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Helen of Troy Gains on Leadership Brands: Will Momentum Stay?

Zacks Equity Research

Helen of Troy Limited HELE is gaining momentum on the back of its solid focus on Leadership Brands, sturdy digital efforts and a robust Transformation Plan. Also, the company’s Housewares segment has been performing well. However, its Personal Care business depicts sluggishness. Despite this weakness and elevated cost woes, this consumer products provider has been in investors’ good books owing to its growth drivers.

In the past three months, this Zacks Rank #3 (Hold) stock has gained 18.4%, comfortably outperforming the industry’s 3.3% growth. Let’s delve deeper and see if this momentum can be sustained.



Helen of Troy Looks Well Placed

Helen of Troy has been focused on making solid investments in Leadership Brands, which are positioned well to boost market share. These brands account for a significant chunk of the company’s sales and generate solid margins and volumes. Markedly, Leadership Brands’ sales improved nearly 8.9% year over year in fiscal 2019. Management remains on track with investments in product launches, marketing efforts and e-commerce strategies for Leadership Brands.

Further, Helen of Troy is focused on Phase II of its Transformation Plan, which is expected to drive growth for the next five years. Phase II of the plan includes continued investments in Leadership Brands, with plans to develop the same through customer-friendly innovations, international expansion and acquisitions. Long-term goals of Helen of Troy’s transformation plan include better organic sales growth, continued margin expansion and efficient capital allocation.

This apart, the company is likely to keep gaining from its consistent online sales and digital marketing efforts. In the first quarter of fiscal 2020, online sales advanced 28% year over year and comprised nearly 23% of the company’s top line. Management plans to make further investments in this arena, in an attempt to keep pace with the evolving consumer environment.

Headwinds

Helen of Troy remains under pressure by escalated costs. In first-quarter fiscal 2020, margins were dented by higher freight costs and tariffs. Also, increased advertising and new product development costs affected margins. Persistence of these headwinds is a threat.

Moreover, Helen of Troy’s Personal Care business, which is a part of the Beauty unit, has been sluggish for a while. This has been a drag for the company’s top line. Earlier, management announced that the company is evaluating prospects pertaining to the divestiture of the Personal Care business.

Wrapping Up

Helen of Troy’s Houseware unit has been experiencing sturdy growth. Net sales at the segment advanced 23.6% during the first quarter, courtesy of growth in point of sale, increased distribution with brick and mortar customers, increased online sales as well as innovations. In fact, improved brick and mortar business in Housewares drove the company’s core business in the said quarter. For fiscal 2020, management expects this unit to grow in the range of 6-8%.

All said, we expect Helen of Troy to continue its growth story backed by its marvelous initiatives.

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