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Helen of Troy (HELE) Stock Up on Q1 Earnings Beat, Solid View

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Helen of Troy Limited (HELE - Free Report) surprised investors with a spectacular start to fiscal 2019. Notably, both top and bottom lines grew year over year and topped estimates in the first quarter of fiscal 2019. While sales marked its second straight beat, earnings kept its positive surprise streak alive for the twelfth consecutive quarter. Moreover, management raised its bottom-line view and Project Refuel target, which was clearly a treat for investors.

Shares of the company gained 12.7% yesterday, taking the Zacks Rank #3 (Hold) company’s past six months rally to 19.5%, easily outpacing the industry’s 0.8% growth.



Adjusted earnings from continuing operations jumped 32.6% year over year to $1.87 per share. Also, the bottom line surpassed the Zacks Consensus Estimate of $1.44. The upside was backed by improved adjusted operating income across all segments, reduced interest costs and lower share count.

Helen of Troy Limited Price, Consensus and EPS Surprise
 

Helen of Troy Limited Price, Consensus and EPS Surprise | Helen of Troy Limited Quote

Net sales advanced almost 9% to $354.7 million, cruising ahead of the consensus mark of $333 million. Continued strength in Leadership Brands (up 14.7%), strong online sales (up 30.3%) and core business advancement of 7.9% led to top-line growth. Core business was backed by solid international sales, product introductions, rise in domestic brick and mortar sales, and sturdy online sales. Also, the top line gained from favorable currency movements that boosted sales by 1.1%.

Consolidated gross margin grew 90 basis points to 41.3%, courtesy of improved product mix, favorable currency impact and growth in Leadership Brands. This was somewhat countered by increased promotions and adverse channel mix.

Consolidated SG&A expenses as a percentage of sales fell 120 basis points to 28.6%, owing to enhanced efficiency in distribution and logistics along with reduced legal, amortization and media advertising costs. This was partly countered by escalated incentive compensation, and advertising and new product development expenses.

Adjusted operating income increased 30.4% to $55.5 million, whereas the adjusted operating margin expanded 250 basis points to 15.6%, due to gross margin improvement and factors that impacted SG&A costs.

Segment Performance

Housewares net sales surged 18.9%, courtesy of solid online sales, increased domestic distributions, growth at international sales, higher club-channel sales, product launches at Hydro Flask and OXO brands, and increased advance retail orders for Hydro Flask. Sales also gained from currency exchange, while the positives were somewhat offset by reduced traffic and soft consumer spending at some traditional brick and mortar retail outlets.

Adjusted operating income soared about 30% to $25.4 million, whereas the adjusted operating margin expanded 190 basis points to 21.7%.

Net sales at Health & Home segment rose 10.2% on the back of solid online sales, greater international distribution and positive currency impacts.

Adjusted operating income jumped roughly 38% to $25 million, whereas the adjusted operating margin expanded 310 basis points to 15.3%.

Beauty sales dropped 5.8%, thanks to persistent weakness across brick and mortar channels, which was somewhat cushioned by online sales growth. Sales at this segment were also hurt by rationalization efforts for certain brands and products, though currency served as a tailwind for Beauty segment sales.

Adjusted operating income rose nearly 4% to $5.0 million, while the margin grew 60 bps to 6.8%.

Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $16.9 million, total debt of $300.1 million and shareholders’ equity of $1,023.7 million.

Net cash from operating activities came in at $28.9 million for the first quarter of fiscal 2019. The company made share buybacks worth $37.1 million during the quarter.

For fiscal 2019, management anticipates net cash from operating activities to increase 10%-12%, whereas capital expenditures are anticipated to come in a band of $30.0-$35.0 million.

Project Refuel Update

Helen of Troy remains on track with its previously announced Project Refuel program. During the first quarter, the company expanded this program to realign and streamline its supply-chain network. Expected to conclude by the first quarter of fiscal 2020, the plan is likely to entail cumulative restructuring charges of $4.0-$5.5 million over the tenure of the program. Further, management now expects Project Refuel to lead to annualized profit growth of nearly $8.0-$9.0 million, up from the old guidance of $8.0 million.

Fiscal 2019 Outlook

Management reiterated its sales outlook for fiscal 2019, while it raised its earnings view, owing to impacts from share buybacks.

Consolidated net sales are still expected to increase 0.4%-2.1% to $1.485-$1.510 billion. This includes impacts from the adoption of Revenue Recognition Standard ASU 2014-19 in fiscal 2019, with compliance to reclassifications in fiscal 2018. Also, the net sales growth guidance continues to include expected unfavorable impact of nearly 1.1% from the severity of the cold/cough/flu season.

Sales in Housewares segment are anticipated to grow in mid-single digits. Health & Home sales are expected to increase in low-single digits, bearing a 2.5% adverse impact from the average cold/cough/flu assumption. Beauty sales are projected to decrease in low to mid-single digits.

Finally, adjusted earnings from continuing operations are now projected in the range of $7.45-$7.70 per share, up from the previously guided range of $7.30-$7.55 per share. The Zacks Consensus Estimate stands at $7.39, which is likely to witness upward revisions.

The year-over-year bottom-line growth is likely to get impacted by an anticipated rise in growth investments to fuel the company’s Leadership Brands. Also, average cough/cold/flu assumption is expected to hit year-over-year growth by 12-14 cents, while absence of fiscal 2018 tax benefits is anticipated to have 15 cents unfavorable impact.

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The Chefs' Warehouse, Inc. (CHEF - Free Report) , with long-term earnings per share growth rate of 22%, flaunts a Zacks Rank #2 (Buy).

B&G Foods (BGS - Free Report) , with a Zacks Rank #2, delivered positive earnings surprise in the last reported quarter and has gained 31.5% in the past three months.

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