# HELEN OF TROY LTD (HELE) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HELEN OF TROY LTD's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/916789/000091678924000015/hele-20240229.htm
Accession: 0000916789-24-000015
Filing date: 2024-04-24
Report date: 2024-02-29
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HELE/
All MD&A years: /company/HELE/mda/
Previous year: /company/HELE/mda/fy2023/ (FY 2023)
Next year: /company/HELE/mda/fy2025/ (FY 2025)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections of this Annual Report, including Item 1., “Business” and Item 8., “Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations. Actual results may differ materially due to a number of factors, including those discussed in Item 1A.,“Risk Factors,” and in the section entitled “Information Regarding Forward-Looking Statements” following this MD&A, and in Item 7A., “Quantitative and Qualitative Disclosures About Market Risk.” Throughout this MD&A, we refer to our Leadership Brands, which are brands that have leading positions in their respective categories and include OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools and Drybar.

Management uses the following key financial measures, some of which are non-GAAP, as further described below: net sales revenue, organic business sales revenue, adjusted operating margin, and adjusted diluted EPS. Management uses these measures to evaluate historical performance on a comparable basis, predict future performance and benchmark our performance against our competitors. We believe these measures provide management and investors with important information that is useful in understanding our business results and trends.

This MD&A, including the tables under the headings “Operating Income, Operating Margin, Adjusted Operating Income (non-GAAP), and Adjusted Operating Margin (non-GAAP) by Segment” and “Net Income, Diluted EPS, Adjusted Income (non-GAAP), and Adjusted Diluted EPS (non-GAAP),” reports operating income, operating margin, net income and diluted earnings per share (“EPS”) without the impact of acquisition-related expenses, a charge for uncollectible receivables due to the bankruptcy of Bed, Bath & Beyond (“Bed, Bath & Beyond bankruptcy”), EPA compliance costs, gain from insurance recoveries, gain on sale of distribution and office facilities, restructuring charges, amortization of intangible assets, and non-cash share-based compensation for the periods presented, as applicable. These measures may be considered non-GAAP financial measures as defined by SEC Regulation G, Rule 100. The tables reconcile these measures to their corresponding GAAP-based financial measures presented in our consolidated statements of income. We believe that adjusted operating income, adjusted operating margin, adjusted income, and adjusted diluted EPS provide useful information to management and investors regarding financial and business trends relating to our financial condition and results of operations. We believe that these non-GAAP financial measures, in combination with our financial results calculated in accordance with GAAP, provide investors with additional perspective regarding the impact of such charges and benefits on applicable income, margin and earnings per share measures. We also believe that these non-GAAP measures facilitate a more direct comparison of our performance to our competitors. We further believe that including the excluded charges and benefits would not accurately reflect the underlying performance of our operations for the period in which the charges and benefits were incurred and reflected in our GAAP financial results. The material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures do not reflect the full economic impact of our activities. Our adjusted operating income, adjusted operating margin, adjusted income, and adjusted diluted EPS are not prepared in accordance with GAAP, are not an alternative to GAAP financial measures and may be calculated differently than non-GAAP financial measures disclosed by other companies. Accordingly, undue reliance should not be placed on non-GAAP financial measures. These non-GAAP financial measures are discussed further and reconciled to their applicable GAAP-based financial measures contained in this MD&A beginning on page 50.

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Overview

We are a leading global consumer products company offering creative products and solutions for our customers through a diversified portfolio of brands. We have built leading market positions through new product innovation, product quality and competitive pricing. We currently operate two segments consisting of Home & Outdoor and Beauty & Wellness.

Fiscal 2020 began Phase II of our transformation, which was designed to drive the next five years of progress. The long-term objectives of Phase II included improved organic sales growth, continued margin expansion, and strategic and effective capital deployment. Phase II included plans to continue to invest in our Leadership Brands, with a focus on growing them through consumer-centric innovation, expanding them more aggressively outside the U.S., and adding new brands through acquisition. We sought to build further shared service capability and operating efficiency, as well as focus on attracting, retaining, unifying and training the best people. Additionally, we strove to enhance and consolidate our ESG efforts and accelerate programs related to DEI&B to support our Phase II transformation.

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

Project Pegasus is a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs. Project Pegasus includes initiatives to further optimize our brand portfolio, streamline and simplify the organization, accelerate cost of goods savings projects, enhance the efficiency of our supply chain network, optimize our indirect spending and improve our cash flow and working capital, as well as other activities. We anticipate these initiatives will create operating efficiencies, as well as provide a platform to fund future growth investments. During fiscal 2024 and 2023, we incurred $18.7 million and $27.4 million, respectively, of pre-tax restructuring costs in connection with Project Pegasus, which were recorded as “Restructuring charges” in the consolidated statements of income. See further discussion below within “Significant Trends Impacting the Business,” under “Project Pegasus” and Note 11 to the accompanying consolidated financial statements.

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

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functions within our shared services. Additionally, we are committed to fostering a winning culture and continuing our ESG and DEI&B efforts to support our Elevate for Growth era.

On April 22, 2022, we completed the acquisition of Curlsmith, a producer of innovative prestige hair care products for all types of curly and wavy hair. The Curlsmith brand and products were added to the Beauty & Wellness segment. The total purchase consideration was $147.9 million in cash, net of a final net working capital adjustment and cash acquired.

On December 29, 2021, we completed the acquisition of Osprey, a longtime U.S. leader in technical and everyday packs, for $409.3 million in cash, net of a final net working capital adjustment and cash acquired. Osprey is highly respected in the outdoor industry with a product lineup that includes a wide range of backpacks and daypacks for hiking, mountaineering, skiing, climbing, mountain biking, trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories. The Osprey brand and products were added to the Home & Outdoor segment.

On March 30, 2022, a third-party facility that we utilized for inventory storage incurred severe damage from a weather-related incident. The inventory that was stored at this facility primarily related to our Beauty & Wellness segment. While the inventory was insured, some seasonal inventory and inventory designated for specific customer promotions was not accessible and subsequently determined to be damaged, and as a result, unfavorably impacted our net sales revenue during the first quarter of fiscal 2023. As a result of the damages to the inventory stored at the facility, we recorded a charge to write-off the damaged inventory totaling $34.4 million during fiscal 2023. These charges were fully offset by probable insurance recoveries of $34.4 million also recorded during fiscal 2023, which represented anticipated insurance proceeds, not to exceed the amount of the associated losses, for which receipt was deemed probable. The charges for the damaged inventory and the expected insurance recoveries were included in cost of goods sold in our consolidated statement of income for the fiscal year ended February 28, 2023. During fiscal 2023, we received proceeds of $46.0 million from our insurance carriers related to this incident which were included in cash flows from operating activities in our consolidated statement of cash flows for the fiscal year ended February 28, 2023. As a result, during fiscal 2023, the Company recorded a gain of $9.7 million, net of costs incurred to dispose of the inventory, as a reduction of SG&A expense in our consolidated statement of income.

On September 28, 2023, we completed the sale of our distribution and office facilities in El Paso, Texas, for a sales price of $50.6 million, less transaction costs of $1.1 million. Concurrently, we entered into an agreement to leaseback the office facilities for a period of up to 18 months substantially rent free, which we estimated to have a fair value of approximately $1.9 million. The transaction qualified for sales recognition under the sale leaseback accounting requirements. Accordingly, we increased the sales price by the $1.9 million of prepaid rent and recognized a gain on the sale of $34.2 million within SG&A during fiscal 2024, of which $18.0 million and $16.2 million was recognized by our Beauty & Wellness and Home & Outdoor segments, respectively. The related property and equipment, totaling $17.2 million net of accumulated depreciation of $36.8 million, was derecognized from the consolidated balance sheet, and at lease commencement, we recorded an operating lease asset, which includes the imputed rent payments described above, and an operating lease liability. We used the proceeds from the sale to repay amounts outstanding under our long-term debt agreement.

During fiscal 2022 and fiscal 2023, we divested our Personal Care business. On June 7, 2021, we completed the sale of our North America Personal Care business to HRB Brands LLC, for $44.7 million in cash and recognized a gain on the sale in SG&A totaling $0.5 million. On March 25, 2022, we completed the sale of the Latin America and Caribbean Personal Care business to HRB Brands LLC, for $1.8 million in cash and recognized a gain on the sale in SG&A totaling $1.3 million.

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Significant Trends Impacting the Business

Project Pegasus

During fiscal 2023, we initiated Project Pegasus, a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs. Project Pegasus includes initiatives to further optimize our brand portfolio, streamline and simplify the organization, accelerate cost of goods savings projects, enhance the efficiency of our supply chain network, optimize our indirect spending and improve our cash flow and working capital, as well as other activities. We anticipate these initiatives will create operating efficiencies, as well as provide a platform to fund future growth investments.

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

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

We have updated our expectations regarding Project Pegasus charges and savings. We have lowered our total estimate of one-time pre-tax restructuring charges to approximately $50 million to $55 million over the duration of the plan. We continue to expect these charges to be completed during fiscal 2025. We previously estimated total pre-tax restructuring charges of approximately $60 million to $65 million. In addition, we now have the following expectations regarding Project Pegasus charges:

•Pre-tax restructuring charges to be comprised of approximately $15 million to $19 million of severance and employee related costs, $28 million of professional fees, $3 million to $4 million of contract termination costs, and $4 million of other exit and disposal costs.

•All of our operating segments and shared services will be impacted by the plan and pre-tax restructuring charges include approximately $16 million to $17 million in Home & Outdoor and $34 million to $38 million in Beauty & Wellness.

•Pre-tax restructuring charges represent primarily cash expenditures, which we continue to expect to be substantially paid by the end of fiscal 2025.

We have the following expectations regarding Project Pegasus savings:

•We continue to expect targeted annualized pre-tax operating profit improvements of approximately $75 million to $85 million, which began in fiscal 2024 and which we now expect to be substantially achieved by the end of fiscal 2027.

•We have updated our expectations regarding the estimated cadence of the recognition of the savings to be approximately 25% in fiscal 2024, which was achieved, approximately 35% in fiscal 2025, approximately 25% in fiscal 2026, and approximately 15% in fiscal 2027. We previously estimated recognition of the savings to be approximately 25% in fiscal 2024, approximately 50% in fiscal 2025 and approximately 25% in 2026.

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•We continue to expect total profit improvements to be realized approximately 60% through reduced cost of goods sold and 40% through lower SG&A.

In addition, we implemented plans to reduce inventory levels, increase inventory turns, and improve cash flow and working capital during the second quarter of fiscal 2023. Improvements related to these initiatives began in the second half of fiscal 2023 and continued during fiscal 2024, enabling us to repay amounts outstanding under our long-term debt agreement and reduce our interest expense. During fiscal 2024, our gross margin and operating margins were favorably impacted by our SKU rationalization efforts in Beauty & Wellness and lower commodity costs in Home & Outdoor driven by our cost of goods savings projects. In addition, during fiscal 2024 we had lower personnel costs as a result of our Project Pegasus role reductions; however, they were offset by higher annual incentive compensation expense, annual merit increases, and share-based compensation expense. Expectations regarding our Project Pegasus initiatives and our ability to realize targeted savings, including expectations concerning costs and savings, are based on management’s estimates available at the time and are subject to a number of assumptions that could materially impact our estimates.

During fiscal 2024 and 2023, we incurred $18.7 million and $27.4 million of pre-tax restructuring costs, respectively, in connection with Project Pegasus, which were recorded as “Restructuring charges” in the consolidated statements of income. We made total cash restructuring payments of $18.7 million and $20.8 million during fiscal 2024 and 2023, respectively, and had a remaining liability of $4.8 million as of February 29, 2024. See Note 11 to the accompanying consolidated financial statements for additional information.

Water Filtration Patent Litigation

On December 23, 2021, Brita LP filed the Patent Litigation, alleging patent infringement by the Company relating to its PUR gravity-fed water filtration systems. Brita LP simultaneously filed the ITC Action against Kaz USA, Inc., Helen of Troy Limited and five other unrelated companies that sell water filtration systems. The complaint in the ITC Action also alleged patent infringement by the Company with respect to a limited set of PUR gravity-fed water filtration systems. This action sought injunctive relief to prevent entry of certain accused PUR products (and certain other products) into the U.S. and cessation of marketing and sales of existing inventory that is already in the U.S. On February 28, 2023, the ITC issued an Initial Determination in the ITC Action, tentatively ruling against the Company and the other unrelated respondents. The ITC has a guaranteed review process, and thus all respondents, including the Company, filed a petition with the ITC for a full review of the Initial Determination. On September 19, 2023, the ITC issued its Final Determination in the Company's favor. The ITC determined there was no violation by the Company and terminated the investigation. Brita LP is appealing the ITC's decision to the Federal Circuit and filed its Notice of Appeal on October 24, 2023. The Company intervened in the CAFC Appeal, but as of the date of the filing of this Form 10-K, no hearings have been scheduled. The Patent Litigation remains stayed for the time being. We cannot predict the outcome of these legal proceedings, the amount or range of any potential loss, when the proceedings will be resolved, or customer acceptance of any replacement water filter. Litigation is inherently unpredictable, and the resolution or disposition of these proceedings could, if adversely determined, have a material and adverse impact on our financial position and results of operations. For additional information regarding the Patent Litigation and the ITC Action, see Item 3., “Legal Proceedings” and Note 12 to the accompanying consolidated financial statements.

Impact of Macroeconomic Trends

The Federal Open Market Committee increased the benchmark interest rate by 75 basis points during fiscal 2024 and 450 basis points during fiscal 2023. As a result, during fiscal 2024 and 2023, we incurred higher average interest rates compared to previous periods. The Federal Open Market Committee has indicated that it may lower interest rates in fiscal 2025. While the actual timing and extent of future changes in interest rates remains unknown, lower average interest rates would reduce interest expense on our outstanding variable rate debt. The financial markets, the global economy and global supply chain

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may also be adversely affected by the current or anticipated impact of military conflicts or other geopolitical events. High inflation and interest rates have also negatively impacted consumer disposable income, credit availability and spending, among others, which have adversely impacted our business, financial condition, cash flows and results of operations and may continue to have an adverse impact. See further discussion below under “Consumer Spending and Changes in Shopping Preferences.” We expect continued uncertainty in our business and the global economy due to pressure from inflation, volatility in employment trends and consumer confidence, any of which may adversely impact our results.

Consumer Spending and Changes in Shopping Preferences

Our business depends upon discretionary consumer demand for most of our products and primarily operates within mature and highly developed consumer markets. The principal driver of our operating performance is the strength of the U.S. retail economy. Approximately 74% of our consolidated net sales revenue in both fiscal 2024 and 2023 was from U.S. shipments compared to 78% of consolidated net sales revenue in fiscal 2022.

Among other things, high levels of inflation and interest rates may negatively impact consumer disposable income, credit availability and spending. Consumer purchases of discretionary items, including the products that we offer, generally decline during recessionary periods or periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Dynamic changes in consumer spending and shopping patterns are also having an impact on retailer inventory levels. Our ability to sell to retailers is predicated on their ability to sell to the end consumer. During fiscal year 2023, we experienced an adverse impact on orders from retail customers as they aimed to rebalance their inventory levels due to lower consumer demand and shifts in consumer spending patterns. We experienced some improvement in replenishment orders from certain retail customers in certain product categories during fiscal 2024. If orders from our retail customers continue to be adversely impacted, our sales, results of operations and cash flows may continue to be adversely impacted. We expect continued uncertainty in our business and the global economy due to inflation and changes in consumer spending patterns. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today. For additional information on our related material risks, see Item 1A., “Risk Factors.”

Our concentration of sales reflects the continued evolution of consumer shopping preferences. For fiscal 2024, 2023 and 2022, our net sales to pure-play online retailers and retail customers fulfilling end-consumer online orders, as well as our own online sales directly to consumers comprised approximately 28%, 23% and 24%, respectively, of our total consolidated net sales revenue and grew approximately 14.3% in fiscal 2024, while decreasing approximately 8.9% and 1.3% in fiscal 2023 and 2022, respectively, over the prior fiscal year periods.

With the continued importance of online sales in the retail landscape, many brick and mortar retailers are aggressively looking for ways to improve their customer delivery capabilities to be able to meet customer expectations. As a result, it has become increasingly important for us to leverage our distribution capabilities in order to meet the changing demands of our customers, including increasing our online capabilities to support our direct-to-consumer sales channels and online channel sales by our retail customers. In March 2023, we completed the construction of an additional distribution facility in Gallaway, Tennessee that became operational during the first quarter of fiscal 2024 and includes state-of-the-art automation suited to fulfill direct-to-consumer and online channel orders. Additionally, we continue to invest in a centralized cloud-based e-commerce platform that we anticipate will enable us to leverage a common system and rapidly deploy new capabilities across all of our brands, as well as more easily integrate new brands. We anticipate this platform will enhance the customer experience by strengthening the digital presentation and product browsing capabilities and improving the checkout process, order delivery and post-order customer care.

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Global Supply Chain and Related Cost Inflation Trends

During fiscal 2022, the impact of COVID-19, including the related surges in demand and shifts in shopping patterns, as well as other factors, strained the global supply chain network resulting in higher inbound freight costs and surges in prices for raw materials, components and semiconductor chips, which adversely impacted our operating costs. During fiscal 2023, as consumer demand slowed in reaction to a highly inflationary economic environment, global supply chain capacity improved and freight costs began to recede from their previous peaks. During fiscal 2024, inbound freight costs have continued to decline and have begun to approach levels seen prior to the impact of COVID-19. Reemergence of these global supply chain disruptions and related inflationary cost trends could have negative impacts to our business, results of operations and financial condition.

EPA Compliance Costs

Some of our product lines are subject to product identification, labeling and claim requirements, which are monitored and enforced by regulatory agencies, such as the EPA, U.S. Customs and Border Protection, the U.S. Food and Drug Administration, and the U.S. Consumer Product Safety Commission.

During fiscal 2022, we were in discussions with the EPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Beauty & Wellness segment that are sold in the U.S. The EPA did not raise any product quality, safety or performance issues. As a result of these packaging compliance discussions, we voluntarily implemented a temporary stop shipment action on the impacted products as we worked with the EPA towards an expedient resolution. Our fiscal 2022 consolidated, and Beauty & Wellness segment’s, net sales revenue, gross profit and operating income were materially and adversely impacted by the stop shipment actions and the time needed to execute repackaging and relabeling plans. We resumed normalized levels of shipping of the affected inventory during fiscal 2022 and we completed the repackaging and relabeling of our existing inventory of impacted products during fiscal 2023. Additionally, as a result of continuing dialogue with the EPA, we executed further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products, which were also completed during fiscal 2023.

We recorded charges to cost of goods sold to write-off obsolete packaging for the affected products in our inventory on-hand and in-transit. We have also incurred additional compliance costs comprised of obsolete packaging, storage and other charges from vendors, which were recognized in cost of goods sold and incremental warehouse storage costs and legal fees, which were recognized in SG&A. We refer to these charges as “EPA compliance costs” throughout this Annual Report.

The following table provides a summary of EPA compliance costs incurred during the periods presented:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(1)Includes a $4.4 million charge to write-off the obsolete packaging for the affected additional humidifier products and affected additional air filtration products in our inventory on-hand and in-transit as of the end of the first quarter of fiscal 2023.

(2)Includes a $13.1 million charge to cost of goods sold to write-off the obsolete packaging for the affected air filtration, water filtration and humidifier products in our inventory on-hand and in-transit as of the end of the first quarter of fiscal 2022.

In addition, we incurred and capitalized into inventory costs to repackage a portion of our existing inventory of the affected products beginning in the second quarter of fiscal 2022 through completion of the repackaging in the third quarter of fiscal 2023.

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Although we have not been notified of any fines or penalties imposed against us by the EPA related to this matter, there can be no assurances that such fines or penalties will not be imposed in the future. See Note 12 to the accompanying consolidated financial statements for additional information and Item 1A., “Risk Factors” in this Annual Report for additional information on our related material risks.

Potential Impact of Tariffs

Since 2019, the Office of the U.S. Trade Representative (“USTR”) has imposed, and in certain cases subsequently reduced or suspended, additional tariffs on products imported from China. We purchase a high concentration of our products from unaffiliated manufacturers located in China. This concentration exposes us to risks associated with doing business globally, including changes in tariffs. Any alteration of trade agreements and terms between China and the U.S., including limiting trade with China, imposing additional tariffs on imports from China and potentially imposing other restrictions on imports from China to the U.S. may result in further or higher tariffs or retaliatory trade measures by China. Furthermore, in certain cases, we have been successful in obtaining tariff exclusions from the USTR on certain products that we import. These exclusions generally expire after a designated period of time. In the case that a tariff exclusion is not granted or extended, higher tariffs would be assessed on the related products.

Foreign Currency Exchange Rate Fluctuations

Due to the nature of our operations, we have exposure to the impact of fluctuations in exchange rates from transactions that are denominated in a currency other than our functional currency (the U.S. Dollar). Such transactions include sales and operating expenses. The most significant currencies affecting our operating results are the Euro, British Pound and Canadian Dollar.

Changes in foreign currency exchange rates had a favorable impact on consolidated U.S. Dollar reported net sales revenue of approximately $6.8 million, or 0.3% for fiscal 2024, an unfavorable impact of approximately $17.0 million, or 0.8% for fiscal 2023 and a favorable impact of approximately $6.8 million, or 0.3% for fiscal 2022.

Variability of the Cough/Cold/Flu Season

Sales in several of our Beauty & Wellness segment categories are highly correlated to the severity of winter weather and cough/cold/flu incidence. In the U.S., the cough/cold/flu season historically runs from November through March, with peak activity normally in January to March. The 2023-2024 cough/cold/flu season was below historical averages seen prior to the impact of COVID-19. The 2022-2023 cough/cold/flu season was above historical averages, primarily early in the season, as respiratory infections surged in both children and adults and COVID-19 continued to be prevalent. The 2021-2022 cough/cold/flu season was below historical averages.

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Results of Operations

This section provides an analysis of our results of operations for fiscal year 2024 as compared to fiscal year 2023 including discussion of material changes. Refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2023 Annual Report on Form 10-K, filed with the SEC on April 27, 2023, for an analysis and discussion of the fiscal year 2023 results of operations as compared to fiscal year 2022, which such discussion is hereby incorporated by reference.

The following table provides selected operating data, in U.S. Dollars, as a percentage of net sales revenue, and as a year-over-year percentage change.

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[[/GREPCENT_TABLE]]

(1)Fiscal 2024 includes a full year of operating results from Curlsmith, acquired on April 22, 2022, compared to approximately forty-five weeks of operating results in fiscal 2023. For additional information see Note 6 to the accompanying consolidated financial statements.

(2)Fiscal 2024 and 2023 include a full year of operating results from Osprey, acquired on December 29, 2021, compared to approximately nine weeks of operating results in fiscal 2022. For additional information see Note 6 to the accompanying consolidated financial statements.

*    Calculation is not meaningful.

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Fiscal 2024 Financial Results

•Consolidated net sales revenue decreased 3.3%, or $67.6 million, to $2,005.1 million compared to $2,072.7 million for the same period last year.

•Consolidated operating income increased 23.0%, or $48.8 million, to $260.6 million, compared to $211.8 million for the same period last year. Consolidated operating margin increased 2.8 percentage points to 13.0%, compared to 10.2% for the same period last year. Consolidated operating income for fiscal 2024 includes a pre-tax gain on sale of distribution and office facilities of $34.2 million, pre-tax restructuring charges of $18.7 million related to Project Pegasus, and a pre-tax Bed, Bath & Beyond bankruptcy charge of $4.2 million. Consolidated operating income for fiscal 2023 included pre-tax restructuring charges of $27.4 million related to Project Pegasus, pre-tax EPA compliance costs of $23.6 million, a pre-tax gain from insurance recoveries of $9.7 million, and pre-tax acquisition-related expenses of $2.8 million.

•Consolidated adjusted operating income increased 0.2%, or $0.6 million, to $301.5 million, compared to $300.9 million for the same period last year. Consolidated adjusted operating margin increased 0.5 percentage points to 15.0% of consolidated net sales revenue, compared to 14.5% for the same period last year.

•Net income increased 17.7%, or $25.3 million, to $168.6 million, compared to $143.3 million for the same period last year. Diluted EPS increased 18.2% to $7.03, compared to $5.95 for the same period last year.

•Adjusted income decreased 6.2% to $213.5 million, compared to $227.7 million for the same period last year. Adjusted diluted EPS decreased 5.7% to $8.91, compared to $9.45 for the same period last year.

Fiscal 2023 Financial Results

•Consolidated net sales revenue decreased 6.8%, or $150.7 million, to $2,072.7 million in fiscal 2023, compared to $2,223.4 million in fiscal 2022.

•Consolidated operating income decreased 22.3%, or $60.8 million, to $211.8 million in fiscal 2023, compared to $272.6 million in fiscal 2022. Consolidated operating margin decreased 2.1 percentage points to 10.2% in fiscal 2023, compared to 12.3% in fiscal 2022. Consolidated operating income for fiscal 2023 included pre-tax restructuring charges of $27.4 million related to Project Pegasus, pre-tax EPA compliance costs of $23.6 million, a pre-tax gain from insurance recoveries of $9.7 million, and pre-tax acquisition-related expenses of $2.8 million. Consolidated operating income for fiscal 2022 included pre-tax restructuring charges of $0.4 million, pre-tax EPA compliance costs of $32.4 million, and pre-tax acquisition-related expenses of $2.4 million.

•Consolidated adjusted operating income decreased 15.3%, or $54.2 million, to $300.9 million in fiscal 2023, compared to $355.1 million in fiscal 2022. Consolidated adjusted operating margin decreased 1.5 percentage point to 14.5% of consolidated net sales revenue in fiscal 2023, compared to 16.0% in fiscal 2022.

•Net income decreased 36.0%, or $80.5 million, to $143.3 million in fiscal 2023, compared to $223.8 million in fiscal 2022. Diluted EPS decreased 35.1% to $5.95 in fiscal 2023, compared to $9.17 in fiscal 2022.

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•Adjusted income decreased 24.6% to $227.7 million in fiscal 2023, compared to $301.8 million in fiscal 2022. Adjusted diluted EPS decreased 23.5% to $9.45 in fiscal 2023, compared to $12.36 in fiscal 2022.

Consolidated and Segment Net Sales Revenue

The following tables summarize the impact that Organic business, foreign currency, and acquisitions had on our net sales revenue by segment:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended Last Day of February,"],["(in thousands)","Home & Outdoor","","","","","","Beauty & Wellness","","Total"],["Fiscal 2023 sales revenue, net","$","915,685","","","","","","","$","1,156,982","","","$","2,072,667"],["Organic business","(2,499)","","","","","","","(78,066)","","","(80,565)"],["Impact of foreign currency","3,195","","","","","","","3,651","","","6,846"],["Acquisition (1)","\u2014","","","","","","","6,102","","","6,102"],["Change in sales revenue, net","696","","","","","","","(68,313)","","","(67,617)"],["Fiscal 2024 sales revenue, net","$","916,381","","","","","","","$","1,088,669","","","$","2,005,050"],["Total net sales revenue growth (decline)","0.1","%","","","","","","(5.9)","%","","(3.3)","%"],["Organic business","(0.3)","%","","","","","","(6.7)","%","","(3.9)","%"],["Impact of foreign currency","0.3","%","","","","","","0.3","%","","0.3","%"],["Acquisition","\u2014","%","","","","","","0.5","%","","0.3","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended Last Day of February,"],["(in thousands)","Home & Outdoor","","","","","","Beauty & Wellness","","Total"],["Fiscal 2022 sales revenue, net","$","865,844","","","","","","","$","1,357,511","","","$","2,223,355"],["Organic business","(93,569)","","","","","","","(228,403)","","","(321,972)"],["Impact of foreign currency","(9,313)","","","","","","","(7,656)","","","(16,969)"],["Acquisition (1)(2)","152,723","","","","","","","35,530","","","188,253"],["Change in sales revenue, net","49,841","","","","","","","(200,529)","","","(150,688)"],["Fiscal 2023 sales revenue, net","$","915,685","","","","","","","$","1,156,982","","","$","2,072,667"],["Total net sales revenue growth (decline)","5.8","%","","","","","","(14.8)","%","","(6.8)","%"],["Organic business","(10.8)","%","","","","","","(16.8)","%","","(14.5)","%"],["Impact of foreign currency","(1.1)","%","","","","","","(0.6)","%","","(0.8)","%"],["Acquisition","17.6","%","","","","","","2.6","%","","8.5","%"]]
[[/GREPCENT_TABLE]]

(1)On April 22, 2022, we completed the acquisition of Curlsmith. Curlsmith sales prior to the first annual anniversary of the acquisition are reported in Acquisition for the Beauty & Wellness segment in fiscal 2024 and fiscal 2023 and consist of approximately seven weeks and forty-five weeks of incremental operating results, respectively. For additional information see Note 6 to the accompanying consolidated financial statements.

(2)On December 29, 2021, we completed the acquisition of Osprey. Osprey sales prior to the first annual anniversary of the acquisition are reported in Acquisition for the Home & Outdoor segment in fiscal 2023 and consist of approximately forty-three weeks of incremental operating results. For additional information see Note 6 to the accompanying consolidated financial statements.

In the above tables, Organic business refers to our net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand was acquired, excluding the impact that foreign currency remeasurement had on reported net sales revenue. Net sales revenue from internally developed brands or product lines is considered Organic business activity.

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Leadership Brand and Other Net Sales Revenue

The following table summarizes our Leadership Brand and other net sales revenue:

[[GREPCENT_TABLE]]
[["","Fiscal Years Ended Last Day of February,","","$ Change","","% Change"],["(in thousands)","2024","","2023","","2022","","24/23","","23/22","","24/23","","23/22"],["Leadership Brand sales revenue, net (1)","$","1,707,964","","","$","1,753,734","","","$","1,810,249","","","$","(45,770)","","","$","(56,515)","","","(2.6)","%","","(3.1)","%"],["All other sales revenue, net","297,086","","","318,933","","","413,106","","","(21,847)","","","(94,173)","","","(6.9)","%","","(22.8)","%"],["Total sales revenue, net","$","2,005,050","","","$","2,072,667","","","$","2,223,355","","","$","(67,617)","","","$","(150,688)","","","(3.3)","%","","(6.8)","%"]]
[[/GREPCENT_TABLE]]

(1)Fiscal 2024 and 2023 include a full year of operating results from Osprey, acquired on December 29, 2021, compared to approximately nine weeks of operating results in fiscal 2022. For additional information see Note 6 to the accompanying consolidated financial statements.

Consolidated Net Sales Revenue

Comparison of Fiscal 2024 to 2023

Consolidated net sales revenue decreased $67.6 million, or 3.3%, to $2,005.1 million, compared to $2,072.7 million. The decline was driven by a decrease from Organic business of $80.6 million, or 3.9%, primarily due to:

•lower sales of fans, humidifiers, air purifiers, and heaters in Beauty & Wellness primarily driven by softer consumer demand, our SKU rationalization efforts, and reduced orders from retail customers as they rebalanced trade inventory in line with softer consumer demand;

•a decline in sales of hair appliances in Beauty & Wellness; and

•a decline in Home & Outdoor primarily due to lower brick and mortar sales in the insulated beverageware category and lower closeout and club channel sales in the home category.

These factors were partially offset by:

•an increase in consolidated online channel sales reflecting improved replenishment orders from certain retail customers and the launch of the new travel tumbler in Home & Outdoor;

•stronger consumer demand for travel, lifestyle and everyday packs in Home & Outdoor; and

•growth in sales of thermometry and prestige hair care products in Beauty & Wellness.

The Curlsmith acquisition contributed $6.1 million, or 0.3%, to consolidated net sales revenue growth. Net sales revenue was favorably impacted by net foreign currency fluctuations of approximately $6.8 million, or 0.3%.

Net sales revenue from our Leadership Brands was $1,708.0 million, compared to $1,753.7 million, a decrease of 2.6%.

Segment Net Sales Revenue

Home & Outdoor

Comparison of Fiscal 2024 to 2023

Net sales revenue increased $0.7 million, or 0.1%, to $916.4 million, compared to $915.7 million, primarily due to the favorable impact of net foreign currency fluctuations of $3.2 million, or 0.3%. The increase was partially offset by a decrease from Organic business of $2.5 million, or 0.3%, primarily due to:

•a brick and mortar sales decline in the insulated beverageware category;

•reduced sales to Bed, Bath & Beyond as a result of its bankruptcy; and

•lower closeout and club channel sales in the home category.

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These factors were partially offset by:

•an increase in online channel sales reflecting the launch of the new travel tumbler, improved replenishment orders from certain retail customers, and stronger demand for products in the home category;

•stronger consumer demand for travel, lifestyle and everyday packs;

•higher brick and mortar home category sales due to new and expanded retailer distribution and improved replenishment orders from certain retail customers; and

•an increase in closeout channel sales in the insulated beverageware and technical and lifestyle pack categories.

Beauty & Wellness

Comparison of Fiscal 2024 to 2023

Net sales revenue decreased $68.3 million, or 5.9%, to $1,088.7 million, compared to $1,157.0 million. The decrease was primarily driven by a decrease from Organic business of $78.1 million, or 6.7%, primarily due to:

•lower sales of fans, air purifiers, and heaters, primarily driven by softer consumer demand, our SKU rationalization efforts, and reduced orders from retail customers as they rebalanced trade inventory in line with softer consumer demand;

•a decline in humidification reflecting reduced orders from retail customers as they rebalanced trade inventory levels and the comparative impact of high COVID-related demand in the prior year; and

•a decline in sales of hair appliances.

These factors were partially offset by:

•growth in sales of thermometry which helped drive higher overall international sales;

•an increase in sales of prestige hair care products; and

•an increase in water filtration product sales.

The Curlsmith acquisition contributed $6.1 million, or 0.5%, to segment net sales revenue growth. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $3.7 million, or 0.3%.

Consolidated Gross Profit Margin

Comparison of Fiscal 2024 to 2023

Consolidated gross profit margin increased 3.9 percentage points to 47.3%, compared to 43.4%. The increase in consolidated gross profit margin was primarily due to:

•lower inbound freight costs;

•the favorable comparative impact of EPA compliance costs of $16.9 million incurred in the prior year;

•the favorable impact of our SKU rationalization efforts in Beauty & Wellness; and

•a decrease in inventory obsolescence expense.

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Consolidated SG&A

Comparison of Fiscal 2024 to 2023

Consolidated SG&A ratio increased 1.5 percentage points to 33.4%, compared to 31.9%. The increase in the consolidated SG&A ratio was primarily due to:

•an increase in annual incentive compensation expense;

•higher marketing expense;

•the unfavorable comparative impact of a gain from insurance recoveries of $9.7 million recognized in the prior year;

•higher share-based compensation expense;

•an increase in depreciation and distribution expense primarily due to our new distribution facility;

•a charge of $4.2 million related to the bankruptcy of Bed, Bath & Beyond; and

•the unfavorable operating leverage impact of the overall decrease in net sales.

These factors were partially offset by a gain on the sale of our distribution and office facilities in El Paso, Texas of $34.2 million and the favorable comparative impact of EPA compliance costs of $6.6 million incurred in the prior year.

Restructuring Charges

Fiscal 2024

We incurred $18.7 million of pre-tax restructuring costs related primarily to professional fees and severance and employee related costs under Project Pegasus. During fiscal 2024, we made total cash restructuring payments of $18.7 million and had a remaining liability of $4.8 million as of February 29, 2024.

Fiscal 2023

We incurred $27.4 million of pre-tax restructuring costs related primarily to professional fees and severance and employee related costs under Project Pegasus. During fiscal 2023, we made total cash restructuring payments of $20.8 million and had a remaining liability of $6.6 million as of February 28, 2023.

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Operating Income, Operating Margin, Adjusted Operating Income (non-GAAP), and Adjusted Operating Margin (non-GAAP) by Segment

In order to provide a better understanding of the impact of certain items on our operating income, the tables that follow report the comparative pre-tax impact of acquisition-related expenses, Bed, Bath & Beyond bankruptcy, EPA compliance costs, gain from insurance recoveries, gain on sale of distribution and office facilities, restructuring charges, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on operating income and operating margin for each segment and in total for the periods presented below. Adjusted operating income and adjusted operating margin may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended February 29, 2024"],["(in thousands)","Home & Outdoor (1)","","","","","","Beauty & Wellness (2)","","Total"],["Operating income, as reported (GAAP)","$","142,732","","","15.6","%","","","","","","","","","","$","117,857","","","10.8","%","","$","260,589","","","13.0","%"],["Bed, Bath & Beyond bankruptcy","3,087","","","0.3","%","","","","","","","","","","1,126","","","0.1","%","","4,213","","","0.2","%"],["Gain on sale of distribution and office facilities","(16,175)","","","(1.8)","%","","","","","","","","","","(18,015)","","","(1.7)","%","","(34,190)","","","(1.7)","%"],["Restructuring charges","5,144","","","0.6","%","","","","","","","","","","13,568","","","1.2","%","","18,712","","","0.9","%"],["Subtotal","134,788","","","14.7","%","","","","","","","","","","114,536","","","10.5","%","","249,324","","","12.4","%"],["Amortization of intangible assets","7,057","","","0.8","%","","","","","","","","","","11,269","","","1.0","%","","18,326","","","0.9","%"],["Non-cash share-based compensation","16,319","","","1.8","%","","","","","","","","","","17,553","","","1.6","%","","33,872","","","1.7","%"],["Adjusted operating income (non-GAAP)","$","158,164","","","17.3","%","","","","","","","","","","$","143,358","","","13.2","%","","$","301,522","","","15.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended February 28, 2023"],["(in thousands)","Home & Outdoor (1)","","","","","","Beauty & Wellness (2)","","Total"],["Operating income, as reported (GAAP)","$","134,053","","","14.6","%","","","","","","","","","","$","77,738","","","6.7","%","","$","211,791","","","10.2","%"],["Acquisition-related expenses","117","","","\u2014","%","","","","","","","","","","2,667","","","0.2","%","","2,784","","","0.1","%"],["EPA compliance costs","\u2014","","","\u2014","%","","","","","","","","","","23,573","","","2.0","%","","23,573","","","1.1","%"],["Gain from insurance recoveries","\u2014","","","\u2014","%","","","","","","","","","","(9,676)","","","(0.8)","%","","(9,676)","","","(0.5)","%"],["Restructuring charges","8,689","","","0.9","%","","","","","","","","","","18,673","","","1.6","%","","27,362","","","1.3","%"],["Subtotal","142,859","","","15.6","%","","","","","","","","","","112,975","","","9.8","%","","255,834","","","12.3","%"],["Amortization of intangible assets","7,020","","","0.8","%","","","","","","","","","","11,302","","","1.0","%","","18,322","","","0.9","%"],["Non-cash share-based compensation","10,751","","","1.2","%","","","","","","","","","","16,002","","","1.4","%","","26,753","","","1.3","%"],["Adjusted operating income (non-GAAP)","$","160,630","","","17.5","%","","","","","","","","","","$","140,279","","","12.1","%","","$","300,909","","","14.5","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended February 28, 2022"],["(in thousands)","Home & Outdoor (1)","","","","","","Beauty & Wellness","","Total"],["Operating income, as reported (GAAP)","$","134,925","","","15.6","%","","","","","","","","","","$","137,625","","","10.1","%","","$","272,550","","","12.3","%"],["Acquisition-related expenses","2,424","","","0.3","%","","","","","","","","","","\u2014","","","\u2014","%","","2,424","","","0.1","%"],["EPA compliance costs","\u2014","","","\u2014","%","","","","","","","","","","32,354","","","2.4","%","","32,354","","","1.5","%"],["Restructuring charges","369","","","\u2014","%","","","","","","","","","","11","","","\u2014","%","","380","","","\u2014","%"],["Subtotal","137,718","","","15.9","%","","","","","","","","","","169,990","","","12.5","%","","307,708","","","13.8","%"],["Amortization of intangible assets","2,891","","","0.3","%","","","","","","","","","","9,873","","","0.7","%","","12,764","","","0.6","%"],["Non-cash share-based compensation","13,812","","","1.6","%","","","","","","","","","","20,806","","","1.5","%","","34,618","","","1.6","%"],["Adjusted operating income (non-GAAP)","$","154,421","","","17.8","%","","","","","","","","","","$","200,669","","","14.8","%","","$","355,090","","","16.0","%"]]
[[/GREPCENT_TABLE]]

(1)Fiscal 2024 and 2023 include a full year of operating results from Osprey, acquired on December 29, 2021, compared to approximately nine weeks of operating results in fiscal 2022. For additional information see Note 6 to the accompanying consolidated financial statements.

(2)Fiscal 2024 includes a full year of operating results from Curlsmith, acquired on April 22, 2022, compared to approximately forty-five weeks of operating results in fiscal 2023. For additional information see Note 6 to the accompanying consolidated financial statements.

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Consolidated Operating Income

Comparison of Fiscal 2024 to 2023

Consolidated operating income was $260.6 million, or 13.0% of net sales revenue, compared to $211.8 million, or 10.2% of net sales revenue. Fiscal 2024 includes a pre-tax Bed, Bath & Beyond bankruptcy charge of $4.2 million, a pre-tax gain on sale of distribution and office facilities of $34.2 million and pre-tax restructuring charges of $18.7 million, compared to pre-tax acquisition-related expenses of $2.8 million, pre-tax EPA compliance costs of $23.6 million, pre-tax gain from insurance recoveries of $9.7 million, and pre-tax restructuring charges of $27.4 million in fiscal 2023. The effect of these items favorably impacted the year-over-year comparison of consolidated operating margin by a combined 2.7 percentage points. The remaining 0.1 percentage point increase in consolidated operating margin was primarily driven by:

•lower inbound freight costs;

•the favorable impact of our SKU rationalization efforts in Beauty & Wellness; and

•a decrease in inventory obsolescence expense.

These factors were partially offset by:

•increased annual incentive compensation expense;

•higher marketing expense;

•higher share-based compensation expense;

•an increase in depreciation and distribution expense primarily due to our new distribution facility; and

•the unfavorable operating leverage impact of the overall decrease in net sales.

Consolidated adjusted operating income increased 0.2% to $301.5 million, or 15.0% of net sales revenue, compared to $300.9 million, or 14.5% of net sales revenue.

Home & Outdoor

Comparison of Fiscal 2024 to 2023

Operating income was $142.7 million, or 15.6% of segment net sales revenue, compared to $134.1 million, or 14.6% of segment net sales revenue. The 1.0 percentage point increase in segment operating margin was primarily due to:

•lower inbound freight costs;

•a gain on the sale of our distribution and office facilities in El Paso, Texas of $16.2 million;

•lower commodity costs; and

•a decrease in restructuring charges of $3.5 million.

These factors were partially offset by:

•increased marketing expense;

•higher annual incentive compensation expense;

•an increase in depreciation and distribution expense primarily due to our new distribution facility;

•higher share-based compensation expense; and

•a charge of $3.1 million related to the bankruptcy of Bed, Bath & Beyond.

Adjusted operating income decreased 1.5% to $158.2 million, or 17.3% of segment net sales revenue, compared to $160.6 million, or 17.5% of segment net sales revenue.

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Beauty & Wellness

Comparison of Fiscal 2024 to 2023

Operating income was $117.9 million, or 10.8% of segment net sales revenue, compared to $77.7 million, or 6.7% of segment net sales revenue. The 4.1 percentage point increase in segment operating margin was primarily due to:

•lower inbound and outbound freight costs;

•the favorable comparative impact of EPA compliance costs of $23.6 million incurred in the prior year;

•a gain on the sale of our distribution and office facilities in El Paso, Texas of $18.0 million;

•a decrease in inventory obsolescence expense;

•decreased distribution expense;

•the favorable impact of our SKU rationalization efforts; and

•a decrease in restructuring charges of $5.1 million.

These factors were partially offset by:

•higher annual incentive compensation expense;

•higher marketing expense;

•the unfavorable comparative impact of a gain from insurance recoveries of $9.7 million recognized in the prior year; and

•unfavorable operating leverage.

Adjusted operating income increased 2.2% to $143.4 million, or 13.2% of segment net sales revenue, compared to $140.3 million, or 12.1% of segment net sales revenue.

Interest Expense

Comparison of Fiscal 2024 to 2023

Interest expense was $53.1 million, compared to $40.8 million. The increase in interest expense was primarily due to a higher average effective interest rate, partially offset by lower average borrowings outstanding compared to the prior year.

Income Tax Expense

The period-over-period comparison of our effective tax rate is often impacted by the mix of income in our various tax jurisdictions. Due to our organization in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate.

The Organisation for Economic Co-operation and Development has introduced a framework to implement a global minimum corporate income tax of 15%, referred to as “Pillar Two.” Many aspects of Pillar Two are effective for tax years beginning after January 1, 2024, with certain remaining aspects to be effective for tax years beginning January 1, 2025 or later. Certain countries have adopted legislation to implement Pillar Two, and other countries are in the process of introducing legislation to implement Pillar Two. Based on the countries in which we operate and those that have adopted legislation that is already effective (or with effective dates during our fiscal 2025), we currently do not expect the global minimum tax rules will have a material impact to our global effective tax rate in fiscal 2025. We will continue to assess the impact of Pillar Two and monitor developments in legislation, regulation, and interpretive guidance.

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In response to Pillar Two, on December 27, 2023, Bermuda enacted a corporate income tax effective for fiscal years beginning on or after January 1, 2025. The 15% corporate income tax regime applies to Bermuda businesses that are part of multinational enterprise groups with annual revenue of €750 million or more and is effective for us in fiscal 2026. The Bermuda corporate income tax allows for a beginning net operating loss balance related to the five years preceding the effective date. Accordingly, during fiscal 2024, we recorded a deferred tax asset of $9.3 million for the Bermuda net operating losses generated from fiscal 2021 through 2024 with an offsetting valuation allowance of $9.3 million. Although we currently do not expect the tax regime to have a material impact to our consolidated financial statements, we will continue to monitor and evaluate impact as further regulatory guidance becomes available.

On August 16, 2022, the Inflation Reduction Act (the “Act”) was enacted and signed into law. The Act is a budget reconciliation package that includes significant law changes relating to tax, climate change, energy, and health care. The tax provisions include, among other items, a corporate alternative minimum tax of 15%, an excise tax of 1% on corporate stock buy-backs, energy-related tax credits, and additional IRS funding. We do not expect these tax provisions to have a material impact to our consolidated financial statements.

Fiscal 2024 income tax expense as a percentage of income before income tax was 19.3% compared to income tax expense of 16.4% for fiscal 2023, primarily due to shifts in the mix of income in our various tax jurisdictions and tax expense recognized for the gain on the sale of our distribution and office facilities in El Paso, Texas during fiscal 2024.

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Net Income, Diluted EPS, Adjusted Income (non-GAAP), and Adjusted Diluted EPS (non-GAAP)

In order to provide a better understanding of the impact of certain items on our income and diluted EPS, the tables that follow report the comparative after-tax impact of acquisition-related expenses, Bed, Bath & Beyond bankruptcy, EPA compliance costs, gain from insurance recoveries, gain on sale of distribution and office facilities, restructuring charges, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on income and diluted EPS for the periods presented below. Adjusted income and adjusted diluted EPS may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended February 29, 2024"],["","Income","","Diluted EPS"],["(in thousands, except per share data)","Before Tax","","Tax","","Net of Tax","","Before Tax","","Tax","","Net of Tax"],["As reported (GAAP)","$","209,042","","","$","40,448","","","$","168,594","","","$","8.72","","","$","1.69","","","$","7.03"],["Bed, Bath & Beyond bankruptcy","4,213","","","53","","","4,160","","","0.18","","","\u2014","","","0.17"],["Gain on sale of distribution and office facilities","(34,190)","","","(8,787)","","","(25,403)","","","(1.43)","","","(0.37)","","","(1.06)"],["Restructuring charges","18,712","","","234","","","18,478","","","0.78","","","0.01","","","0.77"],["Subtotal","197,777","","","31,948","","","165,829","","","8.25","","","1.33","","","6.92"],["Amortization of intangible assets","18,326","","","2,447","","","15,879","","","0.76","","","0.10","","","0.66"],["Non-cash share-based compensation","33,872","","","2,110","","","31,762","","","1.41","","","0.09","","","1.33"],["Adjusted (non-GAAP)","$","249,975","","","$","36,505","","","$","213,470","","","$","10.43","","","$","1.52","","","$","8.91"],["Weighted average shares of common stock used in computing diluted EPS","23,970"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended February 28, 2023"],["","Income","","Diluted EPS"],["(in thousands, except per share data)","Before Tax","","Tax","","Net of Tax","","Before Tax","","Tax","","Net of Tax"],["As reported (GAAP)","$","171,289","","","$","28,016","","","$","143,273","","","$","7.11","","","$","1.16","","","$","5.95"],["Acquisition-related expenses","2,784","","","2","","","2,782","","","0.12","","","\u2014","","","0.12"],["EPA compliance costs","23,573","","","354","","","23,219","","","0.98","","","0.01","","","0.96"],["Gain from insurance recoveries","(9,676)","","","(121)","","","(9,555)","","","(0.40)","","","(0.01)","","","(0.40)"],["Restructuring charges","27,362","","","388","","","26,974","","","1.14","","","0.02","","","1.12"],["Subtotal","215,332","","","28,639","","","186,693","","","8.94","","","1.19","","","7.75"],["Amortization of intangible assets","18,322","","","2,275","","","16,047","","","0.76","","","0.09","","","0.67"],["Non-cash share-based compensation","26,753","","","1,830","","","24,923","","","1.11","","","0.08","","","1.03"],["Adjusted (non-GAAP)","$","260,407","","","$","32,744","","","$","227,663","","","$","10.81","","","$","1.36","","","$","9.45"],["Weighted average shares of common stock used in computing diluted EPS","","24,090"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Fiscal Year Ended February 28, 2022"],["","Income","","Diluted EPS"],["(in thousands, except per share data)","Before Tax","","Tax","","Net of Tax","","Before Tax","","Tax","","Net of Tax"],["As reported (GAAP)","$","259,966","","","$","36,202","","","$","223,764","","","$","10.65","","","$","1.48","","","$","9.17"],["Acquisition-related expenses","2,424","","","87","","","2,337","","","0.10","","","\u2014","","","0.10"],["EPA compliance costs","32,354","","","485","","","31,869","","","1.33","","","0.02","","","1.31"],["Restructuring charges","380","","","6","","","374","","","0.02","","","\u2014","","","0.02"],["Subtotal","295,124","","","36,780","","","258,344","","","12.09","","","1.51","","","10.58"],["Amortization of intangible assets","12,764","","","1,010","","","11,754","","","0.52","","","0.04","","","0.48"],["Non-cash share-based compensation","34,618","","","2,965","","","31,653","","","1.42","","","0.12","","","1.30"],["Adjusted (non-GAAP)","$","342,506","","","$","40,755","","","$","301,751","","","$","14.03","","","$","1.67","","","$","12.36"],["Weighted average shares of common stock used in computing diluted EPS","","24,410"]]
[[/GREPCENT_TABLE]]

Comparison of Fiscal 2024 to 2023

Net income was $168.6 million compared to $143.3 million. Diluted EPS was $7.03 compared to $5.95. Diluted EPS increased primarily due to higher operating income in both the Beauty & Wellness and Home & Outdoor segments, an increase in interest income, and lower weighted average diluted shares outstanding, partially offset by higher interest expense and an increase in the effective income tax rate.

Adjusted income decreased $14.2 million, or 6.2%, to $213.5 million compared to $227.7 million. Adjusted diluted EPS decreased 5.7% to $8.91 compared to $9.45.

Liquidity and Capital Resources

We principally rely on our cash flow from operations and borrowings under our Credit Agreement to finance our operations, capital and intangible asset expenditures, acquisitions and share repurchases. Historically, our principal uses of cash to fund our operations have included operating expenses, primarily SG&A, and working capital, predominantly for inventory purchases and the extension of credit to our retail customers. We have typically been able to generate positive cash flow from operations sufficient to fund our operating activities. In the past, we have utilized a combination of available cash and existing, or additional, sources of financing to fund strategic acquisitions, share repurchases and capital investments. We generated $306.1 million in cash from operations during fiscal 2024 and had $18.5 million in cash and cash equivalents at February 29, 2024. As of February 29, 2024, the amount of cash and cash equivalents held by our foreign subsidiaries was $17.5 million. We have no existing activities involving special purpose entities or off-balance sheet financing.

Our anticipated material cash requirements in fiscal 2025 include the following:

•operating expenses, primarily SG&A and working capital predominately for inventory purchases and to carry normal levels of accounts receivable on our balance sheet;

•repayment of a current maturity of long term debt of $6.3 million;

•estimated interest payments of approximately $47.4 million based on outstanding debt obligations, weighted average interest rates and interest rate swaps in effect at February 29, 2024;

•minimum operating lease payments under existing obligations of approximately $10.6 million;

•minimum royalty payments under existing license agreements of approximately $6.3 million;

•restructuring payments under Project Pegasus of approximately $11.7 million (refer to Note 11 for additional information); and

•capital and intangible asset expenditures between approximately $30 million to $35 million to support ongoing operations and future infrastructure needs.

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Our anticipated material cash requirements beyond fiscal 2025 include the following:

•operating expenses, primarily SG&A and working capital predominately for inventory purchases and to carry normal levels of accounts receivable on our balance sheet;

•outstanding long-term debt obligations maturing between fiscal 2026 and fiscal 2029, in an aggregate principal value of approximately $665.7 million, with $631.3 million of that amount maturing in fiscal 2029 (refer to Note 13 for additional information);

•estimated interest payments of approximately $50.0 million, $48.9 million, $48.1 million, and $45.4 million in fiscal 2026, fiscal 2027, fiscal 2028, and fiscal 2029, respectively, based on outstanding debt obligations, weighted average interest rates and interest rate swaps in effect at February 29, 2024 (refer to Note 13 for additional information);

•minimum operating lease payments of approximately $45.9 million over the term of our existing operating lease arrangements (refer to Note 3 for additional information);

•minimum royalty payments of approximately $20.3 million over the term of the existing license agreements (refer to Note 12 for additional information); and

•capital and intangible asset expenditures to support ongoing operations and future infrastructure needs.

Based on our current financial condition and current operations, we believe that cash flows from operations and available financing sources will continue to provide sufficient capital resources to fund our foreseeable short- and long-term liquidity requirements.

We continue to evaluate acquisition opportunities on a regular basis. We may finance acquisition activity with available cash, the issuance of shares of common stock, additional debt, or other sources of financing, depending upon the size and nature of any such transaction and the status of the capital markets at the time of such acquisition.

We may also elect to repurchase additional shares of common stock under our Board of Directors' authorization, subject to limitations contained in our debt agreement and based upon our assessment of a number of factors, including share price, trading volume and general market conditions, working capital requirements, general business conditions, financial conditions, any applicable contractual limitations, and other factors, including alternative investment opportunities. We may finance share repurchases with available cash, additional debt or other sources of financing. For additional information, see Item 5., “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Annual Report.

Operating Activities

Comparison of Fiscal 2024 to 2023

Operating activities provided net cash of $306.1 million compared to $208.2 million. The increase was primarily driven by higher cash earnings, decreases in payments for inventory, inbound freight, annual incentive compensation, income taxes and restructuring activities, partially offset by increases in cash used primarily for accounts receivable and interest payments.

Investing Activities

Investing activities provided cash of $5.4 million in fiscal 2024 and used cash of $319.3 million in fiscal 2023.

Highlights from Fiscal 2024

•We received proceeds of $49.5 million from the sale of our distribution and office facilities in El Paso, Texas and made investments in capital and intangible asset expenditures of $36.6 million, of which $19.3 million related to expenditures, primarily equipment, for our new two million square foot distribution facility. Capital and intangible asset expenditures also included expenditures for

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computer, furniture and other equipment and tooling, molds, and other production equipment. In addition, we invested $9.6 million in U.S. Treasury Bills.

Highlights from Fiscal 2023

•We paid $147.9 million, net of cash acquired, to acquire Curlsmith and made investments in capital and intangible asset expenditures of $174.9 million, of which $147.0 million was for construction expenditures inclusive of capitalized interest related to our new two million square foot distribution facility. Capital and intangible asset expenditures also included $27.9 million primarily for computer, software, furniture and other equipment and tooling, molds, and other production equipment.

Financing Activities

Financing activities used cash of $322.1 million in fiscal 2024 and provided cash of $106.8 million in fiscal 2023.

Highlights from Fiscal 2024

•we had proceeds of $1,415.5 million from revolving loans under our Credit Agreement and Prior Credit Agreement, net of lender fees paid in connection with the refinancing of our Credit Agreement;

•we repaid $1,686.6 million of revolving loans drawn under our Credit Agreement and Prior Credit Agreement;

•we received proceeds, net of lender fees, of $248.9 million from term loans under our Credit Agreement;

•we repaid $246.9 million of long-term debt which included the repayment of amounts outstanding on our term loans under the Prior Credit Agreement;

•we paid $2.0 million of third-party financing costs in connection with the refinancing of our Credit Agreement; and

•we repurchased and retired 432,532 shares of common stock at an average price of $127.67 per share for a total purchase price of $55.2 million through a combination of open market purchases and the settlement of certain stock awards.

Highlights from Fiscal 2023

•we had draws of $685.8 million in revolving loans under our Credit Agreement;

•we repaid $795.3 million of revolving loans drawn under our Credit Agreement;

•we received proceeds of $250.0 million from term loans under our Credit Agreement;

•we repaid $19.8 million of long-term debt; and

•we repurchased and retired 90,462 shares of common stock at an average price of $203.02 per share for a total purchase price of $18.4 million through the settlement of certain stock awards.

Credit Agreement and Other Debt Agreements

Credit Agreement and Prior Credit Agreement

On February 15, 2024, we entered into a credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and other lenders. The Credit Agreement replaces our prior credit agreement (the “Prior Credit Agreement”), which terminated on February 15, 2024 and is further described below. We utilized the proceeds from the refinancing to repay all principal, interest, and fees outstanding under the Prior Credit Agreement without penalty. As a result, we recognized a loss on extinguishment of debt within interest expense of $0.5 million during fiscal 2024, which consisted of a write-off of $0.4 million of unamortized prepaid financing fees related to the Prior Credit Agreement and $0.1 million of lender fees related to debt under the Credit Agreement treated as an extinguishment. Additionally, we expensed $0.3 million of third-party fees in fiscal 2024 related to debt under the Credit

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Agreement treated as a modification, which was recognized within interest expense. We capitalized $4.0 million of lender fees and $2.2 million of third-party fees incurred in connection with the Credit Agreement, which were recorded as prepaid financing fees in long-term debt and prepaid expenses and other current assets in the amounts of $5.4 million and $0.8 million, respectively.

The Credit Agreement provides for aggregate commitments of $1.5 billion, which are available through (i) a $1.0 billion revolving credit facility, which includes a $50 million sublimit for the issuance of letters of credit, (ii) a $250 million term loan facility, and (iii) a committed $250 million delayed draw term loan facility, which may be borrowed in multiple drawdowns until August 15, 2025. Proceeds can be used for working capital and other general corporate purposes, including funding permitted acquisitions. At the closing date of the Credit Agreement, we borrowed $457.5 million under the revolving credit facility and $250.0 million under the term loan facility and utilized the proceeds to repay all debt outstanding under the Prior Credit Agreement. The Credit Agreement matures on February 15, 2029. The Credit Agreement includes an accordion feature, which permits the Company to request to increase its borrowing capacity by an additional $300 million plus an unlimited amount when the Leverage Ratio (as defined in the Credit Agreement) on a pro-forma basis is less than 3.25 to 1.00. The Company’s exercise of the accordion is subject to certain conditions being met, including lender approval.

Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-dollar basis. We are able to repay amounts borrowed at any time without penalty. Borrowings accrue interest under one of two alternative methods pursuant to the Credit Agreement as described below. With each borrowing against our credit line, we can elect the interest rate method based on our funding needs at the time. We also incur loan commitment and letter of credit fees under the Credit Agreement. The term loans are payable at the end of each fiscal quarter in equal installments of 0.625% through February 28, 2025, 0.9375% through February 28, 2026, and 1.25% thereafter of the original principal balance of the term loans, beginning in the first quarter of fiscal 2025, with the remaining balance due at the maturity date. Borrowings under the Credit Agreement bear floating interest at either the Base Rate or Term SOFR (as defined in the Credit Agreement), plus a margin based on the Net Leverage Ratio (as defined in the Credit Agreement) of 0% to 1.125% and 1.0% to 2.125% for Base Rate and Term SOFR borrowings, respectively.

Our Prior Credit Agreement with Bank of America, N.A., as administrative agent, and other lenders, provided for an unsecured total revolving commitment of $1.25 billion and a $300 million accordion, which could be used for term loan commitments. In June 2022, we exercised the accordion under the Prior Credit Agreement and borrowed $250 million as term loans. The proceeds from the term loans were used to repay revolving loans under the Prior Credit Agreement. The maturity date of the term loans and the revolving loans under the Prior Credit Agreement was March 13, 2025. Borrowings under the Prior Credit Agreement bore floating interest at either the Base Rate or Term SOFR (as defined in the Prior Credit Agreement), plus a margin based on the Net Leverage Ratio (as defined in the Prior Credit Agreement) of 0% to 1.0% and 1.0% to 2.0% for Base Rate and Term SOFR borrowings, respectively.

The floating interest rates on our borrowings under the Credit Agreement and Prior Credit Agreement are hedged with interest rate swaps to effectively fix interest rates on $500 million and $425 million of the outstanding principal balance under the revolving loans as of February 29, 2024 and February 28, 2023, respectively. See Notes 14, 15, and 16 for additional information regarding our interest rate swaps.

As of February 29, 2024, the outstanding Credit Agreement principal balance was $672.0 million (excluding prepaid financing fees) and the balance of outstanding letters of credit was $15.5 million. The weighted average interest rate on borrowings outstanding under the Credit Agreement was 6.0% at February 29, 2024. As of February 29, 2024, the amount available for revolving loans under the Credit Agreement was $562.6 million. Covenants in the Credit Agreement limit the amount of total indebtedness we can incur. As of February 29, 2024, these covenants effectively limited our ability to incur more than

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$474.6 million of additional debt from all sources, including the Credit Agreement, or $562.6 million in the event a qualified acquisition is consummated.

Other Debt Agreements

On February 28, 2023, we paid the remaining balance of $15.1 million, including principal and interest, outstanding under our unsecured loan agreement (the “MBFC Loan”) with the Mississippi Business Finance Corporation (the “MBFC”), without penalty. As a result, as of February 28, 2023, we no longer had outstanding debt related to the MBFC Loan and the MBFC Loan terminated pursuant to its terms. The loan agreement was entered into in connection with the issuance by MBFC of taxable industrial development revenue bonds. Borrowings under the MBFC Loan bore interest at either the Base Rate or Term SOFR (both as defined in the loan agreement), plus a margin based on the Net Leverage Ratio (as defined in the loan agreement) of 0% to 1.0% and 1.0% to 2.0% for Base Rate and Term SOFR borrowings, respectively. The borrowings were used to fund construction of our Olive Branch, Mississippi distribution facility. The maturity date of the MBFC Loan was March 1, 2023.

Debt Covenants

Our debt under our Credit Agreement is unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. Our Credit Agreement requires the maintenance of certain key financial covenants, defined in the table below. Our Credit Agreement also contains other customary covenants, including, among other things, covenants restricting or limiting us, except under certain conditions set forth therein, from (1) incurring liens on our properties, (2) making certain types of investments, (3) incurring additional debt, and (4) assigning or transferring certain licenses. Our Credit Agreement also contains customary events of default, including failure to pay principal or interest when due, among others. Upon an event of default under our Credit Agreement, the lenders may, among other things, accelerate the maturity of any amounts outstanding. The commitments of the lenders to make loans to us under the Credit Agreement are several and not joint. Accordingly, if any lender fails to make loans to us, our available liquidity could be reduced by an amount up to the aggregate amount of such lender’s commitments under the Credit Agreement.

As of February 29, 2024, we were in compliance with all covenants as defined under the terms of the Credit Agreement.

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The table below provides the formulas currently in effect for certain key financial covenants as defined under our Credit Agreement:

[[GREPCENT_TABLE]]
[["Applicable Financial Covenant","Credit Agreement"],["Minimum Interest Coverage Ratio","EBIT (1) \u00f7 Interest Expense (1)"],["Minimum Required: 3.00 to 1.00"],["Maximum Leverage Ratio","Total Current and Long Term Debt (2) \u00f7EBITDA (1) + Pro Forma Effect of Transactions"],["Maximum Currently Allowed: 3.50 to 1.00 (3)"]]
[[/GREPCENT_TABLE]]

Key Definitions:

[[GREPCENT_TABLE]]
[["EBIT:","","Earnings + Interest Expense + Taxes + Non-Cash Charges (4) + Certain Allowed Addbacks (4) - Certain Non-Cash Income (4)"],["EBITDA:","","EBIT + Depreciation and Amortization Expense"],["Pro Forma Effect of Transactions:","","For any acquisition, pre-acquisition EBITDA of the acquired business is included so that the EBITDA of the acquired business included in the computation equals its twelve month trailing total. In addition, the amount of certain pro forma run-rate cost savings for acquisitions or dispositions may be added to EBIT and EBITDA."]]
[[/GREPCENT_TABLE]]

(1)Computed using totals for the latest reported four consecutive fiscal quarters.

(2)Computed using the ending debt balances plus outstanding letters of credit as of the latest reported fiscal quarter.

(3)In the event a qualified acquisition is consummated, the maximum leverage ratio is 4.50 to 1.00 for the first four fiscal quarters after the qualified acquisition is consummated.

(4)As defined in the Credit Agreement.

Critical Accounting Policies and Estimates

The SEC defines critical accounting estimates as those made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on a company's financial condition or results of operations. We consider the following estimates to meet this definition and represent our more critical estimates and assumptions used in the preparation of our consolidated financial statements.

Income Taxes

We must make certain estimates and judgments in determining our provision for income tax expense. The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between the financial statement carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered.

Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized. The recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, estimated future taxable income and available tax planning strategies. In projecting future taxable income, we begin with historical results and incorporate assumptions including future operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgement and are consistent with the plans and estimates we are using

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to manage our underlying business. Should a change in facts or circumstances, such as changes in our business plans, economic conditions or future tax legislation, lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense. Additionally, if future taxable income varies from projected taxable income, we may be required to adjust our valuation allowance in future years.

In addition, the calculation of our tax liabilities requires us to account for uncertainties in the application of complex and evolving tax regulations.  We recognize liabilities for uncertain tax positions based on the two-step process prescribed within GAAP. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination by the tax authority based upon its technical merits assuming the tax authority has full knowledge of all relevant information. To be recognized in the financial statements, the tax position must meet this more-likely-than-not threshold. For positions meeting this recognition threshold, the second step requires us to estimate and measure the tax benefit as the largest amount that has greater than a 50 percent likelihood of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, historical experience with similar tax matters, guidance from our tax advisors, and new audit activity. For tax positions that do not meet the threshold requirement, we record liabilities for unrecognized tax benefits as a tax expense or benefit in the period recognized or reversed and disclose as a separate liability in our financial statements, including related accrued interest and penalties. A change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period in which the change occurs.

Valuation of Inventory

We record inventory on our balance sheet at the lower of average cost or net realizable value. We write down a portion of our inventory to net realizable value based on the historical sales trends of products and estimates about future demand and market conditions, among other factors. We regularly review our inventory for slow-moving items and for items that we are unable to sell at prices above their original cost. When we identify such an item, we use net realizable value as the basis for recording such inventory and base our estimates on expected future selling prices less expected disposal costs. These estimates entail a significant amount of inherent subjectivity and uncertainty. As a result, these estimates could vary significantly from the amounts that we may ultimately realize upon the sale of inventories if future economic conditions, product demand, product discontinuances, competitive conditions or other factors differ from our estimates and expectations. Additionally, changes in consumer demand, retailer inventory management strategies, transportation lead times, supplier capacity and raw material availability could make our inventory management and reserves more difficult to estimate.

Acquisitions, Goodwill and Indefinite-Lived Intangibles, and Related Impairment Testing

A significant portion of our non-current assets consists of goodwill and intangible assets recorded as a result of past acquisitions. Accounting for business combinations requires the use of estimates and assumptions in determining the fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price. Goodwill is recorded as the difference, if any, between the aggregate consideration paid and the fair value of the net tangible and intangible assets received in the acquisition of a business. Our intangible assets acquired primarily include trade names and customer relationships. The fair value of our assets acquired and liabilities assumed are typically based upon valuations performed by independent third-party appraisers using the income approach, including estimated future discounted cash flow models (“DCF Models”), the relief from royalty method for trade names, and the distributor method for customer relationships. The fair value of our trade names and customer relationships acquired involved significant estimates and assumptions, including revenue growth rates, gross profit and operating profit margins, discount rates and royalty and customer attrition rates (as

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applicable). We believe that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use.

We review goodwill and indefinite-lived intangible assets for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We consider whether circumstances or conditions exist which suggest that the carrying value of our goodwill and indefinite-lived intangible assets might be impaired. If such circumstances or conditions exist, we perform a qualitative assessment to determine whether it is more likely than not that the assets are impaired. We evaluate goodwill at the reporting unit level (operating segment or one level below an operating segment). If the results of the qualitative assessment indicate that it is more likely than not that the assets are impaired, further steps are required in order to determine whether the carrying value of each reporting unit and indefinite-lived intangible assets exceeds its fair market value. An impairment charge is recognized to the extent the goodwill or indefinite-lived intangible asset recorded exceeds the reporting unit’s or asset's fair value. We perform our annual impairment testing for goodwill and indefinite-lived assets as of the beginning of the fourth quarter of our fiscal year. Based on our qualitative assessment performed during the fourth quarter of fiscal 2024 and fiscal 2023, we determined that it is not more likely than not that the fair value of each reporting unit and indefinite-lived intangible asset is lower than its carrying value; therefore, quantitative impairment testing was not required.

Our quantitative impairment test methodology primarily uses DCF Models. The DCF Models use a number of assumptions including expected future cash flows from the assets, volatility, risk free rate, and the expected life of the assets, the determination of which require significant judgments from management. In determining the assumptions to be used, we consider the existing rates on Treasury Bills, yield spreads on assets with comparable expected lives, historical volatility of our common stock and that of comparable companies, and general economic and industry trends, among other considerations. When stock market or other conditions warrant, we expand our traditional impairment test methodology to give weight to other methods that provide additional observable market information in order to better reflect the current risk level being incorporated into market prices and in order to corroborate the fair values of each of our reporting units. Management will place increased reliance on these additional methods in conjunction with its DCF Models in the event that the total market capitalization of its stock drops below its consolidated stockholders’ equity balance for a sustained period.

Considerable management judgment is necessary, in determining the fair value of goodwill and intangible assets (initially acquired and as part of our impairment testing), including the reasonableness of fair value estimates, evaluating the most likely impact of a range of possible external conditions, considering the resulting operating changes and their impact on estimated future cash flows, determining the appropriate discount factors to use, and selecting and weighting appropriate comparable market level inputs. The recoverability of these assets is dependent upon achievement of our projections and the continued execution of key initiatives related to revenue growth and profitability. The rates used in our projections are management’s estimate of the most likely results over time, given a wide range of potential outcomes. The assumptions and estimates used in our fair value analysis involve significant elements of subjective judgment and analysis by our management. While we believe that the assumptions we use are reasonable at the time made, changes in business conditions or other unanticipated events and circumstances may occur that cause actual results to differ materially from projected results and this could potentially require future adjustments to our asset valuations.

Impairment of Long-Lived Assets

We review intangible assets with definite lives and long-lived assets held and used if a triggering event occurs during the reporting period. If such circumstances or conditions exist, further steps are required in order to determine whether the carrying value of each of the individual assets exceeds its fair market value. If our analysis indicates that an individual asset’s carrying value does exceed its fair market value, the next step is to record a loss equal to the excess of the individual asset’s carrying value over its fair value. We evaluate any long-lived assets held for sale quarterly to determine if estimated fair value less

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cost to sell has changed during the reporting period. The determination of the fair value of definite-lived intangible assets and long-lived assets can entail a significant amount of judgment and subjectivity, including revenue growth rates, discount rates, royalty and customer attrition rates (as applicable), and estimated market prices (as applicable).

Economic Useful Lives of Intangible Assets

We amortize intangible assets, such as trademark licenses, trade names, customer relationships and lists, patents and non-compete agreements over their economic useful lives, unless those assets' economic useful lives are indefinite. If an intangible asset’s economic useful life is deemed indefinite, that asset is not amortized. The determination of the economic useful life of an intangible asset requires a significant amount of judgment and entails significant subjectivity and uncertainty.  When we acquire an intangible asset, we consider factors such as the asset's history, our plans for that asset and the market for products associated with the asset. We consider these same factors when reviewing the economic useful lives of our previously acquired intangible assets as well. We review the economic useful lives of our intangible assets at least annually. We complete our analysis of the remaining useful economic lives of our intangible assets during the fourth quarter of each fiscal year or when a triggering event occurs.

Share-Based Compensation

We grant share-based compensation awards to non-employee directors and certain associates under our equity plans. We measure the cost of services received in exchange for equity awards, which include grants of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance stock awards (“PSAs”), and performance stock units (“PSUs”), based on the fair value of the awards on the grant date. These awards may be subject to attainment of certain service conditions, performance conditions and/or market conditions.

We grant PSAs and PSUs to certain officers and associates, which cliff vest after three years and are contingent upon meeting one or more defined operational performance metrics over the three year performance period (“Performance Condition Awards”). The quantity of shares ultimately awarded can range from 0% to 200% of “Target”, as defined in the award agreement as 100%, based on the level of achievement against the defined operational performance metrics. We recognize compensation expense for Performance Condition Awards over the requisite service period to the extent performance conditions are considered probable. Estimating the number of shares of Performance Condition Awards that are probable of vesting requires judgment, including assumptions about future operating performance. While the assumptions used to estimate the probability of achievement against the defined operational performance metrics are management's best estimates, such estimates involve inherent uncertainties. The extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment to share-based compensation expense in the period estimates are revised.

The critical accounting estimates described above supplement the description of our accounting policies disclosed in Note 1 to the accompanying consolidated financial statements. Note 1 describes several other policies that are important to the preparation of our consolidated financial statements, but do not meet the SEC's definition of critical accounting estimates.

Information Regarding Forward-Looking Statements

Certain written and oral statements in this Annual Report may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made in this Annual Report, in other filings with the SEC, in press releases, and in certain other oral and written presentations. Generally, the words “anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “might”, “would”, “should”, “seeks”, “estimates”, “project”, “predict”, “potential”, “currently”, “continue”, “intends”, “outlook”, “forecasts”, “targets”, “could”, and other similar words identify forward-looking statements. All statements that address operating results, events or developments that we expect or anticipate may

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occur in the future, including statements related to sales, expenses, EPS results, and statements expressing general expectations about future operating results, are forward-looking statements and are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and assumptions, but there can be no assurance that we will realize our expectations or that our assumptions will prove correct. Forward-looking statements are only as of the date they are made and are subject to risks that could cause them to differ materially from actual results. Accordingly, we caution readers not to place undue reliance on forward-looking statements. We believe that these risks include but are not limited to the risks described in this Annual Report under Item 1A., “Risk Factors” and that are otherwise described from time to time in our SEC reports as filed. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.