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Helen of Troy (HELE) Spins Off Market Personal Care Business

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Helen of Troy Limited (HELE - Free Report) is focused on growing its Leadership Brands, which is a portfolio of eight market leading brands. As part of its strategy to increase focus on Leadership Brands, the company divested its mass market Personal Care business (excluding the Latin America and Caribbean regions) to a leading independent branded personal care company — HRB Brands LLC. We note that the transaction was priced at $44.7 million on a cash basis. Per the deal, HRB Brands LLC also has the right to buy Latin America and Caribbean Personal Care businesses before the end of fiscal 2022.

Helen of Troy anticipates the deal proceeds to be utilized for boosting shareholders’ value including repaying debt, strategically repurchasing stocks as well as undertaking prudent buyouts. Well, the aforementioned divestiture is in sync with Helen of Troy’s focus on accelerating its Leadership Brands. Such brands, which include OXO, Hydro Flask, Vicks, Braun, PUR, Honeywell, Drybar as well as HOT Tools, generate solid cash flow. They also enhance the company’s presence globally. These brands, which generate impressive volume and margin, contributed more than 80% to Helen of Troy’s global sales in fiscal 2021.

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The company’s constant investments in these brands that are considered most productive have long been delivering robust results. Evidently, Leadership Brands’ net sales increased 20.2% in the fourth quarter of fiscal 2021. In fiscal 2022, the company expects its Leadership Brands to continue catering well to customers.

Helen of Troy, which shares space with Coty Inc. (COTY - Free Report) , has been gaining from online sales and digital marketing efforts. Notably, online sales advanced nearly 30% year over year in the fiscal fourth quarter. Management is on track to make continued investments in this arena to keep pace with the evolving consumer environment.

Wrapping Up

The Zacks Rank #5 (Strong Sell) company is battling soft adjusted operating margin for a while now. During fiscal fourth quarter, Helen of Troy’s adjusted operating income tumbled 20.5% while 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.

Incidentally, the company’s adjusted earnings declined 16.5% 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 in the fiscal fourth quarter. Moreover, pandemic-led traffic declines at certain retail stores have been a concern for the company.

All being said, we believe that the divestiture of mass market Personal Care business will aid the company’s top-and bottom-line performance, while allotting funds to its capital allocation strategy.

Helen of Troy’s shares have declined 3.6% in the past three months compared with the industry’s growth of 8.2%.

Some Solid Cosmetic Picks

Inter Parfums, Inc. (IPAR - Free Report) , with a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 27.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nu Skin Enterprises, Inc. (NUS - Free Report) , with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 18.8%, on average.

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