Helen of Troy (HELE) Q2 FY2027 Earnings Call: Sales Rise 2.1%, Cash Flow Outlook Raised

Helen of Troy Limited (NASDAQ: HELE) reported a 2.1% increase in fiscal Q2 2027 consolidated sales. Home & Outdoor growth and tariff refunds supported profitability, while weakness in parts of the beauty portfolio remained a constraint.

Key Takeaways

• Consolidated sales increased 2.1%, with Home & Outdoor up 9.2% and Beauty & Wellness down 4.5%.
• Gross margin expanded 800 basis points to 52.2%. Tariff refunds, net of higher tariff costs, contributed approximately 560 basis points.
• Q2 results included $26.9 million of gross pre-tax tariff refunds. After reinvestment, the net pre-tax benefit was approximately $4 million, equivalent to about $0.12 per diluted share after tax.
• First-half free cash flow reached $38 million. Total debt fell to $673 million, down $221 million year over year and $108 million from the start of the fiscal year.
• Management raised full-year free cash flow guidance to $120 million-$140 million and expects a fiscal year-end net leverage ratio of 2.7 times or lower.
• The company narrowed full-year net sales guidance to $1.768 billion-$1.822 billion while maintaining base-business adjusted EBITDA guidance of $193 million-$196 million.

Core Financial Data

Business and Operating Performance

Home & Outdoor delivered growth across OXO, Osprey and Hydro Flask. Osprey benefited from consumer and category performance, new products and improvements in international distribution. OXO was supported by inventory actions, distribution gains and product launches.

Hydro Flask benefited from innovation, inventory actions and partial recovery from tariff-related disruption in the corporate channel. However, management said the insulated beverageware category is becoming more saturated and promotional. Hydro Flask was the driver of the reduced second-half Home & Outdoor revenue outlook.

Beauty & Wellness sales declined as growth in wellness and nail care was more than offset by weakness in the rest of beauty. Vicks and Braun benefited from distribution gains, new products and comparisons against prior tariff-related disruption. Olive & June recorded another solid quarter on consumer demand, replenishment orders and expanded distribution.

Management said trends improved across several pressured businesses, including Revlon, Hot Tools, Honeywell and Curlsmith, although results remained below the company’s objectives. Helen of Troy is reviewing pricing in selected areas, particularly Revlon.

International sales grew 3.7%, led by Hydro Flask, OXO and Osprey. Drivers included new products, distribution expansion and improved execution in selected markets.

Inventory health also improved. Inventory declined to $480 million, while the proportion classified as active inventory increased seven percentage points during the first half. Management is targeting a 12-percentage-point improvement in active inventory composition by fiscal year-end.

Management Guidance

The full-year outlook assumes $80.5 million of gross tariff refunds and $66.5 million-$70.5 million of reinvestment. Management estimates a resulting net pre-tax benefit of $10 million-$14 million.

For fiscal Q3 2027, the company expects net sales of $478.3 million-$504.5 million. Consolidated adjusted EPS is projected at $2.05-$2.40, including a net after-tax tariff refund benefit of $0.66-$0.77. Base-business adjusted EPS is expected to be $1.39-$1.63.

Management expects the remaining $51.8 million of gross tariff refunds to be recognized in Q3, while some planned reinvestment will occur in Q4. This timing is expected to lift Q3 adjusted EPS and compress Q4 adjusted EPS.

Risks and Areas to Watch

Management highlighted continued pressure on middle-market consumers from fuel prices, interest rates and the broader cost of living. Retail competition is also becoming more promotional, while retailers are managing inventory conservatively.

Product costs remain exposed to commodities, freight, currencies, fuel prices and supply scarcity. The outlook also reflects potential supply disruption related to conflict in the Middle East.

Helen of Troy expects pressure from beverageware saturation and channel inventory correction in the second half. Management intends to protect Hydro Flask’s premium positioning rather than participate broadly in promotions.

Initial indicators suggest illness incidence may be below the prior three-year trend. The company therefore adopted a more conservative assumption and is not relying on a strong cold and flu season in its outlook.

Analyst Q&A Highlights

Management said approximately 80% of Helen of Troy’s opportunity depends on factors it can control, including brand investment, commercial execution, operating capabilities and balance-sheet productivity. The remaining external factors include consumer pressure and a more promotional retail environment.

On tariff refunds, management emphasized that the company has not recovered all cumulative tariff-related costs. Most of the refund benefit will fund inventory cleanup, packaging changes, consumer insights, product development, content creation and brand investment. Approximately 25% of the planned spending is expected to produce a fiscal 2027 return, while foundational and longer-term investments are intended to support fiscal 2028 performance.

For Beauty & Wellness, management identified leadership changes, faster product development, improved brand storytelling and stronger omnichannel capabilities as priorities. The company expects beauty to remain challenging during fiscal 2027 but cited improving point-of-sale and inventory trends.

On Hydro Flask, management remains focused on premium positioning, innovation and expansion into adjacent categories. Near-term expectations are more cautious because of category saturation, promotional activity and the need for channel inventory correction.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

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.

Anne Rakunas

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.

Unknown Speaker

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.

Brian Grass

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.

Operator

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.

Question-and-Answer Session

Peter Grom

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.

Unknown Speaker

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?

Brian Grass

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.

Peter Grom

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?

Brian Grass

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.

Peter Grom

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

Brian Grass

Thank you, Peter.

Operator

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

Bob Labick

Hi, good morning. Thanks for taking our questions.

Unknown Speaker

Good morning, Bob.

Bob Labick

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?

Unknown Speaker

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.

Brian Grass

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.

Bob Labick

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.

Unknown Speaker

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.

Brian Grass

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.

Bob Labick

Great. Appreciate that. Thanks very much.

Operator

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

Unknown Speaker

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.

Unknown Speaker

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.

Brian Grass

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.

Unknown Speaker

Great. Thanks, guys. Appreciate it.

Operator

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

Susan Anderson

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.

Brian Grass

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.

Susan Anderson

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.

Unknown Speaker

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.

Brian Grass

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.

Susan Anderson

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

Unknown Speaker

Thank you. Thank you.

Operator

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.

Operator

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

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