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Helen of Troy Limited’s (HELE - Snapshot Report) first-quarter fiscal 2015 adjusted earnings of 83 cents lagged the Zacks Consensus Estimate of 95 cents by 12.6% due to lower than expected revenue. Earnings managed to inch past last year’s results by 1.2%.

Revenues and Margins

Helen of Troy, a designer and marketer of consumer products, reported modest revenue growth in the first quarter. Revenues of $311.8 million went up 2.4% from the year-ago quarter due as higher sales in housewares and healthcare categories offset the decline in Personal care category. Sales however missed the Zacks Consensus Estimate of $314 million by about 1%.

Gross margin shrank 120 basis points (bps) to 38.3% due to product cost increase, unfavorable product mix and higher promotional programs. Adjusted operating income margin increased 80 bps to 7.5% due to lower selling, general and administrative expense ratio during the quarter.

Segment Details

Housewares: Sales in the Housewares category increased 5.1% to $66.8 million compared with the year-ago period, backed by strong performance of the OXO brand. The company further expects strong demand for the new product scheduled to be launched in fiscal 2015.

Personal Care: Sales in this category slipped 11.1% year over year to $102.5 million in the quarter due to a challenging retail environment primarily in the hair care solutions category where competition resulted in lower pricing and promotional discounts and loss of distribution.

Healthcare/Home Environment: This category increased 13.4% year over year to $142.5 million in the reported quarter as sales of medicines increased due to a severe cold and flu season which came early and persisted for a long time.

Other Financial Details

In Jul 01, 2014, Helen of Troy acquired U.S.-based retailer and health publisher Healthy Directions, LLC and its subsidiaries for a cash transaction of $195 million. This takeover will facilitate Helen of Troy’s entry into the vitamins, minerals and supplements (VMS) category.

The Healthy Directions acquisition is expected to be accretive to revenues by more than 10% on an annualized basis and also affect cash flow, adjusted EBITDA and adjusted earnings per share positively.

Additionally, Helen of Troy has recently entered into a licensing agreement with the pioneer of healthy non-stick cookware — The Cookware Company.

Under the agreement, Cookware will launch three high-quality cooking utensil made from its premium materials, best-in-class Perfluorooctanoic (PFOA)-free coatings through advanced manufacturing and forging processes and bearing Helen of Troy’s flagship brand name OXO Good Grips.

Fiscal 2015 Outlook

For fiscal 2015, the company continues to expect earnings in the range of $4.30 to $4.40 per share and sales in the range of $1.325 to $1.375 billion. The Zacks Consensus Estimate is pegged at $4.02 per share, well below management’s guidance range. It also expects capital expenditures in the range of $8 to $10 million for fiscal 2015.

Helen of Troy expects to deliver sustainable organic growth by investing in human resource and solid innovation program, brand building advertising and improving its market position. The company is also focused on driving productivity and paying dividends, going ahead. However, the company continues to expect higher product costs and a difficult retail environment in the coming quarters.

Other Stocks to Consider

Helen of Troy currently has a Zacks Rank #3 (Hold). Other stocks in the cosmetics and toiletries sector worth considering include Coty Inc. (COTY - Snapshot Report), Estee Lauder Inc. (EL - Analyst Report) and Nu Skin Enterprises Inc. (NUS - Snapshot Report). All these stocks sport a Zacks Rank #2 (Buy).

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