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Helen of Troy (HELE) Gains on Leadership Brands, Hurt by Costs
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Helen of Troy Limited (HELE - Free Report) has been benefiting from its focus on Leadership Brands, which is a portfolio of market-leading brands. Robust strategic initiatives and the company’s recently unveiled Project Pegasus also bode well.
However, Helen of Troy is troubled by escalated cost concerns and softness in the Beauty segment. The impact of these downsides was visible in the company’s third-quarter fiscal 2023 results, wherein the top and bottom lines declined year over year. Although management raised the lower end of its sales and adjusted earnings per share (EPS) guidance for fiscal 2023, it suggests a year-over-year decline.
What’s Working Well?
HELE’s Leadership Brands, including OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar and Osprey, are positioned well to enhance market share. These brands account for a significant chunk of the company's sales. The company's constant investments in these brands, which are considered the most productive, have been delivering robust results.
As part of its strategy to focus on Leadership Brands, Helen of Troy divested its mass-market Personal Care business (excluding the Latin America and Caribbean regions) to HRB Brands LLC on Jun 8, 2021. On Mar 25, 2022, management concluded the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands.
Helen of Troy Limited Price, Consensus and EPS Surprise
In the second quarter of fiscal 2023, Helen of Troy focused on developing a global restructuring plan, Project Pegasus. The plan aims at expanding operating margins via initiatives designed to improve efficiency and reduce costs.
Project Pegasus includes efforts to optimize the company’s brand portfolio, streamline and simplify the organization, grow the cost of goods savings projects and improve the efficiency of the supply-chain network. Further, the project aims at streamlining indirect spending and improving cash flow and working capital.
As part of Project Pegasus, management is unveiling three major changes to the company’s organizational structure. These include unifying the company’s Beauty and Health & Wellness businesses into one segment – Beauty & Wellness.
Further, the changes include creating a North America Regional Market Organization to take care of sales and go-to-market strategies for all categories and channels in the United States and Canada. Finally, HELE announced the centralization of various functions under shared services, mainly Operations and Finance.
The newly unveiled structure is likely to lower Helen of Troy’s workforce by nearly 10%. Management expects to achieve pre-tax operating profit enhancements in the band of $75-$85 million through Project Pegasus. The company expects total one-time pre-tax restructuring charges of about the $85-$95 million range through the plan, which is anticipated to be concluded in fiscal 2025.
Main Deterrents
Cost inflation has been a headwind for a while now. In the third quarter of fiscal 2023, HELE’s consolidated gross profit margin was hurt by an unfavorable product mix in the Home & Outdoor unit and the net impact of inflationary costs and associated customer price increases. The consolidated operating margin declined 0.6 percentage points to 13.8% due to adverse operating leverage, higher outbound freight costs, and greater salary and wage costs, among others.
Management expects the adjusted operating margin to decline 100-120 basis points in fiscal 2023 due to adverse operating leverage, the net impact of pricing, an adverse product mix in Health & Wellness and the dilutive impact of the Osprey acquisition in Home & Outdoor. The company also expects to witness several cost-related headwinds in fiscal 2024.
Further, Helen of Troy has been seeing softness in the Beauty segment. Net sales in the Beauty segment tumbled 14.7% to $149.2 million in the third quarter. The downside was caused by a decline in the organic business to the tune of 20.7%. This was largely a result of a decline in the overall beauty appliance category. Beauty Core business net sales are anticipated to decrease 18.5-17.5% in fiscal 2023, including the $35-$40 million sales contribution from Curlsmith.
However, the abovementioned upsides are likely to aid Helen of Troy amid headwinds.
Shares of this Zacks Rank #3 (Hold) company have declined 19.5% in the past three months against the industry’s growth of 0.8%.
Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 111.3% from the year-ago reported number.
General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average.
The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5.7% and 6.9%, respectively, from the corresponding year-ago reported figures.
Vital Farms, which provides pasture-raised products, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 53.3%, on average.
The Zacks Consensus Estimate for Vital Farms’ current fiscal-year sales suggests an increase of 25.4% from the year-ago reported number.
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Helen of Troy (HELE) Gains on Leadership Brands, Hurt by Costs
Helen of Troy Limited (HELE - Free Report) has been benefiting from its focus on Leadership Brands, which is a portfolio of market-leading brands. Robust strategic initiatives and the company’s recently unveiled Project Pegasus also bode well.
However, Helen of Troy is troubled by escalated cost concerns and softness in the Beauty segment. The impact of these downsides was visible in the company’s third-quarter fiscal 2023 results, wherein the top and bottom lines declined year over year. Although management raised the lower end of its sales and adjusted earnings per share (EPS) guidance for fiscal 2023, it suggests a year-over-year decline.
What’s Working Well?
HELE’s Leadership Brands, including OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar and Osprey, are positioned well to enhance market share. These brands account for a significant chunk of the company's sales. The company's constant investments in these brands, which are considered the most productive, have been delivering robust results.
As part of its strategy to focus on Leadership Brands, Helen of Troy divested its mass-market Personal Care business (excluding the Latin America and Caribbean regions) to HRB Brands LLC on Jun 8, 2021. On Mar 25, 2022, management concluded the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands.
Helen of Troy Limited Price, Consensus and EPS Surprise
Helen of Troy Limited price-consensus-eps-surprise-chart | Helen of Troy Limited Quote
In the second quarter of fiscal 2023, Helen of Troy focused on developing a global restructuring plan, Project Pegasus. The plan aims at expanding operating margins via initiatives designed to improve efficiency and reduce costs.
Project Pegasus includes efforts to optimize the company’s brand portfolio, streamline and simplify the organization, grow the cost of goods savings projects and improve the efficiency of the supply-chain network. Further, the project aims at streamlining indirect spending and improving cash flow and working capital.
As part of Project Pegasus, management is unveiling three major changes to the company’s organizational structure. These include unifying the company’s Beauty and Health & Wellness businesses into one segment – Beauty & Wellness.
Further, the changes include creating a North America Regional Market Organization to take care of sales and go-to-market strategies for all categories and channels in the United States and Canada. Finally, HELE announced the centralization of various functions under shared services, mainly Operations and Finance.
The newly unveiled structure is likely to lower Helen of Troy’s workforce by nearly 10%. Management expects to achieve pre-tax operating profit enhancements in the band of $75-$85 million through Project Pegasus. The company expects total one-time pre-tax restructuring charges of about the $85-$95 million range through the plan, which is anticipated to be concluded in fiscal 2025.
Main Deterrents
Cost inflation has been a headwind for a while now. In the third quarter of fiscal 2023, HELE’s consolidated gross profit margin was hurt by an unfavorable product mix in the Home & Outdoor unit and the net impact of inflationary costs and associated customer price increases. The consolidated operating margin declined 0.6 percentage points to 13.8% due to adverse operating leverage, higher outbound freight costs, and greater salary and wage costs, among others.
Management expects the adjusted operating margin to decline 100-120 basis points in fiscal 2023 due to adverse operating leverage, the net impact of pricing, an adverse product mix in Health & Wellness and the dilutive impact of the Osprey acquisition in Home & Outdoor. The company also expects to witness several cost-related headwinds in fiscal 2024.
Further, Helen of Troy has been seeing softness in the Beauty segment. Net sales in the Beauty segment tumbled 14.7% to $149.2 million in the third quarter. The downside was caused by a decline in the organic business to the tune of 20.7%. This was largely a result of a decline in the overall beauty appliance category. Beauty Core business net sales are anticipated to decrease 18.5-17.5% in fiscal 2023, including the $35-$40 million sales contribution from Curlsmith.
However, the abovementioned upsides are likely to aid Helen of Troy amid headwinds.
Shares of this Zacks Rank #3 (Hold) company have declined 19.5% in the past three months against the industry’s growth of 0.8%.
Solid Consumer Staple Picks
Some better-ranked consumer staple stocks are Post Holdings (POST - Free Report) , General Mills (GIS - Free Report) and Vital Farms (VITL - Free Report) .
Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 111.3% from the year-ago reported number.
General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average.
The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5.7% and 6.9%, respectively, from the corresponding year-ago reported figures.
Vital Farms, which provides pasture-raised products, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 53.3%, on average.
The Zacks Consensus Estimate for Vital Farms’ current fiscal-year sales suggests an increase of 25.4% from the year-ago reported number.