On Jul 6, 2013, Zacks Investment Research downgraded the global consumer products company, Helen of Troy Limited (HELE), to a Zacks Rank #5 (Strong Sell). The downgrade was based on the company’s disappointing outlook for fiscal 2014 and tough macroeconomic conditions and higher costs lying ahead for the company.
Why the Downgrade?
On Apr 29, 2013, at its fourth-quarter fiscal 2013 conference call Helen of Troy provided a conservative fiscal 2014 guidance due to a tough retail environment and a conservative approach to the cold/cough/flu season. Further, management expects that the product costs will increase across all segments during fiscal 2014.
We expect that the company will incur high costs as it transitions to the new 1.3 million square foot distribution facility in Olive Branch, MS, to accommodate anticipated future growth.
Further, in the Personal Care segment Helen of Troy expects sales to decrease in fiscal 2014 due to the stiff competition in the liquids area. Some of its major competitors have launched shampoo lines that are competing directly with those of Helen of Troy. In fact, the Personal Care segment has been consistently reporting sluggish growth for several quarters mainly due to difficult U.S. retail sales environment in the grooming, skin care and hair care category.
Estimates mostly moved downwards following the discouraging guidance provided by the company for the fiscal 2014. The Zacks Consensus Estimate for fiscal 2014 fell 7.9% to $3.55 over the last 90 days. Similarly, the Zacks Consensus Estimate for fiscal 2015 fell 18.0% to $3.27 over the same period.
The company has missed estimates in two of the past four quarters. Moreover, though it beat the Zacks Consensus Estimate in the fourth quarter it was only because of tight cost control. The top line results were not strong enough – thus signaling lack of growth.
Other Stocks to Consider:
Others players in the same industry which look attractive at the current levels include Inter Parfums Inc. (IPAR), Elizabeth Arden Inc. (RDEN) and Nu Skin Enterprises Inc. (NUS). While Inter Parfums carries a Zacks Rank #1 (Strong Buy), Elizabeth Arden and Nu Skin Enterprises hold a Zacks Rank #2 (Buy).
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