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Helen of Troy Limited Message Board

  • yeflux yeflux Jan 9, 2006 11:39 AM Flag

    This is BAD.

    As you guys probably know, this is a yearly cyclical business, with most of the inventory buildup to last quarter, which becomes accounts payable this quarter and then cash next quarter! This year, the accounts payable increased only 40M compared to almost 70M last year. This is not good, moreover, this is just about the lowest level of inventory now, and the inventory stands at 180M, which is way way too high!->this means products are not selling (they are hence lowering prices, but this also means, it's not likely that prices can go up soon). Lastly, this is the first quarter that actually counts or counts the most, i.e. the third quarter is the highest biggest quarter, so while the bad quarter last time was forgivable, this quarter's loss is something I can no longer ignore. The decrease in sales is most worrying, because I don't remember HELE ever, even in 2001 having decreasing sales and decreasing earnings at the same time! This business must have increased sales. The only bright spot remains the OXO line...that's general this is not good.

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    • Look at their OXO brand. I think that's going to be the big driver. Also whatever "hand tools" they are selling at Lowe's too. Hair dryers and curling irons will remain roughly flat in my opinion, but other divisions will provide growth. Also if you caught they moved things from Hong Kong to Macau where they have no tax liability. Therefore that goes to the bottom line. Same with the tax benefits they are getting from Mississippi.

    • Stock is not, not undervalued. management is poor.

    • Every company in this country is experiencing lower margins, and they're almost all due to the same two things: rising energy costs and interest rates. While that is not the ONLY reason this companies margins are lower, it is certainly a big part of it.

      If you think that energy prices are going to stay as high as they are forever, and that interest rates are going to continue moving higher, then you're right - margins will not improve. But I think it's clear that energy costs will come down (they already have), and interest rates will stabilize shortly. Companies like HELE are really going to benefit from those types of macro changes, and I think you'll quickly see margins go back to their historical averages.

      I definitely think this is the time to buy. This is a very undervalued stock. You should listen to Brad's point that this companies business has hardly dried up and is still producing cash. Still, I want to see the 10q and check out that balance sheet, since inventory / debt levels are a concern.

      I walked into Wallgreens yesterday and saw half their curling irons were procuced by HELE. I see it everywhere I go: Target, Wallmart, CVS, Wallgreens, etc.

    • I had to take a contrarian position and sell as well. Brad, I agree with you that when things are better in the future, the stock price will go up. The thing is that I don't think this is the case given the results we saw. I think an improvement is not in the near future, especially with a consumer slowdown given slower growth. This is my opinion, so I'm acting on that.

      In terms of equity, yes it is increasing, because margins are not negative yet, but they are dropping rapidly. I don't think you can argue it's only temporary anymore since it is the forth quarter in a row already, and maybe it'll get better in 3 years, but I don't see things improving even for the medium term 1-2 years.

    • Then why do you think this is being bought? Agree with your comments.


      • 1 Reply to stigmaii
      • I think it's because sales as a percentage dropped even more last quarter i.e. 7 % last quarter vs. 4.4% this quarter. But people don't realize last quarter's drop doesn't mean even close to as much as this quarter's because of the fact that this is the "performance quarter" (the whole year is just judged on this quarter, i.e. it accounts for significantly more than 50% of the years revenue. I think once the analysts like Kathy Reed get back, this will be slaughtered...she's pretty smart and will definitely note the inventory problems that managment has been avoiding.

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