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Helen of Troy (HELE) Up 6.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·5 min read

It has been about a month since the last earnings report for Helen of Troy (HELE). Shares have added about 6.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Helen of Troy Earnings & Sales Beat Estimates in Q2

Helen of Troy reported robust second-quarter fiscal 2021 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate. Results gained from strength in all segments, solid online growth and contributions from Drybar Products’ acquisition.

Given the unprecedented impacts of COVID-19, management did not provide any guidance for fiscal 2021. While the company has been undertaking measures to preserve cash flow and curtail costs, given a solid performance, management stated that it has relaxed some of these measures at the end of the second quarter. Moreover, it expects to keep on making higher investments in marketing and other growth areas.

Apart from these, the company is making certain investments in its Phase II Transformation efforts. Also, as part of its strategy of keeping focus on Leadership Brands, the company decided to divest some assets in its mass channel personal care business (Personal Care). It expects the divestiture to close in fiscal 2021.

Results in Detail

Adjusted earnings increased 68.3% year over year to $3.77 per share, easily surpassing the Zacks Consensus Estimate of $2.39. Higher operating income across all segments was the key driver. The upside was partly offset by elevated income tax expenses and an increase in the number of shares outstanding.

Net sales advanced 28.2% year over year to $530.9 million, beating the consensus mark of $447.2 million. The year-over-year growth was driven by 25.7% organic sales growth and gains from the acquisition of Drybar Products. Notably, organic sales growth was backed growth in brick and mortar revenues, strong international sales along with solid online revenues. This was somewhat negated by soft sales in Personal Care segment, coronavirus-led store closures and reduced store traffic at specific retail customers.

Consolidated gross margin moved up 0.4 percentage points to 43.4%, courtesy of favorable product mix in the Organic Beauty business and the Health and Home segment, as well as positive impact from Drybar Products' buyout and improved channel mix in the Housewares unit. Also, reduced air freight charges and decrease in direct import sales contributed to the upside. This was partly countered by an adverse product mix in Housewares segment.

Adjusted operating income surged 64.9% to $108.5 million and the adjusted operating margin expanded 4.5 percentage points to 20.4%. The upside in operating margin can be attributable to improved sales, some factors that boosted gross margin and cost-containment efforts. Adjusted EBITDA grew 62.5% to $113.4 million.

Segmental Performance

Net sales in the Housewares segment increased 20.3% to $201.9 million driven by growth in organic business. Organic growth was backed by increased demand for OXO brand products amid COVID-19, higher online sales for OXO as well as Hydro Flask, improved revenues from the club channel. Also, increased international sales and new product launches were a reason. Adjusted operating income in the unit improved 27.1% to $47.8 million.

Net sales in the Health & Home segment advanced 33.2% to $211.5 million, thanks to organic business growth of 33.1%. Organic sales were backed by burgeoning demand for healthy living and healthcare products across domestic and international markets, both in stores and online amid the pandemic. Also, demand stemming from wildfire activity on the west coast of the United States led to the upside. Adjusted operating income increased significantly to $37.8 million.

Sales in the Beauty segment jumped 34.6% to $117.5 million, thanks to contributions from the buyout of Drybar Products along with organic business growth stemming from strength in the appliance category, expansion in distribution as well as higher international sales. Adjusted operating income surged significantly to $22.9 million.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $148.4 million and total debt (short and long-term) of $300.1 million. At the end of six months ended Aug 31, net cash from operating activities was $186.3 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Helen of Troy has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Helen of Troy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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