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Helen of Troy (HELE) Up 2.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Helen of Troy (HELE - Free Report) . Shares have added about 2.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Helen of Troy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Helen of Troy's Q4 Earnings Top Estimates, Decline Y/Y

Helen of Troy reported fourth-quarter fiscal 2021 results, with the top line and the bottom line beating the Zacks Consensus Estimate. However, earnings declined year over year. Results were somewhat hampered by the impact from February Winter Storm Uri as well as pandemic-led traffic declines at certain retail stores. Nonetheless, strength in Leadership Brands, online sales growth and contributions from Drybar Products’ acquisition were upsides. Certainly, the company remains focused on its Phase II Transformation plan.

Management stated that as part of its focus on Leadership Brands, the company decided to divest certain assets in its global mass channel personal care business (or Personal Care). Further, the company said that it defines Core as strategic business, which is expected to be part of its ongoing operations, while business or assets (including assets held for sale), which are anticipated to be divested within a year, are defined as Non-Core.

Results in Detail

Adjusted earnings of $1.57 per share surpassed the Zacks Consensus Estimate by a penny. However, the bottom line declined 16.5% year over year mainly due to unfavorable impacts from the Winter Storm Uri (to the tune of about 20 cents per share), along with lower operating income in the Health & Home unit. This was somewhat compensated by increased operating income in the Housewares and Beauty units, together with reduced weighted average diluted shares outstanding.

Consolidated net sales advanced 15.1% year over year to $509.4 million, which beat the consensus mark of $496.5 million. The year-over-year growth was driven by an increase of 12.2% in organic sales along with contributions worth $10.4 million from the Drybar Products acquisition (in the eight week period before the buyout anniversary). Notably, organic sales growth was backed by increase in brick and mortar revenues, strong international sales along with solid online revenues. These upsides were however somewhat offset by adverse impacts from February Winter Storm Uri, softness in non-core business and pandemic-led traffic declines at some retail customers. During the quarter, Leadership Brands net sales jumped 20.2%, and online sales grew nearly 30%. Core business saw net sales advancement of 16.2%. In fiscal 2021, Leadership Brands formed more than 81% of the company’s sales and online sales increased to account for 26% of total sales.  

Consolidated gross margin moved up 1.7 percentage points to 45.2%, courtesy of improved channel mix in the Housewares unit, better product mix in the Organic Beauty business and the Health and Home segment, as well as positive impact Drybar Products' buyout. The upsides were partially negated by increased inbound freight expenses and adverse product mix in the Housewares unit. Adjusted operating income tumbled 20.5% to $42.9 million, and the adjusted operating margin contracted 3.8 points to 8.4%. The downside was triggered by increased marketing and new product development costs, elevated freight and distribution expenses as well as adverse product mix in the Housewares unit. Moreover, increased legal, patent defense and other professional fees were a drag. These were somewhat offset by favorable product mix within Health & Home and the Organic Beauty business, positive channel mix within the Housewares segment, as well as lower travel expenses due to COVID-19.

Segmental Performance

Net sales in the Housewares segment increased 12.1% to $162.5 million driven by growth of 11.8% in organic business. Organic growth was backed by increased demand for OXO brand products amid the pandemic-led increased at-home cooking, baking and organizing – which resulted in higher brick and mortar, online and international sales. This was partly countered by Winter Storm Uri effect, elevated competition, pandemic-induced traffic declines at certain brick and mortar stores and tough year-over-year comparison as the year-ago period included solid new product releases.

Net sales in the Health & Home segment advanced 23% to $228.6 million, thanks to organic business growth of 21.9%. Organic sales were backed by burgeoning demand for healthy living and healthcare products across domestic and international markets, both in stores and online amid the pandemic. This was partly negated by softness in non-strategic product categories and unfavorable impact from Winter Storm Uri on quarter-end shipments.

Sales in the Beauty segment jumped 6% to $118.3 million, thanks to contributions from the buyout of Drybar Products (for the period before the anniversary of the acquisition). This was somewhat hurt by lower organic sales stemming from lower Personal Care sales and the impact of the abovementioned storm on quarter-end shipments.

Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $45.1 million and total debt of $343.6 million. In fiscal 2021, net cash from operating activities amounted to $314.1 million. Further, free cash flow was $215.4 million. Additionally, the company repurchased 960,829 shares worth $191.6 million during fiscal 2021.

Guidance

In fiscal 2022, the company expects its Leadership Brands to continue catering well to customers. As the pandemic persists, Helen of Troy expects favorable trends for its health-related brands. Other brands including Hydro Flask, Drybar, Revlon and HOT Tools are likely to do well in the post-pandemic environment. OXO is likely to perform well in most landscapes.

Management did not offer any guidance for fiscal 2022, given the extreme business uncertainty surrounding the pandemic, global supply-chain hiccups, volatile cost environment and uncertainty regarding availability of commodities, freight and other resources. Incidentally, increased demand for certain products and changes in shopping patterns due to the pandemic has put pressure on the global freight channel – leading to elevated costs, reduced capacity and longer lead times in roughly all industries. With continued demand increases and limited supply for containers, the inbound freight rates have increased significantly from the 2020 average. Nonetheless, management is undertaking several cost-containment efforts, and is working with its supply chain partners to help tide over the anticipated inflation. Also, it intends to take certain pricing actions to address such challenges. These moves are likely to help Helen of Troy deliver on its Phase II average annual growth goals.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -9.54% due to these changes.

VGM Scores

At this time, Helen of Troy has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Helen of Troy has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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