Helen of Troy Limited (HELE) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining the ICR Conference. I'm Olivia Tong, Bank of America's cosmetics household personal care products analyst. We're delighted to have with us Helen of Troy today. CEO, Julien Mininberg; and Senior Vice President of Corporate Finance, Matt Osberg. I'll start with a couple of questions, but of course, if you have any questions, please feel free to put them in a chat, and we will make sure to ask them. Helen of Troy obviously just reported their quarter last year, another very strong quarter. So perhaps we can start with some color on the opportunity in front of you.

Clearly, there's significant opportunity for growth in change after this year coming out of COVID-19. So where do you see the biggest opportunity medium to long-term for the company? And which of your existing categories now offer more opportunity? After we ask that question, perhaps we can go to Julien, and I think he has a pool of prepared remarks. Thanks.

Yes. Terrific. Thank you, Olivia, and thank you for letting us join you today. It's our pleasure. And for the audience, our pleasure to talk about Helen of Troy and also take your questions during the session today. In terms of the biggest opportunities, Helen of Troy is a company in transformation, and I'll take you through in my prepared remarks a bit of what we mean by that. Probably half the CEOs you know and half of the companies you talk to speak about transformation in some form. In our case, we not always speak about it, but we act on it, and it's central to pretty much everything that we do. The opportunities for us are substantial. We are a diversified portfolio that's been growing at a 2 to 3x GDP type of rate for a number of years now, largely organically. We have very solid cash flow and strong balance sheet with low debt, able to make and integrate acquisition, steward our top brands and to drive quite a lot of profit. Big opportunities include international, direct-to-consumer, building out our shared services capability as part of the transformation and investing in what we call consumer-centric innovation, which is the ability to delight consumers with innovations that are discontinuous and differentiate our brands. All of this is enough to drive a fair amount of revenue and profitability growth disproportionate to our competition, grow our market share, reinvest our balance sheet and do it all again. And that's our plan, and that's what we've been doing for several years now.

That's great. That's great. Why don't we turn to the presentation first so that those of us who don't know the company as well, have a little bit of color.

Sure. Thank you. And I assume that the audience can now see the presentation that we have up on the screen. What you should see is a PowerPoint for the ICR Conference. It's our pleasure to be here. And this concept of transformation that I talked about is front and center. It's -- as I said, it's our core strategy. You see the gears turning, and you might think, oh, yes, that's just the intro slide. But it's, in fact, the entire strategy for the company. We're in our second phase of transformation. I'll speak about the first phase in just a moment. We've chosen the strategies that you see here, starting in the upper right, around our leadership brands; walking around the wheel here, whether it's international, M&A; that consumer-centric idea that I talked about; our organization, where we've put a substantial investment, very proud of what we've done; creating shared services and then making them excellent, now in Phase 2; becoming incredibly efficient from an operating standpoint; and deploying our capital wisely. This is a 5-year plan. It began in what we call fiscal year '20, that's what FY '20 stands for. It runs for the 5 years, ending fiscal '24. We're on a march first year. So we're right now finishing up our fiscal '21, and that's the second year of this second phase. So as I move ahead, I'm obligated to tell you that we'll be making some forward-looking statements in the next few minutes. I think you've seen this type of material before, and I know that you're all very fast and careful readers. So I'll move forward from here. In terms of the transformation I mentioned, it had a Phase 1. This began about 5 years ago, maybe 6 now, in 2014 and running into 2015. It ran for 5 years through fiscal '19. And I already mentioned about Phase 2, which is where we are today. As you look at the left-hand side of the slide, what you'll see is the original strategies for that first phase and this was the first time Helen of Troy had a global strategy. It was the first time it was publicly disclosed. There were specific metrics and goals set. They were also disclosed in an Investor Day in 2015, approved by our Board of Directors, and we've been franking on them for years. In Phase 2, which began about 2 years ago, we did this again, but now change the strategies a bit. And I'll talk to them in a few minutes, but we've moved from one to the other and have had some very good results all along the way. Here's a look at those results. What you can see here is blue bars and green bars. The blue bars are Phase 1 and the green bars are the first year of Phase 2. And a little later in my remarks, I'll talk about the second year of Phase 2 that we're about to finish. You'll see 4 metrics up here in the upper left are revenues, in the upper right are adjusted operating income and down on the bottom, cash flow and our adjusted EPS. The CAGRs are meaningful. If you look at the upper left, you'll see that we started out at about $1.3 billion. We're at about $1.7 billion today and growing at roughly 2 or a little bit more than 2x GDP, depending what you use for that number. You'll see the growth rates inside the bars, and you'll see that we've been accelerating in recent years, fiscal '18, '19 and '20, in particular. And for fiscal '21, spoil alert, that number is closer to 25%, and we're very pleased that that's the case. On the operating income side, you'll see that we've been growing income faster than revenues. You would expect that cash flow growing at a fairly torrid pace, and we're very proud of creating that kind of cash. On an EPS basis, we've more than doubled our EPS doing this and are about to put between $11.50 and $11.70 on the Board about 6 weeks from now when we finish up our fiscal '21 or the second year of Phase 2. In terms of how we're doing it, we run the company on 8 leadership brands. And we call them leadership brands because independent of our own assessments, whether it's an IRI, Nielsen, NPD or some other third-party high-quality syndicated data, these brands are #1 or a very strong #2 in their category. Each of them is a differentiated leader in the market. They have higher margin than our fleet average. They have ways to grow, and they're highly efficient in terms of how they use our assets as a company. So this is where our focus is, and this is literally the 80-20 of Helen of Troy. Those leadership brands have been growing over the last 9 months or the first 9 months of fiscal '21 versus the prior year. They've been growing at a 27% clip. Last year versus the year before, they grew 9%. And in all of Phase 1 on a CAGR basis, they were performing at an 11% clip. So this is what's driving the company's growth. And they're becoming a bigger and bigger percentage of the total company. When we started transformation, they were roughly half of Helen of Troy. Today, they are the 80-20, and that number continues to grow because they're growing faster than the rest of the company. The way we operate them is like this. We call this a value creation flywheel. You probably see this from other companies as well. The way ours works, if you kind of start at the 12 o'clock position in the red, we start with our leadership brands, and we invest in them, whether it's through innovation, and then just straight up investment, either things like direct-to-consumer go-to-market, advertising, innovations, all kinds of spend on our brands. That drives organic revenue growth, like you just saw on the prior slide. It helps us expand our margins because they punch above their weight and revenue growth that creates operating leverage in a company with fixed costs. And it feeds into our shared services, which are of increasingly high quality and some of them becoming now world-class, which adds value by operating them efficiently. We're an inversion. So our tax structure is especially efficient. Our effective tax rate is roughly 10% or 11%. And we're a Bermuda based company, and we carry very low debt, not a lot of term debt, mostly through a revolver. And like everyone, interest rates are low these days, but even when interest rates were higher, ours were lower. We put quite a lot of care into working capital management, whether it's how we handle inventory, how we handle collections and other parts of working capital, and all of this creates efficiency. We're an asset-light company. We don't own our factories as an example, and that gives us a low total capital expenditure. And we use that balance sheet to make accretive acquisition. Sometimes we invest even in our own stock. Most recently, we bought out the future of one of our licenses and these kinds of capital deployments help accelerate value. And when you add acquisition to a flywheel, it creates more weight and we add more momentum, and everybody knows that mass times velocity is momentum, and that's what Helen of Troy is all about in terms of value creation. What kind of results are we getting? As Olivia mentioned, we just announced the third quarter results for the fiscal year that we're in right now, and they were exceptional. For the 3 months that ended in November 30 or our third quarter, sales in the company grew 34%. And our leadership brands grew about the same rate, 34%. EPS grew 20%, and our online net sales growth was also just happened to be 34%. Importantly, now that represents online about 24% of everything we sell at Helen of Troy. And that's a big number for us. I'll talk a little bit more about that a little later. That's a big competitive advantage for us to be that well-developed on the Internet. We've worked very hard to do that in the last 6 or 7 years, and it's paying off. And you see the adjusted diluted EPS growth is actually a little bit less than the company. It's because we're making some very significant investments in the back half of Phase 2 that will power the company for the next 3 years to come. If you look at us on a 9-month basis, you'll see a similar positive story. Our net sales are up 25%. Leadership brands growing a little bit faster. Here you can see the earnings are growing faster still, and the online growing at about that same 33% clip. Here importantly on the earnings in the first half of the year for us, COVID, like for everyone else, shut down spending, I think of months like March, April, May, June, the lockdown months when most companies weren't spending, we weren't spending much either, but now in the back half, we're spending more. And that's why you saw in the prior slide, the EPS difference. As you look at our businesses, those leadership brands are deployed into 3 units; Housewares, which is roughly 1/3 of the company; Beauty, which is almost 30% of the company; and Health & Home, our largest division is about 40%, maybe just a bit more of the company. All 3 are growing nicely. You can see their organic growth rates over the first 9 months of our fiscal year. And you can see their relative sizes, fiscal year-to-date, Housewares, Beauty and Health & Home. I'll speak to a little bit of the drivers of each, but to make it simple, Housewares contains OXO and Hydro Flask. OXO is growing dramatically as a result of its own strength, plus some tailwind from the nesting trend in COVID. Hydro Flask continues to do well after many years of extreme growth, and nonetheless, is a little bit constrained due to the fact that people are constrained in their homes these days. Beauty is growing at a very fast rate. You can see it here, 22%, and that's, frankly, despite COVID, not because of it, think of all the women who are home, fewer social events, less travel, less office and all the things that bring people out. So we're very proud of that growth, and there's some very significant innovation that's driving it. And Health & Home is a highly diversified portfolio of health and home related products. So think of the brands that you saw like Vicks, Braun, Honeywell, PUR, some of these are getting a big benefit from COVID like thermometers and air purifiers, and others are growing despite COVID. And we'll speak about the future. So you might be thinking, well, if that was good -- COVID was good, then less COVID is bad, but we don't think that's the case at all, and I'll speak to that in a few minutes. In terms of the digital transformation, I mentioned, I talked about the Internet a bit. In Phase 1, which is on the left and in gray, you'll see that we started out at about 6% of everything we sell. It's sold in some fashion on the Internet, whether direct-to-consumer or through e-commerce, and that number has steadily increased in all of the years during the first phase of the transformation and has accelerated even further in the second half -- sorry, second year of transformation, which is the last bar on the right. And that's that same 33% clip that you saw. We're very pleased with this, and it's obviously helped us a lot to have that level of development. A lot of other companies show very, very big sales rates on the Internet, but they don't start off at bases like 1/4 of their entire sales before they have those growth rates. In terms of our performance, you can see it here, this is stock performance, just indexed to $100. So if you start at the beginning of the transformation in 2014 and put $100 into any of the bars here, whether it's us, we happen to be blue in this chart, the blue line; just put it into the NASDAQ at an index basis, which is the orange line; the Dow's Personal Products index, which is the gray line; or our own proxy peer group, which is the yellow line. We're very proud that we've been able to outperform all those measures on a sustained basis -- sorry, all those indexes on a sustained basis over a 7-year period. We think the best is yet to come for the company, and I'll tell you a little bit about that now. In terms of that revenue, where is that best going to come from? This is the same revenue growth that you saw before, but now with the second year of Phase 2 added. So you see that we'll break through the $2 billion mark for the first time, this fiscal year, with 6 weeks to go. We're quite confident and very proud in our 50-year history to be breaking the $2 billion mark. That's great news for us, and we're very excited. But with the future yet to come over the next 3 years with the rest of Phase 2, we just reaffirmed that, on average, we'll continue to grow from this new elevated base over the next 3 years at a 2.5% to 3.5% clip on the organic sales growth line and on at least an 8% clip on the adjusted EPS line. And to do that over the next 3 years is going to take a pretty good set of initiatives, especially with the big boom that we saw this year, getting us up to $2 billion, much faster than we originally expected. So where is that going to come from? There's a long list here. I don't intend to take you through all of these drivers. But I will give you 2 or 3 key themes. One is diversified portfolio. You've seen the kind of products we're in. Some are getting help from COVID, some are getting hurt from COVID, but the diversification has helped us many, many times deliver the bars that you saw on the prior chart. And the other big idea is that the post COVID trends that are emerging are generally favorable to our portfolio. We expect Housewares and Beauty to both grow in fiscal '22 from the elevated basis that you just saw. In Health & Home, while we do expect it to reduce a bit, next year, probably less than the market thinks and some of the reasons are written here. Just to give you 1 or 2 of them, but not walk through this whole slide. In Health & Home, we frankly are sad to say that coronavirus is still with us for a little while, and that's been a good driver. Another is we have a lot more supply. And another is the lay -- weak cold and flu season is being laid out right now that next year, we would expect to normalize as people get more out and about back-to-school, et cetera. In Housewares, we think OXO will continue to grow. There's many reasons for that statement and Hydro Flask should grow at an attractive rate in fiscal '22. And in Beauty, as I mentioned before, Beauty is growing despite COVID, not because of COVID. And as a result, the factors that you see listed here should all be good guys for Beauty next year. We're happy to walk through this in more detail, Olivia, as you or the people in the audience would like during the course of the discussion. So there are a couple of big trends that are helping us. We've never sold more air purifiers, water purifiers, humidifiers than we sold this year, that higher installed base means more filters. So think of all those schools and universities and homes that have those kind of products in them. All of those need replacement filters, and that's going to help us in fiscal '22 and beyond. And those punch above their weight from a margin standpoint. In the case of consumers, there's a fair amount of shifting. You can see it in the real estate market from cities towards the suburbs. Think of a house that has 2 bedrooms or 3 bedrooms, 2 bathrooms, not 1 like a city apartment. That's just 1 more toothbrush holder, just 1 more OXO soap dish, just 1 more OXO toilet scrubber brush, just 1 more room to put an air purifier in, and I think you get the idea. In terms of the safety of home, people are, I think, very attuned to keeping things that they find safe, like their food and their water, and as they go out of the home, storage containers, transport containers, beverage bottles, people want that security with them, and our products are uniquely designed to deliver that. This is a positive trend for us. We also think there's a benefit coming from consumer-centric innovation. It's always true. Innovation never goes out of style, but the problems are different now. So think of institutions that want water purifiers, air purifiers, humidifiers, all different kinds of thermometers. We are developing products that we think will help. And we're also bringing new products to market that are helpful in the post-COVID era. And in terms of sustainability, like so many companies, whether it's packaging, reducing environmental footprint, think of Hydro Flask, the elimination of all those dark and evil single-use water bottles that nobody likes. These kinds of things are -- these trends are our friends, put it like that. And in the case of direct-to-consumer and e-commerce, there's a massive focus on Helen of Troy, and we think it's a channel that we can continue to develop and at an even faster rate than we have in the years before. We're putting quite a lot of investment. The last of these big trends is Beauty. As I said before, it grew even though COVID is a headwind, Beauty not only remains timeless, but just think of stores being open, people being out and about, salons being open, all these things are good guys for us going forward. So just to wrap it up and to turn it back over to Olivia, this is our value creation flywheel. And I'm happy to walk through any aspect of what I presented or any other questions you may have.

Great. Thanks, Julien. I appreciate it. And of course, to anybody in the audience, if you have any questions, please feel free to send them in. I'm trying to see a few questions pop up. Maybe if I can just start with one. If you could just talk through post COVID, the changes that you're planning to make? Are there any significant strategy or tweaks? And how do you sort of think about the engines of growth as you go forward, not only some of the -- making sure that the things that have been driving growth, the Health & Home categories, the Housewares categories in OXO, for example, continue to pay dividends, but also start to see the recovery in Hydro Flask and in Drybar, for example?

Yes. So it's a great question. The strategies that you saw in that gear wheel or even some of the choices in this flywheel, these continue to make sense for us. We like our strategies, and we will continue them. The trends have changed, and so have certain factors. So things that are being adjusted are things like our supply footprint. I'll talk about that for a second and also our inventory. So we all saw about 2 years ago, the trade war drove a lot of tariffs. We've addressed those very well and came through the tariff year with the strong results that you saw in fiscal '20. And that said, the tariffs are still with us. So we're diversifying our supply chain considerably, think Southeast Asia and Mexico. Vietnam, Cambodia, Malaysia, Mexico, as 3 examples that are not only in China. The vast majority of our -- the rest of our supply chain is in China. So this is a strategic adjustment that we've made. COVID also, not just tariffs, accelerated this just because we all saw about a year ago, what happened when China was afflicted by the coronavirus before it became a pandemic, and that greatly reduced supply. We've doubled our capacity over the last year in the Health & Home health-related categories and pulled some of it out of China, and that's helped us adjust, so it's an example. On the subject of inventory, if you take a look at our balance sheet, you'll see that we're actually increasing our inventory. So we believe that COVID will continue for the next 3 to 6 months, more or less similar to where it is today. And then as the vaccine rolls through, herd immunity and all of that over the next year, there'll be less need for that. But right now, we want to be prepared to meet the demand that's there, be there for consumers when they need us most, and we've ramped up our inventory and our capacity. Another change we've made around COVID is we've gone even further on the Internet. So you saw the 25% numbers. We're very proud of that. And that said, to grow at 33% on top of that base is an accomplishment. We're putting a lot of money into direct-to-consumer. And also further e-commerce development. On the direct-to-consumer side, just to give an example, not just Hydro Flask, but now also OXO and Drybar. We've significantly revamped those websites, put new IT systems on the front end, new fulfillment systems on the back end, reduced our cost to serve. And in the case of Hydro Flask, adding considerable customization capability. So all of these are changes, and I could give you more, but maybe you've got the idea.

Got it. Can you maybe give an idea of percentage of sales that you think are in the COVID beneficiary camp versus the ones that are in the recovery camp?

Yes. It's a great question. I think half and half might be an easy way to see it. I'd have to calculate exactly, and Matt might be able to put a little finer point on it than that, but roughly half of Health & Home is health. And so that piece is getting a benefit from COVID like thermometers, air purifiers, humidifiers, as examples. Other sides like fans and heaters, don't really have anything to do with COVID. So that's most of the rest of Health & Home, things like wildfires or hot summers or just regular winter and summer seasons, health in that regard and the world is getting warmer. So fans have become a big business for us. In the case -- it had nothing to do with COVID. In the case of Beauty, pretty much all of it is not COVID driven. As I said before, 1 hand tied behind our back, grow at those rates despite COVID. In the case of Housewares, it's probably more like -- we don't split it out exactly, but more than half is getting a benefit from COVID, which is OXO, just because OXO is more than half of Housewares. And then Hydro Flask is actually holding up very well. It grew in the second quarter. It had an especially high base in the third quarter. I'm happy to talk through those specific details, but the point is not getting a big COVID growth. And then Matt, you may have a finer point on the split that she is talking about.

Yes. I mean from a growth percentage, Julien walked through, well, kind of the bases that are at play and subject to some of the trends in COVID. We don't look -- we haven't broken out the overall growth rates. What's driving it in terms of COVID, obviously, is if you look at the different expansion we've had in Health & Home, that's going to be a larger portion of it and the Beauty, like Julien said, is kind of growing despite COVID and Housewares is probably a good mix in there. It's a little bit being hurt and maybe a little bit more being helped. So as we look at it, we look at what's driving this year. And as Julien said, we've got a diversified portfolio. And as we look forward into FY '22, we see some opportunities, obviously, challenges. But we think, like Julien said, COVID is going to continue for a while, and that will lift some things, it will depress some things. But there's some opportunities when the tide starts to change on COVID that we think will help the business as well.

Yes. I can give you an example of 1 of those. You might think Health & Home, if they got a big lift from COVID, then it will get a big headwind. While that may be true for some parts of the business, not in the cold and flu-related stuff. So right now, people are home, back-to-school is Zoom School. And so people are not seeing a lot of incidents of things like influenza or normal chest congestion or cough or cold, those kinds of illness. That's good, right? We're happy that the population is healthier. That said, on the other side of COVID as people go back-to-school, all those normal dynamics occur again and then the herd, the human race will have just a little less immunity because it didn't spend a year exposed to each other. So next year's cough and cold season, we assume will just be normal, maybe higher than normal, we don't know that. But it's an example in the comparable period of right now next year of, believe it or not, a tailwind on the other side of COVID in the business that was dependent on health in the first place. So a little counterlogical but reasonable in our view and an example of what Matt is talking about. So when you put it all together, and if I get a thought for you, people might think we're a COVID play because of the results, but we're trying to make the point that we're a diversified portfolio, and we've had this boom. So is it going to be boom splat or boom flat? And our thought is more like boom flat because of Housewares and Beauty growing and Health & Home producing less than people might be thinking. And that said, we don't really know yet. We're finishing our budget cycle, and we'll give guidance on our normal timing in April for next fiscal year.

Got it.

I'm sorry, I didn't hear.

Not sure what happened there. Were Hydro Flask and Drybar the only brands that saw year-over-year declines in Q3?

I believe so. And in the case of Drybar, remember the salons are closed. Big customers like ULTA beauty type of customer are showing below a year ago comps. About the 80-20 of Drybar is sold outside of salons, places like ULTA, Sephora, the rest is sold in the salons or on the Internet. We've driven up the Amazon business quite a lot. Drybar.com has taken off for obvious reasons. And then the ULTAs and Sephoras of the world are doing better and better, and they themselves have been beautifully online, and we've been supporting them the whole way. So we just posted, I think, it was $17.5 million worth of business on Drybar for Q3, that's equal to what we did in the whole first half. And if you kind of multiply that out for the rest of the fiscal year, Drybar is going to have a decent year, but it will be down versus a year ago. And in the case of Hydro Flask, I want to make sure people understand on Q3, there were 2 or 3 very big events in Q3 of last year. One was back-to-school, which was just less of it this year because of the Zoom thing, Zoom School thing. But this school real trend was quite at its peak in last Q3, and there was a lot less of that this year because of the school situation, and that was unique to Hydro Flask. It had nothing to do with any of our competitors. And it just happened to be in that base, so anniversary-ing it. And the other is the massive build-out of the East Coast for Hydro Flask distribution, a lot of it occurred in our Q3 base a year ago. We picked up tons of market share, doing that, and all that was in the Q3 base. So a bit of a unique comparison. We grew quite a lot in Q3 internationally, and we did so in Q2. And in fact, all of Hydro Flask grew in Q2 despite all the COVID stuff.

Right. Right. So Hydro Flask, the rationale for the year-over-year deceleration is primarily around difficult comps as opposed to a COVID-related issue. So if that's the case, why do you -- can you talk about your confidence in driving that growth again? Where is it that underlies that? If it isn't the impact of lack of mobility, is your innovation that's coming, is your incremental distribution that you know about, or is there more in terms of diversifying the product line up so perhaps there is some in-home component typically?

Yes. All of those factors are good guys that you just mentioned, and I would add to that list, international, customization, direct-to-consumer even more than what we do today. And then I would put some emphasis on the point about adjacencies in new products. We're working on quite a few exciting new things either within our current lineup or slightly adjacent to it, to continue to build out what Hydro Flask means beyond its traditional core, which is water bottles, and that's all upside and all white space for us. And if you take the school thing, think of all those universities and book stores and kids on campuses, that walk on and take a no plastic water bottle pledge or a no single-use water bottle pledge. And if you go to universities a year ago or any subway system in any city in this country, you'll see Hydro Flask sticking out the back of every kid, not every kid, but most of them. We expect that not only to return, but we're coming out with a lot of new products that will help them find reason to buy just 1 more.

And 1 thing I would maybe add on to that, too, Olivia, you talked about the tough comps. I think the other thing is just the lack of a back-to-school this year. Julien mentioned the Zoom School. With that depressed foot traffic and in stores and lack of a true back-to-school as we look to next year with hopefully, restoration of more people going back-to-school, like Julien said, we hope that there's a good back-to-school season so that gives us some lift next year as well.

And international, I said it before, but it's just on fire. And this is not off of a small base. We started this years ago. The small base days were years ago. This is big growth off of a bigger and bigger base internationally.

As you look to driving continued growth, particularly as part of Phase 2, how much of that do you think is category growth versus your -- versus market share for you?

I am sorry, category growth versus?

You growing market share.

Yes. A lot of the category growth of the last 4 or 5 years was driven by Hydro Flask. So we picked up a lot of market share. Today, the category is a bit more moderate because of all the stuff that was just mentioned. So it's less of a market share gain. So we had category growth and market share, but because we were most of the category growth, also a lot of market share. Our market share is still quite healthy. And as the market grows further, we expect to continue to pick up share, even if we've had a little bit of a backtrack once or twice this year.

Got it. Got it. Maybe a little bit more on Beauty because obviously, that was the division that saw a lot of it this quarter. So you talked a lot about it not being a beneficiary of COVID, that it grew in spite of the COVID.

Yes.

So -- on the other hand, obviously, with salons -- with people a little bit skittish about going to salons, that has had some impact. So what is it that is going to drive that growth? And if that's the key, do you see potential for acceleration here as we look toward recovery? Or is your point that there is this benefit right now and Beauty can sustain this level of growth going forward?

Yes, we expect to see Beauty sustain its growth, maybe not exactly at this level, 20% year-over-year is a very fast pace. We haven't made a prediction for next year, but I believe we will continue to grow better than GDP on an ongoing basis. The reason for the confidence is not just the tailwinds of the post-COVID era that will shape up, but because of innovation and international. We've innovated like crazy in Beauty in the last several years that special brand of consumer-centric innovation that's based on a deep consumer insight, uniquely solves a problem and differentiates our products has happened all over the company and nowhere more so than in Beauty. The one-step volumizers that we've launched since 2016 have really taken hold, especially in 2019 and now in 2020, and is continuing into 2021. These products solve a big problem for women. Women have a lot of time. They want to look terrific. They've only got 2 hands. So they hold like a hair dryer in 1 hand and a round rush and another, and they do their thing. They also can't see the back of their head, just like anybody else on the planet. So if you can solve that problem by giving them a product that very quickly dries and begins to style in a short period of time and has a tactile feel on where you are on your head. So you don't have to have that dryer out a foot away, it makes their lives a lot easier. They've responded beautifully and the one-step volumizer franchise has now spread from Revlon, think of a good product or even a very good product to Hot Tools, a better brand on a higher price point to Drybar, a best. So in a world of good, better, best, you've got products at like $39 or $49, products at $69 to $89 and products in the, call it, $150 camp that help different types of people, solve different types of problems with ever better products. So we've gotten -- just go on Amazon and type in one-step volumizer, and you'll see that just the Revlon core SKU alone has 140-something thousand reviews on just Amazon. That's before you go to walmart.com, target.com, ulta.com, 4.6 stars, 80-something percent of those stars are 5 star reviews. So that's more than 100,000, 5 star reviews. 100,000 reviews is a lot, 140 is even more. We're just getting started. Now throw differentiation. So there's once with detachable heads. You already heard about the good, better, best, and we're innovating in other parts of our Beauty franchise in appliances, picking up market share at a fast clip. We're very pleased. We are the market leader online and very proud of that and picking up market share in our #2 position in brick-and-mortar and accelerating. And overseas, we've expanded that franchise and other products and a similar story is happening in the U.K. and now expanding on to Continental Europe. So we see room for growth, and these are the drivers.

And maybe I can add on a little bit to that. One thing maybe more specific to next fiscal year, fiscal '22 is we were very supply-constrained in the first part of the year. This year for Beauty, I mean, in the fourth quarter of fiscal '20, we had very high growth, and we came into the first part of the year with some inventory challenges because of the growth as well as the supply chain impacts of what was happening in China at the time when COVID was breaking out. So we came into the year very supply constrained, and we kind of got back into good supply at the end of the second quarter. So specific to next year, we look forward to being in a better inventory position, like Julien said, we're building inventory levels this year. And being able to fulfill the demand that we hope continues into the next year.

And stores won't be closed. I think in the lockdown period, March, April, May, months like this, if you weren't an essential store like a pharmacy or a Walmart or something like this, you're closed. And so in the first part of next year, while the traffic may be still down a little because of COVID, the store will be open and people buy. We've talked about online before. And we'll keep innovating. I also want to say that household penetration in the volumizer franchise is still pretty low as a category and we're picking up the lion's share of that penetration as it grows. There are competitors. There are some very able competitors in the market, especially recently. We just demonstrated in the holiday period that we outsold those by a large margin and picked up even more market share. So we're pleased with the prospects to the point that Matt is making. There's intrinsic fundamentals in the year-over-year that will just help us in fiscal '22. That's before the salons open and help Hot Tools and Drybar.

Got it. That's helpful. Just a reminder to everyone who's on the line that if you want to submit a question, please do so. One more in terms of your sales growth in recent years, obviously, you've been growing share. So how susceptible might your progress be to competitive risk at some point, particularly in a couple of the fast-growing brands over time, Hydro Flask, OXO. Clearly, the interest in thermometers and volumizers right now as well, the capacity to continue to expand, how do you sort of stay ahead of the fray with respect to competition?

Yes, I think any company is susceptible to a good competitor. And so we were not immune to this. For many of -- from whom we've grown market share, we have been that competitor, and we're keenly aware and deeply respect any competitor who's able to make big inroads in the market. So of course, we're exposed to this. In terms of how to fend it off, the best thing we can do is stay consumer-centric. As long as we continue to delight consumers with outstanding innovations, high-quality products, very good value equation and available on an omnichannel basis at attractive margins to our retailers and good price points for consumers, we'll continue to win. That's business 101 in consumer products, and it's not any different in this category or for our company. We've done that for many years through the transformation. You've seen it. The flywheel that I showed before, it's all about that. The other thing that will help us is our transformation on the shared services side. We've become an almost world-class operating company in the last 7 years, and that's starting from a highly siloed and inefficient company that was a collection of acquisitions. The savings that have come out of that have allowed us to make a lot of the investments that we're talking about now. And this has driven a lot of efficiency for the company. You saw the margin expansion in our blue charts that we showed -- those bar charts that we showed earlier, the CAGRs, the cash flow improvements, the EPS improvements. We bring about half of that to the bottom line. We put the other half right back into the business. So to size, we're almost $2 billion now helps us to stave off the competition as well by continuing to invest in our business. One thing I want to say about investment is that we've made a lot this fiscal year, especially in the back half. And people might look at that and say, "Oh, well, they're driving their demand." In fact, the vast majority of the investments, I'd say, easily 90% of what we've spent in fiscal '21 is designed to help fiscal '22, '23 and '24. So much so that we announced last week that something like $5 million of straight up spend in fiscal '22 was pulled into the Q4 period or right now for fiscal '21, and we did that on purpose and explained it explicitly because we want people to understand that we're making investments now designed to help on the other side of this COVID post period whenever it emerges. And as we go forward, things like direct-to-consumer, e-commerce, further improving our shared services, improving certain of our websites, key hires, investment in manufacturing, diversification, new product developments, these kinds of things are helping us a ton. And meanwhile, we put our balance sheet to work as well. Last quarter alone, we put almost -- just over $0.25 million into the market in the form of buying out our Revlon license for the next 100 years and improving its terms along the way. And we further bought back a significant amount of our stock, $190 million worth of our stock because we thought there was a good value.

Great. Keeping on that theme of issues of cash, perhaps you can talk a little bit about M&A and the environment. First, obviously, if you can give any update in terms of the personal care divestiture, that's question number one. And then also just discuss your criteria on M&A. And if you think there will be changes in the near future, whether it's a rate environment, political change that might impact the way to think about M&A?

Sure. Yes, sure. So you heard in the presentation, we're very focused on our leadership brands. We're taking them up to now 80% of the company. If you look at the 20% that are not in the leadership brand group, not 1 of those 8 like Vicks, Braun, Hydro Flask, OXO, et cetera, Drybar, you'll find the personal care brands like PERT Plus, Brut, Infusium and Sure, and we've made the decision to sell that business. We announced that we were in that process. We said last week that it's going nicely. We like very much the level of interest that we're seeing in the market and are encouraged that we will find the right buyer and sell the business targeting the end of this fiscal year, which for us is the first of March to complete the divestiture. We'll see how it turns out. And you can't control perfection in these processes, but that is the timing we're on. We like the progress that's being made. And then in terms of what that will do is it will take a chunk of the non-leadership brands out of the company. That business is not growing. So we'd like to redeploy the capital towards something else that we can get a better return on, and in the right hands, we think that those businesses will be well stewarded and well cared for, for their next future. So we like that from the divestiture side. We also like the faster growth rate that we'll get for the simple reason. If you take a shrinking asset out of the business and put it towards growth, you'll get growth. And even if you just took it out and didn't put it towards growth, everything else is growing faster, so you'll get growth. So we just like it mathematically. On the acquisition side, we like Revlon's prospects for us, and we've more than doubled our Revlon business in the last couple of years under those hair appliances that we just talked about. And so if you look at the non-leadership brands, roughly half of those non-leadership brands segment is Revlon. The other half is largely personal care, and we just bought the entire future of it for the next 100 years at less than 9x in terms of a multiple through the license buyout that we just did. We spent $72.5 million. So while not a traditional M&A deal, it does set us up to keep investing in that business, grow share. And over time, we'd like it to become our ninth leadership brand and our first promote from within. And in the case of straight up external acquisition, our balance sheet is highly under leveraged. We generate a ton of cash, and we're looking to do a ninth and even a tenth leadership brand through traditional M&A. We see some pretty good properties in the market. We're especially persnickety about what we buy. We want it to be strategic. We want it to be accretive on almost any part of our P&L; growth rate, gross margin, margin, EPS, all of it. We're very demanding on the topic, and we'll only buy what we think we're better together, meaning we can add value to it, it can add value to us. We'll only buy where we think our shared services can add further value, where we think we can take advantage of our unique tax structure and operate it more efficiently, and we'll buy where we think we can grow market share. So this is looking attractive. There's some very interesting prospects. We obviously can't talk specific ones. And then these days, in this sort of time of the COVID era, we're past the moment when M&A is shut down. We see a lot of deals happening in the marketplace. We're involved in some of that as well. And when we have something specific, we'll definitely let people know.

Great. Can you talk a little bit about margins by segment? There's so many puts and takes with respect to your various segments, whether it's distribution, product mix, premiumization and obviously, there's a number of different things there. So as you think about the go-forward and what you're investing behind, how much of a factor does product mix and margin and trying to hit certain margin goals play a part in terms of your investments in innovation?

Yes, sure. I'll say 1 thing, and I'd love to turn it over to Matt on the subject of margin, margin mix and puts and takes. In our Phase 2 goals, we've been very clear that we're looking to add 20 to 30 basis points a year on average of margin to our entire portfolio. We far exceeded that during Phase 1 and so far, also in Phase 2 and then for going forward, Matt might be able to speak a little bit more to the puts and takes by segment.

Yes. Yes. And you'll notice, too, I mean, this year is obviously the strange year because if you look at the first half of prior year, we had a lot of margin expansion. We had high growth rates and very low spending because everybody was kind of holding back for COVID. And then if you look at our third quarter, where we're compressing margins because now we're trying to catch up with that spending, spend into the success, leading into FY '22 investments that Julien was talking about, and you'll see, as we look to fourth quarter, also margin compression as we continue to make those investments. But then as we look into next year, we look at some of the mix sweeteners that we've been able to acquire and think about that value creation flywheel, where we have Hydro Flask was a leadership brand that we purchased, Drybar is a leadership brand. And as we continue to invest behind those and get more growth, those are definitely mixed sweeteners and are going to help our margin expansion. Additionally, you look at what Beauty has done with just the one-step franchise and the volumizer franchise, and that's sweetened kind of that core mix of Beauty as well. So there's a lot of things that we're doing internally. There's a lot of cost of goods sold projects that are being worked on in the company as well to lower some of our costs and expand margins as well with the current projects, and those are very significant projects, and we expect those to pay off during Phase 2. And as we continue to just manage our flywheel and make choices around strategic investments and how we want to invest and what we want to drop to the bottom line. So we look at it, that there's a lot of good building blocks for us from a margin expansion perspective. And we'll be choiceful as we figure out how do we invest. But like Julien said, the more we continue to expand our leadership brands, and we've got good margin expansion for each of those brands, the flywheel just keeps turning and that helps generate margin expansion.

And my only build on that is we continue to go upmarket. So think of Drybar as adding a prestige segment, and I mentioned to higher price points before in Beauty. In OXO, we've added the coffee segment in recent years and some electric products, and these are at much higher price points. Some are at higher margins, some are at not, to be honest. And a lot of the new products that we bring in onto the market are generally punching above the fleet average of whatever they're replacing or adding revenue to. So these are other ways to lift margin. And the last point is the better we do on shared services, the more we're able to take out cost beyond even some pretty attractive cost of goods reductions projects for the simple reason that you're doing things better and cheaper across a larger base of business you get dry, as they say, from that.

Understood. As we sort of wrap up, maybe 1 -- we haven't yet touched on channel mix. And unlike a lot of companies, first of all, you have a high penetration already in e-commerce at sort of 75-25 brick-and-motor versus e-commerce penetration. But I just wanted to talk through growth in the e-commerce channel because it had been elevated. Obviously, your e-commerce growth is sort of aligned with your total company growth, whereas most companies, you're seeing a bit more of a divergence. Why do you think that's the case? And as you think about sort of recovery, do you think that, that divergence comes back or that brick-and-mortar sort of pays at a fairly elevated level as well?

Well, there's 2 or 3 unique things going on. One you've already touched on, which is we started from a more elevated e-commerce base in general. And some companies do better than us, a lot do worse. And so being at that 20% to 25% level coming into COVID was a higher base. The other -- so just math, I guess my comment. The other is that the health-related products. So think of like thermometers and air purifiers, folks tend to buy health-related products more in brick-and-mortar because they want them right now. So as good as e-commerce has been about getting 2-day delivery, sometimes in some cities even 1-day delivery, it's very rare to get same-day delivery, but it does happen or BOPUS, meaning buy online and pick up in store, those are not necessarily counted as e-commerce sales. It depends how they're purchased. But the point is that the health products uniquely can get purchased in brick-and-mortar, especially when people are sick. In the case of the store closures and people being more at home, they are buying more on the Internet. And increasingly, they're buying preventatively because they want the products to be in their homes just in case. So there's a couple of other unique mixes that go on. The last one is in China and Asia in general, there's just been an explosion in the thermometer sales, and a lot of that happens in person so this is the unique dynamics. We're very proud of the Internet growth. Some companies are reporting these very, very large base growth in online sales, but off of lower bases. Some of them are also just not doing as well in brick-and-mortar, but we are, and we're expanding distribution. I think more club is an example of that. And this is just growing for us and ramping up the brick-and-mortar.

Great. Great. We're closing it on time. I wanted to leave a little bit of time, Julien, in case you want to make any closing remarks. Thank you very much. Thank you.

Appreciate that. I'm grateful. And thank you for all the questions. Very well handled, and I hope the crowd was able to channel their questions into this conversation. So beautifully handled and thank you. The only closing comment I'd make is, don't forget the power of culture. Helen of Troy has been on a transformation in people as well. The caliber of people that work here, the work that they do, the collaboration and the cultural passion that's in the company, the alignment around values and behaviors, this is beyond the normal company. And I say that because every company is proud of its people and its cultures. That said, we had a low base. We started as what Glassdoor called the 2.5 star type of company. We're now north of 4 stars. The highest in our entire proxy peer group, and we're landing increasingly better talent in this company and retaining our top talent. So culture is a big deal. We are very proud of what we've done and our people have just demonstrated this year the power of an aligned organization that can operate remotely and put a $2 billion last year on the board with $11.50 of EPS. We're very proud of that. And it didn't come up in the conversation. I want to make people -- sure people understood. That's an aspect of Helen of Troy's transformation that shouldn't be overlooked.

Great. Thank you, everyone. Be well. Stay safe. Thank you again, Julien, and I appreciate it.

My pleasure. Thank you, Olivia.