That they're going forward, but those are our priorities, as I talked about last week in the earnings call. Now, Brian, if there's anything you want to add?
No, just that over the last year or two, we adopted some different organizational structures, more centralization, and I think have come to the realization that putting things back close. to the brand makes more sense, and so that's something we've already kind of got in place, and we're seeing instant wins from making those changes.
Okay, great. Maybe if we could just dig right into the brands then, because I think that's what everyone is very familiar with. You guys talked about some green brands on your call that are doing really well, such as Osprey, Olive & June, OXO, Vicks. Maybe talk about just the priorities around continuing to grow those brands, and then also maybe talk about the brands where you're looking to invest a little bit more in and maybe stabilize and return them to growth as well, such as Drybar.
Yeah, so as I think about our portfolio, we talk about the Helen of Troy Enterprise or Limited, and it's made up of multiple brands. There's a portion of our brand suite that today could grow faster with the consumer, but the way we're deploying resources, they're holding and metering innovation. They're not quite able to get to as many consumers. They're not able to get to the countries they need to go to, and I call those the green brands, and the ones you highlighted, whether it be Osprey, Braun, Olive & June, OXO, et cetera, and as I traveled the world meeting hundreds of associates, these are ones that need more investment because they can move a lot faster, and they're ready to go, then we have a portion of our portfolio that needs renovation, and it kind of runs the gamut.
Some of the renovation is like, okay, let's get sharper on the consumer. Let's pull some of the new product innovation forward. Let's think about what's our org design to help support that, and you're going to see benefits of that in FY27 and beyond. And then there's a part of our portfolio that really needs some work on really thinking about who is our consumer target, how do we actually go to market, how do we modernize the way we go to connect with the consumer, and what's our right operating model. We've got work to do. But I will tell you this, that those three buckets, we'll start to see markers of success on some of those in FY27. They won't all move at the same pace and scale, but we'll be moving in the right direction.
Okay, great. And then, Brian, maybe you could talk a little bit about how you see the inventory and the channels that you play in. And it's probably different across all of your brands, but do you feel comfortable with where it's at out there right now, or is there any more destocking going on by the retailers?
If so, not much. I would say overall, we view inventory as being pretty healthy in the channel. We think retailers have been pretty conservative for the majority of the year. We did identify a couple of pockets where we had strong holiday orders, and there was maybe a little bit more inventory than we would like. One of the reasons we adjusted our guidance for the remainder of the year is to account for rebalancing there. So we feel like we're protected from that. And so I would say overall, we feel good about where retail inventory is.
Okay, great. And then just really quick on the cold cough season. So we had a pretty slow start. It picked up a little bit, it seems like, over the holiday break here. But it sounds like maybe it's not enough to get any replenishment out there. So maybe talk about how you're exposed to that category with Vicks and maybe Braun and how you feel about it the rest of the season.
I'll take a stab at it, and Brian can jump in. First, we really love when consumers are healthy, first and foremost, but we're there when they need us. From a cold cough standpoint, I know I've seen it in the news recently. It's like the last four weeks or so is the most challenging in 30 years. But I'd say this, that the season has pretty much gotten off to a slower start than normal, and we've baked that into our outlook as we go forward. I don't know, Brian, if you want to add on that.
Yeah, the recent uptick that's kind of in the news is related to flu. That's primarily what has been driving the illness. That's not the biggest driver of our purchase intent. Respiratory illness and pediatric fever are the biggest drivers of our purchase intent. And so if you look at those, illness is kind of still below historical averages. And if you look at the season as a whole, even though there's a recent uptick, that entire season is below average. And we think retailers have enough inventory to meet demand should illness spike. So we assumed no benefit for our fourth quarter. Now, if there is one, then that would be upside to our model, but we really think the benefit's going to come in fiscal 27.
Yeah, okay, great. And then maybe lastly, just on the brands, if you could talk about any new innovation coming out. I see on the screen there for Hydro Flask, you have some new kids' bottles coming out, which look amazing. How do you think about that innovation? How should we think about that newness flowing through over the next year or two?
Yeah, a couple of things. A lot of newness happening across our portfolio. Whether I think about Osprey, which is a leader in technical packs that we're moving into, snowboard and ski gear to support our explorer consumer, or OXO, whether it be baby products and pet products. Really, if it's around the home and consumer solutions, we have a number of innovations happening in that area, specifically on Hydro Flask, whether it be the Trail. We have a Trail bottle that's coming out, a whole line of products there, new collaborations, and things that are targeted to kids that are all connecting with the consumer, and we'll be unleashing a new innovation pipeline that's connected to a brand new kind of marketing positioning, as you'll see soon, that I'm super excited about.
And then we have a number of innovations happening around our beauty segment, whether it be the restaging of our Drybar brand to the work that we're doing too. Curlsmith is one that if you were a curly consumer, I'm not a curly consumer, but if I was, the research shows that our brand really resonates. But really sharpening the kind of the brand architecture and explaining the brand a lot better, especially here in the U.S., that big opportunity that's being restaged as we speak and across the portfolio and then on Olive & June, everything from collaborations around key consumer moments to the Peachybbies collaboration that just happened. It continues to grow at a very fast rate and lead the market.
Great, and Olive & June is doing great right now.
Outstanding. Yes.
Brian, maybe if we could switch to capital allocation a little bit. How are you thinking about your free cash flow and your leverage ratio? Where would you like to be over time, and how are you thinking about kind of getting there?
Yeah, I feel good about where we are. I'll say that first. But having said that, our highest priorities will be to pay down debt to get to a more reasonable level. I would say getting in the range of two times would be a target before we really start thinking about further capital deployment in the future. And we've got a lot of levers to do that. We can tighten up our working capital. We've got other less productive assets, I would call it, that we can look at monetizing. And we have a line of sight to consolidate from three distribution centers down to two distribution centers. That's going to help us get to the leverage we want to be sooner. So we'll explore all those options. And really, I think from this point forward, focus on keeping our balance sheet as tight as we possibly can.
In the meantime, it's about all the work that we're doing to move the brands forward and really focus on better operating leverage. We've gone through a phase of trying to reduce costs in light of tariffs and other things that have been out there. I think the next step for us is more of a growth focus and really driving that better operating leverage, which is going to allow us to feed the other brands, pay down debt, open all kinds of doors.
With that, with the focus on the refocus on top line, which I think is a positive, how are you thinking about kind of the margin structure of the company? How should we think about that going forward?
Yeah, as you said, the bias will be towards revenue growth versus cost containment. And we do expect that to pressure margins in the short term, but believe that's a more sustainable, more healthy strategy for the long run. And we'll be more impactful at the end of the day. A $1 of revenue is worth a lot more than a $1 of cost containment. And so I would say the path towards revenue growth is more imminent and more achievable, and then earnings growth will come after that. Not two quarters, but not two years, as Scott likes to say.
Yeah, okay, that makes sense. And then Scott, maybe, you know, it's kind of early, but if you could talk about how you see the portfolio, do you think there's opportunities to kind of mix it up a little bit, shed a couple brands that you just don't see fitting in it, or longer term maybe adding some brands? Are there areas you think that it would be good to be in?
Yeah, portfolio. First of all, Helen of Troy's history has been scanning the marketplace and where it makes sense, adding brands from a participation standpoint, as well as in the last five to seven years, they've actually gotten out of brands at times when it made sense. My background of leading a corporate venture capital group for Coca-Cola bought many trend-forward brands, some of which I've actually seen here in the building as I walked the hall. But I would say this: we're always evaluating the portfolio and figuring out what is the right portfolio that's going to drive the most value over time. I would say as I look at the business over the next five years in three chapters, the next chapter in the next 24 months is really focused on how do we help those green brands grow a lot faster because they can.
As I think about the renovation, there's kind of a left and right side. There's a left side in FY27. How do we get really smart so we can get those brands growing and beginning to drive separation versus their competition? And then that far right side, what do we need to do to stabilize those brands and make some critical decisions on prioritization, the consumer, how are we going to connect? We do that the next 24 months. We'll evaluate as we think about the view of the company in the next five years, what is the right portfolio mix? Today, it's really around making every brand work a lot harder going forward.
Okay, great. And then, Brian, you talked about just the refocus to revenue growth, but I guess is there maybe update us? Are there any cost-cutting initiatives left that are still flowing through? You mentioned potentially consolidating some of the distribution to three to two distribution centers and maybe the timing of that.
Yeah, don't have specific timing we want to commit to on that. We want to give ourselves the room to kind of end up in a good spot from a market perspective and get as much value as we can, not kind of feel pressured to do it. In terms of cost efficiency and cost reduction, I would bring up the new distribution center that we built. We just, within the last quarter or maybe two, achieved peak efficiency of that thing. And then the good news is we get the full year benefit of that going into next year, so that'll help. I also do think there are opportunities to squeeze more cost out of our supply chain. We did that to a very large degree with Project Pegasus.
We always have continuous improvement and continual cost efficiency initiatives, and we'll continue to do that given tariffs and everything else that's going on. We're also moving into some new geographies in Southeast Asia, and I think that gives us the ability to kind of level set and really get to a good spot with our structure, and so those are kind of some of the things that we're working on.
Okay. And then maybe give us an update on the tariff situation as well and how much it's impacting you guys for the year. I think you moved it from $20 million to $30 million and maybe just the mitigation strategies that you guys are putting in place.
Go Brian.
Yeah, I would just say the reason for the change is really related to our price realization. We just implemented prices kind of in September, largely, and in some isolated instances, we have not had uniform adoption of the price increase by the retailers, and really, it's different situations with different retailers, but it's really been one outlier retailer that hasn't accepted the price increase, and our perspective is when you have one outlier, that you have to take action to enforce uniform adoption, so we've done that. We've stopped shipping those outlier customers, and so we're taking a little bit of a hit on the lost revenue from the shipments, and we're also not getting the full benefit of the pricing, and that drops straight to the bottom line, so those two factors were the primary reason why we've increased our net unmitigated exposure.
And then, with respect to our guidance overall, that adjustment. We've also planned for more promotion in the fourth quarter, some trade-down behavior by consumers. And then, the last big point is we're choosing to preserve our investments in people, innovation, and brand. And so, we're not going to be able to offset all of those factors I just described with reductions. We're going to choose to preserve those investments, and that compresses the EPS a little bit, but we think it's the right choice.
Okay, great. And then maybe talk a little bit about where you are at with moving out of China. You guys were fairly exposed prior to the tariff announcement and everything. But where are you at? Kind of what's the goal, the percentage goal that you want to get to?
I mean, ultimately, as we've put in our investor deck that's on our website, we think by the end of next year, we can get to somewhere around 15%-20% of net exposure, and so we're working towards that. I can't remember the percentage by the end of this year, I think it's 25%-30%, and that's where we'll be, and then we want to go one more click down. I think China serves a role in most people's supply chain structure. You can use it if you want to be very rigid. You can use it just for international shipments. I think it probably serves a place to do other U.S.-based shipments where the cost differential is very, very high, and so we want to be able to take advantage of those.
The other point to make is tariffs in China started out to be significantly greater than everywhere else. That margin has shrunk quite a bit, and so the delta between China and everywhere else isn't that great. We just want a healthy, diversified structure at the end of the day, and then whatever happens with tariffs and some of these other things, we can adapt and have dual sourcing to the extent that that's possible, and so that's the way we look at it.
Okay, great, and then Scott, maybe if you could talk about just kind of the consumer health you talked about on the last call, you are seeing maybe pockets of trade down or them looking for value. I think Helen of Troy has always been pretty well positioned given you guys have kind of a good, better, best portfolio, so maybe talk about what you're seeing from the consumer and how you guys are positioned in that type of environment.
Yeah, well, what I talked about with the leadership team is that 80% of our destiny, I believe we control. I fundamentally have no debate on that. And the consumer is still shopping. They're just being more choiceful. Clearly, there's been pressure on the consumer for basics like rent, insurance, housing, depending on where you sit in the economics. But the net is brands that are innovative, that solve consumer problems, that connect with them from a storytelling standpoint, still find a way to win. And I have several brands in my portfolio that even in the most challenging operating environment right now, they're just like, "I can do more," and they're doing more. And as I look at our portfolio, that's not a reason why we can't be faster.
Yep. Okay, great, and just from the consumer perspective, I guess, do you feel like they are looking for more value? Is that kind of an area you guys are focused on for this year or?
I'll let Brian chip in. The reason I smile is that I just have never really been in a business cycle in the last 10 years where the consumer just has so much money, and they just love everything.
It's still strong but, yeah.
It's like every year that someone's asking me a question around, "Do you think it's challenging?" Yeah, it's challenging. But great brands find a way to cut through. They have to. And so yes, the consumer's challenge. Yes, tariffs have had an impact on the shelf across all retailers and all brands. But great brands that are connected with their consumer find a way to cut through. And we can do that, and we will do that.
Okay, great. And then maybe if we could talk a little bit about just the channels that you guys sell in, really across all channels, but particularly e-commerce, obviously, continues to grow. How are you guys thinking about your e-com business? And do you expect it to continue to grow faster than your in-store business over the next couple of years?
First of all, being an omnichannel approach to market, it's critical to be successful. What we've learned on many of our brands, having a robust storytelling and connection in brick and mortar, but also making the right investments not only in our own channels, but on the online channels of our partners, it's critical to meet the consumer where they need to be. It continues to be relevant. Some of our brands, our direct-to-consumer, literally our site is really, really important. In others, it's more so that we need to make sure our partners like Walmart.com, Amazon.com, etc., are the ones that we show up in the best way. The net is having not only a physical, but kind of a digital presence in the right way is really critical for the growth of our business.
It will continue to be a very, very important part of our marketplace.
Yep. Okay, great. And then maybe if you could just talk about your international business for the audience, what percent of that of your sales and how you think about growing that over the long term?
Yeah, so I'll take a stab, and Brian can jump in. Our international is roughly 20-25%, 25-30% of our business. It should be 50%. It should be a lot more. The work that we're doing right now is to figure out what is the right way to play. Right now, we're in probably our brands are in somewhere like 50-60 countries, but kind of what are the five to seven countries that matter most? And what's the right kind of how to play and how to show up model that we need to do to make sure we have the right brands and the right markets at the right time to drive investment? I know we can do it. It's just being prioritize our focus, understanding our consumer, and then executing with excellence.
Okay.
I don't know if you have anything you want to add on that.
No, I think that's perfectly said.
Are there any regions in particular that you guys feel that you should be bigger in those regions?
I mean, I give broad without going to countries. That EMEA and APAC Asia are clearly big opportunities for us. I could talk about everywhere in the world, but where we have people in the business, where we already have kind of market operations, clearly being a lot more sharper in the European business, as well as our Asia business, is a big opportunity for us.
Yeah. Okay, great. And then maybe if we could just talk about the competitive environment, especially in some of the categories where the brands you're looking to kind of reinvigorate, such as in beauty, there's a lot of competition, especially in the hair tools with Dyson and SharkNinja. And then also the insulated drinkware is fairly competitive too with a lot of new players that have popped up over the past several years. Maybe if you could talk about how you think about that and really kind of standing out, I guess, amongst the competition and being innovative and introducing stuff that's really going to drive the consumer towards your brands?
I'll separate the two. Let's do insulated, the hydration category. Categories evolved over the last five to seven years from where it was in 2017 to 2021 to where it is today, and it's just the price points are all over the board, but for us, it's identifying, well, not identifying, it's being really sharp on who is our consumer target, what's the right product offering, and how do we connect with that consumer, bringing unique technology and innovation that meets the needs of that consumer, and you're going to see a sharper focus on that. What could happen on a brand like ours, not that this is us, is that you could get lost in chasing every opportunity.
And there's a couple of brands in that category that there's a ton of investment around innovation and really a reason for being that to chase every opportunity is like it's taking the brand to a place you don't want to be. We're going to stay at a more premium price point, focus on consumers through bringing real innovation that meets the needs of our consumers.
Still with the outdoor focus for a while. [crosstalk]
Outdoor, but with a lifestyle focus and other product categories that leverage the same technology and what consumers know us to be, so you're going to see more of that. The beauty one is an opportunity area for us. Our beauty business has gone through its own evolution in the last couple of years, and we've been in a rebuild mode, and as you go in FY27, it's in that renovation area. It's really about getting sharper on our consumer. How are we going to participate in terms of how we're going to connect with that consumer and understanding what we're going to be really good at and things that we're not going to be so good at, so we have some work to do in that area, but that's how I think about the two segments. I don't know if you have anything you want to add.
No, beauty and hair tools is the company's legacy, and we have the institutional knowledge. I think we have the right to win. Yeah, we've had some missteps and competitive pressures out there, but we like our prospects. We like our new product pipeline that we're working on. We've had some changeover in some of those teams that we're now getting back on our front foot from, and so have some good positive momentum and looking to build on that.
Okay, great. And not just a focus on Drybar, but you guys have Hot Tools and Revlon at the lower end too. And really, it sounds like the issue there was just more that the consumer wanted the premium, but Revlon obviously plays really well in that category.
Absolutely. Yeah.
Yeah.
Brian did a better job. I'm so laser-focused on a lot of things in my mind. When you go to beauty, I go to a certain segment, but there's parts of our portfolio in beauty that's actually pretty strong.
Yeah, exactly. Like the liquids and everything.
Yes.
Okay, well, great. Well, thank you so much for.