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Helen of Troy (HELE) Cuts FY 2023 View Despite Q1 Earnings Beat

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Helen of Troy Limited (HELE - Free Report) posted first-quarter fiscal 2023 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. However, earnings and net sales declined year over year. Management lowered its sales and earnings guidance for fiscal 2023 to reflect the impact of headwinds like Shift in consumer buying patterns, inflation and rising interest rates.

Quarter in Detail

Adjusted earnings of $2.41 per share beat the Zacks Consensus Estimate of $1.94 but declined 30.7% year over year. The metric was hurt by operating loss in the Health & Wellness unit, reduced operating income in the Beauty segment and increased interest expense. These were somewhat offset by increased operating income across the Home & Outdoor unit and reduced weighted average diluted shares outstanding.

Consolidated net sales of $508.1 million surpassed the Zacks Consensus Estimate of $469.3 million. However, the metric declined 6.1% from the first quarter of fiscal 2022. The downside was caused by a 15.5% decline in organic business due to net sales revenue drop in Non-Core business stemming from the divestiture of the Personal Care business and some unfavorable year-over-year comparisons. Soft sales in the Health & Wellness unit owing to solid COVID-19-driven demand for healthcare and healthy living products in the year-ago quarter were a downside. The metric was also hurt by the drab Beauty segment hair appliances category and home-related categories in the Home & Outdoor unit, thanks to reduced consumer demand and shifts in consumer spending patterns. These factors were somewhat offset by solid consumer demand for outdoor-related products in the Home & Outdoor unit, increased seasonal category sales across the Health & Wellness segment and better prestige market personal care category sales in the Beauty business. Also, customer price increases associated with increasing freight and product costs offered some respite. Contributions from the acquisitions of Osprey Packs, Inc. (Osprey) and Recipe Products Ltd. (Curlsmith) were an upside.

Helen of Troy Limited Price and EPS Surprise

 

Helen of Troy Limited Price and EPS Surprise

Helen of Troy Limited price-eps-surprise | Helen of Troy Limited Quote

 

Consolidated gross profit margin came in at 41.6%, up 0.8 percentage points. The upside was driven by favorable mix of greater Home & Outdoor sales, reduced inventory obsolescence expense, lower EPA compliance costs and a positive product mix in the Beauty unit. These were somewhat offset by the net dilutive impact of inflationary expenses and associated customer price increases. Also, the unfavorable impact of a decline in the Beauty unit hurt the margin.

Consolidated operating income stood at $33.9 million, down from $64.8 million reported in the year-ago quarter. The consolidated operating margin declined 5.3 percentage points to 6.7% due to a higher SG&A ratio.

Segmental Performance

Net sales in the Home & Outdoor segment increased 21% to $234.3 million, driven by contributions from Osprey. The upside was somewhat offset by declines in the organic business.

Net sales in the Health & Wellness segment dropped by 17.2% to $168.9 million due to an organic business decline of 16.8%.The soft year-over-year comparison was mainly due to the higher pandemic-related demand for healthcare and healthy living products in the prior-year quarter, among other reasons. These were somewhat offset by higher seasonal category sales and the impact of customer price increases associated with higher freight and product costs.

Net sales in the Beauty segment slumped 26.9% to $104.9 million.The downside was caused by a decline in organic business to the tune of 28.7%. The organic business was hurt by declines in Non-Core business net sales revenue and reduced hair appliances category sales, among other reasons. Increased prestige market personal care category sales and contributions from the acquisition of Curlsmith offered some respite in the segment.

Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $49.3 million and a total short-and long-term debt of $1,105.6 million. Net cash used by operating activities for three months ended May 31, 2022, was $38.4 million.

In fiscal 2023, management expects to incur capital and intangible asset expenditures in the range of $180-$200 million.

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Fiscal 2023 Guidance

Due to the sale of the company’s Personal Care business, management is currently not anticipating any material activity associated with Non-Core businesses in fiscal 2023. Hence, the fiscal 2023 guidance includes consolidated results. Since fiscal 2022 results include the material activity associated with Non-Core businesses, the consolidated and Core business year-over-year growth rates are different. Management considers the Core business growth to be the most relevant.

The company now anticipates consolidated net sales between $2.15 billion and $2.20 billion, implying a decrease of 3.3%-1% and a Core business decline of 1.8%-0.5%. Management had earlier anticipated consolidated net sales between $2.38 billion and $2.42 billion, implying consolidated growth of 6.8%-8.8% and a Core business increase of 8.5%-10.5%.

The company’s updated net sales view assumes Home & Outdoor net sales growth of 9-11%, including $180-$185 million in sales from Osprey. Further, management expects Health & Wellness net sales decline of 10-8%. Beauty Core business net sales are anticipated to decrease 7-5%, including sales worth $30-$35 million from Curlsmith.

The company now expects adjusted earnings per share (EPS) in the range of $9.85-$10.35. This indicates the consolidated adjusted EPS decline of 20.3-16.3% and the Core adjusted EPS drop of 19.2-15.1%. This includes 40-45 cents and 15-20 cents contributions from Osprey and Curlsmith, respectively. Earlier, the company had expected consolidated adjusted EPS in the range of $12.73-$13.03, indicating, consolidated adjusted EPS advancement of 3.0%-5.4% and the Core adjusted EPS increase of 4.5%-7.0%.

Management expects fiscal second-quarter consolidated net sales to grow by a low double-digit. The company anticipates a mid-teen decline in the fiscal second-quarter adjusted EPS mainly due to reduced adjusted operating margin and increased interest expense.

Shares of this Zacks Rank #4 (Sell) company have slumped 23.5% in the past three months compared with the industry’s 6.8% decline.

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