John Boomer - Senior Vice President Gerald J. Rubin - Co-Founder, Chairman, Chief Executive Officer and President Thomas J. Benson - Chief Financial Officer and Senior Vice President

Robert Labick - CJS Securities, Inc. Steven Friedman Jason M. Gere - KeyBanc Capital Markets Inc., Research Division

Good day, and welcome to the Helen of Troy Limited Third Quarter 2014 Earnings Call. This conference is being recorded. At this time, I would like to turn the conference over to John Boomer, Senior Vice President. You may begin.

Good afternoon, everyone, and welcome to Helen of Troy's Third Quarter of Fiscal Year 2014 Earnings Conference Call. The agenda for the call this afternoon is as follows: I will begin with a brief discussion of forward-looking statements; Mr. Gerald Rubin, our Chairman of the Board, CEO and President, will then discuss the factors that drove our growth in the quarter; then, Tom Benson, our Chief Financial Officer, will review our financials and outlook in more detail. Following this, we will take the questions you have for us today. This conference call may contain certain forward-looking statements that are based on management's current expectation with respect to future events or financial performance. Generally, the words anticipates, believes, expects and other similar words identify forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from 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 companies. The company cautions listeners to not place undue reliance on forward-looking statements or non-GAAP information. Before I turn the conference call over to our Chairman, I'd like to inform all interested parties that a copy of today's earnings release has been posted to our website at www.hotus.com. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. The release can be accessed by selecting the Investor Relations tab on our homepage and then the News tab. I will now turn the conference over to Gerald Rubin. Gerald J. Rubin: Thank you, John. And good afternoon, everybody, and welcome to our third quarter of fiscal year 2014 earnings conference call. During the third quarter, we continued our positive momentum, increasing consolidated sales revenue, operating income and adjusted EBITDA. I am pleased with how our team continues to diligently manage expenses in order to mitigate profit -- product cost increases, which resulted in a decline in our SG&A rate and increased operating profitability in the quarter on a year-over-year basis. We achieved diluted EPS of $1.16 and adjusted EBITDA of $60.5 million for the quarter ending November 30, 2013, an increase in adjusted EBITDA of 6% over the third quarter of the last fiscal year. Sales growth was led by our Housewares segment, which increased net sales by 10.3% in the quarter. Innovation and new product introductions drove good volume growth in kitchen tools and gadgets, baking, cleaning and dry food storage. Our products continue to generate strong sales and good ROI for our retail partners, which resulted in increased distribution as we [indiscernible] shelf space and assortments at several key retailers. We also saw continued growth in Internet sales and the expansion of the wholesale club business during the third quarter. Our Healthcare/Home Environment segment net sales revenue increased 4.8%, driven by better product mix and new product introductions supported by effective marketing. Our air purification product category contributed to net sales revenue growth for the quarter with a new line of high-end air cleaners featuring easy-to-clean permanent air filters introduced at the end of last fiscal year, new distribution this fiscal year and sales growth in Asia. Also contributing to growth were sales gains in our consumer and professional thermometry business, water filtration and humidification, driven by effective advertising and promotional activities, new products and new distribution. Our Personal Care segment continues to face a challenging and high-promotional retail environment, with net sales revenue decreasing 5.7% during the quarter compared to the third quarter of the last fiscal year. Operating income in the quarter rose 7.6%, as we were effective in lowering outbound freight and advertising. While domestic macroeconomic conditions have been slowly improving and, lately, we have begun to see indications of economic improvement in key Western Europe and Latin American markets, we remain cautious regarding the near-term business outlook. We continue to believe that consumers remain careful with their disposable personal income. Against that background, we continue to leverage our portfolio of leading brands for long-term growth by investing in innovation and new product introductions. In the Healthcare/Home Environment segment, we recently launched several new PUR products, including a new 11-cup pitcher that has grown our U.S. water pitcher business alongside our market-leading PUR products amounts [ph] and a new line of Honeywell TrueHepa air purifiers that we expect to further expand our longstanding #1 market position in the U.S. air purification. We have also launched the Honeywell Designer Series of humidifiers that began shipping in the fourth quarter of fiscal year 2014. In Housewares, we continue to have great success with our food storage line and have seen sales growth from introductions of new baking and bowl sets and new cleaning products. In our Personal Care segment, we have begun shipping several exciting new products in our grooming, skin care and hair care solutions product category early in the fourth quarter to a very good retail reception. For our long-term strategies, we have invested in the infrastructure necessary to support our current business, stage us for additional operating efficiencies over the foreseeable future and provide a platform for future growth. During this quarter, we began shipping out of our new 1.3 million square foot distribution facility in Olive Branch, Mississippi, and expect to complete the transition of our domestic Personal Care appliance distribution operations to the new facility on schedule in the first quarter of fiscal 2015 [ph]. We also have a 1.2 million square foot distribution center existing now in Southaven, Mississippi, giving us 2.5 million square feet in the area and the ability to continue to grow our business. I now would like to turn the conference call over to Tom Benson, our CFO, who will give you the financial highlights of the quarter and update you on our financial guidance for the fiscal year 2014. Tom? Thomas J. Benson: Thank you, Gerry. Good afternoon, everyone. I'd like to start my discussion by reviewing our third quarter of fiscal year 2014 financial results from this afternoon's press release. Net sales revenue for the third quarter of fiscal year 2014 increased 1.6% to a record $380.7 million. As Gerry mentioned, this reflects 10.3% growth in our Housewares segment, which consist of our OXO business. Please note that this included approximately $3 million of promotionally priced shipments that were moved into the third quarter of fiscal year 2014 based on order flow. These orders historically have shipped in the second quarter of the fiscal year. We achieved growth of 4.8% in our Healthcare/Home Environment segment, which consists of the Kaz and PUR businesses. As a reminder, last year's cold and flu season came early and was very strong initially. And as such, the fourth quarter sales of cold and flu-related products will face a difficult year-over-year comparison. Our Personal Care segment declined by 5.7% and was impacted by the difficult retail environment. Foreign currency negatively impacted consolidated sales of revenue by $1.6 million, which mostly affected the Personal Care segment. Consolidated gross profit was 38.8% of net sales compared to 39.6% in the third quarter of fiscal year 2013, reflecting increased promotional program costs, the negative effect of foreign currency exchange rates and product cost increases across all segments. Selling, general and administrative expense in the third quarter of fiscal year 2014 was 25.8% of net sales, a 130-basis point improvement over 27.1% of net sales in the third quarter of fiscal year 2013, as we continue to keep a tight rein on our expenses. The decrease primarily reflects lower media advertising cost, as well as the favorable comparative impact arising from a product packaging litigation expense recorded during the same quarter last year. These expense reductions were partially offset by higher incentive compensation costs. Operating income for the third quarter of fiscal year 2014 was $49.4 million or 13% of net sales, compared to operating income of $47.1 million or 12.6% of net sales in the third quarter of fiscal year 2013, representing a 40-basis point increase compared to the third quarter last year. Income tax expense as a percentage of income before taxes for the third quarter was 20% compared to 13.9% in the third quarter of fiscal year 2013. We continue to expect our effective tax rate for the full fiscal year 2014 to range between 17% and 19%. Net income for the third quarter of fiscal year 2014 was $37.5 million compared to $37.7 million, with the decline primarily due to the higher effective tax rate in the third quarter of fiscal year 2014. Now moving on to our financial position at November 30, 2013 compared to November 30, 2012. Accounts receivable were $279.7 million compared to $258.1 million, reflecting the year-over-year sales growth. Receivable turnover was 65.5 days, compared to 62.7 days at the same time last year. Inventory declined 5.4% to $289.9 million compared to $306.3 million. Total short- and long-term debt declined by $103 million to $215.4 million compared to $318.4 million at November 30, 2012. Stockholders' equity increased year-over-year to $1 billion compared to $890.3 million. Now I'd like to turn to our outlook for the fiscal year 2014. Fiscal year 2014, we continue to expect net sales revenue in the range of $1.29 billion to $1.32 billion and GAAP diluted EPS in the range of $3.13 to $3.23, which includes the noncash asset impairment charge of $0.37 per share recorded in the first quarter of fiscal year 2014. We expect adjusted diluted EPS to be in the range of $3.50 to $3.60, which is consistent with our previous guidance. Earnings guidance reflects the negative impact of the difficult retail environment, a normal cold/cough/flu season, product cost increases across all segments, an increase in noncash compensation expense for our CEO and an incentive compensation program for the Healthcare/Home Environment segment. We continue to expect capital expenditures for the fiscal year 2014 to be in the range of $40 million to $45 million, with approximately $33 million related to our recently completed 1.3 million square foot distribution center in Olive Branch, Mississippi. In summary, we continue to tightly control our expenses in order to mitigate product cost increases and improve our operating efficiency, while prudently investing in the future growth of our company. Our business continues to generate strong cash flow, and our balance sheet is solid, providing significant financial resources to fund our growth initiatives. Operator, we will now turn it over for questions. Thank you.

[Operator Instructions] And we'll go to Bob Labick with CJS Securities. Robert Labick - CJS Securities, Inc.: I wanted to start off with OXO. Obviously, a nice quarter, good growth. Even after you back out the $3 million you discussed on the call, it's, I think, 6% growth off a 10% comp. So maybe if you could just elaborate on some of the drivers there. And have you entered into a new category there yet? Or are there plans for a new category for OXO in the coming year? Gerald J. Rubin: Bob, we are going into a new category, but it won't be for another year. So the drivers I mentioned are in, actually, a lot of different categories because of new products and new distribution and the warehouse clubs, so that's what gave us the increase. But it's all in the categories that we currently are in, which is a lot of categories. Robert Labick - CJS Securities, Inc.: Okay, great. And then on the Personal Care side, your Q2-- fiscal Q2 sales were better than expected. Fiscal Q3 might have been a little weaker than we had looked at. Was there any similar kind of pull-through on either of those, or was this more timing of promotions or just the tough retail environment you discussed? Gerald J. Rubin: Well, it's probably all of the above, tough retail environment or promotions that may have been in one quarter the year before and now ended up in the other quarter. But we are very optimistic about the Personal Care business for the following year. We have a lot of new products that are just going to hit the market, and we hope to have a success with many of them. Robert Labick - CJS Securities, Inc.: Okay, great. And then on your guidance, you've obviously -- you're always, I guess, appropriately conservative in guidance in your tone. But now that it's only a quarter left, the midpoint represents, I think, maybe a 10% decline in earnings in Q4 year-over-year. Are there particular headwinds or risks that you see? Or is this just that you are not updating guidance at this time, or could you maybe elaborate on that? Thomas J. Benson: Well, Bob, as you know, last year, the first half of the cold and flu season was very, very strong. And that benefited last year's fourth fiscal quarter. The cold/cough/flu season, overall, ended up being normal. It had a weaker second half. This year, so far, even though the cough/cold/flu incidences are increasing, they're still below a normal level. So our guidance reflects a normal cough/cold/flu season. We're getting close to being halfway through it. And right now, it's a little bit below normal. The other thing is, as we've had throughout the year, we have higher incentive compensation costs that we'll need to absorb in the fourth quarter that we didn't have last year. And also, our tax rate has been running higher this year, and we've gone into that and explained it. Some of it has to do with the impairment and we took and then just what jurisdictions we're earning money in. Robert Labick - CJS Securities, Inc.: Okay. Last one, and I'll let others ask and get back in queue. On the last call, I think, Gerry, I think you mentioned that you would expect, in the next 6 months, I think you said last call, so we're only 3 months into it, but either an acquisition or a share repurchase or something. You obviously continue to produce significant amount of cash. I think you're below 1x levered now, which is very under-levered based on the cash and the consistency of your business. Can you give us an update on the acquisition environment or thoughts towards the repurchase? Gerald J. Rubin: Okay. We're always looking at ways to increase the -- enhance the shareholder value. And we're actually actively looking for acquisitions that meet our criteria. And as I mentioned before and mention it again, in the event that we don't find the right fit in an acquisition front, then we would consider the other options. But right now, we're still looking at some possible acquisitions.

And our next question will come from Steve Friedman with Wells Fargo.

You had mentioned, I think, Tom, regarding the health -- the cold and flu season. And last year, it came early, and this year, it seems like it's coming -- I got the impression that you thought it was still more towards normal than getting stronger. It seems like all the information and reports I'm getting should benefit your Healthcare/Home Environment or Kaz. Wouldn't that maybe show up... Thomas J. Benson: The incidences of cold and flu have been increasing over the last few weeks. But if you look at the trend so far through the season, it's still below a normal season, and it's significantly below last year. Last year, also, I mean, it had a very strong and it had a high peak, but it also fell quickly in the second half. We are not hoping to -- that people get sick, but if they do, it does help our business.

I understand. On the gross margin that you're looking at the 38.6% versus 39.6%, Gerry and Tom both, either/or. I realize that a greater portion of the products from Kaz are at a lower margin than the rest. Don't you still, though, have a target somewhere in the 40% GM range or target that? Gerald J. Rubin: Well, I'll answer part, and Tom can answer the other part. Yes, the increase at Kaz does lower our percentage, and that's always part of the mix. And then the other part is the product mix that we do sell. So I know it's a little bit off, but it isn't that much difference. And we try to make up the differences with new products, which we have a lot of, and so I'm optimistic that we can increase that BP amount.

[Operator Instructions] We will go next to Jason Gere with KeyBanc. Jason M. Gere - KeyBanc Capital Markets Inc., Research Division: I guess I have 2 questions. And I guess one's more near-term focused and ones longer-term focused. So the near term, I guess. Seeing your guidance today, obviously, was kind of refreshing when a lot of your retailers, I think, are preannouncing sales. So I know part of this is just the seasonality of your business, the sell-in and what you're seeing there. But is there any threat out there of destocking, whether it's in the Personal Care appliance side or even some of the other categories that you're in? Is there any risk right now? Because it seems like, within specialty retail, there is a little bit of caution out there. Thomas J. Benson: Jason, the retail community continues to be very cautious with managing inventory. I mean, there have been some large customers that have had well-documented challenges with inventory. From our standpoint, things have stabilized, but we do have some inventory challenges because, at times, we have out-of-stock situations at the retail shelf. So we're not aware of anybody that's going to take any big actions over the next few months. But some retailers that have January year ends, historically, we've had situations where they slow sales down -- I mean, sales purchases down as they get closer to the year end. But we haven't seen anything yet. Jason M. Gere - KeyBanc Capital Markets Inc., Research Division: Okay. No, that's good. And just with OXO, I understand, in your Q, you talked about the fourth quarter being kind of low to mid-single digit because of some, I think, promotional programs in the wholesale club business that won't repeat. But as you think about, maybe, over the next 2 years, obviously, this has been the growth story, at least until PUR and Kaz have kind of come in as well. But as it gets bigger, how do you see the, I guess, the growth trajectory of this business? Do you think mid-single digit is more of a sustainable trend? Or do you think this is something that might actually even slow down a little bit more? Thomas J. Benson: It -- I'd say mid-single digits is probably a good area. I mean, we do have a number of initiatives that -- looking at new categories. If those were to be highly successful, it could probably provide some upside. But OXO introduces a lot of new products every single year. They come out with very innovative things. And that's really the lifeblood, and they have a continuing program that they're working on to continue with innovative product introductions. Jason M. Gere - KeyBanc Capital Markets Inc., Research Division: Okay, that's good. And then, I guess the longer-term question I have is that, if you go back to fiscal 2011, your operating margins were near 15%. And today, I understand the mix impact of some of your acquisitions, but you're sub-12%. One, can you kind of walk us through -- I know you, on one of the prior questions, you talked about the gross margin, that there's still upside. Maybe if we could talk a little bit about SG&A, not necessarily this year or next year, as we kind of still continue to see some of the impact of the higher compensation expense. But where do you see the operating margin kind of playing out 2 to 3 years down the road? What's the true north -- the true normalized operating margin that you see kind of coming through for this company over the next couple of years? Thomas J. Benson: Well, I think our operating income for the first 9 months is 10% of sales. As we mentioned, we just opened a new warehouse, and we have 2 major warehouses in Mississippi. After we finish our movement between the warehouses, both warehouses are going to have available capacity. We have some available capacity in that. A portion of our SG&A is variable, with sales. I mean, it's -- we have royalties, we have freight, we have commissions. So those kind of move with sales up or down. And then the rest of our SG&A is, I call it, it's semi-fixed. We can get some leverage out of it, and then we add chunks on at different times. So I think we can continue to grow the business, and the fixed portion, we have some more leverage left in it. That 10% has some cost in it for incentive purposes that we don't perceive a couple years out, as you spoke about. So we see that the operating income will be north of 10%. Jason M. Gere - KeyBanc Capital Markets Inc., Research Division: Okay. So is your aspirational goal to kind of get back to fiscal 2011, that margin? Thomas J. Benson: I don't have it in front of me. I don't know if you said that was 15%. I think that's -- that would be a stretch right now. We've bought businesses that have a lower operating income contribution. We are working hard to improve those. Jason M. Gere - KeyBanc Capital Markets Inc., Research Division: Okay, great. And then the last housekeeping, and then I'll pop off. So the tax rate this year, you're saying, obviously is impacted by the impairment charges. So how should we think about modeling tax rate going forward? If you just assume -- and look, I'm sure there's always going to be an impairment charge here or there. It's not a perfect world. But would that tax range come back down towards 15 -- I mean, I know it won't go back down towards where it was pre-Kaz. But can you just give a little bit of semblance? Because, as we build out our models for next year and thereafter, I think that would provide a lot of clarity. Thomas J. Benson: We haven't finished our budgeting for next year. I mean, there was some unusual items that impacted taxes this year. Without going into -- having all the final details, I mean, it's my anticipation that tax rates will definitely be below this year. And so I would be modeling 15% to 17% or something. We have a number of initiatives we're working on that will have a favorable impact on taxes.

With no further questions, I'll turn the call back to Gerald Rubin for any additional or closing remarks. Thomas J. Benson: Gerry, do you have any closing remarks? Gerald J. Rubin: Can you hear me? Because my speaker was out. Thomas J. Benson: We can hear you now. Gerald J. Rubin: Okay, great. Well, I just wanted to thank everybody for being on the conference call today. And we're looking forward to updating you on our business at the end of the fourth quarter, which is the next time we have conference call this fiscal year. And so thank you for your interest, and thank you for calling in.

Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. You may now disconnect.