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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File Number: 001-14669
helenoftroylogoa15.jpg
HELEN OF TROY LIMITED
(Exact name of registrant as specified in its charter)
Bermuda 74-2692550
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Clarendon House
2 Church Street
Hamilton, Bermuda
(Address of principal executive offices)
1 Helen of Troy Plaza
El Paso, Texas 79912
(Registrant's United States Mailing Address) (Zip Code)
(915) 225-8000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: 
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares, $0.10 par value per share HELE The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       Yes No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of June 28, 2024, there were 22,813,316 common shares, $0.10 par value per share, outstanding.


HELEN OF TROY LIMITED AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
  PAGE 
   
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
 
   
   
   
   
   
1

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

HELEN OF TROY LIMITED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except shares and par value)May 31, 2024February 29, 2024
Assets  
Assets, current:  
Cash and cash equivalents$16,148 $18,501 
Receivables, less allowances of $7,511 and $7,481
328,097 394,536 
Inventory444,749 395,995 
Prepaid expenses and other current assets30,590 27,012 
Income taxes receivable11,979 7,874 
Total assets, current831,563 843,918 
Property and equipment, net of accumulated depreciation of $178,319 and $169,021
334,417 336,646 
Goodwill1,066,730 1,066,730 
Other intangible assets, net of accumulated amortization of $191,403 and $186,882
532,378 536,696 
Operating lease assets36,887 35,962 
Deferred tax assets, net3,781 3,662 
Other assets15,195 15,008 
Total assets$2,820,951 $2,838,622 
Liabilities and Stockholders' Equity  
Liabilities, current:  
Accounts payable$245,216 $245,349 
Accrued expenses and other current liabilities163,561 181,391 
Income taxes payable11,867 17,821 
Long-term debt, current maturities7,031 6,250 
Total liabilities, current427,675 450,811 
Long-term debt, excluding current maturities741,346 659,421 
Lease liabilities, non-current38,241 37,262 
Deferred tax liabilities, net52,036 41,253 
Other liabilities, non-current12,153 12,433 
Total liabilities1,271,451 1,201,180 
Commitments and contingencies
Stockholders' equity:  
Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued
  
Common stock, $0.10 par. Authorized 50,000,000 shares; 22,810,412 and 23,751,258 shares issued and outstanding
2,281 2,375 
Additional paid in capital 350,200 348,739 
Accumulated other comprehensive income
2,797 2,099 
Retained earnings1,194,222 1,284,229 
Total stockholders' equity1,549,500 1,637,442 
Total liabilities and stockholders' equity$2,820,951 $2,838,622 

See accompanying notes to condensed consolidated financial statements.
2

HELEN OF TROY LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited) 

 Three Months Ended May 31,
(in thousands, except per share data)20242023
Sales revenue, net$416,847 $474,672 
Cost of goods sold213,768 259,041 
Gross profit203,079 215,631 
Selling, general and administrative expense (“SG&A”)
170,481 167,635 
Restructuring charges1,835 7,355 
Operating income30,763 40,641 
Non-operating income, net100 137 
Interest expense12,543 14,052 
Income before income tax18,320 26,726 
Income tax expense12,116 4,145 
Net income$6,204 $22,581 
Earnings per share (“EPS”):
  
Basic$0.26 $0.94 
Diluted 0.26 0.94 
Weighted average shares used in computing EPS:  
Basic23,524 24,049 
Diluted23,633 24,134 

See accompanying notes to condensed consolidated financial statements.
3

HELEN OF TROY LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited) 

 Three Months Ended May 31,
(in thousands)20242023
Net income$6,204 $22,581 
Other comprehensive income (loss), net of tax:
Cash flow hedge activity - interest rate swaps925 (3,092)
Cash flow hedge activity - foreign currency contracts(227)(623)
Total other comprehensive income (loss), net of tax
698 (3,715)
Comprehensive income$6,902 $18,866 

See accompanying notes to condensed consolidated financial statements.
4

HELEN OF TROY LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

Common StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeRetained EarningsTotal Stockholders' Equity
(in thousands, including shares)SharesPar
Value
Balances at February 28, 202323,994 $2,399 $317,277 $4,947 $1,164,188 $1,488,811 
Net income— — — — 22,581 22,581 
Other comprehensive loss, net of tax— — — (3,715)— (3,715)
Exercise of stock options5 1 211 — — 212 
Issuance and settlement of restricted stock120 12 (12)— —  
Issuance of common stock related to stock purchase plan23 2 2,166 — — 2,168 
Common stock repurchased and retired(45)(4)(4,442)— — (4,446)
Share-based compensation— — 9,297 — — 9,297 
Balances at May 31, 202324,097 $2,410 $324,497 $1,232 $1,186,769 $1,514,908 

Balances at February 29, 202423,751 $2,375 $348,739 $2,099 $1,284,229 $1,637,442 
Net income    6,204 6,204 
Other comprehensive income, net of tax   698  698 
Exercise of stock options6 1 351   352 
Issuance and settlement of restricted stock71 7 (7)   
Issuance of common stock related to stock purchase plan19 2 2,004   2,006 
Common stock repurchased and retired(1,037)(104)(6,720) (96,211)(103,035)
Share-based compensation  5,833   5,833 
Balances at May 31, 202422,810 $2,281 $350,200 $2,797 $1,194,222 $1,549,500 

See accompanying notes to condensed consolidated financial statements.



5

HELEN OF TROY LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Three Months Ended May 31,
(in thousands)20242023
Cash provided by operating activities:
  
Net income$6,204 $22,581 
Adjustments to reconcile net income to net cash provided by operating activities:
  
Depreciation and amortization13,836 10,715 
Amortization of financing costs319 308 
Non-cash operating lease expense2,878 2,338 
Provision for credit losses 88 3,389 
Non-cash share-based compensation5,833 9,297 
Gain on the sale or disposal of property and equipment(29)(246)
Deferred income taxes and tax credits10,445 3,897 
Changes in operating capital:
  
Receivables64,595 26,733 
Inventory(48,754)21,572 
Prepaid expenses and other current assets(3,565)(1,420)
Other assets and liabilities, net327 (656)
Accounts payable2,350 36,644 
Accrued expenses and other current liabilities(19,465)(10,734)
Accrued income taxes(9,742)(3,362)
Net cash provided by operating activities
25,320 121,056 
Cash used by investing activities:
  
Capital and intangible asset expenditures(9,142)(11,877)
Payments for purchases of U.S. Treasury Bills
(683) 
Proceeds from maturity of U.S. Treasury Bills
626  
Proceeds from the sale of property and equipment38 246 
Net cash used by investing activities
(9,161)(11,631)
Cash used by financing activities:
  
Proceeds from revolving loans314,040 70,150 
Repayment of revolving loans(230,090)(166,150)
Repayment of long-term debt
(1,563)(1,563)
Payment of financing costs(222) 
Proceeds from share issuances under share-based compensation plans2,358 2,380 
Payments for repurchases of common stock(103,035)(4,446)
Net cash used by financing activities
(18,512)(99,629)
Net (decrease) increase in cash and cash equivalents
(2,353)9,796 
Cash and cash equivalents, beginning balance18,501 29,073 
Cash and cash equivalents, ending balance$16,148 $38,869 
Supplemental non-cash investing activity:
Capital expenditures included in accounts payable and accrued expenses
$5,647 $2,579 
See accompanying notes to condensed consolidated financial statements.
6

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
May 31, 2024

Note 1 - Basis of Presentation and Related Information

Corporate Overview

The accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our consolidated financial position as of May 31, 2024 and February 29, 2024, and the results of our consolidated operations for the interim periods presented. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 29, 2024 (“Form 10-K”), and our other reports on file with the Securities and Exchange Commission (the “SEC”).

When used in these notes, 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, which are all wholly-owned. We refer to our common shares, par value $0.10 per share, as “common stock.” References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to accounting principles generally accepted in the United States of America (the “U.S.”). References to “ASU” refer to the codification of GAAP in the Accounting Standards Updates issued by the FASB. References to “ASC” refer to the codification of GAAP in the Accounting Standards Codification issued by the FASB.

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. Our portfolio of brands include OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar, Curlsmith and Revlon, among others. As of May 31, 2024, we operated two reportable segments: Home & Outdoor and Beauty & Wellness.

Our Home & Outdoor segment offers a broad range of outstanding world-class brands that help consumers enjoy everyday living inside their homes and outdoors. Our innovative products for home activities include food preparation and storage, cooking, cleaning, organization, and beverage service. Our outdoor performance range, on-the-go food storage, and beverageware includes lifestyle hydration products, coolers and food storage solutions, backpacks, and travel gear. The Beauty & Wellness segment provides consumers with a broad range of outstanding world-class brands for beauty and wellness. In Beauty, we deliver innovation through products such as hair styling appliances, grooming tools, and liquid and aerosol personal care products that help consumers look and feel more beautiful. In Wellness, we are there when you need us most with highly regarded humidifiers, thermometers, water and air purifiers, heaters, and fans.

Our business is seasonal due to different calendar events, holidays and seasonal weather and illness patterns. Our fiscal reporting period ends on the last day in February. Historically, our highest sales volume and operating income occur in our third fiscal quarter ending November 30th. We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico, Vietnam and the U.S.

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During fiscal 2023, we initiated a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs (referred to as “Project Pegasus”). See Note 6 for additional information.

Principles of Consolidation

The accompanying condensed consolidated financial statements are prepared in accordance with GAAP and include all of our subsidiaries. Our condensed consolidated financial statements are prepared in U.S. Dollars. All intercompany balances and transactions are eliminated in consolidation.

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results may differ materially from those estimates.

Note 2 - New Accounting Pronouncements

There have been no changes in the information provided in our Form 10-K.

Note 3 - Accrued Expenses and Other Current Liabilities

A summary of accrued expenses and other current liabilities was as follows:
(in thousands)May 31, 2024February 29, 2024
Accrued compensation, benefits and payroll taxes$17,620 $36,572 
Accrued sales discounts and allowances40,485 37,851 
Accrued sales returns19,335 21,282 
Accrued advertising27,179 29,212 
Other58,942 56,474 
Total accrued expenses and other current liabilities$163,561 $181,391 

Note 4 - Share-Based Compensation Plans

As part of our compensation structure, we grant share-based compensation awards to certain employees and non-employee members of our Board of Directors during the fiscal year. These awards may be subject to attainment of certain service conditions, performance conditions and/or market conditions. During the first quarter of fiscal 2025, we granted 94,900 service condition awards (“Service Condition Awards”) with a weighted average grant date fair value of $124.37. Additionally, we granted 157,797 performance-based awards during the first quarter of fiscal 2025, of which 94,586 contained performance conditions (“Performance Condition Awards”) and 63,211 contained market conditions (“Market Condition Awards”), with weighted average grant date fair values of $124.37 and $91.19, respectively. Refer to our Form 10-K for further information on the Company's share-based compensation plans.

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We recorded share-based compensation expense in SG&A as follows:
 Three Months Ended May 31,
(in thousands)20242023
Directors stock compensation$196 $197 
Service Condition Awards2,568 3,320 
Performance Condition Awards1,047 2,023 
Market Condition Awards1,395 3,147 
Employee stock purchase plan627 610 
Share-based compensation expense5,833 9,297 
Less: income tax benefits
(264)(641)
Share-based compensation expense, net of income tax benefits$5,569 $8,656 

Unrecognized Share-Based Compensation Expense

As of May 31, 2024, our total unrecognized share-based compensation for all awards was $33.5 million, which will be recognized over a weighted average amortization period of 2.5 years. The total unrecognized share-based compensation reflects an estimate of target achievement for Performance Condition Awards granted during fiscal 2025 and fiscal 2024 and an estimate of zero percent of target achievement for Performance Condition Awards granted during fiscal 2023.

Note 5 - Repurchases of Common Stock

In August 2021, our Board of Directors authorized the repurchase of up to $500 million of our outstanding common stock. The authorization became effective August 25, 2021, for a period of three years, and replaced our former repurchase authorization. As of May 31, 2024, our repurchase authorization allowed for the purchase of $245.4 million of common stock.

Our current equity-based compensation plans include provisions that allow for the “net exercise” of share-settled awards by all plan participants. In a net exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the option or other share-based award holders are settled by having the holder tender back to us a number of shares at fair value equal to the amounts due. Net exercises are treated as purchases and retirements of shares.

The following table summarizes our share repurchase activity for the periods shown:
 Three Months Ended May 31,
(in thousands, except share and per share data)20242023
Common stock repurchased on the open market: 
Number of shares1,011,243  
Aggregate value of shares$100,019 $ 
Average price per share$98.91 $ 
Common stock received in connection with share-based compensation:
Number of shares25,372 44,632 
Aggregate value of shares$3,016 $4,446 
Average price per share$118.85 $99.61 

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Note 6 - Restructuring Plan

During fiscal 2023, we initiated Project Pegasus, a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs. Project Pegasus includes initiatives to further optimize our brand portfolio, streamline and simplify the organization, accelerate and amplify 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.

During the fourth quarter of fiscal 2023, we made changes to the structure of our organization. These changes resulted in our previous Health & Wellness and Beauty operating segments being combined into a single reportable segment, the creation of a North America Regional Market Organization (“RMO”) responsible for sales and go-to-market strategies for all categories and channels in the U.S. and Canada, and further centralization of certain functions under shared services, particularly in operations and finance to better support our business segments and RMOs. This new structure reduced the size of our global workforce by approximately 10%. We believe that these changes better focus business segment resources on brand development, consumer-centric innovation and marketing, the RMOs on sales and go to market strategies, and shared services on their respective areas of expertise while also creating a more efficient and effective organizational structure.

During the second quarter of fiscal 2024, we announced plans to geographically consolidate the U.S. Beauty business, currently located in El Paso, Texas, and Irvine, California, and co-locate it with our Wellness business in the Boston, Massachusetts area. This geographic consolidation and relocation is the next step in our initiative to streamline and simplify the organization and is expected to be completed during fiscal 2025. We expect these changes will enable a greater opportunity to capture synergies and enhance collaboration and innovation within the Beauty & Wellness segment.

As previously disclosed, we continue to have the following expectations regarding Project Pegasus charges:
Total one-time pre-tax restructuring charges of approximately $50 million to $55 million over the duration of the plan, expected to be completed during fiscal 2025.
Pre-tax restructuring charges to be comprised of approximately $15 million to $19 million of severance and employee related costs, $28 million of professional fees, $3 million to $4 million of contract termination costs, and $4 million of other exit and disposal costs.
All of our operating segments and shared services will be impacted by the plan and pre-tax restructuring charges include approximately $16 million to $17 million in Home & Outdoor and $34 million to $38 million in Beauty & Wellness.
Pre-tax restructuring charges represent primarily cash expenditures, which are expected to be substantially paid by the end of fiscal 2025.

We also continue to have the following expectations regarding Project Pegasus savings:
Targeted annualized pre-tax operating profit improvements of approximately $75 million to $85 million, which began in fiscal 2024 and we expect to be substantially achieved by the end of fiscal 2027.
Estimated cadence of the recognition of the savings will be approximately 25% in fiscal 2024, which was achieved, approximately 35% in fiscal 2025, approximately 25% in fiscal 2026 and approximately 15% in fiscal 2027.
Total profit improvements to be realized approximately 60% through reduced cost of goods sold and 40% through lower SG&A.

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During the three month periods ended May 31, 2024 and 2023, we incurred $1.8 million and $7.4 million, respectively, of pre-tax restructuring costs in connection with Project Pegasus, which were recorded as “Restructuring charges” in the condensed consolidated statements of income.

The following tables summarize restructuring charges recorded as a result of Project Pegasus for the periods presented:

 Three Months Ended May 31, 2024Total
Incurred Since Inception
(in thousands)Home &
Outdoor
Beauty & WellnessTotal
Severance and employee related costs$440 $1,125 $1,565 $16,841 
Professional fees 270 270 27,147 
Contract termination   1,331 
Other   2,590 
Total restructuring charges$440 $1,395 $1,835 $47,909 

 Three Months Ended May 31, 2023
(in thousands)Home &
Outdoor
Beauty &
Wellness
Total
Severance and employee related costs$484 $408 $892 
Professional fees2,269 3,357 5,626 
Contract termination 688 688 
Other37 112 149 
Total restructuring charges$2,790 $4,565 $7,355 

The tables below present a rollforward of our accruals related to Project Pegasus, which are included in accounts payable and accrued expenses and other current liabilities:
(in thousands)Balance at February 29, 2024ChargesPaymentsBalance at May 31, 2024
Severance and employee related costs$4,493 $1,565 $(2,975)$3,083 
Professional fees272 270 (24)518 
Contract termination    
Other    
Total$4,765 $1,835 $(2,999)$3,601 

(in thousands)Balance at February 28, 2023ChargesPaymentsBalance at May 31, 2023
Severance and employee related costs$3,173 $892 $(2,316)$1,749 
Professional fees3,201 5,626 (6,026)2,801 
Contract termination160 688 (848) 
Other34 149 (183) 
Total$6,568 $7,355 $(9,373)$4,550 

Note 7 - Commitments and Contingencies

Legal Matters

We are involved in various legal claims and proceedings in the normal course of operations. We believe the outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity, except as described below.

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On December 23, 2021, Brita LP filed a complaint against Kaz USA, Inc. and Helen of Troy Limited in the United States District Court for the Western District of Texas (the “Patent Litigation”), alleging patent infringement by the Company relating to its PUR gravity-fed water filtration systems. In the Patent Litigation, Brita LP seeks monetary damages and injunctive relief relating to the alleged infringement. Brita LP simultaneously filed a complaint with the United States International Trade Commission (“ITC”) against Kaz USA, Inc., Helen of Troy Limited and five other unrelated companies that sell water filtration systems (the “ITC Action”). The complaint in the ITC Action also alleged patent infringement by the Company with respect to a limited set of PUR gravity-fed water filtration systems. In the ITC Action, Brita LP requested the ITC to initiate an unfair import investigation relating to such filtration systems. This action sought injunctive relief to prevent entry of certain accused PUR products (and certain other products) into the U.S. and cessation of marketing and sales of existing inventory that is already in the U.S. On January 25, 2022, the ITC instituted the investigation requested by the ITC Action. Discovery closed in the ITC Action in May 2022, and approximately half of the originally identified PUR gravity-fed water filters were removed from the case and are no longer included in the ITC Action. In August 2022, the parties participated in the evidentiary hearing, with additional supplemental hearings in October 2022. On February 28, 2023, the ITC issued an Initial Determination in the ITC Action, tentatively ruling against the Company and the other unrelated respondents. The ITC has a guaranteed review process, and thus all respondents, including the Company, filed a petition with the ITC for a full review of the Initial Determination. On September 19, 2023, the ITC issued its Final Determination in the Company’s favor. The ITC determined there was no violation by the Company and terminated the investigation. Brita LP is appealing the ITC's decision to the Federal Circuit (“CAFC Appeal”) and filed its Notice of Appeal on October 24, 2023. The Company intervened in the CAFC Appeal, but as of the filing date of this Form 10-Q, no hearings have been scheduled. The Patent Litigation remains stayed for the time being. We cannot predict the outcome of these legal proceedings, the amount or range of any potential loss, when the proceedings will be resolved, or customer acceptance of any replacement water filter. Litigation is inherently unpredictable, and the resolution or disposition of these proceedings could, if adversely determined, have a material and adverse impact on our financial position and results of operations.

Regulatory Matters

During fiscal 2022 and 2023, we were in discussions with the U.S. Environmental Protection Agency (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 Beauty & Wellness segment that are sold in the U.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. We resumed normalized levels of shipping of the affected inventory during fiscal 2022 and we completed the repackaging and relabeling of our existing inventory of impacted products during fiscal 2023. Additionally, as a result of continuing dialogue with the EPA, we executed further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products, which were also completed during fiscal 2023. Ongoing settlement discussions with the EPA related to this matter may result in the imposition of fines or penalties in the future. Such potential fines or penalties cannot be estimated. For additional information refer to Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including “EPA Compliance Costs”.

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Note 8 - Long-Term Debt
A summary of our long-term debt follows:
(in thousands)May 31, 2024February 29, 2024
Credit Agreement (1):
Revolving loans$505,900 $421,950 
Term loans248,437 250,000 
Total borrowings under Credit Agreement754,337 671,950 
Unamortized prepaid financing fees(5,960)(6,279)
Total long-term debt748,377 665,671 
Less: current maturities of long-term debt(7,031)(6,250)
Long-term debt, excluding current maturities$741,346 $659,421 
(1)The weighted average interest rates on borrowings outstanding under the Credit Agreement (defined below) inclusive of the impact of our interest rate swaps as of May 31, 2024 and February 29, 2024 were 6.4% and 6.0%, respectively.

Capitalized Interest

During the three month period ended May 31, 2024, we incurred interest costs totaling $12.5 million, of which none was capitalized, compared to $14.9 million for the same period last year, of which we capitalized $0.9 million as part of property and equipment in connection with the construction of a new distribution facility.

Credit Agreement

We have a credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and other lenders that provides for aggregate commitments of $1.5 billion, which are available through (i) a $1.0 billion revolving credit facility, which includes a $50 million sublimit for the issuance of letters of credit, (ii) a $250 million term loan facility, and (iii) a committed $250 million delayed draw term loan facility, which may be borrowed in multiple drawdowns until August 15, 2025. Proceeds can be used for working capital and other general corporate purposes, including funding permitted acquisitions. At the closing date, February 15, 2024, we borrowed $457.5 million under the revolving credit facility and $250.0 million under the term loan facility and utilized the proceeds to repay all debt outstanding under our prior credit agreement. The Credit Agreement matures on February 15, 2029. The Credit Agreement includes an accordion feature, which permits the Company to request to increase its borrowing capacity by an additional $300 million plus an unlimited amount when the Leverage Ratio (as defined in the Credit Agreement) on a pro-forma basis is less than 3.25 to 1.00. The term loans are payable at the end of each fiscal quarter in equal installments of 0.625% through February 28, 2025, 0.9375% through February 28, 2026, and 1.25% thereafter of the original principal balance of the term loans, which began in the first quarter of fiscal 2025, with the remaining balance due at the maturity date. Borrowings under the Credit Agreement bear floating interest at either the Base Rate or Term SOFR (as defined in the Credit Agreement), plus a margin based on the Net Leverage Ratio (as defined in the Credit Agreement) of 0% to 1.125% and 1.0% to 2.125% for Base Rate and Term SOFR borrowings, respectively.

The floating interest rates on our borrowings under the Credit Agreement are hedged with interest rate swaps to effectively fix interest rates on $300 million and $500 million of the outstanding principal balance under the revolving loans as of May 31, 2024 and February 29, 2024, respectively. See Notes 9, 10, and 11 for additional information regarding our interest rate swaps.

As of May 31, 2024, the balance of outstanding letters of credit was $15.6 million and the amount available for revolving loans under the Credit Agreement was $478.5 million. Covenants in the Credit Agreement limit the amount of total indebtedness we can incur. As of May 31, 2024, these covenants
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effectively limited our ability to incur more than $336.9 million of additional debt from all sources, including the Credit Agreement, or $478.5 million in the event a qualified acquisition is consummated.

Debt Covenants

As of May 31, 2024, we were in compliance with all covenants as defined under the terms of the Credit Agreement.

Note 9 - Fair Value 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. These inputs are classified into the following hierarchy:

Level 1:Quoted prices for identical assets or liabilities in active markets;

Level 2:Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable; and

Level 3:Unobservable inputs that reflect the reporting entity’s own assumptions.

All of our financial assets and liabilities, except for our investments in U.S. Treasury Bills, are classified as Level 2 because their valuation is dependent on observable inputs and other quoted prices for similar assets or liabilities, or model-derived valuations whose significant value drivers are observable. Our investments in U.S. Treasury Bills are classified as Level 1 because their value is based on quoted prices in active markets for identical assets.

The following table presents the fair value of our financial assets and liabilities:
 
Fair Value
(in thousands)May 31, 2024February 29, 2024
Assets: 
Cash equivalents (money market accounts)$3,661 $462 
U.S. Treasury Bills
9,016 8,948 
Interest rate swaps3,712 2,504 
Foreign currency derivatives432 592 
Total assets$16,821 $12,506 
  
Liabilities: 
Foreign currency derivatives505 386 
Total liabilities$505 $386 

All of our financial assets and liabilities, except for our investments in U.S. Treasury Bills, are measured and recorded at fair value on a recurring basis. Our investments in U.S. Treasury Bills are recorded at amortized cost. As of both May 31, 2024 and February 29, 2024, the current and non-current carrying amounts of our U.S. Treasury Bills were $2.5 million and $6.6 million, respectively, and were included
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within Prepaid expenses and other current assets and Other assets, respectively, in our condensed consolidated balance sheets.

The carrying amounts of cash, accounts payable, accrued expenses and other current liabilities and income taxes payable approximate fair value because of the short maturity of these items. The carrying amounts of receivables approximate fair value due to the effect of the related allowance for credit losses. The carrying amount of our floating rate long-term debt approximates its fair value.

Our investments in U.S. Treasury Bills are classified as held-to-maturity because we have the positive intent and ability to hold the securities to maturity. We invest in U.S. Treasury Bills with maturities ranging from less than one to five years. Gross unrealized losses were $0.1 million for the three months ended May 31, 2024. During the three month period ended May 31, 2024, we recognized an immaterial amount of interest income on these investments, which is included in “Non-operating income, net” in our condensed consolidated statement of income.

We use foreign currency forward contracts and interest rate swaps to manage our exposure to changes in foreign currency exchange rates and interest rates, respectively. All of our derivative assets and liabilities are recorded at fair value. See Notes 10 and 11 for more information on our derivatives.

Note 10 - Financial Instruments and Risk Management

Foreign Currency Risk

The U.S. Dollar is the functional currency for the Company and all of its subsidiaries and is also the reporting currency for the Company. By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”). Such transactions include sales and operating expenses. As a result of such transactions, portions of our cash, accounts receivable and accounts payable are denominated in foreign currencies. Approximately 16% and 15% of our net sales revenue was denominated in foreign currencies during the three month periods ended May 31, 2024 and 2023, respectively. These sales were primarily denominated in Euros, British Pounds and Canadian Dollars. We make most of our inventory purchases from manufacturers in Asia and primarily use the U.S. Dollar for such purchases.

In our condensed consolidated statements of income, foreign currency exchange rate gains and losses resulting from the remeasurement of foreign income tax receivables and payables, and deferred income tax assets and liabilities are recognized in income tax expense, and all other foreign currency exchange rate gains and losses are recognized in SG&A. During the three month periods ended May 31, 2024 and 2023, we recorded foreign currency exchange rate net losses of $0.1 million and net gains of $0.2 million, respectively, in income tax expense. During the three month periods ended May 31, 2024 and 2023, we recorded foreign currency exchange rate net gains of an immaterial amount and $0.4 million, respectively, in SG&A. We mitigate certain foreign currency exchange rate risk by using forward contracts to protect against the foreign currency exchange rate risk inherent in our transactions denominated in foreign currencies. We do not enter into any derivatives or similar instruments for trading or other speculative purposes. Certain of our forward contracts are designated as cash flow hedges (“foreign currency contracts”) and are recorded on the balance sheet at fair value with changes in fair value recorded in Other Comprehensive Income (Loss) (“OCI”) until the hedge transaction is settled, at which point amounts are reclassified from Accumulated Other Comprehensive Income (Loss) (“AOCI”) to our condensed consolidated statements of income. Foreign currency derivatives for which we have not elected hedge accounting consist of certain forward contracts, and any changes in the fair value of these derivatives are recorded in our condensed consolidated statements of income. These undesignated derivatives are used to hedge monetary net asset and liability positions. Cash flows from our foreign currency derivatives are classified as cash flows from operating activities in our condensed consolidated
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statements of cash flows, which is consistent with the classification of the cash flows from the underlying hedged item. We evaluate our derivatives designated as cash flow hedges each quarter to assess hedge effectiveness.

Interest Rate Risk

Interest on our outstanding debt as of May 31, 2024 and February 29, 2024 is based on floating interest rates. If short-term interest rates increase, we will incur higher interest expense on any future outstanding balances of floating rate debt. Floating interest rates are hedged with interest rate swaps to effectively fix interest rates on a portion of our outstanding principal balance under the Credit Agreement, which totaled $754.3 million and $672.0 million as of May 31, 2024 and February 29, 2024, respectively. As of May 31, 2024 and February 29, 2024, $300.0 million and $500.0 million of the outstanding principal balance under the Credit Agreement, respectively, was hedged with interest rate swaps to fix the interest rate we pay. Our interest rate swaps are designated as cash flow hedges and are recorded on the balance sheet at fair value with changes in fair value recorded in OCI until the hedge transaction is settled, at which point amounts are reclassified from AOCI to our condensed consolidated statements of income. Cash flows from our interest rate swaps are classified as cash flows from operating activities in our condensed consolidated statements of cash flows, which is consistent with the classification of the cash flows from the underlying hedged item. We evaluate our derivatives designated as cash flow hedges each quarter to assess hedge effectiveness.

The following tables summarize the fair values of our derivative instruments as of the end of the periods presented:
(in thousands)May 31, 2024

Derivatives designated as hedging instruments
Hedge
Type
Final
Settlement Date
Notional AmountPrepaid
Expenses
and Other
Current Assets
Other AssetsAccrued
Expenses
and Other
Current Liabilities
Other
Liabilities, Non- Current
Forward contracts - sell EuroCash flow2/202529,000 $249 $ $87 $ 
Forward contracts - sell Canadian DollarsCash flow2/2025$18,350 153  34  
Forward contracts - sell PoundsCash flow11/2025£21,750 16  375 2 
Forward contracts - sell Norwegian KronerCash flow2/2025kr15,000   1  
Interest rate swapsCash flow2/2026$300,000 2,127 1,585   
Subtotal   2,545 1,585 497 2 
Derivatives not designated under hedge accounting       
Forward contracts - sell Euro
(1)6/20241,000   6  
Forward contracts - buy Pounds
(1)6/2024£700 14    
Subtotal   14  6  
Total fair value$2,559 $1,585 $503 $2 

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(in thousands)February 29, 2024

Derivatives designated as hedging instruments
Hedge TypeFinal
Settlement Date
Notional AmountPrepaid
Expenses
and Other
Current Assets
Other AssetsAccrued
Expenses
and Other
Current Liabilities
Other
Liabilities Non- Current
Forward contracts - sell EuroCash flow2/202536,500 $377 $ $90 $ 
Forward contracts - sell Canadian DollarsCash flow2/2025$20,750 151  57  
Forward contracts - sell PoundsCash flow2/2025£20,250 59  234  
Forward contracts - sell Norwegian KronerCash flow8/2024kr5,000 5    
Interest rate swapsCash flow2/2026$500,000 1,314 1,190   
Subtotal   1,906 1,190 381  
Derivatives not designated under hedge accounting       
Forward contracts - sell Euro
(1)3/2024430   3  
Forward contracts - sell Pounds
(1)3/2024£735   2  
Subtotal     5  
Total fair value   $1,906 $1,190 $386 $ 

(1)These forward contracts, for which we have not elected hedge accounting, hedge monetary net asset and liability positions for the notional amounts reported, creating an economic hedge against currency movements.

The pre-tax effects of derivative instruments designated as cash flow hedges were as follows for the periods presented:
 Three Months Ended May 31,
 Gain (Loss)
Recognized in AOCI
Gain (Loss) Reclassified
from AOCI into Income
(in thousands)20242023Location20242023
Foreign currency contracts - cash flow hedges$(108)$(467)Sales revenue, net$184 $338 
Interest rate swaps - cash flow hedges2,292 (2,634)Interest expense1,084 1,407 
Total$2,184 $(3,101) $1,268 $1,745 

The pre-tax effects of derivative instruments not designated under hedge accounting were as follows for the periods presented:
 Gain (Loss) 
Recognized in Income
Three Months Ended May 31,
(in thousands)Location20242023
Forward contractsSG&A$22 $(24)
Total $22 $(24)

We expect a net gain of $2.0 million associated with foreign currency contracts and interest rate swaps currently recorded in AOCI to be reclassified into income over the next twelve months. The amount ultimately realized, however, will differ as exchange rates and interest rates change and the underlying contracts settle. See Notes 9 and 11 for more information.

Counterparty Credit Risk

Financial instruments, including foreign currency contracts, forward contracts, and interest rate swaps, expose us to counterparty credit risk for non-performance. We manage our exposure to counterparty credit risk by only dealing with counterparties who are substantial international financial institutions with
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significant experience using such derivative instruments. We believe that the risk of incurring credit losses is remote.

Note 11 - Accumulated Other Comprehensive Income (Loss)

The changes in AOCI by component and related tax effects for the periods presented were as follows:
(in thousands)Interest
Rate Swaps
Foreign
Currency
Contracts
Total
Balance at February 28, 2023$4,394 $553 $4,947 
Other comprehensive loss before reclassification
(2,634)(467)(3,101)
Amounts reclassified out of AOCI(1,407)(338)(1,745)
Tax effects949 182 1,131 
Other comprehensive loss
(3,092)(623)(3,715)
Balance at May 31, 2023$1,302 $(70)$1,232 
Balance at February 29, 2024$1,917 $182 $2,099 
Other comprehensive income (loss) before reclassification
2,292 (108)2,184 
Amounts reclassified out of AOCI(1,084)(184)(1,268)
Tax effects(283)65 (218)
Other comprehensive income (loss)
925 (227)698 
Balance at May 31, 2024$2,842 $(45)$2,797 
See Notes 9 and 10 for additional information regarding our cash flow hedges.

Note 12 - Segment and Geographic Information
The following tables summarize segment information for the periods presented:
Three Months Ended May 31, 2024
(in thousands)Home & OutdoorBeauty & WellnessTotal
Sales revenue, net$198,459 $218,388 $416,847 
Restructuring charges440 1,395 1,835 
Operating income15,850 14,913 30,763 
Capital and intangible asset expenditures5,745 3,397 9,142 
Depreciation and amortization6,647 7,189 13,836 

Three Months Ended May 31, 2023
(in thousands)Home & OutdoorBeauty & WellnessTotal
Sales revenue, net$217,144 $257,528 $474,672 
Restructuring charges2,790 4,565 7,355 
Operating income 22,116 18,525 40,641 
Capital and intangible asset expenditures10,960 917 11,877 
Depreciation and amortization4,402 6,313 10,715 

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The following table presents net sales revenue by geographic region, in U.S. Dollars:
Three Months Ended May 31,
(in thousands)20242023
Domestic sales revenue, net (1)
$300,680 72.1 %$359,559 75.7 %
International sales revenue, net116,167 27.9 %115,113 24.3 %
Total sales revenue, net$416,847 100.0 %$474,672 100.0 %
(1)Domestic net sales revenue includes net sales revenue from the U.S. and Canada.

Note 13 - Income Taxes

We reorganized the Company in Bermuda in 1994 and many of our foreign subsidiaries are not directly or indirectly owned by a U.S. parent. As such, a large portion of our foreign income is not subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate. The taxable income earned in each jurisdiction, whether U.S. or foreign, is determined by the subsidiary's operating results and transfer pricing and tax regulations in the related jurisdictions.

For interim periods, our income tax expense and resulting effective tax rate are based upon an estimated annual effective tax rate adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions and other items.

The Organisation for Economic Co-operation and Development has introduced a framework to implement a global minimum corporate income tax of 15%, referred to as “Pillar Two.” Many aspects of Pillar Two are effective for tax years beginning after January 1, 2024, with certain remaining aspects to be effective for tax years beginning January 1, 2025 or later. Certain countries have adopted legislation to implement Pillar Two, and other countries are in the process of introducing legislation to implement Pillar Two. We will continue to assess the impact of Pillar Two and monitor developments in legislation, regulation, and interpretive guidance.

In response to Pillar Two, on May 24, 2024, Barbados enacted a domestic corporate income tax rate of 9%, effective beginning with our fiscal year 2025. As a result, we incorporated this corporate income tax into our estimated annual effective tax rate increasing our income tax provision during the first quarter of fiscal 2025. In addition, we revalued our existing deferred tax liabilities subject to the Barbados legislation, which resulted in a discrete tax charge of $6.0 million during the first quarter of fiscal 2025. Additionally, Barbados enacted a domestic minimum top-up tax (“DMTT”) of 15% which applies to Barbados businesses that are part of multinational enterprise groups with annual revenue of €750 million or more and is effective beginning with our fiscal year 2026. We will continue to monitor and evaluate impacts as further regulatory guidance becomes available.

For the three months ended May 31, 2024, income tax expense as a percentage of income before income tax was 66.1% compared to 15.5% for the same period last year. The year-over-year increase in the effective tax rate is primarily due to the Barbados tax legislation enacted during the first quarter of fiscal 2025, which resulted in a discrete tax charge of $6.0 million to revalue deferred tax liabilities and an increase in our income tax expense due to the change to our estimated annual effective tax rate arising from the legislation, partially offset by shifts in the mix of income in our various tax jurisdictions.

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Note 14 - Earnings Per Share

We compute basic earnings per share using the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share using the weighted average number of shares of common stock outstanding plus the effect of dilutive securities. Dilutive securities at any given point in time may consist of outstanding options to purchase common stock and issued and contingently issuable unvested restricted stock units, performance stock units, restricted stock awards and performance restricted stock awards and other stock-based awards. Anti-dilutive securities are not included in the computation of diluted earnings per share under the treasury stock method. See Note 4 to these condensed consolidated financial statements for more information regarding stock-based awards.

The following table presents our weighted average basic and diluted shares outstanding for the periods shown:
 Three Months Ended May 31,
(in thousands)20242023
Weighted average shares outstanding, basic23,524 24,049 
Incremental shares from share-based compensation arrangements109 85 
Weighted average shares outstanding, diluted23,633 24,134 
Anti-dilutive securities125 156 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 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 29, 2024 (“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.

This MD&A, including the tables under the headings “Operating Income, 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, operating margin, net income and diluted earnings per share (“EPS”) without the impact of a discrete tax charge to revalue existing deferred tax liabilities due to Barbados enacting domestic corporate income tax legislation (“Barbados tax reform”), a charge for uncollectible receivables due to the bankruptcy of Bed, Bath & Beyond (“Bed, Bath & Beyond bankruptcy”), 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 measures as defined by SEC Regulation G, Rule 100. The tables reconcile these measures to their corresponding GAAP-based financial 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 were incurred and reflected in our GAAP financial results. 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 measures and may be calculated differently than non-GAAP financial measures disclosed by other companies. Accordingly, undue reliance should not be placed on non-GAAP financial measures. These non-GAAP financial measures are discussed further and reconciled to their applicable GAAP-based financial measures contained in this MD&A beginning on page 32.

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. Our portfolio of brands includes OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar, Curlsmith and Revlon, among others. We have built leading market positions through new product innovation, product quality and competitive pricing. As of May 31, 2024, we operated two reportable segments: Home & Outdoor and Beauty & Wellness.

During fiscal 2023, we initiated a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs (referred to as “Project Pegasus”). Project Pegasus includes initiatives to further optimize our brand portfolio, streamline and simplify the organization, accelerate and amplify 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. During the three month periods ended May 31, 2024 and 2023, we incurred $1.8 million and $7.4 million, respectively, of pre-tax restructuring costs in connection with Project Pegasus, which were recorded as “Restructuring charges” in the condensed consolidated statements of income. See further discussion below within “Significant Trends Impacting the Business” under “Project Pegasus” and Note 6 to the accompanying condensed consolidated financial statements.

Fiscal 2024 concluded Phase II of our transformation strategy, which produced net sales and organic net sales growth and gross profit margin expansion. We expanded our portfolio of leading brands and international footprint with the acquisitions of Drybar, Osprey and Curlsmith. We completed the divestiture of our personal care business and extended our Revlon trademark license for a period of up to 100 years. We strategically and effectively deployed capital to construct our new distribution facility in Gallaway, Tennessee, repurchased shares of our common stock, and repaid amounts outstanding under our long-term debt agreement. We began publishing an annual environmental, social and governance (“ESG”) Report, which summarizes our ESG strategy and performance, providing further transparency into our ESG efforts. During Phase II, we also initiated Project Pegasus, which included the creation of a North America Regional Market Organization (“RMO”) responsible for sales and go-to-market strategies for all categories and channels in the United States of America (“U.S.”) and Canada, and further centralization of certain functions under shared services, particularly in operations and finance to better support our business segments and RMOs.

Fiscal 2025 begins our Elevate for Growth Strategy, which provides our strategic roadmap through fiscal 2030. The long-term objectives of Elevate for Growth include continued organic sales growth, further margin expansion, and accretive capital deployment through strategic acquisitions, share repurchases and capital structure management. The Elevate for Growth Strategy includes an enhanced portfolio management strategy to invest in our brands and grow internationally based upon defined criteria with an emphasis on brand building, new product introductions and expanded distribution. We are continuing to execute our initiatives under Project Pegasus, which we expect to generate incremental fuel to invest in our brand portfolio and new capabilities. We intend to further leverage our operational scale and assets, including our new state-of-the-art distribution center, improved go-to-market structure with our North America RMO, and our expanded shared services capabilities. We also plan to complete the geographic consolidation of our Beauty & Wellness businesses, create a centralized marketing organization that embraces next-level data analytics and consumer insight capabilities, and further integrate our supply chain and finance functions within our shared services. Additionally, we are committed to fostering a winning culture and continuing our ESG and diversity, equity, inclusion and belonging (“DEI&B”) efforts to support our Elevate for Growth Strategy.
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Significant Trends Impacting the Business

Project Pegasus
During fiscal 2023, we initiated Project Pegasus, a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs. Project Pegasus includes initiatives to further optimize our brand portfolio, streamline and simplify the organization, accelerate and amplify 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. During the fourth quarter of fiscal 2023, we made changes to the structure of our organization. These changes resulted in our previous Health & Wellness and Beauty operating segments being combined into a single reportable segment, the creation of a North America Regional Market Organization (“RMO”) responsible for sales and go-to-market strategies for all categories and channels in the U.S. and Canada, and further centralization of certain functions under shared services, particularly in operations and finance to better support our business segments and RMOs. This new structure reduced the size of our global workforce by approximately 10%. We believe that these changes better focus business segment resources on brand development, consumer-centric innovation and marketing, the RMOs on sales and go to market strategies, and shared services on their respective areas of expertise while also creating a more efficient and effective organizational structure.

During the second quarter of fiscal 2024, we announced plans to geographically consolidate the U.S. Beauty business, currently located in El Paso, Texas, and Irvine, California, and co-locate it with our Wellness business in the Boston, Massachusetts area. This geographic consolidation and relocation is the next step in our initiative to streamline and simplify the organization and is expected to be completed during fiscal 2025. We expect these changes will enable a greater opportunity to capture synergies and enhance collaboration and innovation within the Beauty & Wellness segment.

As previously disclosed, we continue to have the following expectations regarding Project Pegasus charges:
Total one-time pre-tax restructuring charges of approximately $50 million to $55 million over the duration of the plan, expected to be completed during fiscal 2025.
Pre-tax restructuring charges to be comprised of approximately $15 million to $19 million of severance and employee related costs, $28 million of professional fees, $3 million to $4 million of contract termination costs, and $4 million of other exit and disposal costs.
All of our operating segments and shared services will be impacted by the plan and pre-tax restructuring charges include approximately $16 million to $17 million in Home & Outdoor and $34 million to $38 million in Beauty & Wellness.
Pre-tax restructuring charges represent primarily cash expenditures, which are expected to be substantially paid by the end of fiscal 2025.

We also continue to have the following expectations regarding Project Pegasus savings:
Targeted annualized pre-tax operating profit improvements of approximately $75 million to $85 million, which began in fiscal 2024 and we expect to be substantially achieved by the end of fiscal 2027.
Estimated cadence of the recognition of the savings will be approximately 25% in fiscal 2024, which was achieved, approximately 35% in fiscal 2025, approximately 25% in fiscal 2026 and approximately 15% in fiscal 2027.
Total profit improvements to be realized approximately 60% through reduced cost of goods sold and 40% through lower SG&A.

In addition, we implemented plans to reduce inventory levels, increase inventory turns, and improve cash flow and working capital during fiscal 2023. Improvements related to these initiatives began in the
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second half of fiscal 2023, and continued during fiscal 2024, enabling us to repay amounts outstanding under our long-term debt agreement and reduce our interest expense during fiscal 2024. During the first quarter of fiscal 2024, our gross margin was favorably impacted by our SKU rationalization efforts in Beauty & Wellness. In addition, during the first quarter of fiscal 2025, our gross margin and operating margins were favorably impacted by lower commodity and product costs driven by our cost of goods savings projects. Expectations regarding our Project Pegasus initiatives and our ability to realize targeted savings, including expectations concerning costs and savings, 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 the three month periods ended May 31, 2024 and 2023, we incurred $1.8 million and $7.4 million, respectively, of pre-tax restructuring costs in connection with Project Pegasus, which were recorded as “Restructuring charges” in the condensed consolidated statements of income. We made total cash restructuring payments of $3.0 million and $9.4 million during the three month periods ended May 31, 2024 and 2023, respectively, and had a remaining liability of $3.6 million as of May 31, 2024. See Note 6 to the accompanying condensed consolidated financial statements for additional information.

Water Filtration Patent Litigation
On December 23, 2021, Brita LP filed a complaint against Kaz USA, Inc. and Helen of Troy Limited in the United States District Court for the Western District of Texas (the “Patent Litigation”), alleging patent infringement by the Company relating to its PUR gravity-fed water filtration systems. Brita LP simultaneously filed a complaint with the United States International Trade Commission (“ITC”) against Kaz USA, Inc., Helen of Troy Limited and five other unrelated companies that sell water filtration systems (the “ITC Action”). The complaint in the ITC Action also alleged patent infringement by the Company with respect to a limited set of PUR gravity-fed water filtration systems. This action sought injunctive relief to prevent entry of certain accused PUR products (and certain other products) into the U.S. and cessation of marketing and sales of existing inventory that is already in the U.S. On February 28, 2023, the ITC issued an Initial Determination in the ITC Action, tentatively ruling against the Company and the other unrelated respondents. The ITC has a guaranteed review process, and thus all respondents, including the Company, filed a petition with the ITC for a full review of the Initial Determination. On September 19, 2023, the ITC issued its Final Determination in the Company’s favor. The ITC determined there was no violation by the Company and terminated the investigation. Brita LP is appealing the ITC's decision to the Federal Circuit (“CAFC Appeal”) and filed its Notice of Appeal on October 24, 2023. The Company intervened in the CAFC Appeal, but as of the date of the filing of this Form 10-Q, no hearings have been scheduled. The Patent Litigation remains stayed for the time being. We cannot predict the outcome of these legal proceedings, the amount or range of any potential loss, when the proceedings will be resolved, or customer acceptance of any replacement water filter. Litigation is inherently unpredictable, and the resolution or disposition of these proceedings could, if adversely determined, have a material and adverse impact on our financial position and results of operations. For additional information regarding the Patent Litigation and the ITC Action, see Note 7 to the accompanying condensed consolidated financial statements.

Impact of Macroeconomic Trends
The Federal Open Market Committee increased the benchmark interest rate by 50 basis points and 25 basis points during the first and second quarters of fiscal 2024, respectively. As a result, we incurred higher average interest rates during the first quarter of fiscal 2025 compared to the same period last year. The Federal Open Market Committee has indicated that it may lower interest rates in fiscal 2025. While the actual timing and extent of future changes in interest rates remains unknown, lower average interest rates would reduce interest expense on our outstanding variable rate debt. The financial markets, the global economy and global supply chain may also be adversely affected by the current or anticipated impact of military conflicts 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 during
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fiscal 2024 and the first quarter of fiscal 2025 and may continue to have an adverse impact during the remainder of fiscal year 2025. 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 and consumer confidence, 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 the U.S. retail economy. Approximately 67% and 72% of our consolidated net sales revenue was from U.S. shipments during the three month periods ended May 31, 2024 and 2023, respectively.

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. 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 fiscal year 2024, we experienced some improvement in replenishment orders from certain retail customers in certain product categories relative to fiscal 2023. However, during the first quarter of fiscal 2025, we experienced reduced replenishment orders from retail customers in line with softer consumer demand and discretionary spending, which adversely impacted our sales, results of operations and cash flows. 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 and changes in consumer spending patterns. 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 continued evolution of consumer shopping preferences. Our net sales to pure-play online retailers and retail customers fulfilling end-consumer online orders, as well as our own online sales directly to consumers (collectively “online channel net sales”) comprised approximately 25% of our total consolidated net sales revenue for the three month period ended May 31, 2024, and declined approximately 14% compared to the same period in the prior year. For the three month period ended May 31, 2023, our online channel net sales comprised approximately 26% of our total consolidated net sales revenue, and grew approximately 8% as compared to the same period in the prior year.

With the continued importance of online sales in 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 has become increasingly important for us to leverage our distribution capabilities in order to meet the changing demands of our customers, including increasing our online capabilities to support our direct-to-consumer sales channels and online channel sales by our retail customers. In March 2023, we completed the construction of an additional distribution facility in Gallaway, Tennessee that became operational during the first quarter of fiscal 2024 and includes state-of-the-art automation suited to fulfill direct-to-consumer and online channel orders. During the first quarter of fiscal 2025, we experienced automation system startup issues at the Tennessee distribution facility which impacted some of our Home & Outdoor segment's small retail customer and direct-to-consumer orders. As a result, our sales were adversely impacted due to shipping disruptions, and we incurred additional costs and lost efficiency as we worked to remediate the issues. We expect the shipping disruption to continue through the second quarter of fiscal 2025. Additionally, we have invested in a centralized cloud-based e-commerce platform, which some of our brands are currently utilizing. The centralized cloud-based e-commerce platform will enable us to leverage a common system and rapidly
25

deploy new capabilities across all of our brands, as well as more easily integrate new brands. We believe this platform enhances the customer experience by strengthening the digital presentation and product browsing capabilities and improving the checkout process, order delivery and post-order customer care.

EPA Compliance Costs
During fiscal 2022 and 2023, we were in discussions with the U.S. Environmental Protection Agency (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 Beauty & Wellness segment that are sold in the U.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. We resumed normalized levels of shipping of the affected inventory during fiscal 2022 and we completed the repackaging and relabeling of our existing inventory of impacted products during fiscal 2023. Additionally, as a result of continuing dialogue with the EPA, we executed further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products, which were also completed during fiscal 2023. Ongoing settlement discussions with the EPA related to this matter may result in the imposition of fines or penalties in the future. Such potential fines or penalties cannot be estimated. See Note 7 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 (the U.S. Dollar). Such transactions include sales and operating expenses. The most significant currencies affecting our operating results are the Euro, British Pound and Canadian Dollar.

For the three months ended May 31, 2024, changes in foreign currency exchange rates had a favorable year-over-year impact on consolidated U.S. Dollar reported net sales revenue of approximately $0.4 million, or 0.1%, compared to an unfavorable year-over-year impact of $0.5 million, or 0.1%, for the same period last year.

Variability of the Cough/Cold/Flu Season
Sales in several of our Beauty & Wellness segment categories are highly correlated to the severity of winter weather and cough/cold/flu incidence. In the U.S., the cough/cold/flu season historically runs from November through March, with peak activity normally in January to March. The 2023-2024 cough/cold/flu season was below historical averages seen prior to the impact of COVID-19. The 2022-2023 cough/cold/flu season was above historical averages, primarily early in the season, as respiratory infections surged in both children and adults and COVID-19 continued to be prevalent.

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RESULTS OF OPERATIONS

The following table provides selected operating data, in U.S. Dollars, as a percentage of net sales revenue, and as a year-over-year percentage change.
 Three Months Ended May 31,% of Sales Revenue, net
(in thousands)20242023$ Change% Change20242023
Sales revenue by segment, net      
Home & Outdoor$198,459 $217,144 $(18,685)(8.6)%47.6 %45.7 %
Beauty & Wellness218,388 257,528 (39,140)(15.2)%52.4 %54.3 %
Total sales revenue, net416,847 474,672 (57,825)(12.2)%100.0 %100.0 %
Cost of goods sold213,768 259,041 (45,273)(17.5)%51.3 %54.6 %
Gross profit203,079 215,631 (12,552)(5.8)%48.7 %45.4 %
SG&A
170,481 167,635 2,846 1.7 %40.9 %35.3 %
Restructuring charges1,835 7,355 (5,520)(75.1)%0.4 %1.5 %
Operating income30,763 40,641 (9,878)(24.3)%7.4 %8.6 %
Non-operating income, net100 137 (37)(27.0)% %— %
Interest expense12,543 14,052 (1,509)(10.7)%3.0 %3.0 %
Income before income tax18,320 26,726 (8,406)(31.5)%4.4 %5.6 %
Income tax expense12,116 4,145 7,971 *2.9 %0.9 %
Net income$6,204 $22,581 $(16,377)(72.5)%1.5 %4.8 %