the middle that we probably wanted to fund higher, but we said they're ready to move forward, but still, we can't do everything, and we funded those. And then in the beauty business specifically, we knew this year was going to be a challenging year. We know that we've got new people on the business, we've got a new product pipeline we're trying to pull forward, we were still working on our storytelling, and we're preparing ourselves for the future.

So we definitely want to do better with our beauty business, but we expect this year to continue to be a challenging business. Brian, like to add?

Brian Grass, CFO

Yeah, just to add that in the prestige part of beauty, it's up against some closeout noise in the prior year where we had some specific activity that was pretty lumpy in the prior year, so that's driving a little bit of the decline. We are seeing improving trends—even though the results are not where we want them to be—we're seeing some improving trends in the POS data. And then, if you kind of look at mass beauty, we're assessing whether we need to recalibrate on some pricing, in particular in Revlon.

And so we think that's going to help the performance there when we get that right. And then we're really happy with wellness. We're happy with where wellness is going and the trends there. And I would say we're really, really happy with Olive and June.

Susan Anderson, Analyst at Canaccord Genuity

Okay, great. Thanks so much. Good luck holiday season.

OPERATOR

Thank you. Thank you. At this time, I'd like to turn the floor back over to Mr. Ezell for closing comments.

Scott Ezell

Yeah, I want to say thank you, everyone. Closing comments—yeah. Thank you very much for spending time with us this morning. We're pleased with the quarter and continued progress on our multi-year roadmap to growth. This year is about putting markers on the board and getting back to restoring brand momentum, standing up a new operating model, and continued focus on balance sheet productivity. Thank you for spending time with us this morning and have a wonderful day.

Thank you.

OPERATOR

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

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