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Helen of Troy (HELE) Up 3.4% 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 3.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Helen of Troy Q3 Earnings & Sales Rise Y/Y

Helen of Troy Limited released third-quarter fiscal 2020 results, wherein the top and the bottom line increased year over year. Sturdy performance in the Housewares and Beauty segments boosted results. Moreover, management raised sales and adjusted earnings guidance for fiscal 2020.

Results in Detail

Adjusted earnings from continuing operations improved 30% year over year to $3.12 per share. Higher operating income in the Housewares segment and lower advertising expenses were primary drivers.

Net sales rose 10.1% year over year to $474.7 million. The upside was driven by a 10.7% rise in the core business, nearly 30% increase in online sales and 10.6% growth in Leadership brands.

Notably, core business growth was supported by improved brick and mortar sales in the Housewares unit, solid consolidated online sales and strong appliance sales in the Beauty division. These were offset by softness in Health & Home segment sales and sluggishness in the personal care business in the Beauty segment. Additionally, unfavorable currency movements were a hindrance to the tune of about $2.3 million.

Consolidated gross margin improved 2 percentage points to 44.2%, courtesy of higher mix of Housewares sales as well as favorable product and channel mix in the Housewares segment. This was partly countered by a smaller mix of personal care sales in the Beauty segment.

Adjusted operating income improved 27.8% to $90.3 million and adjusted operating margin rose 2.6 percentage points to 19%.

Segment Performance

Net sales in the Housewares segment rallied 28.2% to $183.2 million, courtesy of growth in point of sale, increased distribution with brick and mortar customers, higher online sales, improved international sales and new product launches. These positives were somewhat offset by currency headwinds of about 0.3%. Adjusted operating income in the unit rallied 36.8% and the adjusted operating margin improved 150 basis points (bps) to 24.3%.

Net sales in the Health & Home segment dropped 1.1% to $185.8 million mainly due to a decline in the core business. These factors were partially offset by sales from new product launches and improved international sales. The segment was affected by net foreign currency fluctuations of roughly 0.6%. Adjusted operating income improved 17.7%, while adjusted operating margin expanded 250 bps to 15.5%.

Sales in the Beauty segment improved 5.4% to $105.7 million, owing to solid demand and new products in the appliance business along with strong online and international sales. The upside was countered by softness in the personal care business and adverse foreign currency impact to the tune of roughly 0.8%. Adjusted operating income rose 24.7% and adjusted operating margin expanded 250 bps to 16%.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $19.6 million and total debt of $244.2 million.

Net cash from operating activities during the first nine months of fiscal 2020 came in at $101.4 million.

Fiscal 2020 Outlook

Management is impressed with the company’s third-quarter performance, marked by core sales growth, solid adjusted earnings per share increase and enhanced operating margin. This indicates that the company’s growth investments and digital efforts are yielding. Further, Helen of Troy is on track with Phase II of its Transformation plan. To this end, the company recently announced its plans to acquire Drybar Products LLC, which is expected to strengthen the Beauty segment.

Given a robust year-to-date performance and solid expectations for the rest of fiscal 2020, management raised sales and adjusted earnings guidance. Consolidated net sales are now projected in the range of $1.650-$1.675 billion, indicating growth of 5.5-7.1% year over year. Earlier, the company expected consolidated net sales growth in the range of 2.9-4.8%.

Sales in the Housewares unit are expected to increase 19-21% compared with 13-15% growth projected earlier. Health & Home net sales are now anticipated to decline 2-4% compared with the previous expectation of low-single digits decline. Beauty segment net sales are likely to improve 3-5% compared with a low-single digit growth projected earlier.

Finally, adjusted earnings from continuing operations are projected to be $8.9-$9.1 per share compared with the earlier view of $8.5-$8.75. However, to some extent earnings are expected to be hurt by increase in investments, higher incentive compensation expenses as well as elevated freight and distribution costs. Higher expenses are expected to stem from strong demand in Housewares and Beauty segments along with integration activity and increase in capacity.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

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