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Solid Online Sales Aid Helen of Troy (HELE), Soft Margin a Woe

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Helen of Troy Limited (HELE - Free Report) is benefiting from solid online operations. Moreover, the company’s focus on strategic growth efforts and Leadership Brands is worth mentioning. That said, drab operating margin coupled with currency headwinds are a concern. Let’s take a closer look.

Factors Working in Helen of Troy’s Favor

Helen of Troy is making major investments in key areas to sustain growth. To this end, the company is focused on investing in direct-to-consumer channels, new product development, customization, marketing, next-gen distribution infrastructure among others. Notably, management is on track to investing in key growth areas as part of its Phase II Transformation efforts. Moreover, the company expects to create further value though strategic acquisition in the future. In December 2020, Helen of Troy, via its subsidiaries, entered into a 100-year exclusive Trademark License Agreement with Revlon to license the trademark for hair care appliances and tools of the latter.

Additionally, Helen of Troy is likely to keep gaining from its consistent online sales and digital marketing efforts. Notably, online sales advanced nearly 34% year over year in the third quarter of fiscal 2021 and contributed nearly 24% to the top line. Management is on track to make continued investments in this arena to keep pace with the evolving consumer environment. The company is persistently augmenting its digital presence through sophisticated marketing plans and improved content.

Well, several other companies in the cosmetic space have been benefiting from their online business, especially amid the pandemic. Such trends also bode well for players like Coty Inc. (COTY - Free Report) , Nu Skin Enterprises, Inc. (NUS - Free Report) and The Estee Lauder Companies Inc. (EL - Free Report) .

Coming back to Helen of Troy, management is focused on making solid investments in its Leadership Brands, which is a portfolio of market leading brands. Brands in this portfolio are positioned well to enhance the company’s market share. Moreover, Helen of Troy’s constant investments in these brands that are considered most productive have been delivering robust results. Progressing along these lines, it acquired Drybar Products in January 2020. During fiscal third quarter, sales from the company’s eight Leadership Brands surged 33.9%, including 4.6 percentage points of growth from the Drybar products acquisition.

Hurdles on Way

During the third quarter of fiscal 2021, Helen of Troy’s adjusted operating margin contracted 1.4 percentage points to 17.6%. The downside was triggered by higher marketing, freight and distribution expenses as well as adverse product mix in the Housewares unit. Moreover, increased royalty expenses, legal and other professional fees as well as higher bad debt expenses were a drag. Apart from this, its international presence exposes it to risks associated with adverse currency movements. The same was noticed in the fiscal third quarter, with unfavorable currency fluctuations affecting sales in the Beauty segment.

Nevertheless, we believe that the aforementioned upsides are likely to help Helen of Troy stay afloat amid such hurdles.

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