Helen of Troy Limited Aktie

Greetings and welcome to Helen of Troy Limited's second quarter fiscal '27 earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anne Rakunas, Senior Director, IR and Corporate Communications. Thank you. You may begin.

Thank you, Operator. Good morning, everyone. Welcome to Helen of Troy's second quarter fiscal '27 earnings conference call. The agenda for the call this morning is as follows. I will begin with a brief description of forward-looking statements. Scott Uzzell, our CEO, will then share his thoughts on progress in the quarter. Brian Grass, our CFO, will provide an overview of our financial performance in the second quarter and our revised expectations for the full year fiscal '27. Following our preparedness, your remarks will open up the call for Q&A. This conference call may contain certain forward-looking statements that are based on management's current expectations with respect to future events or financial performance. Generally, the words anticipates, believes, expects, and other similar words are words identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results different materially from the actual results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information. Before I turn the call over to Scott, I would like to inform everyone that a copy of today's earnings release can be found on the investor relations section of our website by scrolling to the bottom of the homepage. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. We've also posted an investor presentation to our website. Now, I'll turn the call over to Scott.

Thank you, Anne. Good morning, everyone. Thank you for joining us. When we spoke in July, I shared that we were focused on strengthening the critical fundamentals of our company. We continue to make progress to become a better Helen of Troy, on the road becoming a bigger Helen of Troy. Our Q2 results reflect continued execution against the priorities outlined in our multi-year roadmap. Our Q2 sales were in line with our outlook, and our adjusted diluted EPS came in ahead. But as I stated over the last several quarters, our recovery will not be linear. In fiscal '27, we are squarely focused on demonstrating markers of progress that set us up for sustained and repeat strong performance over many years to come. It's about brand growth, driving sales growth through discipline, investment, and brands and categories where we believe we have a clear path to win. It's about marketplace execution, realizing the value of our brands through premium positioning and strong market execution to continue strengthening our gross margin. And it's about balance sheet productivity, paying down debt further. We're pursuing these priorities through three foundational pillars paired with continued balance sheet discipline. We continue to execute against all these areas. We are two quarters into our plan to making a better Helen of Troy, and we are making progress. The operating environment continues to be dynamic, but I truly believe what we need to do to reach our aspiration is in our control. We are encouraged by what we see across several areas of the business. I want to highlight a few Q2 examples. We grew sales year over year across all three Home & Outdoor brands. Osprey led growth again this quarter, reflecting strong consumer and category performance. New product introductions, continued improvement in our international distribution network. OXO benefited from targeted access to improve inventory composition, net distribution gains, and new product introductions. Hydro Flask was aided by targeted actions to improve inventory composition, new product innovation, and partial recapture of tariff-related disruption within the corporate channel. Wellness Group, driven primarily by growth in Vicks and Braun, reflecting net distribution gains and lapping tariff-related items and new product introductions. Olive & June produced another solid quarter, reflecting strong consumer demand, higher replenishment orders, and new and expanded distribution. In the rest of beauty, new product innovations are contributing to sales, although some brands continue to experience softer demand. We know we have more work to do on our commercial execution and demand creation to fully capitalize on our opportunities. International is another bright spot, with sales growing 3.7% in the quarter, led by Hydro Flask, OXO, and Osprey, reflecting new products, expanded distribution, improving execution in select markets. Our new distributor in Australia is one of our examples of a more agile go-to-market approach we discussed last week. Importantly, in terms of North American point of sale, beauty and wellness showed noticeable improvement in Q2 relative to our longer trends. reflecting continued strength from Olive & June and Braun, along with improving trends across several of our more pressured businesses, including Revlon, Hot Tools, Honeywell, and Curlsmith. The first half of the fiscal year we generated free cash flow of $38 million. And as of August, we improved our net leverage ratio to 3.0 times, down from 3.5 times at the end of Q1, continuing our multi-quarter trend of debt reduction. We also made progress normalizing our channel inventory, with aggregate retail inventory coverage for our brands improving compared to a year ago. We continue to address pockets of elevated inventory for certain brands within select channels. That improvement reflects targeted closeout and liquidation efforts to clear slower moving stock. This is the kind of discipline execution we mean when we talk about editing and amplifying our highest impact priorities. focusing our resources where we see the greatest opportunity to strengthen our brands and improve our performance. As I mentioned last quarter, our work continues to be guided by three pillars. Consumer first innovation. commercial operational excellence, and people and culture. Under consumer-first innovation, we're becoming more deliberate about our products and platforms we prioritize. Across the portfolio, we're focusing resources on the most differentiated consumer opportunities and supporting those opportunities with the right distribution, inventory, and media plans. In Home & Outdoor, OXO expanded its entry into pet category this quarter. After a limited release launch during Prime Day, the full line officially launched across all channels in August. This was supported with a fully integrated campaign across media, digital, e-commerce, influencer sampling, and experiential events. to build awareness and connect with pet parents. Osprey is also expanding further into travel with the launch of the Ozone Hardside. It's an ultra lightweight four-wheel luggage collection that brings Osprey's expertise in lightweight, durable design to the largest segment of the travel market. These are great examples of further extending brands and attractive adjacencies. with additional products and expanded distribution opportunities. Microhydro continues to perform well driven by wider retail placement and more sizes. The brand recently launched new innovations including lunch totes, bags and soft coolers, and limited editions daydream bottle, if daydream bottle and lunchbox collection in time for back to school. In beauty and wellness, I'm excited about PUR's latest industry milestone this quarter, becoming the only water filter certified to reduce lead, microplastics, and total PFAS in both pitcher and dispenser format, addressing three contaminants that consumers say concern them most in their drinking water. Olive & June continued to strengthen its cultural relevance with its first exclusive influencer collaboration at Ulta Beauty, partnering with the digital creator Avery Woods to bring fresh, trend-driven offerings to consumers. The brand also celebrated its 10th Allure Best of Beauty Award, with its gel mani system earning the prestigious honor for the second consecutive year, reinforcing Olive & June's leadership and at-home nails. Olive & June continues to be a great addition to the Helen of Troy portfolio. Innovation is just the first step. We must sharpen the full commercial process around it. That brings me to the second pillar, commercial and operational excellence. I have shared our intent to be closer to our consumer and move with the speed of the marketplace. We are making this a reality. Last quarter I introduced our new general manager structure. As we fill these roles, we're moving the strategy and decision making closer to the consumer, the brand and the marketplace. We've made progress establishing that structure during the quarter, including putting currently plan leaders in place and clarifying accountability and creating closer alignment around our growth priorities. While this work is still in the early stages, we're seeing benefits from faster decision-maker and greater cross-functional collaboration. Over time, we believe this structure will strengthen our ability to respond to changing market conditions and improve execution across our portfolio. We are already seeing early evidence of this in our Home & Outdoor business, where sales and brand teams are working more closely together, evaluating distribution, customer relationships, and capacity earlier in the product development process. This closer alignment is also accelerating how we share consumer and retailer insights to further improve the development process and respond quicker to promotional programs. We continue to sharpen our pricing, promotion, channel management, digital shelf, retail media, and demand planning capabilities, meeting consumers on a modern shopping journey through stronger omnichannel capabilities. We're using current point of sale and inventory signals to update our assumptions more quickly. Our incremental investment is more selective with clear expectations of measurable results. This discipline is particularly important in the current environment. I am pleased how our teams are managing through geopolitical cost and supply chain challenges, with the impact we anticipated largely tracking in line with our expectations. Our third pillar is people and culture. Building stronger companies starts with building a stronger organization. Throughout the year, we continue to simplify how we operate, strengthen ownership, and ensure our teams are focused on opportunities with the greatest potential for creating to create value. As a part of that work, we recently appointed a new leader for our beauty and wellness business. This is an important step in strengthening our leadership and accountability within this segment as we work to build on improving trends we're seeing and accelerate the actions needed across the brands where we still are working to stabilize performance. We are also continuing to cascade our culture work throughout the organization, helping create a common set of behaviors, expectations, and ways of working that support our strategy and position us for long-term success. I am encouraged by the focus, urgency, and collaboration I see across the organization. To bring it all together, Q2 was another step in our journey to become a better Helen of Troy before becoming a bigger Helen of Troy. continued balance sheet productivity, alongside the progress we've made across the portfolio, gives us more flexibility to keep investing in our brands and position our company for sustained long-term growth. Our priorities for the rest of the year are clear. Accelerating the brands showing the strongest consumer momentum, building on improving trends across beauty and wellness, and taking targeted actions where performance remains under pressure. We know there is more work ahead, but I believe we have the right talent and strategies in place and we will continue to invest with discipline and execute with focus.

With that, I want to turn it over to Brian. Thank you, Scott, and good morning, everyone. Our second quarter was another step in the right direction with results at the better end of expectations reflecting improving business fundamentals and continued progress against our strategic priorities even as we navigate a challenging environment with a lot of moving parts. Sales were in line with our outlook, while adjusted diluted EPS, adjusted EBITDA, and free cash flow were ahead of our expectations for the base business. which does not include the net benefit from tariff refunds. On the subject of tariff refunds, our results for the second quarter include gross pre-tax tariff refunds of approximately $26.9 million. As stated last quarter, we intend to reinvest a large portion of the gross tariff refund benefit back into the business. After reinvestment, we realized the net pre-tax benefit of approximately $4 million and an after-tax diluted EPS benefit of approximately $0.12 using our estimated annual adjusted effective tax rate. Our outlook for the full year now includes a gross tariff refund benefit for the full amount of IEPA tariffs paid of $80.5 million, as well as our intended reinvestment in the range of $66.5 million to $70.5 million, leaving an estimated net pre-tax benefit in the range of $10 million to $14 million, and a net benefit to diluted EPS in the range of $0.30 to $0.45. In our earnings release and the investor presentation posted to our website this morning, we are providing the net tariff benefits separately from our base business for the second quarter and intend to do so for the remainder of the year. It's important to note that while tariff refunds are providing a fiscal '27 benefit that we are largely reinvesting. We have not been made whole from the cumulative tariff impacts to our business. We've paid tariffs that have not been refunded. We've incurred operating and capital expenditures to diversify our supply base and absorb longer lead times. certain revenue bases disrupted and not fully recovered and we've incurred higher interest expense on the cash tariff outlay. We are also experiencing product cost inflation due to escalating gas and diesel prices, commodities, currency and supply scarcity. Despite the overall disruption in the environment and the unfavorable impact to our revenue and cost structure, we continue to view the refunds as an opportunity to improve the health of our business, and I'm proud of the organization's agility to mobilize thoughtful and disciplined investment in a very short period of time. In the investor presentation, we've included a slide that illustrates the nature of the investments we intend to make for the full fiscal year. Turning to financial highlights for the second quarter, consolidated sales increased 2.1% in line with our outlook. For Home & Outdoor, sales increased 9.2% with growth across all three brands. For beauty and wellness, sales declined 4.5%, reflecting growth in wellness and nail care, which was more than offset by a decline in the remainder of beauty. Consolidated gross profit margin increased 800 basis points to 52.2%, reflecting the favorable impact of tariff refunds, net of higher tariff costs. doubling approximately 560 basis points, and lower overall retail trade and promotional expense year over year. These factors were partially offset by inflationary product cost pressures due to commodities, fuel prices, freight, currency, and supply scarcity, and less favorable inventory obsolescence year over year. SG&A ratio increased 540 basis points to 46.4%, primarily reflecting our stated intention to reinvest tariff refunds. as well as base business investments in the organization, go-to-market structure, and brands. The increase also reflects higher packaging costs related to legislation enacted by several U.S. states and foreign geographies to reduce single-use plastics and establish regulatory requirements. which include programs designed to transfer the cost of packaging disposal from municipalities to producers of consumer packaged goods. While we expect this to be a continuing trend, we intend to use tariff refunds as an opportunity to offset some of our initial disposal costs, but more proactively to take a fresh look at our packaging and design it to be more environmentally friendly and more appealing to our consumers and retailers. Finally, SG&A includes divestiture litigation costs related to the divestiture of our North American personal care business that occurred over five years ago. For a further description of these costs, please refer to today's earnings release. Adjusted EBITDA increased $13.2 million and adjusted EBITDA margin improved by 280 basis points, primarily driven by the favorable impact of tariff refunds, net of higher tariff costs, lower overall retail trade and promotional expense, and the impact of favorable operating leverage. Partially offset by an increase in personnel expense, higher packaging related costs, inflationary product cost pressure. trace marketing expense and less favorable inventory obsolescence expense year over year. Due to strong cash flow and a cash benefit from net tariff refunds, we are ahead of our debt pay down expectations at this point in the year, contributing to an interest expense decrease of $3.3 million. Our GAAP effective tax rate was 66.4% and our adjusted effective tax rate was 34.1%. primarily due to an increase in tax jurisdictions with losses, which are excluded from the estimated annual effective tax rate calculation per U.S. GAAP. We expect our tax rate to normalize in the remainder of the year, resulting in an estimated adjusted effective tax rate of 24% to 27% for the full year. Moving on to balance sheet highlights and free cash flow performance, inventory ended at $480 million, a $49 million decrease from the same period last year. We also improved the health of our inventory, increasing the overall percentage of active inventory by seven percentage points during the first half of the year. We reduced our total debt to $673 million at the end of the second quarter. A reduction of $221 million compared to the same period last year and $108 million since the beginning of the fiscal year. Our net leverage ratio decreased to 3.0 times compared to 3.5 times at the end of the first quarter, well ahead of our original target for this point of the year. Cash flow from operations was $56.5 million and free cash flow was $38 million for the first half of the year. Turning to our full year fiscal '27 outlook, we are narrowing the range of our net sales expectations slightly to $1.768 billion to $1.822 billion, with Home & Outdoor net sales of $851 million to $876 million. and beauty and wellness net sales of $917 million to $946 million. We are maintaining our adjusted EBITDA expectations for the base business of $193 million to $196 million and raising our consolidated EBITDA expectations to $203 million to $210 million to reflect the estimated net pre-tax tariff refund benefit in the range of $10 million to $14 million. We are slightly narrowing our adjusted EPS expectations for the base business to a range of $3.30 to $3.70. and raising our consolidated adjusted EPS expectations to a range of $3.60, reflect the estimated after-tax net tariff refund benefit in the range of $0.30 to $0.45. We are raising our free cash flow expectations to a range of $120 million to $140 million. While increasing our planned capital expenditure range by $9 million. A revised consolidated full-year outlook reflects the estimated unfavorable impact from product cost inflation and potential supply disruption largely driven by the conflict in the Middle East. Management's view of continued inflationary pressures, including escalating fuel and diesel prices, higher interest and mortgage rates, softness and discretionary categories, and conservative retailer inventory management in an increasingly competitive and promotional landscape. Our plans for a higher concentration of foundational and longer term tariff refund investments, for which we do not expect an immediate return. and an assumed return on shorter-term investments offset by pressure on the consumer and overall price elasticity, as well as the assumed impact of increased investment from the competitive set. And an increase in estimated diluted shares outstanding to 24.2M for the full year and 24.5M for the second half of the year, primarily due to the increase in share price. In terms of quarterly cadence, we expect net sales in the range of $478.3 million to $504.5 million for the third quarter of fiscal '27. In terms of adjusted EPS, we expect a higher net tariff refund benefit in the third quarter as we expect the remaining IEPA gross tariff refunds of $51.8 million be fully recognized in the third quarter, while a portion of our planned strategic reinvestment is expected to fall in the fourth quarter, which will affect lift third quarter adjusted EPS and compress fourth quarter adjusted EPS. As a result, for the third quarter fiscal '27, we expect consolidated adjusted EPS in the range of $2.05 to $2.40, which includes a net after-tax tariff refund benefit in the range of $0.66 to $0.77, and applies adjusted EPS for the base business in the range of $1.39 to $1.63. In closing, we believe our second quarter results demonstrate continued progress, but they also reinforce the need to remain disciplined and appropriately cautious in a very dynamic environment. We are encouraged by the performance of our strongest brands, as well as improving fundamentals across the balance of the portfolio, continued international growth, and the effectiveness of our sourcing and supply chain mitigation actions. We're also encouraged by the progress we've made to improve the health of our inventory through the first half of the year and are targeting a 12 percentage point improvement in our active inventory composition by the end of the year. we believe sets us up for success in fiscal '28. We were ahead of schedule in terms of debt pay down due to strengthening cash flow and we now expect a net leverage ratio of 2.7 times or lower by the end of fiscal '27. At the same time, we see opportunities for more consistent performance across our portfolio, and we have meaningful work ahead to stabilize our more pressured brands, rebuild the organization, and further strengthen the underlying earnings profile of the business. We will continue to allocate our resources toward the highest priority opportunities to feed the flywheel while maintaining flexibility to adjust as demand conditions evolve. Our focus remains on delivering consistent results, further improving working capital efficiency, and building the capabilities required to support sustainable growth over time. And with that, I'll turn it back to the operator for Q&A.

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. [Operator Instructions] Today's first question is coming from Peter Grom of UBS. Please go ahead.

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

Hey, Peter, good morning. This is Scott and team. Good to hear from you. I'll just step back and I'll answer your question around the consumer. You know, as I've always said, and we continue to believe that that 80% of our opportunity is really the things that we control within our building and 20% are the things that are happening around the world and around the consumer. I'll start with us a little bit. We shared that we're focused on three fundamental phases of building our business. Phase 1 in FY '27 is getting our foundation right, which is around investing in our brands, standing up an operating model that makes us closer to the consumer and the marketplace and driving pro balance sheet productivity. focused on right now and that's kind of agnostic to the consumer. We believe that's about making a better Helen of Troy. As we look at the work that we've done in Q2 and Q1 and year to date, we continue to invest in our brands. We're focused on building our commercial muscle, commercial discipline muscle to execute in the marketplace, upping our ability to execute as a company, and driving balance sheet productivity, all of which we've made some progress in quarter two. 20%, the part that's outside of the realm of Helen of Troy, I do believe the consumer is under pressure, whether it be fuel prices, interest rates, just the cost of living for the middle market consumer, specifically in North America, it's definitely more challenging this year than it was last year, but for companies deliver amazing innovation that tell great stories and execute well, the consumer is still showing up. I also will say from a retailer standpoint broadly, it's definitely a much more promotional environment than it's been in the past, but it's one that um that we believe that we can continue to compete in. Brian, anything you want to add?

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

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

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

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

Thank you, Peter.

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

Hi, good morning. Thanks for taking our questions.

Good morning, Bob.

Hi. Yes, I wanted to discuss, can you talk about, I guess, specific to Helen of Troy, right, your brands, you know, your volume and pricing in the quarter, and then kind of category demand where you're gaining share and losing share. And then I guess, finally, you know, what does it take to get consistent growth in beauty and wellness going forward?

I'll kick off on there. So I'd say this. You asked the first part was, you know, where are we gaining share and where we see strength? I can tell you where we see strength. We definitely see strength in many pockets of our Home & Outdoor business, specifically OXO and Osprey. We see strength in our Olive & June, our nail business. We see strength in our Braun business and many categories that we have. From a beauty and wellness standpoint, it's a complicated category that's a prestige as well as a, Mass business at the same token. But what I'd say, here are the steps that we're taking. If I step back to FY '27, I know you and I spent time together, that we're focused on getting the fundamentals right across our business by showing you markers of progress. And as markers of progress really fall into four buckets, how do we begin to drive brand momentum? Because I fundamentally believe a better Helen of Troy is one that's built where brands are growing. Second, how do we drive better commercial discipline? That's how we show up in the marketplace and follow the consumer shopping journey. How do we execute our capabilities across our enterprise better and more seamless? And then how do we drive balance sheet productivity? As we were two quarters into FY '27 and two quarters in to kind of our comeback. We're making progress, but it's not even across our whole portfolio. As you can see in our performance, whether it be our Home & Outdoor did have a very strong quarter. We have several brands within our wellness portfolio that advanced. We had our international business make an advance. But when we get to beauty and wellness, which I believe I have aspirations for in the future. We're focused on a couple things. Getting the right people leading the business. We've made some critical changes there and I'm excited about the team that we have in place. Second, the strategy. We've got some good work going on in strategy on how do we participate in the market and engage both prestige and mass in the right way. Next, how do we pull new product development forward so we can bring it in front of the consumer at a more rapid pace? And then lastly, how do we bring omnichannel capabilities to market so that the consumer can follow us in the journey? All of those are under construction. I knew this year was going to be still a continued challenge year for our beauty business, um, but I I can tell you we're doing the work to set ourselves up for the future.

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

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

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

Yes, Bob, I kind of view it as investment and expression I often use, putting problems behind us. if there were things that in the past with organic business that were harder to digest, I view tariff refund benefit as an opportunity to digest those costs, put it behind us, things like cleaning up inventory, the packaging. we can pull things forward, things that we had on the roadmap that we already know that we need to do, if we can pull them forward into this tariff refund period, that's what we're trying to do. And then there's all the things Scott was talking about, brand investment and even a creating content. You know, you can phase that out over time, or you can kind of pull that forward and do it in a period and get that out of the way, and then you've got your content developed and you can go forward with it. So, you know, I kind of think of it as, it is an investment and it's traditional and you get an ROI and all that kind of stuff, but I also try to think of it view it as trying to be clean going into fiscal '28. We want our inventory to be clean. We want to pull forward as much cost as possible so that we don't have to bear the cost in fiscal '28. So there's a blend that we tried to break it into kind of four buckets of what we call foundational investment. That's just investment that you need need to do before you can do kind of the high return media spending. You gotta have your foundation correct and that's relates to consumer insights and things like that. Growth strategy, we invested in our growth strategy as a part of this. And so the weight of the two buckets that won't have an immediate return are kind of the foundational bucket and the longer term bucket on the slide that I think we do get a huge benefit for and set us up for success in fiscal '28, but aren't going to provide an immediate return. And then there's kind of the. of a near-term bucket that will have a fiscal '27 ROI and that's about 25% of the spend and then the remainder goes to pre-tax earnings. But that's kind of how we tried to bucket the spend and it's a lot of investment, but it's also a lot of putting problems behind us.

Great. Appreciate that. Thanks very much.

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

Great, thanks. Good morning. I want to unpack the revenue outlook a bit. The guide implies growth deceleration in the second half Home & Outdoor, but some improvement in the rate of decline on beauty and wellness. So can you talk about what drives the reversion, sort of reversion to the middle outlook of the backroom outdoor rate of decline. mean on both and then specifically on Home & Outdoor. You saw growth accelerating Q2, but you lowered the full year outlook. So can you talk about the drivers there? And then just lastly, a key competitor for Hydro Flask outlined long term targets recently, um, which I'm sure you saw, made the high single digit sales, higher in margins. So if you think about the long term opportunities for Hydro Flask and your drinkware business. What do you think about the, what's your view on the growth of the category and then your ability to, capture that. Thanks.

This is Scott. Thank you. I'll take a quick part and then Brian will tag team it. You know, I'd say this first from an outlook standpoint. Let me just, it's a lot here. So basically this, I go back to that this year was about building markers of progress for our company and doing trying to get the foundational elements right. And we're leveraging tier-free funds and really the hard work and the discipline of this team to be sharper on fewer things to drive more impact in the marketplace, all intent that we know a healthy Helen of Troy is one that's built where brands are growing and winning in their categories. We know that that is not evenly spread across all brands, but we're making progress there. That's kind of one. Two, from an outlook standpoint, when I think about the balance of the year, and we're two quarters into kind of our transformation, it's a multi-year plan. And then I look at the state of the consumer. And when I say state of the consumer, I think the consumer will continue to pursue great innovation, great products, great marketplace. But I believe that there are more wins in the consumer's face than there were a year ago versus wins at their back, whether it be fuel, interest rates, just running their lives. That as I think about, A, where we are in the states of our transformation and our comeback, as well as to say to the consumer, it's one of let's continue to do the basics to build our business and continue to drive markers of progress against commitments we've made to the marketplace. That's kind of been our focus. The next double click around the insulated beverage category, specifically Hydro Flask, I still have really, really really high confidence in Hydro Flask, and high confidence in that team. What I can tell you as we focus on in FY '27 and FY '28 for that brand, it's really around, how do we talk to the consumer that loves the brand, that calls it the OG of the category, that believes that the brand identifies with them from an inclusivity standpoint from about that we know there's a following there. So how do we story tell and connect with that consumer and that team's doing work to make sure we're driving the right marketing message? Second, we're innovating within the category to bring new news like Microhydro and many other products that are relevant to that category to make sure that we continue to hold our premium position, but making sure we're bringing we're bringing new news to the category. And then third, which I think is the most significant unlock, is moving to adjacencies where we can take the brand that's already connected with a following to other parts of other needs that build on the ethos of Hydro Flask, not only for today, but for the future. And that work is underway.

Yes, Libby, I'd add on to that with respect to the slowdown in Home & Outdoor sales in the second half, or not slowdown, but the change in our outlook. The beverage wear category as a whole is a little bit saturated, and we see that environment becoming promotional. We wanna maintain our positioning and to another competitor that is putting out long-term outlook for high growth. I think that's because they've been able to maintain the positioning and we want to be able to try and do the same thing. So we won't participate so much in that promotional environment and because of the saturation that we see, it'll put pressure on our second half. We also see some inventory correction needed in the channel in the beverage category. And so that will we're hoping that will play out in the second half of the year and that we're in a cleaner position going into fiscal '28. And then with respect to better beauty and wellness, as we've been saying, we've been seeing improving trends in particular in the wellness part of the business and that's playing itself out in us raising our outlook a little bit. We've got some strengths that is building in the wellness part of the portfolio.

Great. Thanks, guys. Appreciate it.

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

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

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

platform. OK, great. And then I guess just in beauty and wellness, maybe if you could talk about kind of the puts and takes for top line growth in the back half versus what you saw in the first half and then just on the prestige beauty side and hair tools. How are you thinking about kind of like that sequence of punch all trajectory? Are you starting to see, you know, sales improve at least sequentially? And, you know, when do you think you could kind of get an inflection in the category? Thanks.

This is Scott. You know, I always like to step back. When I stepped back six months ago and I looked at FY '27, and at that point I was six months into my job. Um, I knew that we have a lot of opportunity across our portfolio. And as we approach FY '27, as I talked about in the past, that um, I knew there were categories and brands that I felt like were We're ready for kind of fully funded growth plans for FY '27 because the consumer's ready, the team is ready, the pipeline's ready, let's go to market. And we made those investments. Then we had a group of brands in the middle that we probably wanted to fund higher, but we said they're ready to move forward, but still we can't do it now. everything and we funded those. And then in the beauty business specifically, we knew this year was going to be a challenging year. We know that we've got new people on the business. We've got a new product pipeline we're trying to pull forward. We were still working on our storytelling and we're preparing ourselves for the future. So, um, you know, we, we definitely will be, we want to do better where for our beauty business, but we expect this year to continue to be a challenging business. Um, Brian, like.

Yeah, I just add that in kind of the prestige part of beauty, it's up against some closeout noise in the prior year where we had some specific activity that was pretty lumpy in the prior year. So that's driving a little bit of the decline. We are seeing improving trends, even though the results are not where we want them to be. We're seeing some inventory. improving trends in the POS data. And then if you kind of look at mass beauty, We're assessing whether we need to recalibrate on some pricing, in particular in Revlon. And so we think that's going to help the performance there when we get that right. And then we're really happy with wellness. We're happy with where wellness is going and the trends there. And I would say we're really, really happy with Olive & June.

OK, great. Thanks so much. Good luck this holiday season.

Thank you. Thank you.

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

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

This live transcript is auto-generated without human intervention or review.

Greetings. Welcome to Helen of Troy Limited's First Quarter Fiscal '27 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

At this time, I'll turn the conference over to Anne Rakunas, Director of External Communications. Thank you, Anne. You may now begin.

Thank you, operator. Good morning, everyone. Welcome to Helen of Troy's First Quarter Fiscal 27 Earnings Conference Call. The agenda for the call this morning is as follows: I will begin with a brief discussion of forward-looking statements. Scott Uzzell, our CEO, will then share his thoughts and areas of focus; and Brian Grass, our CFO, will provide an overview of our financial performance in the first quarter and outline our expectations for the full year fiscal 2017. Following our prepared remarks, we'll open up the call for Q&A.

This conference call may contain 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 or words identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.

Before I turn the call over to Scott, I would like to inform all interested parties that a copy of today's earnings release can be found on the Investor Relations section of our website by scrolling to the bottom of the homepage. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. We've also posted an investor presentation to our website.

And with that, I will now turn the conference call over to Scott.

Good morning, everyone. Thank you for joining us. When we last spoke, we laid out our ambition to be a better company on the road to being a bigger company. Today, I want to share our progress on being a better Helen of Troy. We are focused on getting closer to the consumer, sharpening business -- how we run our business, we're starting to see early evidence we're making progress. Our quarter 1 sales results came in ahead of our expectations across both our business segments. Our margin EPS performance reflects deliberate investment in brands, innovation and people as we focus on building more consistent, durable enterprise, not just a quarter or 2 of improvement.

While we're encouraged by a solid start to the fiscal year, we remain clear eye. This is the first year of a multiyear road map. One we laid out for you in April at our April earnings call, we're focused on the work to be done to make Helen of Troy reach our potential. The long-term lens is particularly important as we continue to navigate a dynamic operating environment. The consumer remains under pressure, and we're managing through a more volatile cost environment. We're taking disciplined actions to balance near-term margin pressures while positioning the business for the long term. As we've said before, we cannot control the macro, but we can control how we execute within it. And while we're executing well and where we're executing well, we are winning. Our North America POS, they track channels. We saw consolidated growth year-over-year, concentrated in Braun, Osprey, OXO, Olive & June.

On a sequential basis, compared to fourth quarter, trends improved in key areas with the biggest improvement in Beauty & Wellness. Some brand callouts include Osprey's daylight and transporter expandable travel packs that deliver consumer-relevant solutions seamlessly converting from a personal item to an airline approved carry on. This is differentiated innovation over-delivering against financial targets and driving meaningful share gains. OXO successfully extended the brand's award-winning performance and intuitive design into the high-growth pet category with a range of new products spanning feeding bowls, stands, mat, storage solutions, presenting the brand to capture incremental demand and expanding adjacent categories. Braun blood pressure monitors launched a NAS channels last fall. They combined medical-grade accuracy with simplicity. They are outperforming plans and stand out as the only product in the category gaining share, the world's largest mass retailer based in the U.S.

And Olive & June launched an out of this world collaboration with Star Wars, the Mandalorian and Grogu, bringing consumer collectibles, exclusive and culturally resonant products that elevate the brand and drive engagement at scale. These results reflect a simple point. Brands that deliver meaningful innovation and meet real consumer needs can continue to win even in a more cautious spending environment. But as we said last quarter, fiscal '27 is about restoring momentum by focusing on editing and amplifying the priorities and actions of the enterprise by directing our time, capital and attention towards the highest impact opportunities.

Our actions are guided 3 pillars: first, consumer first innovation; second, commercial and operational excellence; third, our people and culture. As we reenergize the organization, we want to ensure that we have the capabilities to win. Our approach is intentional. We're focused first on strengthening operational discipline and improving how the business runs before we lean more fully in the broader brand acceleration. In Q1, we've made meaningful progress against these priorities that form key elements of our 3 pillars: making our consumer-centered offense reality, going from the abstract to how do we make this real. And it's about how we organize and what we do every day.

First, we're targeting how we run the business, fewer priorities, clearer choices, more consistent execution against the things that matter most. A key step in executing our strategy is how we are evolving our operating model. We are reshaping the organization to move closer to our consumers, putting the energy, the inertia, the focus of decision-making closer to our consumer marketplace. This is about building brands and products that deliver utility and style. This is how amazing brands are built and create magical connections with their consumers. This can only happen when leaders live in the cultural space and life for the consumer so they can take consumers to new places.

Our new Helen of Troy office will enable this to be a cornerstone of our company of the future. Under this model, we've designated 5 dedicated segment general managers, each of full ownership of the brand portfolio, including strategy, innovation, commercial execution and business results. These roles are a mix of internal leaders stepping into expanded roles as well as recruiting external talent, external count to broaden the capabilities of the organization, a deliberate combination that gives us both continuity and fresh perspective without materially increasing our operating costs. We've also formalized 3 geographic or geo general managers roles to stitch and accelerate brand development beyond the North American borders. It's strategic, it's intentional and focused brand building in the right global markets to better leverage our strong international structure that's already in place.

The result is dedicated leaders who live and breathe a focused consumer segment or marketplace rather than balancing competing priorities across multiple brands. We expect this will free up our segment presidents do what they do best, clear the forest for strategic growth by scaling enterprise solutions, advancing cross-portfolio opportunities and shaping our long-term strategic agenda. We believe this result in a company closer to the consumer with sharper ownership, faster decision-making and the leadership firepower to unlock full potential of our brands. This is a natural next step in the operating model evolution we described last quarter. Second, we're strengthening the fundamentals of our commercial and operational execution. We've identified clear priorities to operate with greater discipline, and we are moving quickly to address that.

This starts with pricing discipline. Our previous pricing actions now in place across our major brands are largely holding in the market, though we continue to monitor retailer consumer response in select areas where elasticity has been higher than expected. Related focus is improving the quality of our revenue, being more deliberate about our product and channel mix, reducing exposure to lower-margin channels and shifting towards higher-value products and customers. We are also bringing greater consistency to how we price and promote ensuring we drive demand in ways that protect brand value. At the same time, we are improving alignment across sales, marketing and product with a sharper focus on higher-impact products and our most important customers. At its core, this work is about bringing greater control and consistency to how we operate across channels and with our customers.

In parallel, we're strengthening the core capabilities that enable consistent execution. In e-commerce, we are bringing greater discipline to how we show up across channels, starting with pricing alignment and improving marketplace dynamics, including addressing third-party sellers to create a more consistent presence. We're also continuing to improve our digital shelf and retail media effectiveness, areas where we see meaningful opportunity. In demand planning, we're in the early stages of building a more connected approach to forecasting, improving how we link demand signals, promotional plans and inventory decisions. And while we're doing all these things every day, we're maintaining a disciplined approach to capital allocation and balance sheet management as we strengthen the foundation of the business.

Lastly, we're making progress and how decisions get made. We are simplifying processes, reducing unnecessary complexity and pushing decision-making closer to the consumer in marketplace. As a result, we are already seeing faster decision-making across the organization. Our brand teams are collaborating more closely on incremental distribution opportunities. Our marketing and product teams are actively deploying test and learn model to try new tactics and measure results before scaling. These changes are fostering a more efficient operating model with clear ownership, one that enables us to act with clarity and control. At the same time, we're continuing to invest our time and resources and growth. Our approach is disciplined. We're targeting areas where we have a clear right to win and where the returns are compelling.

A really good -- or a great example of this is in our international business. We plan to accelerate growth by evolving how we go to market leading into a more agile hybrid model that pairs strong local partners that know the market with direct consumer engagement with our brands. It's a more flexible approach in helping us move a lot faster, execute better and build stronger connections with consumers as we scale in specific global markets. We'll share more about this later this fall. We're being delivered in these investments and certain that we're aligned with the near-term priorities and our ability to execute. So as we look ahead, our focus remains on execution on giving you visible markers of progress. We'll have more to share in the coming quarters.

To bring it all together, we're encouraged by how the year is starting and the progress we're seeing. Our focus now is staying disciplined, building consistency and continuing to get better at how we operate. Execution will drive the rest of the year, delivering great problem-solving products, moving on key commercial priorities and managing through cost volatility. We've still got work to do, but we're headed in the right direction, and we're building on a strong foundation to unlock full potential of our portfolio and drive more consistent long-term growth.

With that, I'll turn it over to Brian.

Thank you, Scott, and good morning, everyone. We believe our start to fiscal '27 is another step in the right direction with net sales and adjusted EPS above our expectations, driven by disciplined execution across the organization and improving business fundamentals. I'm encouraged by how we are navigating a dynamic operating environment and addressing margin pressure from heightened geopolitical and supply chain disruption, which I will cover in more detail shortly.

Overall, the quarter reinforces the initial progress we are making as we transition to a growth-first model while maintaining a prudent and disciplined approach to investing back into our business and mitigating supply chain volatility. Turning to the financial highlights for the first quarter. Consolidated sales increased 8.2% favorable to our expectations. Note that our Q1 sales results benefited from approximately $4 million to $5 million of favorable order phasing driven by the earlier timing of Prime Day. For Home & Outdoor sales increased 9.5%, with broad-based growth across all 3 brands. Osprey was the strongest performer with growth driven by improvements in our international distribution network and e-commerce momentum. OXO benefited from lapping prior year tariff-related disruption, strong point-of-sale trends and expanded brick-and-mortar distribution.

Hydro Flask growth reflects expanded retail distribution, inventory optimization and e-commerce momentum. For Beauty & Wellness, sales increased 7%, reflecting growth in both Beauty & Wellness. Our Wellness portfolio outperformed expectations driven by growth across Braun, Vicks, Honeywell and PUR, driven by lapping prior year tariff-related disruption, solid point of sale and expanded distribution. In Beauty, Olive & June led the way with strong growth supported by expanded distribution, continued innovation and strong consumer engagement. These gains were partially offset by continued softness in some of our core beauty brands, reflecting ongoing point-of-sale pressure and pricing elasticity impacts. International sales increased 1.1% for the quarter.

Growth was driven primarily by Osprey's improved distribution network and broad-based strength across the wellness portfolio, partially offset by softer consumer demand in Kitchenware and hair appliances amid a competitive retail environment. Our margins and profitability were largely in line with our expectations with adjusted EPS and EBITDA results, reflecting the execution of our growth first model that reinvest the majority of overperformance back into the business. We recognized a pretax benefit of $1.8 million for Phase 1 tariff refunds that we estimated to be collectible as of the end of the quarter, which contributed to adjusted EPS ahead of expectations.

I'll share more regarding tariff refunds when I cover our outlook for the remainder of the year. Consolidated gross profit margin decreased 110 basis points to 46%, reflecting the net unfavorable impact of tariffs a less favorable inventory obsolescence impact year-over-year and a less favorable customer mix within Home and Outdoor. We expect the first quarter of fiscal '27 to have the most year-over-year gross margin compression from tariffs due to higher rates still cycling through cost of goods sold and minimal tariff impact in the same period last year. SG&A ratio decreased to 31% compared to 45.1% in the same period last year, primarily driven by a pretax gain of $55 million from the sale of a distribution facility that we disclosed in April, partially offset by higher investment in our people year-over-year.

Adjusted operating margin decreased 30 basis points to 4%, reflecting the unfavorable impact of tariffs and higher investment in our organization and go-to-market structure, partially offset by lower outbound freight and favorable operating leverage. Moving on to balance sheet highlights. Inventory ended at $467 million, a $17 million decrease from the prior year despite approximately $15 million of incremental tariff costs in inventory. We reduced our total debt by $716 million as we used the proceeds from the sale of the distribution facility to lower outstanding borrowings. Our net leverage ratio decreased to 3.48x compared to 3.87x at the end of the fourth quarter. Free cash flow was slightly negative in the quarter, primarily due to cash used for tariff payments annual incentive compensation payments and higher cash taxes, partially offset by an increase in cash earnings.

Turning now to our full year fiscal '27 outlook. We are raising our net sales expectations slightly to $1.759 billion to $1.831 billion, with Home & Outdoor net sales of $859 million to $884 million and Beauty & Wellness net sales of $900 million to $947 million. We are maintaining adjusted EBITDA of $190 million to $197 million which implies year-over-year growth of 2.1% to 6.3%. We are maintaining adjusted EPS of $3.25 to $3.75 and we are maintaining free cash flow of $85 million to $100 million while increasing our planned capital expenditure range by $2 million. Our full year revenue outlook reflects our first quarter performance, partially offset by retailer order pull forward of approximately $4 million to $5 million out of the second quarter due to the shift in Prime Day timing as well as revenue risk from expected supply disruption largely driven by the conflict in the Middle East.

Our adjusted EBITDA and EPS outlook now reflects the pretax benefit of Phase 1 tariff refunds now estimated to be approximately $9.2 million but that benefit is more than offset by the expectation of cost inflation for the remainder of the year. The higher costs are being driven by increases in commodity inputs and pressure from unfavorable Chinese lawn fluctuations increased inbound and outbound freight expense and higher cost of secured goods to avoid supply disruption. Some of this pressure was building before the conflict in the Middle East, but the heightened geopolitical and supply chain disruption has exacerbated the impact we are now expecting.

We are not assuming any benefit from future tariff refund phases at this time since we can't reliably predict when those refunds might be received or whether they will ultimately be collected. We are preparing to file claims for the second phase of tariff refunds, which was just announced on June 29. When we are able to get enough clarity on the timing and collectibility, I expect that we will include future phases in our outlook. We have paid $71 million in EPA tariffs that were not included in the Phase 1 refund process. While we expect that future phase refunds could provide some upside to our current earnings outlook, we are developing plans to reinvest a large portion of the P&L benefit back into our business as well as increase our capital expenditures on key product development and commercial initiatives with the expected cash flow benefit.

In terms of quarterly cadence, we expect first half year-over-year sales growth in the low to mid-single digits with a low single-digit decline in the second half of the year. Due to the cadence of people and brand investment and higher average tariff costs cycling out of inventory and into cost of goods sold in the first half of fiscal '27. We now expect roughly 20% of our total annual adjusted EPS outlook in the first half of the year with roughly 15% in the second quarter, consistent with our previous outlook. In closing, while the operating environment remains challenging with increasing inflationary pressures, softer and more selective discretionary demand, cautious retailer behavior and elevated promotional intensity. We are taking deliberate actions to position the business for improved performance and deliver reliable results. We continue to prioritize targeted investments in our brands and capabilities to position us for growth the store operating leverage and build long-term momentum.

While we make plans to use additional potential tariff refund benefits, the feed the flywheel even further and mitigate expected inflationary pressure on our supply chain. Our continued focus on working capital efficiency and balance sheet productivity supports both strategic investment and operational flexibility. We continue to evaluate opportunities to enhance financial flexibility and concentrate our resources on our core business as we advance in our next phase. And with that, I'll turn it back to the operator for Q&A.

[Operator Instructions] And our first question comes from the line of Bob Labick with CJS Securities. .

Congratulations on a good start to the year. So just kind of starting off with what, Brian, with you just finished up with a little bit of kind of cadence and guidance there. Can you just maybe expand a little bit upon when the tariff refunds may hit the P&L if you think about that? And just -- and the drivers of the kind of, I guess, low single-digit declines in the second half revenue that you've talked about, which is consistent with what you said last time as well.

Yes. And just to clarify the second point, Bob, when I referred to low single-digit decline for the second half, that refers to the midpoint of our range. I failed to say that when speaking but that is the intent. Then to kind of go back and get to your question about tariff refunds and cadence, we don't totally know because the process while it's defined in terms of what to do to submit refund claims and there's a general rule that within 90 days, you should get claims approved. It doesn't totally follow -- there's doesn't appear to us that there's a pattern that we can reliably depend on. But what I would say is this is the first phase, which is about $7 million remaining yet to be selected. I would expect that the bulk of that would be collected within our second quarter. Then that leaves future phases.

And really, we haven't even submitted our Phase II claims yet. And then we know we're going to have some claims that fall out of Phase II and will fall into potentially a Phase III or a Phase IV. So I do see that the tariff refund benefit getting spread out over a period of quarters. I do think that potentially we could have some even fall into fiscal '28 probably won't be hugely meaningful. But I do think that, that is possible at this point in time. And I actually like the fact that the cadence is being spread out a little bit is not concentrated in 1 quarter because that gives us the ability to better execute the reinvestment back into the business. If it's all in 1 quarter, it's very hard to match up the spending with the benefit if it's spread out over a period of time, I think we can really do well to invest to benefit and improve the health of our businesses. So that's kind of our view of the potential cadence. I know it probably doesn't give you much more in terms of specifics, but it's kind of the best information we have. And if there's questions about reinvesting that, happy to take those questions.

Yes, actually, that was exactly where I wanted to go with that. Obviously, you saw some nice recovery and good sales growth in the quarter. And part of what you've been talking about particularly last quarter and I think even a little before is reinvest in the business to get growth versus cut to get higher earnings. And so maybe talk a little bit about where are you seeing now that you've had a little more time to look into it or explore it or whatever you want to call it where are you seeing the best opportunities for reinvestment to get kind of near-term growth, what brands and what areas offer the best opportunities for reinvestment?

Bob, this is Scott. I'll take the first part and then Brian can finish it off. Thanks, Bob. I'd say this, just to be consistent with what we talked about last quarter is that we know a healthy Helen of Troy to make us a better Helen of Troy is built on healthy brands. And so we're focused really in 5 areas maniacally. An agile operating model, which is really investing in talent and how we stand up getting our folks closer to the consumer. I'll talk more about that. investing in strategic innovation against many of our brands that are ready to connect with the consumer, investing in omnichannel acceleration, making sure we've got the right capabilities to work brick-and-mortar, online as well as in between.

We've been standing up work in our supply chain, how we make and move product around the world. And then I just recently was over in Asia, spending time for our international team on what's the right markets going forward to be short -- fewer markets that are more sharper the right business model to execute investment in other parts of the world. So it's really around brands, innovation and people. That's what we're focused on as we go to more growth forward approach in 2027. Brian, you may add.

Yes. The only thing I would add is the intent is also to mitigate any cost inflation that's above and beyond what we've assumed in our outlook currently. We have made an attempt to capture our current view of what that is and that's already baked into the outlook that you have to the extent that it's worse than what we currently estimated, we would use part of the tariff refund benefit to mitigate those extra costs. That's not our preference in our base plan. Our base plan is to use it for reinvestment, but it is there as a buffer as well. Thank you.

The next question is from the line of Peter Grom with UBS.

Great. I guess I just wanted to get some perspective on the revenue outlook. I think Brian, you kind of gave some commentary around the pull forward around Prime Day, which makes sense. And I think you also made a comment around revenue risk from expected supply disruption. So can you maybe just unpack that a bit? Is that just conservatism given the current environment? Or is that something you have a reasonable line of sight into?

Brian, let me take the first part, and I'll let -- you can pay it off. I think as we look at our enterprise, we're focused on the things 80% that we believe we can control, which is investing in brands, people and new product innovation and getting back to growth. But think about the external factors that are out there, whether it be continued inflationary pressures, softness in discretionary categories, retailers in the marketplace in general, being just much conservative as they wait buy. These are things that are not just for us. This is everybody in the category. We're just -- it's just we live in an uncertain world. But Brian, I don't know if you want to talk more about the way we cadence the revenue throughout the year. But we're confident in the work that we're doing inside the building to make sure we're better [indiscernible], but we have a lot of concerns in the long term. We just have -- are cautious around what's happening around the world that we deal in. Brian, any adds?

No, I agree with all of that. And just to do the math on kind of if you say we beat expectations by $25 million in the first quarter, the -- there's $5 million approximately, that was pulled forward out of Q2. So I think factored that into the equation. We flowed through 10, so that is about 15 in terms of potential supply risk that, to your point, we do have line of sight to. And up until yesterday, I would say things are moderating and starting to look better, and that's a conservative estimate. But now you have the things that happened last night where there's probably going to be more disruption.

So I think it was intended to be a conservative estimate of the potential supply chain. And it's -- look, it's 2 or 3 pinch points where we may have scarcity of supply and will we be able to get access to that supply. It's not like it's a massive amount in the system. So it's really 2 or 3 pinch points or being -- we're trying to be conservative and hopefully appreciate that as volatile. I mean, 1 day, 2 days ago, I would have said things are moderating, but up until last night, things going in the other direction. And so I'm glad that we embedded a conservative point of view into our outlook.

That's helpful. And I guess I wanted to go there next. I mean, I guess going back to April, right. I think -- and I know some of this was not included in the guidance, but there was some thought around the benefit from tariffs would kind of largely offset input costs. And I know Phase 1 refund is coming through. But -- and I hear you, yes, in the last couple of days are starting to move the other way, but it would appear from our perspective that relative to where we were in April, that costs are lower. So can you maybe just provide some context around what's embedded from the outlook from a cost standpoint? And just given how volatile how we should be monitoring that as we think about the balance of the year?

Yes. Not to give you specific amounts, Peter, but what we said was -- so there was a tariff fund benefit that we are now capturing in our outlook, and that's about $9 million. We said that the cost that we're estimating is more than that, more than offsets that. And so not to give you a specific amount, what we've assumed is something greater than the $9 million of tariff refund benefit. And we've kind of found a way to offset the amount that's more than the tariff refund. So that's our current view. And look, you got to understand it takes time for some of that to bleed through -- the total cost of this inflationary pressure will be higher than that greater than $10 million number, but it takes time for that to cycle through cost of goods sold. And so that's why it may be smaller -- please go ahead, I'm sorry. .

No, I was just going to say probably just to clarify, like would -- if I were to include the other phases of the tariffs, would that be more than enough to offset the inflation? I think that's how I originally interpreted to comment back to April. Rather not just the phase 1.

Yes. In terms of impact of fiscal '27, I would expect if we're able to collect all of the tariff refunds that we are do that the tariff refund benefit would be greater than the inflationary cost pressure. Yes, that's a reasonable assumption.

The next question is from the line of Olivia Tong with Raymond James.

I wanted to talk a little bit about the price mix impact on the quarter and then your assumption for the year. clearly, a tough consumer backdrop and given the level of promotion in your categories, what's your level of confidence that you can hold the current levels of pricing that you've pushed through what you're embedding in terms of the promotional backdrop for the rest of the year and how you think about the phasing of margins over the course of the year as a result of that.

Olivia, I'll take the first part. The thing about it is from a pricing standpoint, as we shared in prior quarters, it varies by brand and category. But for the most part, we feel like 80% of where we wanted to get pricing we were able to pass it through, and we're competing in those markets. We'll always continue to monitor that, make sure that whether it's competition, what's going on in the marketplace or what's going for our retailers, we have the right to adjust, but at this point, we had to flow that through to offset the work of the negative impact of tariffs a year ago. Brian, do you have anything you want to add?

Yes, I would just add that we do have -- our overall point-of-sale dollar growth, we do have overall point-of-sale dollar growth across the portfolio. And in certain areas where we took price there's a divergence between dollar share growth and POS growth, which I would say is in line with our expectations. We built elasticity assumptions into our outlook and assume that there would be a high level of elasticity. And I would say that the dollars are doing better than what we originally assumed in terms of performance in light of the price increases. But as Scott said, it's something that we're going to continue to monitor, and we may adjust over time. Currently, we feel good about our pricing situation. But like in areas where units are down, we want to continue to stay on top of that and say, do we have the right price mix. And so it will be something that we continue to evolve or stay on top of. But currently, we think we're in a good position.

Got it. And then just following up, the updated sales line, I appreciate the color that you gave, the quantification you gave to Peter's question. But it does assume pretty flattish sales for the next 3 quarters after a nice bump in Q1, realizing, of course, a piece of that is a pull forward. But that being said, can you talk about your confidence in the recovery path from here? Clearly, I assume you want to do better than flattish. But could you maybe talk also about what underlying category growth expectations you have embedded in your outlook and the path forward in terms of any new product introductions that could potentially improve the sales cadence from this point forward.

Sure. I can take that. So it's important to think about the comparison when you think about the sales trajectory for the remainder of the year. And why Q1 would be the highest sales performance in our expectations because the compare is so low and there was so much tariff revenue disruption in the first quarter and first half of the year. So that kind of moderated in the second half of last year. And so there's less disruption to recapture. And so that's why the growth rate decelerates in the remaining 3 quarters. And you asked about level of confidence, we've not stretched in terms of any assumptions like you mentioned, category expansion or anything like that.

We've kind of kept current state with respect to that and are really using current POS trends to project the remainder of the year, which I think is the right thing to do. So that's how we're thinking about that. And then we layer in, as you mentioned, new innovation, new distribution, things like that, that are known and that we have line of sight to. And so we feel like it's a very supportable forecast that we think we can deliver on. Does that answer all the parts of your question? I think you had a couple of different things in there. I want to make sure I got everything.

No, that's great.

Our next question is from the line of Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on the sales cadence. And then I think you guys had mentioned you guys had some expanded distribution in home and insulated beverages. I guess I was curious where that was at and what channels? And then also just in general, the core sales without the pull forward and the increased distribution, I guess, did you see kind of like growth in existing channels?

Brian, I'll take off. It's a great question. I'd say this, what you'll see across from an outdoor -- that team has been really focused on a couple of things. What's the right level of investment against brands so that we make sure we're connecting for our core consumer in this dynamic operating environment, bringing relevant innovation that not only is in the core categories they're in, but enabling them to also go into adjacent spaces, and we're continuing to focus on great storytelling to connect with the consumer. And what we're seeing across Home & Outdoors, it's not only landing as with distribution in the current channels that we're in with either more SKUs or more different types of products, but it's allowed us to expand in different places without me going into specific partners, but it's allowing us to continue to grow our distribution and other partners within Home & Outdoor. Brian, I don't know if you have anything to add as well as around the sales cadence for the year.

Yes. And just on the distribution question. in home, it's Walmart distribution, that expansion that's driving it. And then we're also seeing good growth on Amazon part of that due to the prime day shift. And then on Hydro Flask, the distribution expansion is with DICK'S Sporting Goods, and then we also had a target planogram reset and then we're also seeing good momentum on e-commerce as well supported by Amazon. So those are kind of the distribution drivers there. Did I get everything on the question? Was there something else?

Yes. No, that was great. That's helpful. And then I guess maybe just in Beauty, I think you talked about all of in June, driving that growth and then some of the wellness products as well. But I guess just in terms of the other core beauty brands, I believe they're still down. But I guess, are you seeing that trend line improve at all sequentially? Are you seeing, I guess, the declines moderate as you kind of move forward?

Yes, I can start and Scott can build. We're still not where we want to be if you look at the rest of that. If you take Beauty carve out all of the June from Beauty, we're still not where we want to be, but we do see some bright spots in terms of trend line improving with respect to POS. So not where we want to be, but we do see indicators that say we're doing some of the right things and the POS is starting to move in the right direction.

Okay. Great. And then maybe if I could add just one last one on the model. Just SG&A going forward, I guess, as you guys continue to look to maybe invest more in the brands, like how are you thinking about that investment? And then also as the SG&A cadence.

The -- how I would think about it is we kind of have a base plan that just assumes Phase 1 tariff refunds of the $9 million that we have embedded in our outlook in that base plan investment is increasing 40 bps. That stayed consistent with our original outlook, and we're carrying that forward. So we would look to maintain that at a minimum and then any overperformance, not any, but a large portion of any overperformance would then be reinvested in terms of increasing the SG&A based on the overperformance. And then you have the plan that reflects tariff refunds where, as I mentioned, we want to reinvest the bulk of the tariff refund benefit.

So it's hard to really tell you what that looks like from a margin perspective and dollar perspective because we kind of don't know yet what the tariff refund cadence will be. But we want to reinvest the high proportion of whatever that tariff refund benefit is. And we know that we have $70 million EPA tariffs that we paid that we believe should be subject to tariff refunds at some point in time over the next several quarters. And so we'll be looking to deploy, again, the bulk of that in our Plan B, as I'll call it, when we're able to get visibility on when we'll be able to collect those. So I hope that helps. We're sticking with our 40 basis point increase in the base plan. And then when we get the tariff refunds, we'll be looking to amp that up significantly can't tell you exactly what the margins will look like, but hopefully, you've got enough direction.

At this time, I'll turn the floor back to management for closing comments.

Yes, I want to say thank you very much for spending time for us this morning. As we talked about, we're off to our races around a 3-phase road map to growth. This year is about putting markers on the board and getting back to restoring brand momentum, standing up a new operating model, which we'll share more about in detailed comments and continue to focus on balance sheet productivity. Thank you for spending time for this morning. Have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.

Greetings, and welcome to the Helen of Troy Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference call over to Anne Rakunas, Director of External Communications. Thank you. You may begin.

Thank you, operator. Good morning, everyone. Welcome to Helen of Troy's Fourth Quarter Fiscal '26 Earnings Conference Call. The agenda for the call this morning is as follows: I will begin with a brief discussion of forward-looking statements. Scott Uzzell, our CEO, will then share his thoughts and areas of focus; and Brian Grass, our CFO, provide an overview of our financial performance in the fourth quarter and fiscal year and outline our expectations for the full year fiscal '27. Following our prepared remarks, we will open up the call for Q&A.

This conference call may contain certain forward-looking statements that are based on management's current expectations with respect to future events or financial performance. Generally, the words anticipates, believes, expects and other similar words are words identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not place undue reliance on forward-looking statements or non-GAAP information.

Before I turn the call over to Scott, I would like to inform all interested parties that a copy of today's earnings release can be found on the Investor Relations section of our website by scrolling to the bottom of the homepage. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures. We've also posted an investor presentation to our website, which contains additional information and perspective on our results and outlook.

And with that, I will now turn the conference call over to Scott.

Thank you, Ann. Good morning, everyone. It's great to be with you as we close FY '26, and I can begin to outline a look to our future. We finished quarter 4 with a sharp focus on execution. We're determined to be a better company on the road to being a bigger company. And we're going to do this through ruthless focus and disciplined execution. Focus, discipline and execution best characterize our exit out of FY '26 and quarter 4. Net sales exceeded expectations and adjusted EPS was in line. Margins reflect our strategic investment as we made deliberate choices to invest in our brands and our people to position our organization for the future.

This progress caps a dynamic year, one in which we took action to address both internal and external challenges by implementing organizational changes necessary to move closer to the consumer, prioritize brand health and win in the marketplace. Internal ownership is driving our reset. We're committed to operating Helen of Troy more effectively by removing complexity, editing our priorities and amplifying our actions for impact. Operating rigor and supply chain and demand planning resulted in year-over-year inventory levels that were essentially flat even as we absorbed significant higher tariffs in our inventory.

Tariff mitigation was paramount, utilizing supplier diversification, SKU streamlining and pricing actions to protect our margins. Debt reduction continues to be a priority, driven by strong free cash flow and a successful post-quarter divestment of our Southaven, Mississippi distribution facility. We drove operational clarity by moving decisions closer to the consumer, empowering brand level ownership and enabling our teams to move with the speed of the consumer. As I have stated, our current situation was not created overnight, and our recovery will not be instantaneous. However, we're taking a measured approach to building our future.

Before we or I discuss our fiscal '27 plans, I want to be direct about the market we are navigating. We've made progress, but we are in tune with the macro environment. Overall sales trends reflect a volatile market. While our Home & Outdoor business held steady, our Beauty and Wellness business felt the pressure. The flu season didn't really happen. Respiratory and fever rates stayed well below average, which meant that fewer shoppers need to restock our wellness products. Retail inventory is finally stabilizing. Most retailers are back to healthy stock levels and are working through any residual pockets of excess. We can't control the macro challenges, but we will be intentional in our actions in service of brand and consumer. We are winning where it counts.

Consumers are being selective on where they spend, but brands that deliver innovative products that make consumers' lives better through style, utility and personalization will continue to win in the marketplace. Our innovation is landing. We see sales trends improving as we launch new products that offer real solutions. And we're taking market share. Even in this environment, brands like Vicks, Braun, OXO, Osprey, Olive & June are standing out as leaders. The challenges we navigated in fiscal '26 were a catalyst for change, providing the necessary clarity of where we must invest and where we must simplify. To achieve this, we're executing a multiyear road map, a 3-phase evolution from stabilization to a portfolio of powerhouse brands.

Fiscal '27 begins with Phase 1. This is about restoring brand momentum, driving our growing brands faster and rebuilding top line momentum for our declining scale brands. We will take the abstract concept of focusing on the consumer to action, making the consumer-centered offense real in FY '27. And we'll do that through the following critical actions: powering our portfolio. This is about editing and amplifying our brand-building efforts by using a framework to identify the highest return brand investment opportunities.

Two, futures capabilities. We have to skate to where the puck will be by investing in capabilities to leverage our consumer insights to inform a trend forward innovation road map. Three, strategic investment remains a priority -- remains a priority as we put capital behind innovation in brands and people. Four, operationalizing consumer-centered decision-making by placing talent and decisions closer to the consumer and marketplace for speed and execution. Five, modernizing operations is a parallel priority, strengthening our digital foundation, building a baseline in AI, elevating our e-commerce presence and upgrading our advanced planning systems to drive greater supply chain visibility and responsiveness. And then sixth, platform level improvements to our operating engine will continue as we stabilize the enterprise for long-term growth.

Three pillars will fortify our plan. Our first pillar, consumer-first innovation. This is centered on accelerating product development and modernizing our global reach through high-impact social and digital storytelling that resonates across our global footprint. In Home & Outdoor, we're expanding brand reach by entering product lines where our brands are resonating with consumers and have a clear right to win. At Hydro Flask, in response to strong consumer demand for a wider variety of use cases, we extended our successful Micro Hydro franchise with 2 additional sizes.

We also recently launched a new carryout soft coolers and totes, redesigned for improved comfort, performance and longevity. Hydro Flask's legacy continues to be recognized by the industry with the wide mouth awarded Gear Junkie's overall pick for best insulated water bottle of 2026. OXO is expanding in adjacent categories in food storage and feeding in the second half of the year, bringing OXO's award-winning performance and ease of use in high-growth areas where we see significant opportunity. OXO's successful Rapid Brewer continues to achieve accolades, winning best new product release in 2025 during the 17th Annual Sprudgie Awards, which is considered the Oscars of Coffee among other recognition we've received.

And Osprey continues to augment its technical pack offerings, providing outdoor enthusiasts with new pack solutions that excel in hiking, backpacking and travel environments. In Beauty & Wellness, innovation remains a primary driver for brand building and consumer relevance. Our new Revlon VersaStyler launched exclusively at Walmart in the first quarter with really early consumer demand exceeding expectations. Priced below $100, this is an all-in-one tool that delivers meaningful time-saving innovation by taking hair from wet to damp to dry and refreshed without the need for multiple attachments.

Curlsmith expanded its portfolio with the new Curl Fit Reviving Mist, a unique alternative to a traditional dry shampoo. While Olive & June introduced new press-ons with hand-painted charms and fresh spring colors. I'm so proud to share that beauty brands continue to receive top industry recognition, including multiple Glamor 2026 Best of Beauty Awards for Olive & June, Revlon and Drybar. Vicks and PUR have several new introductions planned in the coming months as we continue to leverage these trusted brands to deepen our consumer relevance.

In international, strategic global expansion is a critical priority. We're accelerating our global reach as a key investment in our operating model to lay the groundwork for durable and long-term growth. For online engagement, we're sharpening our execution. Social commerce is increasingly important connection point for our consumer. We will advance our work across platforms like TikTok Shop and Meta Shop to meet our consumers where they are, and digital experience is receiving significantly more rigor to ensure our online presence matches our premium nature of our brands.

Our second pillar, commercial and operational excellence, prioritizing critical capabilities to grow our strategic retail partners. We're strengthening digital marketplace capabilities, including catalog and product page management and third-party seller mitigation. Our U.S. club business development efforts are focused on building long-term multi-brand partnerships. We're modernizing our technology and systems by prioritizing core platform upgrades, data and analytics, automation and AI-enabled solutions. We're investing in advanced planning capabilities to improve forecast accuracy and optimize inventory performance. And we're continuing to make targeted investments in Southeast Asia to strengthen our dual sourcing capabilities.

Our final pillar, people and culture, is reenergizing our organization and ensuring we have the right capabilities to win. Like culture relaunch is establishing a brand-led model, reengaging our current teams as we transition toward a new era of ownership mindset and impactful execution. Talent infusion is a parallel priority we're thoughtfully investing in high potential talent internally and attracting new talent externally to provide fresh ideas and modern brand-building skills to drive our future. AI workflow evolution is augmenting our team's ingenuity. We're investing in hands-on training to automate routine tasks, allowing our people to focus on creative storytelling and innovation that wins with the consumer.

Fiscal '27 will be a pivotal year of restoration as we align our organizational architecture and pivot back towards growth. Our outlook reflects our focus on restoring top line performance while operating with excellence across our enterprise. Our net sales outlook reflects growth in outdoor as we work to stabilize Beauty and Wellness. Adjusted EPS and profitability targets are grounded in disciplined investment framework, allocating capital to high ROI initiatives that strengthen long-term brand health. Free cash flow generation remains a priority, supported by ongoing work to drive working capital efficiencies and continued debt reduction.

Phase 2. Phase 2 is about concentrating and catalyzing during year 2 and year 3. We're prioritizing high-velocity scale potential brands to ensure capital and resources behind the categories and regions where we have the biggest right to win. Active portfolio management is designed to ensure capital is deployed where it generates the highest return. But to that end, portfolio optimization is an ongoing process as we prioritize capital and resources toward high-growth categories where we have the greatest right to be successful. A fortified shared service platform empowers our brand teams to spend 100% of their time on what's visible against product, storytelling and consumer experience.

Phase 3 is about building and scaling during year 4 and 5. We plan to shift our full weight behind a concentrated portfolio of leadership brands that demonstrate a clear positioning and shared capabilities, expanding on sourcing, governance, international reach to create a durable growth and sustainable value creation model. We plan to pursue strategic portfolio expansion through high-impact acquisitions of both brands and specialized capabilities that leverage our enterprise scale. We plan to prioritize expansion into high-growth adjacencies as we utilize our platform to become a global leader in consumer-first innovation. We plan to support $1 billion brand category leadership goals by deeper organizational alignment, internal engagement sessions scheduled for later this spring. More detailed long-term initiatives in our specific multi-year road map will be shared later this calendar year.

To bring it all together, we believe fiscal '27 marks a turning point for Helen of Troy as we enter our first year goal of restoring our competitive edge. We want to be a better company on the road to being a bigger company. We're methodically deploying digital and data-driven capabilities that bring us closer to the consumer and accelerate our speed to market. Grounded in our do fewer things better mantra, I am confident our teams are aligned to deliver high-velocity execution required to restore long-term growth, and we will win.

Now I want to pass it over to Brian to walk you through our results and outlook in more detail.

Thank you, Scott, and good morning, everyone. Our fourth quarter results are a step in the right direction with net sales, adjusted EPS and cash flow at the better end of our expectations, demonstrating the focus and resilience of our associates. Their stewardship is rebuilding the necessary momentum as we transition to a growth-first mindset in fiscal '27. Looking more broadly at the year, our performance reflects continued progress on a number of commercial and operational initiatives. While these actions did not fully offset external pressures in fiscal '26, they have built the foundation for product-driven growth that we are prioritizing in the year ahead.

During the year, we made tangible progress on several fronts.

One, portfolio focus. We leaned into innovation-led growth with multiple new launches, as Scott mentioned, and more to come in fiscal '27.

Two, tariff management and dual sourcing. We've strengthened our supply chain, which is helping to mitigate the impact of continued geopolitical uncertainty. For the full fiscal year, gross unmitigated tariffs had a $51 million impact on gross profit. Through a disciplined combination of SKU prioritization, cost reductions, price increases and supplier diversification, we successfully reduced the net operating income impact to less than $30 million for the fiscal year and our diversified cost of goods sold subject to China tariffs to approximately 30% by year-end. We currently have the capacity to dual source approximately 45% of our annual product volume. We expect this figure to reach approximately 55% by the end of fiscal '27, further mitigating our supply chain risk.

Three, operational fundamentals and go-to-market. Beyond supply footprint diversification, we focused on strengthening the fundamentals of our execution. This included improving our go-to-market effectiveness, sharpening our focus on our brands, putting them at the center of our commercial execution and strategy. By leaning into innovation for more product-driven growth, we are ensuring our supply chain and sales teams are aligned to support our strongest and highest margin brands.

Four, pricing integrity. Last quarter, we chose to temporarily stop shipments in Beauty & Wellness to support consistent pricing adoption. I'm pleased to report we have resumed shipments in almost all of these instances, and I'm grateful for the collaborative partnerships we have with our retail customers.

Turning to the financial highlights for the fourth quarter. Consolidated sales decreased 3.3%, favorable to our outlook. The impact of our pricing actions and the contribution of Olive & June partially offset the year-over-year decline from tariff-related revenue disruption and lower core business volume. Home & Outdoor segment sales declined 1.5%, ahead of our expectations. OXO and Hydro Flask were ahead of plan and Osprey contributed solid year-over-year growth. OXO benefited from good point of sale at value customers and replenishment at mass. Hydro Flask benefited from the success of recent product launches and also saw strength in the closeout channel as we improved our inventory composition.

Osprey's growth was primarily driven by the e-commerce channel, their continuing stream of new products and expansion into adjacencies and the clearance of end-of-season goods through the outdoor channel. Beauty & Wellness sales decreased 4.7% with approximately 2.8 percentage points driven by tariff-related disruption. Revlon, Olive & June and Braun were the standouts in the quarter. Revlon outperformed our expectations, driven by continued strong point of sale at Walmart and Target and a solid contribution from international. Olive & June saw organic growth in its business of 18% and contributed 4.9 percentage points of growth to total segment sales, driven by effective digital grassroots marketing, new product introductions and strong brand loyalty and consumer engagement.

Olive & June has been a great addition to the Helen of Troy portfolio, strengthening our profitability and outperforming valuation metrics. And Bronze saw solid performance in EMEA and APAC, driven by early flu incidents in those regions, order timing shifts and strong replenishment. International sales grew 5.4%, surpassing our expectations with strong point of sale, expanded distribution and new product innovation. Gross profit margin decreased 400 basis points to 44.6%, primarily due to the impact of higher tariffs, less favorable inventory obsolescence than in the prior year, higher retail trade and promotional expense and a less favorable channel mix within Home & Outdoor. These factors were partially offset by the favorable impact of the acquisition of Olive & June and lower commodity and product costs, exclusive of tariffs.

SG&A ratio increased 270 basis points, primarily due to unfavorable operating leverage, higher annual incentive compensation expense year-over-year, EPA compliance costs and the acquisition of Olive & June. Adjusted operating margin decreased 710 basis points to 8.3%, primarily due to the net impact of tariffs, the increase in incentive compensation year-over-year, unfavorable operating leverage and the preservation of trade and brand spending to support future revenue growth.

Moving on to balance sheet highlights. We continue to emphasize working capital efficiency and balance sheet productivity as an engine to fund our strategic investments, improve our operating flexibility and position the company for long-term growth. Regarding our year-end position, inventory ended at $456 million, were largely flat to the prior year despite $34 million of incremental tariff costs and inventory at the end of fiscal '26. We accelerated the turns of our more productive inventory while also clearing out slower moving inventory, which resulted in a net reduction of almost $50 million in the fourth quarter alone.

Debt closed at $781 million. Our net leverage ratio was 3.87x compared to 3.77x at the end of the third quarter. The increase was primarily driven by lower trailing 12-month EBITDA, reflecting lower revenue and higher average tariff costs. This was partially offset by favorable free cash flow driven by the inventory reduction and the conversion of prior quarter peak season receivables, enabling $112 million of debt paydown in the quarter. Free cash flow for the fiscal year was $132 million despite $72 million of incremental cash outflows, specifically for tariff payments, transitory costs associated with diversifying our supplier base regions outside of China.

And subsequent to the end of the fourth quarter, we further improved the productivity of our balance sheet with the sale of our distribution facility in Southaven, Mississippi. The sale generated proceeds of approximately $78 million, which we used to pay down our debt. We expect to continue to consider balance sheet productivity opportunities to further strengthen our financial flexibility, focus our resources on the core business as we pivot to growth.

Turning now to our full year fiscal '27 outlook. We expect net sales in the range of $1.751 billion to $1.822 billion, with Home & Outdoor net sales of $854 million to $882 million, and Beauty & Wellness net sales of $897 million to $940 million. Adjusted EBITDA of $190 million to $197 million, which implies year-over-year growth of 2.1% to 6.3%. Adjusted EPS of $3.25 to $3.75 and free cash flow in the range of $85 million to $100 million. We expect our quarterly sales cadence to be uneven driven by lapping of prior year revenue dynamics. At the midpoint of our range, we expect first half year-over-year sales growth to be slightly positive with the second half of the year slightly negative. Due to the cadence of people and brand investments and higher average tariff costs cycling out of inventory and into cost of goods sold in the first half of fiscal '27, we expect roughly 15% of our total annual adjusted EPS outlook in the first half of the year with roughly breakeven adjusted EPS in the first quarter.

To help with modeling, our fiscal '27 outlook includes tariffs in place as of April 2026 assumed to remain in effect for the balance of the year, not including the benefit from any potential tariff refunds, no significant fluctuation in commodity costs, freight or disruption in supply availability. Interest expense of $47 million to $49 million with cash flow prioritized for debt reduction and an expected net leverage ratio of approximately 3.2x or lower by the end of the year. A full year adjusted effective tax rate of 25% to 27%. Continued working capital efficiency during fiscal '27 with an emphasis on further inventory reduction. Capital expenditures are expected to be between $28 million to $32 million with an emphasis on product innovation and supply chain diversification. Finally, we are assuming April 2026 foreign currency exchange rates remain constant for the remainder of fiscal '27.

In terms of our expectations regarding the operating environment, we continue to expect inflationary pressures, softness in discretionary categories, conservative retailer inventory management and an increasingly competitive and promotional landscape. Our outlook does not assume a significant or prolonged impact from the conflict in Iran or other similar macro disruption on the supply chain as it cannot be reasonably estimated. We expect continued diversification of our global manufacturing footprint, reducing the cost of goods sold exposed to China tariffs to less than 20% by the end of fiscal '27 and limiting the net operating income impact to less than $10 million for the full fiscal year.

Our outlook reflects a deliberate choice to preserve investments in our brands and people and includes an increase in growth investments of approximately 40 basis points, prioritizing high-return marketing and innovation initiatives. As we transition back to growth mode, we have a clear bias toward revenue improvement over aggressive cost reduction. By focusing on revenue recovery now, we expect to recapture operating leverage and build long-term sustainable momentum. Finally, while we are not yet where we want to be in terms of financial performance, the midpoint of our outlook implies a forward free cash flow yield of 20% using Tuesday's market capitalization. We believe this is a compelling value metric that compares favorably with our peer set and the market overall.

With that, I'll turn it back to the operator for Q&A.

[Operator Instructions] our first question comes from the line of Peter Grom with UBS.

So Scott, the commentary on the different phases and the path forward was incredibly helpful. But can you maybe frame or help us understand what success looks like on the other side of this? I'm not trying to get guidance on '28 or '29 today. But for a business that several years ago had significantly greater earnings power versus what's outlined in guidance today, I'm just curious how you would frame the opportunity and whether you think the business can get back to levels we saw several years ago, particularly as it sounds like you may be stepping up investment levels across a greater number of brands moving forward.

Peter, thank you for your question. Let me just give you a little bit of backdrop, myself and the leadership team to just kind of put a pin in quarter 4 and then get more into your question. When we think about quarter 4, there were 4 things we are really focused on. One is to get really sharp on our ambition so that the work that we set up for FY '27, we can begin to show markers of progress. Two, how do we begin to start that journey now in quarter 4 through trying to build against top line and begin to put things in place in our organization to set us up for the future.

Three, how do we invest in our people and our culture for not only for quarter 4, but to start the journey as we get back to where we want to get to. And then four, balance sheet productivity and paying down debt. I would say that from our standpoint that we quietly feel like we made progress in all 4 of those areas. But as we look to the future, we think about that a healthy Helen of Troy is really about first being a better company before on our road to being a bigger company, and it's built on many pillars. First, putting the consumer at the center of everything we do that's then underpinned by brands that are healthy with the scoreboard around growth and market share and then investing in critical capabilities.

First, making sure we get our organization and team and talent closer to the marketplace and closer to where decisions are made so they can rapidly innovate, tell relevant stories and commercially execute. Second, invest in commercial and brand-building capabilities that are going to enable our brands to have the right to win on the shelf or on the digital marketplace. Third, how do we invest in a make, move and hold with our supply chain so we can be agile and responsive of a dynamic marketplace. And then lastly, how do we continue to be thoughtful on our global execution because we know that our global business needs to play a bigger role than it plays today.

And all of that should be underpinned by investing in our culture and people because they're going to have to help us drive it and then continue to be focused on a healthy balance sheet. So for us, for FY '27, it's really showing markers of progress by doing the things I just talked about, becoming a better Helen of Troy on the road to a faster-growing Helen of Troy.

That's super helpful. And then, Brian, just a question on the guidance. And I guess just it's more around the level of visibility or flexibility that you have today. And I just ask that more in the context pretty volatile external backdrop. And the guidance, I think you mentioned is more than 80% weighted to the back half of the year. So can you just walk through the level of confidence that you've embedded in that inflection? Have you embedded more conservative underlying assumptions to account for maybe some things that might not go your way?

And I guess very specifically, there was a commentary in the release around commodity costs, freight and supply availability. I think it was mentioned no significant fluctuation. Is that just related to where things stand today? Or does guidance assume no major cost impacts related to these factors?

Yes. Just to cover the last part first, we've called out the fact that things have changed as a result of the Iran conflict pretty quickly. So it's only a few weeks old, but resin prices, commodity prices, fuel prices have all reacted pretty significantly, and that does impact our raw material costs. So we're calling it out. But I think almost anyone would say it's a little too new, a little too fresh to think that you can get your arms around it and embedded in your outlook. And so we have not attempted to do that.

We are proactively working to minimize any impact such as we've bought some raw material to make sure that we have raw material that we're going to need in the short term. There could be scarcity issues that come up and to lock in pricing. We also attempt to lock in our inbound freight pricing and are in the process of securing favorable rates as compared to current spot pricing, which has also spiked.

So I would say, look, we haven't adjusted our outlook up or down as a result of the conflict, we have taken actions to minimize the impact, and then we're just going to have to see how that plays out. Hopefully, from a modeling perspective, you appreciate that, us not trying to model something that's really difficult in an early stage to model. So that's how we've approached that.

With respect to the cadence, it's really not about conservatism. It's really kind of about the comparison to the prior year and the lumpiness of the prior year and the cadence of our people and brand investment in the current year, which kind of -- and then how tariffs layer into all that and mixing that all together really results in the lower EPS in the first half of the year and the higher EPS in the second half of the year. And really, the biggest part of it is the higher average tariff costs that are cycling out of our inventory into our cost of goods sold in the first half of this year, whereas you really didn't have almost any tariff impact on COGS. We did have a tariff revenue impact in the first half of last year, but we really didn't have a COGS impact.

So now we're getting the full blunt of that COGS impact in the first half of this year and then overlay that with the investments that we're making in our people and our brands, and that compresses the first half of the year. And then it also releases in the second half of the year and you get the benefit in the second half of the year. So I wouldn't say it's about conservatism or trying to make the numbers a certain way. It's really the dynamics of 3 or 4 different impacts prior year versus current year.

Our next question comes from the line of Bob Labick with CJS Securities.

So I just want to start with -- in terms of the revenue guidance, how much price is baked into the guidance for next year? And have retailers fully accepted that? Because we had the stop order and this. So kind of where do you stand in that? How much price is in the revenue guidance? Where are you getting it? And I guess I'll stop there for a second, and then I'll ask a follow-up.

Brian, do you want to go ahead and take it?

Yes. So if you bake it all in together, if you're looking for total revenue impact of price increases, Bob, it's about $50 million that were -- is impacting our revenue through price increase. Now that sounds like a big number. That doesn't even probably come close to covering all of our tariff costs as well as all kind of regulatory costs that are emerging related to packaging and things of that nature. So it makes a little bit of a dent in terms of a profit perspective, but it does influence kind of the revenue impact. And that impact that I'm giving you is kind of the year-over-year impact in terms of fiscal '27 versus '26. And I would say in '26, we only got partial realization of that. And in some cases, it was delayed and so on and so forth.

With respect to where we are, we have almost or effectively 100% of our planned pricing increases in place. It did take us a period of time, the second half of fiscal '26 to get everything in place, but we now have the ones that we intend to pursue effectively all in place with a couple of minor exceptions. So that's where we are on that. It was just one of the levers that we pulled to try and offset tariffs along with a combination of price decreases, SKU evaluation, all the things we talked about in the past, price was one of them, and that's the impact.

Okay. Great. And then in the theme of invest to grow, I think, Brian, at the end of the prepared remarks, you mentioned a 40 basis point increase in growth investment. What are the steps? What's necessary, I guess, internally to be done before you increase it more? I imagine when you get to where you want to be, it will be more than 40 basis points more of investment spending to get to the right growth and to reignite growth. So kind of what are the next steps that you guys are taking so that you can lean harder into the growth engine?

I think you're right. I'm glad you asked the question. 40 -- we built the plan this year intentionally to lean into any over performance with additional growth investment. We have framed up and have kind of planned and sitting on the shelf a whole host of investments that we couldn't afford to make in the plan that we're providing today. And the idea is that with any over performance, we're going to continue to pursue those high ROI investments and lean in. And the hope is that by the end of the year, it's not 40 basis points, it's more because we've got better operating leverage and produce more profit as a result of the growth and then continue to feed the flywheel.

So we've -- we've intentionally built a plan that allows us to do that and are giving you the base plan. And then when we have upside, which we're expecting and think we can drive that over performance will go into greater investment. Does that make sense?

Yes. Yes. No, absolutely. That's great.

Our next question comes from the line of Susan Anderson with Canaccord Genuity.

I guess, Brian, maybe just to drill down on the segments in the quarter a little bit. I guess within Beauty & Wellness, maybe if you can talk about kind of the brand performance. I guess, was beauty or wellness the bigger driver of the decline? And how did Drybar and then Curlsmith perform? And then you mentioned the cold cough season being weak. So was that the biggest driver? Or was it pretty equal between the 2? And then I guess, same thing in Home & Outdoor. I think you talked about Osprey doing well online. Just curious how it did in the stores? And are you still seeing that category decline? And is Osprey still gaining share?

Yes. So if I might break it down a little bit differently within Beauty & Wellness than you did. I would say Olive & June and Revlon had relative strength. And then the remainder of beauty, I would say, relatively compared to them was on the weaker side of things. And then in Wellness, yes, I would say, overall, that was a little weaker than we'd like it to be, both in terms of cough, cold, flu season and in some of the more competitive categories where Honeywell plays and some of the other brands, a little bit of relative softness. So hopefully, that gives you kind of the walk on Beauty and Wellness.

With respect to Home & Outdoor, we're seeing very positive trends almost across the board in that business. And so we're excited about what we're beginning to see there. With respect to Osprey in particular, the category is generally trending down, but Osprey is generally trending up and taking share and performing well in that category. And then we continue to expand into adjacent categories. So we like that part of the business.

And then I would say, overall, as a company, if you just kind of look at the trends, we're not where we want to be across all brands and all categories with respect to POS, but we are trending largely in the right direction. If you look across categories and brands and looked at the trend line, we are trending up across the majority of the brands in their respective categories. So we think that, that's a sign of progress.

Okay. Great. And then, Scott, maybe if you could talk about the new innovation. I think you mentioned that resonated maybe with consumers well in the quarter across the portfolio. And any color you can give on kind of newness coming out throughout this year? And then I think you also mentioned increased focus on e-comm investment. Maybe talk about what that will look like? Is that going to be in brand websites to drive DTC? Or is it more increase in tech investment and social selling?

Yes. So we -- of course, we've had a number of innovations across the portfolio, but I'll highlight a couple. So Osprey continues to have new innovation to expand its strength in technical packs to adjacent categories that we saw continued strength on. Olive & June, not only in their core business, they continue to bring new innovation and new reasons to bring consumers to the category. The VersaStyler, really bringing new news to the category and really early off to a very, very promising new start. So we've had multiple levels of innovation.

What I can tell you what I've been focused on over the last several months that as I traveled around the company, it's really trying to pull innovation forward, innovation that had the right consumer insights and business cases, how do we put more investment against it. And if it makes sense, how do we pull it in the fourth quarter/first quarter on a faster track. And so those are connecting the 2, I don't know if that answers your question, but that's what I meant when I made that statement. As well as Hydro Flask, I could go on and on and on. sorry.

The second part of your question is around digital capabilities. Yes. So depending on the brand, clearly trying to drive some web traffic, but that -- the bulk of my comments are really around digital capabilities on sensing and understanding where the consumer is going to be, digital capabilities on making sure that we're showing up on partner sites with the best advantage versus our competition and driving more agility for our brands to interact with social commerce, whether it be Meta Shop, TikTok Shop and other future ways of connecting with our consumers.

[Operator Instructions] Our next question comes from the line of Olivia Tong with Raymond James.

I wanted to get a better sense of your expectation for category growth that you're embedding for next year and what it was this year. As we think -- also as we think about your cadence of stabilization, realize there's a big difference in year-over-year comps. But why do you not expect growth in the second half on sales? I think sort of alluding to Peter's earlier question, there's been a multiyear challenge. So as you think about your optimism around innovation and several other things, why shouldn't we expect a little bit more in the second half?

And just following up on that, if you could talk about retailer discussions that support some of the enthusiasm that you have around innovation and then managing the tail of brands or the tail of exits that still need to be managed down?

Yes. So we're going to take this in a couple of parts. A great question. This is Scott. When we talk about stabilization for FY '27, first, I think about what do we control within kind of the 4 walls of Helen of Troy, and it's really around editing our agenda and amplifying the things that we think have the biggest growth potential and moving with the speed of the marketplace. That's kind of one. And we've been doing that work, and that's embedded in our plan. Then underneath that, we're very sharp and very -- with conviction, the critical capabilities necessary for each one of our brands to have the best chance to compete.

And there are everything from what's the right operating model to drive decision-making and move with the speed of the consumer, taking it from abstract concept to making sure organizationally, we're set up for success. We're doing that work, consumer-led innovation by leveraging consumer insights to not only develop an innovation road map that's going to answer the question today, but to get ahead of the marketplace for the future we're doing that work as we speak.

Investing in omnichannel capabilities, I talked about this in the last question, everything from sensing the consumer, engaging with the right capabilities against social commerce, making sure we're partnering with our biggest strategic retail partners in the right way and being really sharp on that against these critical opportunities that we've identified and then standing up work in our supply chain that helps us make, move and hold product in the way to make sure that the right products in the right place at the right time and doing it more effectively. And the combination of those 4 things, just the way we operate will drive us towards stabilization. The second piece is the part of your question of what's embedded in terms of the category assumptions and how does it play out? I'm going to flip it over to Brian.

Yes. So I mean, in terms of category, we haven't really changed any assumptions overall. It's kind of hard to talk about all our categories and boil it all down to one measure. I would say the categories are pressured by the same pressure on the consumer and price elasticity and all of those things. And so category, I would call it, is a little bit of a headwind as we look to next year. And if you kind of just want to understand why you're not seeing maybe more revenue, I think I can help you through that. We kind of assumed that current POS trends will continue and where they are today. So we have seen improvement, but we haven't assumed continued improvement. We've also assumed a continued pressure consumer and that price elasticity has an impact.

Now that is a pretty big headwind. And then what we're doing is offsetting that. We're offsetting that several ways. We are lapping prior year tariff-related revenue headwinds, but we're not -- the $80 million or $90 million that we saw in fiscal '26, we're recovering about half of that at this point. Now direct imports in China market, that's all still a work in process, and we may recover more of that. But what we've assumed at this point is we recover about half. And then you have the other offsets, which are really the exciting parts, which is product innovation and commercial building blocks, international growth. We also have price increases in there.

And so when you just put all those puts and takes together, it happens to result in flattish net sales year-over-year. But we are assuming current POS trends, which are not yet in the positive state, even though they are trending in the right direction. And I think any upside is our continued improvement in those POS trends, which we have not assumed.

Understood. And then if I could just follow up. I appreciate the color that you gave in terms of your outlook and on commodity costs and supply chain and what have you. And realize that it is, of course, a moving target. But as we look at oil still off its peaks, but still quite a bit above pre-Iran conflict and the discussions that you've had with some of your providers. You mentioned that you're paying below market. But can you talk about the change relative to the prior year that you're looking at and discussing with those providers?

Yes. Thanks, Olivia. The comment we made on being below spot price was relative specifically to freight. So just calling out the spot prices are increasing, but we feel like we've contracted at rates below that and we feel comfortable with that, assuming we can stay on contracted rates and there's no significant disruption that would push us outside of that. So that's the freight, and that's related to that one specific comment I made. As it relates to the impact from the conflict overall and its potential impact on our suppliers, raw material prices, it's obvious, are going up almost instantaneously as a result of the conflict and a lot of it is driven based on fuel. So we know that, that's out there, and we have had discussions with our suppliers on potential impacts.

At this point in time, I can't give you any estimate of where that will go or end up. And typically, when we have these discussions, they evolve over a period of time, and there's not like this instantaneous kind of adjustment. Same thing played out with tariffs. We absorbed a direct tariff impact and then how we manage that with our suppliers evolved over time, and there were adjustments over time, but a lot of adjustments didn't occur overnight. So it's an ongoing discussion. It is happening live. We are aware of the potential impact, but it's such early days. I don't think it's possible to estimate anything, and we're going to work with our suppliers like we always have and get to a good outcome in terms of what our ultimate pricing is.

We have no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Thank you for joining us today, and we look forward to speaking to many of you in the coming weeks. Have a wonderful day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings. Welcome to Helen of Troy Limited Third Quarter Fiscal 2026 Earnings Call. [Operator Instructions]. Please note this conference is being recorded.

I will now turn the conference over to Anne Rakunas, Director, External Communications. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Helen of Troy's Third Quarter Fiscal '26 Earnings Conference Call. The agenda for the call this morning is as follows: I will begin with a brief discussion of forward-looking statements; Scott Uzzell, our CEO, will then share his thoughts and areas of focus; and Brian Grass, our CFO, and will provide an overview of our financial performance in the third quarter and our expectations for the full year fiscal '26.

Following our prepared remarks, we will open up the call for Q&A. 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 are words identifying forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other parties. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.

Before I turn the call over to Scott, I would like to inform all interested parties that a copy of today's earnings release can be found on the Investor Relations section of the site, if you scroll in to the bottom of the home page. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures.

I will now turn the conference call over to Scott.

Thank you, Anne. Good morning, and Happy New Year, everyone. I appreciate you joining our call. We delivered third quarter results in line with our outlook, reflecting disciplined execution by our global associates who have driven progress towards stabilizing the business despite a challenging external environment.

While I'm encouraged by our Q3 progress, we remain fully focused on sharpening our priorities and executing as we fix the fundamentals and improve our performance trends. Recent trends reinforce our view that consumers are being selected. We continue to see a bifurcated economy. Robust spending from high-income households, while lower middle income consumers face significant inflation and essential like rent, food and insurance, making them increasingly cautious with discretionary purchases.

Regardless we need to win, and I know it's required. We will invest in our brands. We'll invest in innovation, and we'll invest in talent to restore this business to growth. And some of the initial steps we're taking to restore business are reflected in a revised outlook for Q4 and the balance of the fiscal year, which Brian will outline shortly.

First, I'm energized by the product innovation underway and the upcoming launches in fiscal '27. We're investing in strengthening brand loyalty through storytelling to deepen our connection for consumer and advancing our commercial execution capabilities. These initiatives reflect our commitment to consumer engagement, growth and delivering value for our stakeholders.

Over the past 4 months, I've visited offices around the globe, spoken with hundreds of associates and customers, conducted comprehensive review of operations, technology capability, financial performance and external benchmarks. These experiences have given us a fresh perspective, challenging the team to think more critically about long-term value drivers. My biggest takeaway enthusiasm for our brands is strong. Partners, associates and customers all want us to win. These conversations reinforce my commitment to improving how we operate, sharpen our priorities and amplify our focus on consumers.

Building on organizational changes put in place last summer, we've made strides to prepare for success. And October, I outlined 4 priorities: reenergize our brands and our people, adapting our structure to put the consumer at the center, strengthen the portfolio for predictable growth, improved asset efficiency while maintaining shareholder-friendly policies. This is informing our direction as we complete our FY '27 annual planning process and will inform our go-forward strategy. FY '27 will be the first big step towards our future. More to come in the coming months.

As a brand company, we win and lose with the consumer and growth is our scoreboard. We will make bold choices embrace new thinking and learn from past decisions while minimizing disruption. Our growth priorities are clear. staying true to our North Star of the consumer, invest in brand building and editing and amplifying our focus and execute with excellence by fully leveraging the talent and skill sets that already exist.

By keeping the consumer at the center, we sharpened priorities and moved from slow and complex to fast and agile. Teams are untangling complexity to enable faster decision closer to the consumer as we speak. A growth priority is product innovation. I'm inspired by the passion, commitment and expertise of our teams. I believe we can drive new product development by better understanding our consumers, allocating resources and accelerating time to market. Brands of our size can't do everything, but we must be focused and sharp as we drive separation from our competition.

Each business will have a distinct strategy centered on 2 or 3 priorities. Making these tough choices will bring greater clarity to our brands for employees, consumers and investors. As we reposition the business, we plan to direct resources in a disciplined and targeted manner towards the most impactful opportunities and innovative ideas, allowing them to incubate and take hold. This will both strengthen our portfolio and drive momentum on those products and brands that have the best opportunities for growth, not just for this quarter or next fiscal year, but for the long term as well.

To fund these investments and decisions and position us for long-term sustainable growth. We plan to stay focused on maximizing operational and balance sheet efficiency. A key ingredient of our success will also be the power of our organization to fully leverage talent and skill sets that already exist in the building. We recently welcomed back a key member of my leadership team to reignite the Power of One. This is the plumbing that enables the work to be done more effectively at Helen of Troy. It's a common language of systems and processes and people.

We must balance short-term performance of long-term aspiration. This work starts with my global leadership team and will be cascaded throughout the organization. We will continue to emphasize working capital efficiency and balance sheet health and productivity. A good example of the recently announced amendment to our credit agreement, which extends the leverage ratio holiday and updates to interest coverage ratio definition. These changes give us greater flexibility to navigate the evolving trade and external landscape.

We look forward to sharing our fiscal '27 outlook in April and plan to outline our long-term growth strategy in the second half of calendar '26.

And now I'd like to briefly touch on quarterly business segment performance. Overall, net sales outperformed our expectations. Home and Outdoor and Beauty & Wellness sales declined 6.7% and 0.5%, respectively, while international sales fell 8.1%. The Olive & June continued to outperform our profitability expectations, delivering nearly $38 million in sales. While I am not satisfied with these overall results, I'm encouraged by some of the highlights across our portfolio. These give me confidence we can learn and replicate across our portfolio and execute.

Our ability to grow and capture market share is a product of leadership choices and operational excellence. We plan to be more intentible on our agenda and sharpen our execution. Highlights include, we grew OXO brew, OXO and Olive & June. We exceeded Olive & June internal expectations. We increased organic B2C revenue by 21%, and we delivered $29 million of free cash flow despite $58 million in tariff drag. Across our portfolio, we're delivering exciting innovation.

In the Home and Outdoor segment, we launched Osprey and Hydro Flask cooler collaboration, combining Osprey's legendary carry technology with Hydro Flask leakproof insulation for an ultimate performance. OSP also introduced a mountain bound series of winter luggage, crafted with nanotagfabric for rugged, highly water-resistant protection for ski and snowboard gear. Hydro Flask delighted families with the Eric Karl collaboration featuring iconic -- very Hungry Caterpillar in our insulated kids bottle.

OXO expanded its top baby led weeding suite and added a new Totan coffee SKUs at our top partners. This month marks the debut of OXO's Trident Series Cookware which provide superior heat distribution and high-performance cooking without the hassle of a cleanup.

In Beauty & Wellness, Olive & June continued to introduce trend-right collections tied to holidays and events including B Bold collection, Halloween design, test of holiday stickers. After quarter end, Olive & June launched a playful collaboration with Peach babies, combining nails and slime for the most satisfying lab yet. Along with presses for kids and tweens, which is seeing strong early success at top retailers.

For cold and flu season, Honeywell introduced 2 fresh new styles allergens TEMPA-certified air purifiers a 3 in 1 for large rooms and a tabletop for smaller spaces. These innovations, along with many more coming to market, give me increasing confidence we're focused on the right things to improve our business. I believe we can win for our consumers through innovation and marketplace execution. This allows us to return to revenue leadership, strong margins and robust cash flow, but we know it won't be a straight line. we're making tough choices to invest in our future.

We build our platform for growth and improve our financial profile through better operating leverage, while we create greater competitive advantage across the portfolio.

With that, I'm going to turn it over to Brian to walk through the financial results and outlook.

Thank you, Scott. Good morning, everyone, and happy new year. Today, we reported third quarter net sales and adjusted EPS results in line with our expectations. I would like to thank our associates for their hard work in achieving our financial objectives for the quarter in what continues to be a challenging environment.

Operationally, we made headway on improving our go-to-market effectiveness leaning in on innovation for more product-driven growth, focusing on the fundamentals and putting our brands back at the center, fully leveraging their unique strengths.

Scott mentioned several new innovations in market, and I'm excited by new launches planned for the coming year. There's renewed energy across our organization, reinforced mataculture work Scott mentioned.

Our third quarter results reflect progress towards simplifying operations, sharpening priorities and increasing agility. But we know much more improvement is needed and we continue to take decisive steps to position Helen of Troy for sustainable growth.

On tariffs, we advanced mitigation strategies, including supplier diversification SKU prioritization, cost reductions and price increases. The majority of our price adjustments are now in place, but we are still navigating some parts of the market where we achieved less than full pricing realization due to stop shipments we believe are necessary to support consistent adoption of price increases by our retail partners, primarily impacting the Beauty & Wellness segment.

We expect some residual impact from stop shipments to carry into the fourth quarter, which I will touch on later in my remarks. Year-to-date, gross unmitigated tariffs had a $31.3 million impact on gross profit with the full year impact expected to be in the range of $50 million to $55 million. We now expect less than a $30 million tariff impact on operating income for the full year, net of mitigation actions up from our prior expectation of approximately $20 million, primarily driven by delayed timing of pricing realization.

We remain on track to reduce our cost of goods sold subject to China tariffs to between 25% to 30% by the end of fiscal '26. Our diversification and dual sourcing strategies are reducing long-term supply chain risk and helping to insulate us from further policy changes or other geopolitical impacts.

Turning to our results. Consolidated net sales decreased 3.4%, favorable to our outlook range and a sequential improvement compared to the first and second quarters of the year. Organic net sales declined 10.8%, approximately 3.3 percentage points or $17.3 million of the organic revenue decline, was driven by tariff-related revenue disruption, which includes the pause or cancellation of direct import orders from China changing dynamics within the China market and the impact of stop shipments referred to earlier.

Home & Outdoor net sales declined 6.7%. We saw strong demand for travel, technical and lifestyle packs, strong holiday orders from brick-and-mortar retailers in the home category and incremental revenue from tariff-related price increases, offset by softness in insulated beverage wear, lower online sales in the home category, and lower overall closeout channel sales.

Beauty & Wellness net sales decreased 0.5%. Organic Beauty and Wellness sales declined 13.9% with approximately 4.5 percentage points or $12.9 million, driven by tariff-related disruption. In beauty, hair appliances and prestigious liquids were impacted by soft consumer demand competitive pressures, the cancellation of direct import orders and lower closeout channel sales.

Wellness was unfavorably impacted by lower international sales due to evolving dynamics in the China market pricing-related stop shipments referred to earlier and a below average illness season. These headwinds were partially offset by a strong contribution from Olive & June of $37.7 million.

Consolidated gross profit margin decreased 200 basis points to 46.9%, primarily due to the net unfavorable impact of higher tariffs and a less favorable inventory obsolescence impact year-over-year. These factors were partially offset by the favorable impact of Olive & June and lower commodity and product costs, exclusive of tariffs.

SG&A ratio increased 160 basis points, primarily due to the acquisition of Olive & June, higher outbound freight, higher annual incentive compensation expense compared to the same period last year and unfavorable operating leverage. Lower gross profit margin and a higher SG&A ratio resulted in a consolidated adjusted operating margin decrease of 370 basis points to 12.9%, which consisted of a decrease of 650 basis points for Home and Outdoor and 120 basis points for beauty and wellness.

The declines were driven primarily by the net unfavorable impact of tariffs higher incentive compensation expense and unfavorable operating leverage, partially offset by margin accretion from Olive & June, in the Beauty & Wellness segment.

We incurred higher interest expense due to higher average borrowings driven by the Olive & June acquisition, higher inventory carrying costs due to tariffs and higher CapEx spend as we make supplier transitions out of China. Higher interest expense was partially offset by lower adjusted income tax expense, resulting in adjusted EPS of $1.71.

Inventory ended at $505 million, which includes $35 million in incremental tariff-related costs year-over-year and incremental inventory from the Olive & June acquisition compared to $451 million at the same time last year. Debt closed at $892 million with $325 million in revolver availability.

Our net leverage ratio was 3.77x compared to 3.54x at the end of the second quarter. The increase in our leverage was due to lower trailing 12-month EBITDA driven by -- driven primarily by higher tariff costs. and the unfavorable cash flow and balance sheet impacts of tariffs on our outstanding debt balance. Year-to-date, free cash flow was $29 million, which includes $58 million of incremental cash outflows for tariff payments and the cost of supplier transitions out of China.

Now I'd like to turn to our annual outlook. We've tightened our range on the top line to $1.758 billion to $1.773 billion with Home and Outdoor net sales of $812 million to $819 million compared to our previous expectation of $800 million to $819 million. And Beauty & Wellness net sales of $946 million to $954 million compared to our previous expectation of $939 million to $961 million.

We lowered our adjusted EPS expectations to a range of $3.25 to $3.75, driven by less than full pricing realization, consumer trade down behavior and less favorable mix, higher trade and promotion expense and the preservation of investments in our people and brands to build revenue momentum and more favorable operating leverage going forward. We expect the full year GAAP SG&A ratio in the range of 38% to 40%.

We expect the full year adjusted effective tax rate in the range of 13.4% to 14.7%. Inventory is expected to be $475 million to $490 million at year-end, which includes an estimated $39 million of incremental costs from tariffs. Our outlook includes the ongoing impact from changing dynamics in the China market, lapping of tariff-related order pull forward in the fourth quarter of fiscal '25 and residual stop shipments to support consistent tariff pricing adoption. We expect modest improvements in direct import orders and select programs shifting to warehouse replenishment.

Overall, we expect retailers to continue to closely manage inventories. Despite a recent uptick in flu incidence, overall incidents for the full season and upper respiratory illness in particular, are tracking well below both last year and the trailing 3 season average, retailer inventories look to be sufficiently stocked to supply demand should illness continue to increase during the remainder of the fourth quarter.

Given the challenging operating environment, we expect margin pressure to persist through the fourth quarter, reflecting consumer trade down, a more promotional environment, a delay in achieving full pricing realization and cautious retail behavior. While we remain focused on cost control, we are preserving key strategic investments in support of our people, new product innovation, stronger brand loyalty and better commercial execution.

As we transition back to growth mode, we expect to have a bias towards revenue improvement over cost reduction in order to recapture our operating leverage.

Before I conclude my remarks, I want to direct your attention to the investor presentation posted to our website, which contains additional information and perspective on our third quarter results and our outlook for the remainder of the year.

And with that, I'll turn it back to the operator for Q&A.

[Operator Instructions]. Our first question is from Rupesh Parikh with Oppenheimer & Company.

So I guess just going back to some of the top line trends and the performance of your brands. It was helpful color in terms of the brands that are actually growing. But just curious, as you look at some of the declining categories, whether it's beverage wear hair appliances et cetera, where you are with -- in the progress in turning around these brands?

Rakesh, yes, thank you. Good question. First, yes, we are very encouraged by our results on the green sheet brands like Osprey, Olivan June, OXO, Braun and Pure. They continue to meet and exceed our internal expectations. We have work to do in the areas that you identified, and we are focused on that, everything from innovation on bringing new products to markets that are in the kitchen or kind of in the lab as we speak, making sure we've got the right commercial triangle in place which is a combination of marketing, operations and commercial excellence and then making sure that we're providing the right resources to the right opportunities that are going to create the right value. So that's our methodical approach. We feel very confident in the work that we're doing.

As we said in kind of our prerecorded remarks is that our performance will improve, but it will not be a straight line. Some of our brands will move at a much faster rate, but the ones that you identified, we're working on aggressively.

Great. And then I guess my follow-up question, just to help frame where we are right now. So as you look at your earnings guidance this year, is there any way to say whether you believe that maybe that's the bottom in earnings power? Or I don't know if there's any insight at this point in terms of helping us frame how to think about next year and whether we can take this year's guidance as maybe a basic grow upon.

Yes. What I'd say this, and definitely Brian can opine on maybe more specifics. If the bottom line is this company has done probably a pretty good job of trying to get its cost structure in place for the last several years. But our focus right now needs to be around growth, and that means we got to invest in innovation, brand building and marketplace excellence in terms of how we execute. And that's what you're going to see we're investing in, in quarter 4 as well as we talk about our long-range plan, which you'll see the first big steps in FY '27. It will be about growing the top line responsibly, but growing the top line and making sure our brands are winning, as well as managing against our earnings power. Brian, anything to add?

Just a little bit to say we're shifting our focus to revenue improvement versus cost reduction and we think the benefit of operating leverage is going to be greater than any benefit we can get from trying to just purely cut cost -- that takes a little bit more time, but that's much more effective and sustainable strategy, and it's going to be better for the long-term health of the business.

So we're making a bit of a pivot. Hopefully, you can hear that, and our focus is going to be on revenue improvement and revenue growth first and then growth and profitability will come after that.

Our next question is from Bob Labick with CJS Securities.

Happy New Year. So one of the focuses, one of the key things you're focused on is the return to consumer-centric innovation. And obviously, you've had that in the past. Maybe -- was it deemphasized? Why was it deemphasized as kind of part of the question?

And then the next thing is, how long does that take? And so like when should we see that reemphasis translate into top line because as you said, your scorecard is going to be returned to revenue growth. And the shift back to consumer-centric, how does that play out? What are you actually doing more specifically now than you didn't do last year? And how long does it take to flow through?

Bob, this is Scott. Good question. I can only give you a headline on the past because I wasn't here. But the bottom line, I've seen companies go through different transitions. Sometimes they think that they can that brands are in a better place than they are or they can misread the market? I don't know. But I know this going forward that as I've traveled the globe and I spent time for our teammates and I've analyzed our brands that we have 30% to 40% of our portfolio that has innovation and opportunity to grow faster.

We're going to invest in them as we speak, and you'll see the benefits of that in quarter 4 as well as in FY '27. We have a number of our brands in our portfolio that have been underinvested in, have not been organizationally set up for success, have for whatever reason has missed the mark on the consumer, that we're working on the renovation steps as we speak to get them in a position to bend the curve. Bend the curve means to stabilize the business as we go into FY '27 and grow further in FY '28 and beyond.

But the net is, we would expect that you're going to see an improvement in our business quarter 4 on as we go forward as we come through and talk about our FY '27 plan. But the key, as Brian said and what I said earlier, is there is a bias towards healthy brands and growing and winning in our categories first. And also then deliver value as we do that.

Okay. Great. And then you talked about a bunch of, I guess, new releases, and I'm looking at the investor presentation right now. Can you maybe focus us on a few of the major releases or milestones of key brands that should be more meaningful than not. So things for us to judge on success next year and not trying to pin you to a quarter for a return to growth. But just really what are the kind of big releases that you think should move the needle and we can watch in 2026 calendar '26.

Yes, Bob, as you know, I can't speak on specific future innovation that's not out in public domain. But what I can say is brands like Osprey, Olive & June, Bran, OXO just like the performance we've had in the most recent quarter, we expect that to continue. And as we funnel resources to these brands that I believe can do a lot more now, you're going to see a lot more acceleration against them. I don't know if I'm really getting to your question of like a very specific launch that's happening in the future. But that's how we're focused. I don't know, Brian if....

If I can add a little without getting too specific. I mean we have things teed up in Hydro Flask that allows us to play, as you and I have talked about, Bob, kind of in the areas where we want to reach the consumer, but we believe it's right for Hydro Flask to play in, and it's not all areas. But we have a strategy there. We're excited about that. We have some category adjacency plans in Hydro Flask II that we're excited about, and those will be coming out soon.

In the brands that Scott didn't mention where we've got more green shoots -- we've got exciting innovation going on there, and that includes Pure, that includes VIX, and that includes Honeywell. So the point I'd like to make is innovation wasn't lost in all of our businesses and all of our brands. We have brands that were doing that well, Osprey, Olive & June and some of the others, but it was a little bit lost in some of these other brands that we're talking about. And we have strong plans and strong innovation in the road map that is already in process of being developed.

And so it's not like we're starting today on those development plans. They're well underway and they'll be coming out soon. And it's the accumulation of all of them. There's not like one big launch that really does it. It's really making sure that all your businesses have it and have a strong pipeline so that there's no gaps. We just had a little bit too much of gaps in the past.

Our next question is from Peter Grom with UBS.

So 2 questions from me, and I'll just start with this. But I guess I was just hoping to get some perspective on what you're seeing from a category standpoint. I think there's a lot of cross currents that are driving the top line trends that we are seeing in your results. But if you strip out all of the noise, do you have a view on kind of where underlying demand for your categories is trending today.

And then I guess just looking ahead, there seems to be some optimism on the U.S. consumer tax refunds, et cetera. So just kind of curious, do you think that some of these things could drive some sequential improvement in category demand following what's been a very challenging few years here.

I'll take the first stab, Peter. First of all, absolutely. But I step back from the standpoint that even the most challenging times, brands that have tight brand proposition, relevant innovation and connect with the consumer, meeting them when they are, have a way to continue to win. And like brands like Osprey, Olive & June, OXO, Braun PUR our portfolio, they will do well in an even better economy or when the consumer is in a better place. the other brands in our portfolio that have not performed or where they need to be, they have nothing but upside opportunity to bend the curve through better innovation, more focused storytelling and an organization set up that enables them to be close to the consumer and execute with excellence, which today we're not doing, and we will do better.

And you'll see that a little bit in our outlook on Q4 why we're not pulling down our revenue. But you're also going to see that as you look at FY '27 on what we expect going forward in terms of improving our performance from a top line standpoint on a broader range of brands beyond the ones we have today.

I'd just add, Peter, that I think the question you're asking is a good one, but it's hard to answer like in the moment. There's a lot of things in the market related to higher pricing, price increases and things like that. And the consumer has been resilient up until this point. I think the key is how will they respond to kind of this next phase of inflation and pricing in market, and we'll have to wait and see. But we have plenty of category growth in some of our categories. We have some that are decreasing, but we also have plenty of them that are increasing. And so we're going to lean into that.

No, that's super helpful. And then I guess just a follow-up on just kind of the 4Q outlook and just kind of the big divergence on the bottom line versus the prior outlook. Because Scott, to your point, the sales are kind of in line with your prior outlook. So can you maybe just speak to the moving pieces and where things are playing out differently than what you would have expected? And I guess this is maybe asking Rupesh's question differently, and I know we'll get '27 guidance I guess would you say this 4G dynamic is more onetime in nature? Or are there things investors should be extrapolating from this mature exit rate out to next year?

I'll take the first part and let Brian opine on it. First of all, as you look at Q4, I think of it like kind of a wedge. This is the beginning. We want to invest in our brands for growth. I want the word growth to be a part of what we're about, and it's responsible growth. And what we're doing is we believe that we can grow the top line if we make the investment against new product innovation, better storytelling, getting our organization with the consumer at the center, we can bend the performance.

And you're going to see a little bit of that in Q4 and you see a lot more of that big steps forward as we go into FY '27. But as far as outlook long term, of course, we're not ready to publish that. I don't know if Brian can share any more color texture to that. I can give you some good perspective on Q4 and then give you some dimensionality on how to feel about going forward from that. And I'd just say to tag on to what Scott was saying, our conclusion is more of the same is going to get us where we want to go.

We've been trying to cut our way to better performance over the last 2 to 3 years, and it's not sustainable, and we're at a point where it's going to be very difficult to continue to do that. So we're shifting our focus to revenue improvement versus cost reduction to get better operating leverage. That's going to take more time. And I think in the short term, you're going to see more pressure on the bottom line as we look to lift the top line and then once the top line is lifting, it makes solving the bottom line much easier and much more healthy.

With respect to the fourth quarter, in particular, there's a slide, it's Page 14 in the investor presentation, which will give you an illustration, the main driver in the change is really unfavorable pricing realization.

So in the third quarter is when our pricing was really implemented and compared to our original expectations, we did not achieve -- we've got basically leakage versus what our original expectations were, both in realization of the price increase margin that we wanted to gain and stop shipments that we're in the process of implementing to enforce uniform pricing adoption. And we think that's crucial in getting price increases to stick. They have to be uniformly adopted. Otherwise, it doesn't work.

And the other thing I'll note is that pricing leakage drop straight to the bottom line. It has an outsized impact on the bottom line versus the revenue impact. And so be aware of that. We also built in the expectation of higher consumer trade down because we are seeing that and a less favorable mix. We -- and I mentioned some of this in my remarks. We also assume higher promotional expense and margin compression as we look to tighten up our balance sheet and really get our inventory levels in the right place, and we expect that to occur in the fourth quarter.

And then last point I'd make or last 2 points. While we believe overall retail inventory is healthy, there were a couple of areas where we had inventory that was higher than we would have liked. And so we built in the assumption that, that's going to rebalance in the fourth quarter.

And then the last point is we're preserving key investments in our people, innovation and brands and actually want to reinstate some of what we cut in the first 3 quarters of the year. And so we're going to make those choices for the fourth quarter, so that we can get to this revenue improvement and better operating leverage as we go forward.

So that's a little bit of -- and I would say, look, there's got to be some continuation of investment back into growth as we go to fiscal '27, but we're not prepared to give you anything specific with respect to fiscal 2017 at this time.

Okay. That's helpful. And lastly, maybe just quickly, a lot of focus on this call around top line, getting new brands back to healthy levels of growth. And so Scott, I'd kind of be curious as you've kind of dug in and started to study this business more over the last several months, is portfolio optimization part of that exercise? Or do you kind of see the same opportunity across the entire brand portfolio?

Yes, Bob, (sic) [ Peter ] great question. I'd say this, we're always -- as we do our strategic review, let me back up. I've been here 4 months, I focused on 4 areas, if I think about the last 4 months and 1 of which has been job one, which is kind of what -- how do we get their aspiration looking out for the future? And then what are our big steps in FY '27. As a part of that process, which we kicked off in the last 30 days, which you'll see more of it in the coming months is looking at our portfolio.

But fundamentally, as I talked about earlier, we have 30% to 40% of our brands that have upside opportunity given investment and given the right focus, and we're going to kind of step down on them, step down in a good way, push them forward. And then we have a number of brands that we have to evaluate what is the right model going forward, how do we invest? What's the right operating model. There's so much opportunity there. And then like any company, we're always going to be evaluating our portfolio over the next -- as we look at our strategic plan on what brands are best fit and which ones don't. But at this point, I don't have any specific answer on that.

Our next question is from Susan Anderson with Canaccord Genuity.

Maybe just a follow-up on the innovation front. I guess I was curious, are there certain areas such as maybe the most underperforming areas that you're going to touch for us? Or is this something where you're just kind of going to touch all areas of the portfolio.

And then in Beauty, I guess, that industry obviously has seen growth the entire time. So -- just kind of curious what you think kind of went wrong there and what you need to do to kind of turn driver around both on the liquid side and fixture side? And then I'm not sure if I heard, but did you say how growth was performed in the quarter.

Yes. First of all, yes, Susan, thank you. From an innovation standpoint, we can't run every innovation equally. So we just cannot do that. We've got to be really smart about it. And we have several brands that I would say today can do a lot more, can grow a lot faster with the right level of support. And we're going to make sure as we go into FY '27 as they get what they need.

And then we have a number of brands I call that are in the phase of renovation that need work. And he worked from everything on getting sharp on the consumer, sharp on the product pipeline, sharp on the structure to support the brand in the marketplace. And we're going to do that work. So as I expect our growth curve going forward to be not a straight line, we're going to have parts of our portfolio growing at a faster rate.

And in some parts, we're just trying to stabilize as we go into FY '17. And specifically around beauty. We've got an opportunity. We've got some work to do in that area. And I can tell you this, the team is on it. They've gone through a big reset moment in the last 24 months. FY '27, we should see some improvement, but it will be much more around stabilization and clarity of future than being in the green bucket of high growth, which we're getting from things like Olive & June, Osprey and Brown, et cetera. I don't know, Brian, you want to add.

I'd just say on crossness specifically, I mean, we're not giving that level of detail. CurlsSmith didn't have the best quarter in terms of our shipments in the quarter, but I wouldn't say that's indicative of the health of that business.

Okay. Great. And then maybe just a follow-up. I guess, if you could talk about kind of how you're thinking about your leverage, I guess, where would you like it to go longer term? And I guess, I guess, how long do you think it would take you to reach that goal? And then maybe just a follow-up on kind of the portfolio and potentially rationalizing some of it. I guess, -- do you think there's opportunity there, maybe even to help pay down quicker some of your leverage.

Yes, I'll take the first step and Brian can step in. in addition to -- I know growth, which I fundamentally think is a job 1 for Helen of Troy, and we have that opportunity against our brands. In addition to that, going as you'll hear in our plan forward, getting our balance sheet healthy and driving operational efficiency will also be kind of an in tandem strategic priority for us that we're going to be focused on.

I'll let Brian talk more about the leverage ratio. But specifically around the portfolio. I mean just I've been doing this, this world of kind of running portfolios of brands for many years and always reevaluating the portfolio mid- short, mid and long term. And came in the short term, we're going to be focused on how do we bend the curve and improve our performance from our green brands and as well as our renovation brands.

I think midterm and long term, we'll be looking at what is the right portfolio for Helen of Troy and how does that create the long-term value for the company. We're not in a position today to -- I'm not holding back right now that I have a specific brand, and I'm like, "Oh, it shouldn't be there" because we're doing the hard work of saying, how do we drive the right strategic plan for the company and we're just not there yet, but it's definitely something we will be considering and a question will rest as we do the work. Brian, do you have anything you want to add on the leverage ratio. Turn it over to Brian.

Yes. I'd just say, look, we have a base plan that we feel really good about in terms of our leverage and our ability to bring leverage down. We've got a big opportunity to tighten our balance sheet and make it more productive. We're -- we've been working on that, and we're going to double down on that area of focus. That's -- you heard some of my comments earlier about inventory.

We're going to tighten up our inventory, which will produce a lot of cash, and we're going to put that to work to pay down the debt. We also have some longer-term assets that we can look to monetize, and we can consolidate from 3 distribution centers to 2. That's going to take a little bit of time, but that's on our mind. So I would say that that's the base plan and plan A that we're kind of working first.

But as Scott said, we're always thinking about divestiture. And I'll just tell you, we get inbound -- you asked is it possible for one of those things to happen. And I will tell you, we get inbound interest on some of our brands on a regular basis. I think -- our focus is more on the plan A at this point, while we're maybe thinking about and working on the plan of divestiture divestitures are very distracting. They take a lot of work and you can put all that work in and get to the end and you don't get the value that you're looking for and you may not be successful.

We have to be very choiceful about the ones that we're going to invest that level of work and time into. And I think Scott needs time to build his growth strategy and really look at this. And then once we've done all that and done that assessment, then I think we're better prepared to say we want to focus on X, Y or Z. So that's how we think about it.

Our next question is from Olivia Tong with Raymond James.

Great. Happy New Year. Based on the innovations you're planning for next year, do you think you find a revenue rebate in FY '27 or perhaps when do you think you can omit the commentary around the recovery not being linear? I know it's unlikely you'll provide a lot of building blocks for fiscal '27.

But there are quite a few exogenous issues that hit this year, both on revenue and profitability, most notably obviously the tariff hit. So what are the incremental hits that we should be thinking about after tariffs begin to enter the base in the late spring.

Brian,, let's you just take.

Yes, I mean, Olivia, the first part of your conversation was kind of when you think will inflect on it from a revenue perspective. And I want to address that, and I think Scott can also address a piece of it. But I think you're also saying, look, you had some exogenous headwinds during the year that you don't necessarily have to repeat as you go into next year, and I would agree with that sentiment. We had a lot of disruption in our revenue related to tariffs and direct imports and China dynamics -- that is stabilizing.

We still have work to do to ensure that we can recover all of that revenue base as we go into next year, and I'm not making a commitment on that at this point. We're doing the work, and we are trying to recapture all that revenue. And I think it's -- no matter what, it's a depth building block year-over-year because we already know that some of that's back in our base. But whether we can get all of it is still an open question. So I can't tell you to what extent at this point, but it's a work in process. And yes, the tariff situation is better.

I think hopefully what you're hearing from our commentary, though, is that benefit that we're going to get from things like tariff stabilization and they reduce the rate, and we now have pricing in market and they're even talking about refunds potentially with the Supreme Court. We want to put that back into the business to make sure that we have steady, consistent, reliable revenue growth.

And then I think the algorithm on the profit improvement comes in, but that's going to take a little bit of time. We're going to focus on revenue first. we get that strong, everything else kind of takes care of itself, but I don't expect that immediately. We got to get the revenue back first, and then we're going to to step it to the profitability.

Got it. Maybe if I could double quick on that about what you think is the potential steady-state operating margin for the company. Do you think you can get back to double-digit EBIT margins over time? If so, what sort of needs to happen to get there? And what's your view on timing of that?

Yes, I do think we can get back to that. But again, hopefully, we're not going to time warp back to margins from 3 years ago. That's not the way it's going to work. We're going -- as we get to revenue improvement first, then revenue growth, then we'll use the operating leverage to have some kind of an algorithm that delivers on profit growth to a degree, but we're going to over-index on the revenue piece of it.

So I don't want to give you a specific margin at this point, but what I will tell you is we will once we get back to revenue growth, we will have an algorithm that produces margin expansion. And if it's 2 points of revenue growth and it's probably 20 bps of margin expansion. If it's 5 points of revenue growth, maybe it's 50 points of revenue expansion.

But just to be clear, that's a couple of steps away. We have to get to revenue improvement first, then revenue consistent revenue growth then we'll focus on margin expansion.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you very much, everyone. With renewed enthusiasm across the company, we're ready to leverage our portfolio and return to sustainable, profitable growth. Our path to our aspiration is becoming clear. This leadership team is determined to show sequential improvement across our business in the coming quarters.

We will do this by staying focused on our North Star, which is keeping the consumer at the center of everything we do. By realigning our commercial triangle of product, sales and marketing, we are reinvigorating brand building and strengthening retail and operation execution. Our teams are energized, ready to fully leverage our diverse portfolio of leading brands to get us back to a path to growth. Thank you for participating today. We look forward to speaking with many of you at the ICR conference and the virtual CJS conference next week. Have a good day.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Greetings. Welcome to Helen of Troy's Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

I'll now turn the conference over to Anne Rakunas, Director, External Communications. Thank you, Anne. You may now begin.

Thank you, operator. Good morning, everyone. Welcome to Helen of Troy's Second Quarter Fiscal 2026 Earnings Conference Call. Before I review our agenda with you, I'd like to welcome our new Chief Executive Officer, Scott Uzzell, who joined the company last month.

The agenda for the call this morning is as follows: I will begin with a brief discussion of forward-looking statements; Scott will then share some of his initial thoughts and areas of focus; and Brian Grass will provide a high-level discussion of the quarter and our progress on key initiatives. Tracy Schuerman, our Assistant CFO, will then provide an overview of our financial performance in the second quarter and provide commentary on our expectations for the full year fiscal '26. Following our prepared remarks, we will open up the call for Q&A.

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 are words identifying forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other companies. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information.

Before I turn the call over to Scott, I would like to inform all interested parties that a copy of today's earnings release and related investor presentation has been posted to the company's website at helenoftroy.com and can be found on the Investor Relations section of the site or by scrolling to the bottom of the homepage. The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures.

And I will now turn the conference call over to Scott.

Thank you, Anne, and good morning, everyone, and thank you for joining today's call. It is a great honor to speak to you as the CEO of Helen of Troy.

Before I begin, I want to like -- I would like to thank both Brian and Tracy for their leadership these past few months. I am so pleased they've agreed to continue helping me lead this company as Chief Financial Officer and Assistant CFO. I've enjoyed the opportunity to become acquainted and collaborate closely with them since I've joined. Their company knowledge, industry insight and enterprise leadership are immensely valuable, especially as we make a smooth transition to our future.

As this is my first earnings call since joining the company last month, let me share a little bit about me and why I'm enthusiastic about the future of Helen of Troy. I most recently served as Corporate Vice President and General Manager of Nike North America, and I was a member of the Nike executive leadership team. Prior to this role, I was the President and CEO of Converse Inc. for 4 years, where I led a turnaround, a turnaround built on placing the consumer at the center of the enterprise, investing in new product innovation and brand building and powering our teams around the world to win in the marketplace.

I look forward to getting you know many of you during the weeks and months ahead. But as you get to know me, you will discover first, I'm extremely curious. I'm always looking at how things work and looking around the corner for the next key consumer behavior and category shift. Second, I'm a relationship builder. I enjoy meeting people and getting to know people makes me a better leader. And finally, I'm incredibly competitive, and I want to win. These 3 characteristics have been a fundamental part of my DNA, both professionally and personally.

The reason I chose to join Helen of Troy is simple. I love trusted brands. I love thoughtful product solutions and working with teammates that are passionate about consumers and solving consumer problems. I'm excited about the opportunity in front of us to engineer a great comeback story. We have the ability to reverse Helen of Troy's recent underperformance and restore this company's reputation for consistent growth by providing world-class innovation to our consumers.

But let's be clear, I am clear-eyed about the challenges we are facing. I embrace the opportunity to reverse course. Occasionally, companies need to go through a renewal, and at Helen of Troy, that renewal has started. It's underway. Our focus is to invigorate the exceptional assets we have to leverage our leadership brands and talent within our organization to win in the marketplace and to win in the workplace. There are many areas for enhancement, but no quick fixes. I work with great optimism, urgency and purpose.

One of my leadership traits is to inspire my team to fear staying still. Execution is the job of management, and we will be laser-focused on executing fewer, more impactful initiatives with excellence. One of my indispensable learnings for executing well is the importance of culture. This is the secret sauce that binds and fuels the enterprise ambition and drive enduring value. I believe leadership influences culture by setting a vision, and management must set the pace and speed towards a clear destination.

We will reduce organizational complexity and bureaucracy that has handcuffed this organization. It takes too long to make decisions. I'm so grateful for Brian, Tracy and other company leaders that have already started to install some of these cultural remedies. Together, we will continue to inspire right actions in our associates to accelerate the best decision-making.

I intend to point and direct resources to the most innovative ideas to incubate and take hold. We will take thoughtful and swift actions to simplify our business and drive transparency and accountability across the company. We will empower nimble and more concentrated teams to act quicker and make decisions closer to the consumer in the marketplace.

I imagine, one of the big questions on your mind today is tell me more about your long-term strategic plan. It is the right question to ask. It is just a bit soon for me to provide all the details, but let me share with you four of my initial thoughts. First, I want to reenergize this company and its brands and its people. Although we've slipped recently, the categories we compete in demonstrate genuine growth potential. Going forward, our plan is to focus our attention and investments in a disciplined manner to those brands and opportunities that have the most promise.

Helen of Troy is a firm foundation with the opportunity to get back to industry-leading margins and strong cash flow. We have the flexibility to invest in our future to create more competitive advantage and still deliver strong financial profile. Second, we will position our corporate structure to place the consumer at the center of everything we do. We will place resources and talent closer to the consumer in the marketplace. Our associates want to establish a closer connection with our marketplace and our consumers, which will enhance their engagement and create a [ steep ] presence as we win in the marketplace.

My early observation is we have talented people across this enterprise. They just want to win. With that in mind, nothing we will do is more important than developing our people and adding more top talent. At the end of the day, I place my bets on people, not on strategies.

Third, I want to strengthen the broader portfolio for predictable volume and profit growth. In my experience, best brand innovations always win. It is especially important that we refocus our creative engine to amplify building best-in-class devices and complementary consumables. There is a solid foundation in place already. Our platform is valuable and durable. We have maintained leading market share positions in key categories. We have begun making necessary adjustments to our product road map so that we're positioned to make more best-in-class products while staying laser-focused on execution and ensuring that in the market on time.

However, I want to underline that there is not a quick fix. Our goal is to continue to be the brand solution of choice for our consumers. And this will require us to become even better at design, engineering and marketing while anticipating the needs of our consumers. Finally, I want to improve asset efficiency and maintain our shareholder-friendly policies. On the asset side, our emphasis will be on improving working capital efficiency, and more broadly, balance sheet productivity.

On the capital side, we will use cash flow generation of our business to invest in our core business first, reduce our debt and in search for accretive acquisitions in the future, and then consider return of capital to our shareholders. I plan to continue Helen of Troy's practice of proactive investor outreach via investor meetings and attending relevant investor conferences.

In summary, we earned our way into a difficult period. And clearly, we need to behave our way back to a high-quality sustainable growth. Over the next few months, we will be working on a long-term plan which will provide a road map for our growth ambition. We operate like we are wearing [ bifocals ], with vigilance on the near term, but always maintaining our primary focus on maximizing sustainable long-term value for our stakeholders. I will not be satisfied to [ place ] the company on a sustainable path to further increase new market share, growing revenue and delivering consistent returns for our shareholders. If we do this, I believe we can regain the trust of our stakeholders.

With that, I want to turn it over to Brian.

Good morning, everyone. Thanks for joining. I'd like to start by welcoming Scott to the company as our new CEO. I believe his experience, business philosophy, leadership style and strategic vision are a perfect fit for us as we enter the next phase of our evolution. After only a little more than a month, our associates have been energized by his commitment, passion, growth mindset and people-first approach. I'm confident his leadership will help us deliver stabilization and reliability in our shorter-term results while we continue to rebuild our platform for sustainable long-term growth.

As Scott joined us after the end of the quarter, Tracy and I will take the lead on discussing our results and outlook for the remainder of the year. But I know Scott is eager to take questions regarding his experience, why he chose Helen of Troy and what he sees after 5 weeks at the company.

Turning to the second quarter. While we are not at all satisfied with our results, we believe we took a step in the right direction, with net sales and adjusted EPS at or above the high end of our outlook ranges. Highlights include double-digit revenue growth for Hot Tools, Curlsmith and Osprey; growth in both point-of-sale dollars and units for Braun, Osprey, Olive & June and OXO; Olive & June revenue and profitability that continues to exceed expectations; DTC revenue growth of 15% year-over-year; and positive free cash flow of $23 million fiscal year-to-date despite a cash flow drag of approximately $34 million from higher tariff payments.

Looking more broadly, during our last call in July, we identified 5 key priorities to rebuild our platform for profitable growth and shareholder value creation: one, restoring confidence with key stakeholders; two, improving go-to-market and operating effectiveness; three, refocusing on innovation for more product-driven growth; four, focusing on the fundamentals and fully leveraging the unique strengths of our brands; and five, reinvigorating our culture with resilience and an owner's mindset.

I'm pleased to share that we made meaningful progress across all 5 priorities since our last call. I'm most encouraged by the work we did to improve our go-to-market and operating effectiveness. We recognize that some of our past strategies and execution have fallen short, impacting our credibility with key stakeholders. We've made meaningful modifications to course correct our structure, strategy, execution and approach, which we believe will improve the reliability of our operating results in the near term and lead the way towards growth and consistent shareholder value creation in the longer term.

As part of our effort to improve go-to-market effectiveness, we realigned our commercial triangle of product, sales and marketing within each division, putting our brands at the center, and rebuilt our organizational structure with single points of accountability under our segment leaders to deliver business results. We have seen immediate benefits in terms of alignment, communication, clarity, efficiency, speed and ownership of results. We are also making progress toward our goal of sustained operational excellence across the enterprise. As examples, our distribution operations are now hitting service level targets and nearing peak efficiency levels, and we've made improvements to our direct-to-consumer platforms, digital assets and overall consumer experience, which helped drive double-digit DTC growth for the first half of fiscal '26.

While our second quarter results reflect the early impact of our focus on fundamentals, simplifying operations, sharpening our priorities and increasing agility, they also highlight that we remain in a transition period, with further improvement still needed. I thought it'd be beneficial to give continued perspective on tariffs as the macro environment remains complex, with tariffs continuing to influence our operations and impact our financial performance.

As most are aware, in April of this year, the U.S. government implemented a broad set of tariffs aimed at restructuring trade relationships, particularly with China. Since then, we have experienced significant increases in tariff rates, which have created immediate and ongoing revenue, earnings, cash flow and balance sheet impacts. In response, we've taken a series of tariff mitigation, cost reduction and cash flow preservation actions that we've outlined in previous calls and continue to build on.

One, supplier diversification. We have actively worked to mitigate tariff risks by diversifying our sourcing and manufacturing footprint outside of China. Tracy will give you an update, and there is material in our investor presentation on this. Two, inventory management and SKU prioritization. We purchased targeted additional inventory in late fiscal '25 and early fiscal '26, ahead of potential tariffs. Subsequently, throughout April and May, we significantly reduced purchases of finished goods from China until tariff levels decreased to a more manageable level, limiting our overall exposure.

Three, supplier cost reductions. In an effort to offset some portion of tariff increases, we have pursued cost reduction opportunities with our suppliers, which we have continued to stack up since Liberation Day. Four, customer price increases. We notified retail customers of targeted price increases with the original goal of having them in place near the end of the summer. Working collaboratively with our key retailers and in careful consideration of market and category dynamics, we have now implemented the majority of our planned price increases as of the end of September. However, there are some isolated price increases that are still pending, and we're holding shipments in some instances as we work toward consistent adoption across our retail customer base. We expect the slight delay in implementation in the holding of shipments to compress our operating results in the second half of fiscal '26 as compared to our previous expectations, which has been factored into the outlook provided in our second quarter earnings release.

And five, cost management. In response to tariffs and revenue declines over the past several quarters, we've implemented a series of measures to reduce overall cost, optimize working capital, improve balance sheet productivity and preserve cash flow. While tariffs present ongoing headwinds, we believe our diversified sourcing strategy, extensive tariff mitigation and proactive cost management positions us well to continue to adapt to the disruption and uncertainty that will continue to evolve. Our focus remains on balancing short-term adjustments with investments in innovation and growth, ensuring the business remains resilient and healthy as we take steps toward a return to growth and long-term value creation.

Turning back to our second quarter results. I'll start with our Beauty & Wellness segment. Sales declined 4%, favorable to our outlook range of a decline of 11.3% to 6.1% despite ongoing consumer pressures and continued revenue disruption from tariffs. Olive & June was a standout, delivering better-than-expected sales of $33.4 million. Segment organic sales declined as consumers remain cautious, tariffs weighed on direct import orders, retailers adjusted inventories, and our overall point of sale declined.

Turning to international results for the segment. Remaining retail inventory from last year's weak cough, cold and flu season, coupled with the slow start to this year's season, led to lower replenishment in the second quarter. In China, government incentives favoring localized fulfillment are driving consumer and distributor purchases away from preferred global brands like Braun, which are not sourced domestically and are not price competitive without the subsidy.

Taking a step back from the Beauty & Wellness financial results for the quarter, I'd like to highlight some underlying bright spots we see in the business. Curlsmith recently completed a brand refresh under the campaign, It's a [ Curls World ]. The update simplifies currently hair care into a 3-step routine, introduces fresh new packaging for easier navigation and brings innovation with products like the Awestruck Definition Cream and Moisture Memory Release. These are designed to extend curl longevity, boost hydration and provide customized solutions across moisture, strength and frizz control. Shipments to retail partners, including Ulta, began in the second quarter.

Olive & June continues to build momentum in DIY nail care. With innovative tools and products that deliver salon quality results, the brand is resonating with the broad customer base. Growth this quarter was fueled by replenishment demand, new product launches and expanded distribution. Retail partners are also expanding assortment and in-store placement, giving Olive & June even more reach in the back half of the fiscal year.

We are pleased that our Beauty portfolio was recently recognized by the Allure Best of Beauty Awards, often called the Oscars of the beauty industry. They are a powerful endorsement in recognition of product excellence and innovation. This year, our brands earned 5 top honors: Curlsmith for Best Curl Enhancer; Drybar [ Hot Toddy ] for Best Heat Protector; Revlon One-Step Volumizer Plus for Best Brush Dryer; Hot Tools for Best Static Curling Iron; and Olive & June [ Jill Manny ] for Best Breakthrough. These wins underscore the strength and diversity of our beauty brands and reflect the team's outstanding work, drive innovation and execution across our Beauty business.

In Home & Outdoor, second quarter results were consistent with our expectations. Net sales declined 13.7% as the domestic market remained under pressure from the impact of tariffs on direct import orders, cautious consumer spending and lower replenishment from retail partners as they manage inventory levels with a cautious view of the consumer environment. This was partially offset by OXO distribution gains and continued strong performance in food storage, bath and kitchen gadgets at retail. Internationally, segment sales grew, driven by Osprey.

Turning to OXO. The brand's fundamentals remain strong. Consumers are responding well to Twist & Stack food storage solutions for their durability and secure sealing lids. Our rapid brewer is earning outstanding feedback for speed, versatility and thoughtful design. And the new compact [ ConicoBur ] coffee grinder was recognized by Forbes as the Best Value Pick in its category, praised for consistent grind quality and slim user-friendly design. Other recent launches continue to grow, including OXO Ceramic Bakeware and additions to our emerging OXO [ Tot Feeding Line ], further reinforcing OXO's reputation for solving everyday problems with high-quality, intuitive products.

Hydro Flask highlights include the new Micro Hydro, which is proving to be highly fashionable and versatile, compact enough for everyday carry, yet functional across wellness, outdoor and travel occasions. Early adoption has been strong, and we see opportunity to build this into a distinct franchise. Our new 24-ounce Travel Tumbler and Travel Bottle also drove nice growth during the quarter, reflecting continued demand for performance hydration and the brand's ability to continue to expand into adjacent sizes, shapes, form factors and categories.

Osprey posted strong growth in the quarter, led by technical and travel packs. In the U.S. technical pack market, Osprey remains the #1 brand, with share more than 3x larger than the next competitor. Consumers are rewarding the brand's sustainability leadership, including our move to 100% recycled fabrics and elimination of PFAS-based durable water repellent across all textile products.

Performance remains a differentiator as well. Our new [ Arteon ] series, featuring an abrasion-resistant, 100% recycled fabric, performed so strongly in testing that our machines could not wear it down. That level of quality is resonating with consumers. The limited edition [ Arcion ] [ Fujen ] backpack, created in collaboration with [ Carryology ], sold out in just 24 hours. In addition, new Transporter and Daylight travel packs grew double digits, and our [ Kit Carriers ] gained share and grew point of sale.

Despite near-term demand variability and ongoing retail inventory adjustments, OXO, Hydro Flask and Osprey continue to show positive consumer traction. We are prioritizing innovation, brand relevance and sustainability, the core elements that will restore growth and deliver long-term value in Home & Outdoor.

In closing, we are giving perspective on challenging external factors today. But let me be clear, it's up to us whether we grow or not. While we expect the environment to remain challenging, our North Star must be to keep the consumer at the center of everything we do. Consumers are seeking a better value proposition for their limited share of wallet. We can deliver that proposition across a strong portfolio of brands with innovative products that resonate with the consumer and exceed their expectations with differentiated features, thoughtful designs and superior performance. When we support these efforts with the right brand building initiatives, flawless retail and operational execution and a delightful end-to-end consumer experience, it should be a winning formula in any environment. Getting that formula right is up to us.

Before turning the call over to Tracy, I want to acknowledge the dedication and professionalism of our associates. Their resilience and commitment are critical as we work through this period of new beginning. We are taking deliberate steps to strengthen our foundation, refine our strategies, improve our execution and position Helen of Troy for long-term success. We remain focused on delivering our commitments while we rebuild our platform to drive profitable growth and value creation for our shareholders.

And now, Tracy will review the financials in more detail and provide our financial outlook for the remainder of fiscal '26.

Good morning, everyone, and thank you for being with us today. I want to give Scott a warm welcome to Helen of Troy. In just a short time, I've been impressed by his leadership style and his ability to inspire and engage with teams across the organization. Like many others, I'm confident he is a great fit for our culture and the brands that define Helen of Troy as we move into our next chapter.

Today, we reported results at the favorable end of the net sales and adjusted EPS outlook ranges we communicated during our earnings call in July. This result is encouraging and reinforces our commitment to maintaining focus and discipline as we implement key initiatives to strengthen our business performance. As Brian highlighted, we made further progress on our tariff mitigation strategies, which include initiatives aimed at reducing costs and safeguarding cash flow. We now anticipate that we can lower our cost of goods sold subject to China tariffs to between 25% and 30% by the end of fiscal '26, as compared to our previous expectation of below 25%. While this is slightly higher than we originally targeted, we believe we are making the right choices to mitigate supply risk, ensure product quality, secure favorable costs and navigate the business disruption that has emerged. Year-to-date, we have experienced an approximate $10 million impact from tariffs on our cost of goods sold, and we expect a reduced negative effect in the later half of the year amounting to less than $9 million as we benefit from the price increases that Brian mentioned. Please refer to the investor presentation on our website for a complete summary of the tariff mitigation actions we are taking, as well as a summary of the gross unmitigated impact of tariffs at current rates, the amount we believe we can mitigate or offset and the net remaining impact on operating income for fiscal '26.

Turning your attention to the results from the second quarter. Consolidated net sales decreased 8.9%. When excluding the effects of Olive & June, organic net sales experienced a decline of 16%. Approximately 30% of the organic revenue decline was attributed to tariff-related revenue disruptions. As expected, this primarily stems from 2 key factors: the pause or cancellation of direct import orders in China in response to higher tariffs and trade policy uncertainty; and changing dynamics within the China market, which include a transition towards localized fulfillment models and increased competition from domestic sellers who are benefiting from government subsidies. While we expect these headwinds to persist into the second half, the impact is expected to be less significant compared to the first half.

The remaining decline is indicative of softness in certain categories and overall point-of-sale decline, even as several of our brands gained or maintained market share and saw point-of-sale unit improvement. Category softness can be attributed to changing consumer behaviors, particularly the prioritization of essential categories amid concerns regarding future pricing pressures and overall economic uncertainty. As these trends influence purchasing volumes, retailers also continue to modify their inventory levels. Furthermore, we observed a slowdown in thermometry replenishment across the Asia Pacific region, which was a result of a less severe illness season last year.

Now I would like to turn to our business segment performance, starting with Home & Outdoor, where net sales experienced a decline of 13.7%. Approximately 4 percentage points of this decline can be attributed to tariff-related disruptions, which include lower club direct import orders and the insulated beverageware and home categories in response to increased tariff rates. The remaining decrease reflects ongoing broader demand weakness in both the home and the insulated beverageware categories, including continued POS decline in beverageware due to heightened competition and net distribution losses. This softness was further pressured by retailer inventory adjustments and lower sales in the closeout channel. These challenges were somewhat mitigated by strong demand for technical, travel and lifestyle packs, increased sales from expanded distribution in the home category and additional sales generated from a new product launch in the insulated beverageware category.

Shifting our focus to the Beauty & Wellness segment. Net sales saw an organic business decline of 18.2%, with approximately 5 percentage points of this decrease attributed to tariff-related disruption. The decline also includes the cascading impact of trade policy in the China market affecting international thermometry sales, in addition to a reduced reduction in domestic sales of heaters and certain beauty products. The remaining decline is reflective of broader demand weakness for thermometers internationally, which is attributed to lower replenishment levels due to a less severe illness season last year in Asia, a downturn in beauty sales primarily driven by diminished consumer demand, tightened competition and a net distribution loss compared to the previous year, as well as a decrease in water filtration, largely due to weaker consumer demand, and intensified competitive promotional efforts. These headwinds were partially offset by incremental revenue from Olive & June of $33.4 million.

Consolidated gross profit margin decreased 140 basis points to 44.2% due to higher tariffs on cost of goods sold, which unfavorably impacted gross profit margin by approximately 200 basis points, entire retail trade and promotional expense in response to a more competitive retail environment. These factors were partially offset by the favorable impact of the Olive & June acquisition, lower commodity and product costs and favorable inventory obsolescence expense year-over-year.

SG&A ratio increased 310 basis points, primarily due to increased share-based compensation expense, higher outbound freight costs, the impact of the Olive & June acquisition and the impact of unfavorable operating leverage. These factors were partially offset by the favorable comparative impact of higher distribution center expense in the prior year period due to additional costs and loss efficiency associated with automation start-up issues at the Tennessee distribution facility.

GAAP operating loss for the quarter was $315.7 million, primarily due to $326.4 million of noncash asset impairment charges incurred primarily due to the sustained decline in our stock price and the lower gross profit margin and higher SG&A rate I just mentioned. On an adjusted basis, operating margin decreased 360 basis points to 6.2%. The decrease was primarily driven by the impact of higher tariffs on cost of goods sold, which unfavorably impacted adjusted operating margin by approximately 200 basis points.

As Brian discussed, our price increases to retailers largely became effective after the end of the second quarter, so the tariff cost impact on our second quarter operating margin was greater than what we expect on a go-forward basis. The gross margin decline was also driven by higher retail trade and promotional expense, higher outbound freight costs and the impact of unfavorable leverage. This was partially offset by the favorable impact of the acquisition of Olive & June, lower commodity and product costs, favorable inventory obsolescence expense year-over-year and the favorable comparative impact of higher distribution center expense in the prior year period, as I mentioned earlier.

Home & Outdoor adjusted operating margin decreased approximately 540 basis points to 9.6%. This reflects the impact of higher tariffs on cost of goods sold, which reduced operating margin by approximately 240 basis points. This is partially offset by the favorable comparative impact of higher distribution center expenses in the prior year period. Adjusted operating margin for Beauty & Wellness decreased 130 basis points to 3.1%. This reflects the impact of higher tariffs on cost of goods sold, which reduced operating margin by approximately 180 basis points. This was partially [ offset ] by the contribution from Olive & June.

Income tax benefit as a percentage of loss before income tax was 6.4%, compared to an income tax expense as a percentage of income before income tax of 22% for the same period last year. The decrease in the effective tax rate is primarily due to the tax effect of the impairment charges in fiscal '26 and increases in tax benefits for discrete items, partially offset by valuation allowances on intangible asset deferred tax assets.

Non-GAAP adjusted EPS was $0.59 compared to $1.21 in the same period last year. This year-over-year decrease was primarily due to lower adjusted operating income and higher interest expense, partially offset by a decrease in adjusted income tax expense.

Turning to our inventory balance. We ended the quarter with $528.9 million or approximately $59 million higher than the same period last year. Excluding inventory related to the Olive & June acquisition and $32 million of tariff-related costs layered into inventory, our ending inventory was largely flat year-over-year. That said, our inventory remains higher than we'd like, and we remain focused on driving improvement in the second half of the year.

Turning to our debt and liquidity position. We ended the second quarter with total debt of $893.2 million, a sequential increase of $22 million compared to the first quarter of fiscal '26. The cash flow was unfavorably impacted by roughly $27 million of cash outflow from tariffs, inventory build ahead of our peak selling season and higher capital spending tied to supplier transitions outside of China. The borrowing availability on our revolving credit facility is $578.6 million, and the limitation on our ability to borrow based on our leverage ratio is $212.7 million. Our net leverage ratio was 3.5x at the end of the second quarter compared to 3.1x at the end of the first quarter of fiscal '26. The increase was driven by higher net debt and lower trailing 12-month EBITDA due to the revenue decline in the first half of the fiscal year.

Looking ahead, free cash flow is expected to sequentially improve over the balance of the year, though leverage and interest coverage will remain areas of focus. At the end of the second quarter, we are in compliance with all covenants under our credit agreement. However, given the potential range of outcomes related to sales trends, tariffs and other macroeconomic factors, we will likely proactively engage with our lender group to secure additional flexibility to ensure continued compliance.

Now I'd like to turn to our outlook. Despite the ongoing trade disruption that presents a challenging operational landscape, we are encouraged by the progress we are making to alleviate the [ efforts ] of tariffs and enhance our operational and financial standing. As such, we are providing an outlook for the remainder of the fiscal year. Our outlook includes our anticipation of lower direct import orders following tariff-related pullbacks, the ongoing impact from changing dynamics in the China market, lapping of tariff-related order pulled forward in the fourth quarter of fiscal '25 and continued soft consumer demand. Additionally, we're observing ongoing consumer trade-down behavior as shoppers seek value and prioritize essential categories.

In light of these trends, we expect retailers to remain cautious, managing inventory levels tightly amid ongoing uncertainty and inflationary pressures. We expect these challenges to be somewhat mitigated by additional revenue generated from the Olive & June acquisition, the implementation of pricing actions largely effective by the end of September and the cautious view of potential unit volume declines tied to price elasticity. As Brian mentioned, there are some price increases still pending, and we are holding shipments in some cases to ensure consistent adoption across our retail customer base. We expect that this will slightly compress the pricing benefits in the second half of the year as compared to our original expectations, but is necessary to avoid pricing disruption in the market.

On a full year basis, we expect net sales between $1.74 billion and $1.78 billion, which implies a decline of 8.8% to 6.7% year-over-year. In terms of our net sales outlook by segment, we expect a Home & Outdoor decline of 11.8% to 9.7% and a Beauty & Wellness decline of 6.2% to 4%, which includes an expected incremental net sales contribution of $130 million to $137 million from Olive & June. On a full year basis, we expect consolidated adjusted EPS in the range of $3.75 to $4.25, which implies a decline of 47.7% to 40.7% year-over-year. For the third quarter, we expect net sales between $491 million and $512 million, which implies a decline of 7.5% to 3.5%.

In terms of our net sales outlook by segment, we expect a Home & Outdoor decline of 12.8% to 8.7% and a Beauty & Wellness decline of 2.9% to growth of 1%, which includes expected incremental net sales contribution of $36 million to $39 million from Olive & June. We expect third quarter consolidated adjusted diluted EPS in the range of $1.55 to $1.80, which implies a decline of 41.9% to 32.6% year-over-year. Our adjusted EPS outlook includes expected margin compression reflecting growth investments to support future revenue expansion and new product development, pressures from a more promotional environment, consumer trade-down behavior within our categories, a less favorable overall product mix, higher product costs driven by higher tariffs and unfavorable operating leverage.

We expect margin compression in the second half of fiscal '26 to be partially offset by Project Pegasus initiatives and strategic price increases implemented largely by the end of September, the comparative impact of unfavorable operating efficiencies at our Tennessee distribution facility in the prior year and cost reduction measures implemented in the first 6 months and continuing throughout the year. We believe our actions to reduce spending will lead to more normalized non-GAAP SG&A ratio in the range of 34% to 36% for the second half of the fiscal year, supported by our seasonal revenue patterns and more favorable operating leverage, easing tariffs related to trade disruptions and the favorable impact of our price increases to retail on our SG&A ratio.

In terms of our tax rate, we expect our adjusted effective tax rate to range from 15% to 16% for the full fiscal year, with third and fourth quarter ranges between 22% to 25% and 28% to 31%, respectively. Inventory is expected to decline from current levels to approximately $480 million to $500 million by the end of the fiscal year, or roughly $27 million to $47 million above fiscal '25. This increase is primarily driven by approximately $41 million of tariff-related costs we expect to be capitalized into inventory at year-end, along with inventory prebuilds related to Southeast Asia sourcing transition.

We also expect to hold additional inventory ahead of Chinese New Year, which falls 2 weeks later than last year. As previously shared, we still expect the majority of direct tariff cost to impact the second half of the fiscal year, which is largely aligned with our pricing actions. We also expect our diversification in dual sourcing strategies to reduce supply risk and help insulate us from tariff policy changes. Related operating expenses and capital expenditures are expected in fiscal '26, with most of the diversification benefit realized towards late fiscal '26 and early fiscal '27.

In closing, I am confident we are well positioned to navigate the current environment and come out stronger by focusing on a few clear priorities: strengthening supply chain diversification beyond China; implementing focus in collaborative pricing strategies; maintaining cost and cash discipline; and protecting our balance sheet. Under the guidance of Scott and Brian and the renewed energy of our global team, I believe we are on track to begin unlocking the full potential of our diverse portfolio of leading brands and driving sustainable long-term growth.

And with that, I will turn it back over to the operator for Q&A.

[Operator Instructions] The first question comes from the line of Rupesh Parikh with Oppenheimer.

So maybe, Scott, a question for you to start out. I know you've only been there a few weeks at this point, but just curious how you feel about the portfolio today? Are there any opportunities for divestitures? So just at a high level, your initial take on just the portfolio as you see it today?

Tracy?

Yes. Before we answer that question, Rupesh, we're going to let Tracy clarify a comment she made in her remarks.

Yes. Thanks, Brian. Yes, I just think to clarify my commentary related to the full year revenue outlook by segment. So in my remarks, I provide an outlook for the incremental revenue contribution from Olive & June of roughly $130 million to $137 million, which is the total revenue contribution for the year, not the incremental contribution for the brand. So the correct incremental contribution for Olive & June is in the range of $109 million to $112 million. So this information [ is spend ] provided in the earnings release, which is correct as well as the investor presentation.

Thank you, Tracy. Rupesh, nice to meet you. Super excited about being here. I think to reask your question myself, he said, what have I seen after the first couple of weeks here at Helen of Troy, why I'm excited. I tell you this. I think about first, when I first investigated Helen of Troy a couple of months ago and then as I'm looking at the background information on the company, I look around my home and I see the Osprey backpack that my son and I used as he was on his road to becoming an Eagle Scout, or the OXO products in my kitchen, or the Curlsmith products that my daughter uses and I say, "Wow, what a collection of amazing brands that have so much promise and opportunity."

And then as I did more investigation, I said to myself, a company that has such an amazing path that in the most recent days have been challenged, and we have so much opportunity going forward. As far as divestiture, our portfolio after 5 weeks at this point, all of our brands, I think, have promise, but it's something that we're evaluating on a go-forward basis as we think about our long-range plan and where we're going. But at this point, I can't give you a specific answer on any 1 brand or any decision at this point.

Great. I look forward to meeting you. And then maybe just 1 follow-up question. Say, I'm not sure how much color you can provide today, Brian, Tracy. But just curious, as you look at the guidance for this year as we look to next year and beyond, like is this -- do you think this is a fair earnings base you could potentially grow off of going forward? Or I don't know if there's any like, any color you can provide on just how to think about the earnings base that we're seeing now and the ability to grow off of it in future years?

Yes. I think we're not going to want to give specific guidance for fiscal '27 at this point, but I would call out, there's large transitory, we believe, transitory impacts to both revenue and expense in fiscal '26. And we believe a lot of those will dissipate in the second half of this year and especially as we get into next year. So I would point that out as being a building block for growth next year. We'll have to finish going through our planning and size up everything in the aggregate as we get more visibility through the second half of this year. But we definitely believe there's transitory impacts that were unfavorable on '26 that we don't believe would exist in '27. Tracy, do you want to add anything to that?

Yes. No, I think that's absolutely right. I think what we experienced in first quarter and second quarter, you're going to see that improve in the back half, and I think that will help us see the building blocks as we look at fiscal '27.

The next question is from the line of Robert Labick with CJS Securities.

Good morning, and welcome, Scott. Nice to meet you, and thanks for taking my questions. So to start, just with Scott here. In your experience, what does it take and how does the company revitalize brands that were leaders, maybe still are, had really strong growth, but aren't growing as much, maybe losing a little share here and there? What are the steps needed and what are the biggest challenges to restoring growth to leading brands that aren't growing as much?

Bob, great question. I tell you from my past, a couple of things. One is obsessing the consumer and consumer insights. Two is driving innovation. And then looking at the operating model and saying to yourself, what's getting the way of decision-making so that you can go from idea to marketplace with speed. When I look at a company at our size, I see much opportunity in terms of the people, the culture and the background that really comes down to management philosophy, management discipline and management role modeling, what's most important.

The work that Tracy, Brian and the team has done in the last couple of months to put more resources and more people closer to the marketplace, closer to the brands, close to the consumers. It's a step in the right direction, but really creating the piping and the plumbing, so this becomes something we do every day. It's about growth. It's about where we're going. It's about leading the consumer, it's about building the category. When we talk about our long reach brands in the future, that's what our focus is going to be around.

Okay. Great. And then just kind of for my follow-up question, I guess, Brian, can you just maybe discuss optimal leverage and capital structure for the business and your expectations for talks with -- you mentioned, obviously, you're in compliance with all covenants, but maybe looking to get some better options going forward?

Relief, maybe.

Relief, yes, exactly, going forward. And just give us a sense of your thoughts on the balance sheet and how that relief may go?

Yes. I mean, optimally in this environment, we would like leverage to be closer to 2x and maybe even below that as we go forward. In terms of my view of the covenant situation and where we are, I feel really good about where we are. We've had discussions with the vast majority of our banking group at this point to make them aware of the possibility and to talk through what it means, what it will look like and that type of thing. And I would say every single one of those conversations has been supportive and constructive. So I expect some form of holiday in terms of those covenants.

And in terms of what other impacts there would be, there will be fees associated with doing an amendment, but I'm not expecting any large structural changes to the cost of interest or anything else like that. So that's what I know at this point. We'll continue to evaluate the need to work through that process. And if we do need to work through that process, we'll do it swiftly.

Our next question comes from the line of Susan Anderson with Canaccord Genuity.

Thanks for all the details this morning, and welcome aboard, Scott. I was wondering maybe if you had any high-level views yet just on the categories and where you see the opportunity going forward for growth, whether that's in Beauty & Wellness or Home & Outdoor or maybe even categories that you're not in yet?

Yes. Go ahead. Susan, nice to meet you. Again, early days, but a couple of things. One, the answer is yes and yes, both in Home & Outdoor and in Beauty & Wellness. As I've traveled and I still have many travels to go over the next days and weeks, whether it be the innovation I'm seeing around Osprey and building the legacy [ and Ethostet ] brand and adjacent categories as well as in existing categories, a lot of upside opportunity.

Curlsmith still is just scratching the surface as I talk to retailers and talk to our consumers around restaging that brand and connecting with the consumers that resonate with them. And the restage is happening as we speak. We talked about Olive & June. It's in its early days of a great book that's being written. And then OXO has an abundance of innovation that starts with authenticity and really a connection with the [ true chef ] that really can't be characterized by our competition. But I can tell you that in early days that we have a lot of opportunity to focus on fewer initiatives and drive impact with the brands that we have for fixing that foundation. And second, paying down debt and then looking at M&A as a growth driver, which has been a part of our past going forward, but we've got to get our foundation right first.

I would just add, Susan, Beauty, it's not one that Scott maybe specifically touched on, but it is a category that we think there's opportunity in. We need to do better within the category. We realized that we're actually excited about short-, medium- and long-term innovation that we have in the pipeline there that we're going to leverage to drive that growth and perform better within that category. So it's not an opportunity at this moment, but we see it being an opportunity as we go forward.

Okay. Great. And then maybe if you can give some more color just on the segments and the puts and takes of the brand in the quarter, like, for instance, in Beauty & Wellness. It sounded like the wellness brands for kind of a weaker part of the portfolio, I'm curious how the prestige hair brands did, and then also the tools? And then within Home & Outdoor, there also sounded like home was kind of the weaker area. I'm curious how OXO performed?

Okay. Yes, we can walk around the wheel a little bit. I would say, overall, what we saw is that sell through -- sell-in is lagging sell-through for the first 2 quarters of the year. And hopefully, that would be evident based on some of the disruptive factors and things like that, but I want to make sure people understand that. And I think inventory is being managed cautiously by retailers in most cases. We have 1 or 2 cases where we've got isolated higher pockets of inventory, but those are exceptions and isolated, I think. So I would say that as a broad statement.

You're correct on your first statement about Wellness being a little bit weaker in terms of our revenue. I think that was driven largely by direct import disruption. And we continue to see impacts of weak cough/cold/flu season from last year, and then a slow start to the season this year is kind of having a double effect on -- in terms of the Wellness business.

Beauty, as we kind of talked about -- we're in some strong categories, and Beauty overall is doing well. I think there's pockets where there is some consumer trade down occurring. And there's strong competition in the channel and some of our categories. But I feel really good about where we're going in that business in terms of the alignment we've done internally and kind of the doors that that's unlocking. And then our new product pipeline, like I said, short, medium and longer term looks really good. And the All-Inclusive Tool that we just launched is now starting to get really good traction. So that's exciting for us.

And then I think the last is Home & Outdoor, and I'll give Tracy a chance to weigh in after. Home was softer in terms of our shipments, but I wouldn't -- I think that's, again, a lot of disruption related to retail inventory adjustments and impact of direct imports and kind of a lot of that noise. I think as we look more steady state going into the second half of the year, we feel really good about the Home business.

And then Outdoor and hydration, I think you know the story there. Osprey is doing really, really well, and it did well in the quarter. And we think we have the ability to continue to build on that white space opportunities, continued new products, adjacencies, that type of thing. And then hydration, we do see that category softening. What we like about it is there's kind of a pivot back to bottles where we've had historical strength. We intend to lean into that, and we're working on some stuff to kind of differentiate ourselves from the competition in the bottle space, and that will be coming out in the future.

And then the last point I'll make is related to new products and category adjacencies for Hydro Flask. It's not in hydration. But as we look broadly, where can Hydro Flask go, we're excited about opportunities to kind of expand it into some other areas, which will be coming soon. Tracy, anything you would add?

I think that's a very good overview of how the brands performed. I would say for Home & Outdoor, both OXO and Osprey had favorable POS within the quarter. As Brian mentioned, where we're soft is insulated beverageware. But I think the work that we're doing in rebuilding our connectivity with the consumer and our pipeline is going to help fuel the division overall.

The next questions are from the line of Olivia Tong with Raymond James.

Great. Welcome, Scott. Looking forward to working with you. My first question for you is just when you look at the categories that Helen of Troy is in, where do you see the greatest opportunity for innovation? And if you could layer in your past experiences driving turnarounds, where you've done that, how you think that you can bring that to Helen of Troy?

And then for all of you guys, I suppose, specifically for the drinkware category, the innovation in the [ decons ] is very compelling, the personalization, the better color profile, so forth [indiscernible]. But how do you balance some of the fairly heavy discounting that we're seeing both in external retailers and then on your own DTC with plans to turn around the business? And then also, can you give some broad strokes just on the category and the competitive dynamics that is a particularly competitive category?

Great. Nice meeting you. I'll take the first part, and maybe Brian and Tracy, you can jump in. I think I see opportunity really across our whole portfolio of making innovation and putting the consumer in the marketplace kind of first and foremost, like kind of more in the DNA of what we do every day. And that comes from the way we lead from the top, the talent that we have in our businesses and where we place our resources and investments.

So several weeks in, I wouldn't say there's any 1 category that we have to do it in. We need to do it in the categories where we have strength right now today as well as the categories that are not performing where they need to be for the future. So that's the way I think about it today. The way I think about it from my past, it's really making sure that team, talent and routines are focused around innovation in the consumer and making sure we're acting with speed to capture consumer and category opportunities ahead of the marketplace. I've done that in the past, and it's such an opportunity for us at Helen of Troy, and it's not something that we can't do. It's just something we have to make a priority on how we operate every day.

Yes. Olivia, on your second question, what we see is that the hydration category had been heavily influenced by kind of the tumbler part of that category, and maybe some saturation has kind of occurred in the channel. And I think the bulk of what you're referring to in terms of discounting and kind of trying to clean a lot of that out is in the tumbler space. It's another reason why I like kind of the pivot to bottles, where we have our strength. I think we're less exposed on the tumbler side. And so we're really going to lean into where the trends are going in the kind of the pivot and form factor and try and maximize that opportunity. We also think we have distribution opportunities to maximize and improve on, and we're going to go after that.

But -- and then thirdly, what I said earlier about kind of we think Hydro Flask can go into some adjacent categories, and we're working on that product lineup now. So we still feel good about the space. I think there's some normalization going on there, and I think that's largely concentrated in tumblers, but we'll obviously have to navigate the broader kind of dynamics going on in terms of discounting and what's kind of in the channel already that we'll have to navigate through.

Got it. That's helpful. And then just following up about tariff pressures and your level of confidence in offsetting those pressures. I know it's too early to see the impact of the pricing yet. But given the increased promotional environment and the distribution losses that you've seen, it doesn't necessarily sound like price is the most available lever at this moment. So to the extent that you can comment on other mitigation plans that you have, the conversations that you've had with retailers -- I know you mentioned earlier about some of the holding of shipments that may impact the second half. What other tools do you have at your disposal? Should it take a little bit longer to get the price increases flowing through?

Yes, I can start, and Tracy may want to build. Look, we've been working on pricing ever since Liberation Day occurred. I mean, first, we had to do our internal work to assess what pricing we thought made sense, and a lot goes into that. And so we spent a period of time doing that. And then we also collaborated with retailers as to what they thought made sense and price points and all that type of stuff. And then they have notification periods that you have to work through.

And then the last piece of it is as you get it out there and you get it accepted, you got to have consistent adoption amongst your key retailers. It doesn't work if you don't get that. And that's really where we are today. If there are any pockets of holding shipments, it's to make sure that we have that consistent adoption, and we're going to hold the line on that to make sure. And if you're 1 retailer, you don't want a different adoption by another retailer, you're not going to like that. And so it's our responsibility to get all that right. And I think we've done that for the vast majority of our pricing, and there's just a few additional things to work through.

So I feel confident about the ability to have the prices in place with our retailers with -- really without exception, and I think that's coming very shortly. Then I think there's what do you assume in terms of price elasticity. And what we tried to do is be very conservative in our assumptions about price elasticity. And I think that's -- we've done that, and that's reflected in our outlook. You might ask, well, why do the price increase if you're going to lose a lot of it in unit volume? You're still better off, I believe, in terms of profitability. And in some cases, retailers where they have private label product, they want the price increase in market because they can't raise the price on their private label and have it bumping up against the branded product. And so strategically, they want the differentiation there. And so from a few different perspectives that the price increase makes sense and it definitely helps the profitability even if you lose a large part of it in terms of unit volume.

So I hope that answers your question. That's kind of the way just that we look at pricing. I feel really good about getting it in place and where we are in terms of that. And then it's about what happens with the consumer and what choices do they make.

You asked about other levers also. Pricing is a big lever in terms of our ability to offset what we're able to. And we pulled a lot of other levers as well. And we mentioned all of those in our prepared remarks that are also kind of referred to in the earnings release. The ability to use those more, I would say -- look, we're going to continue to pursue cost decreases with our suppliers, and we continue to kind of stack those up. And hopefully, those will just be upside as we're able to continue to get those. And we're going to do that no matter what happens with retail price increases. We've pulled a lot of the other levers and made significant choices. What we don't want to do is pull so far back on our growth investment for the remainder of this year that it puts us in a bad spot as we go into fiscal '27. So we are trying to sustain and hold the line on new product development and the right brand building initiatives to keep our business healthy and position ourselves for growth. So we're not going to go any further than we kind of have at this point there. In fact, we may find opportunities we want to lean into.

And often the case is, when we lean into those, they're incremental, so there's a cost, but they're incremental and they drive revenue. And so those are easy choices to make. And they don't -- they're not all easy, but some are, and we'll lean into the ones that we think can improve our -- both our position and drive incremental revenue for us in the second half of the year.

So hopefully, that's a little bit of flavor of how we're looking at it. I think we've pulled a lot of the levers feel good about where we've ended up from a price increase perspective. Only thing that we're being cautious about is how the consumer responds and the elasticity of it, and I feel good about the other mitigation actions that we're taking and feel good about the position of, okay, we're only going to go so far in terms of reducing our new product or brand building investment.

Yes. No, I think that wraps it up, actually. As Brian mentioned, we are just focused on making sure we can implement across our retailers and controlling our spending to make sure that we can manage to these headwinds.

My final question comes from the line of Peter Grom with UBS. This is [ Sharad ] for Peter Grom.

Just two questions here. With a good part of your tariff headwinds now largely behind you and price/mix expected to flow through in the second half, I'm curious, like how much of the recovery is dependent on some level of volume stabilization? I know you've mentioned being conservative on elasticity assumptions. But to what extent does your outlook assume that volumes at least hold steady or begin to recover? And if so, do you see that being more of a [ full ] to dynamic?

Yes. I would say -- thank you for that question. I would say for the outlook, we're assuming kind of the consistent soft demand trend that we're seeing in the first half. And then we took a conservative position on the elasticity. Where we're seeing a headwind, a tailwind in the back half, it's from the retailers rebalancing inventory and recovery of the direct imports in the second half.

Okay. Great. And then my last question here, which is the -- anything you can share on the broader consumer backdrop? I know you've mentioned some trade down before. And are you still seeing similar things there? And then one more on Beauty. We have seen some improvement there, just based on what we've heard from public companies. Are you also seeing the same thing?

Yes. Let me do the Beauty one first. Beauty at a broad level, there's probably not overall trade down occurring. I think there is trade down within certain categories within Beauty, and we do see it in some of the data related to our categories, especially as it relates to the younger consumer, which is increasingly stretched in this kind of environment. But at a broad level, when you're looking at some of those other companies, you may not see it.

We also see it in terms of -- an indication of it anyway in terms of the disparity between POS dollars that we have for our products and POS units. And I'll give you an example of how it's kind of mixed. We actually saw average unit strength in Curlsmith and Hot Tools. So average unit revenue was higher in those two. And then in Revlon and Drybar, average unit revenue was down fiscal year-to-date for 2 brands.

So it's a little of a mixed bag. I would say we see indications of it. But I would agree with you at a broader Beauty level, it's not moving the needle on the overall category. I think you got to go a couple of clicks down to decide, okay, is it driving this category or another category. We are seeing indications of it. But it's not an excuse. We need to adjust to the market. And I think it all comes down to new product development and how we support that new product development. And then once we get that right, all of this other stuff takes care of itself.

This concludes our question-and-answer session. I'd like to turn the floor back to management for closing comments.

Thank you all for joining us today. As I mentioned, I'm excited to be a part of Helen of Troy. In closing, I want you to walk away with that we are clear about our current situation. We are focused on fixing our foundation, and we're bullish and excited about our future. I look forward to speaking with many of you in the coming weeks. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.