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Helen of Troy (HELE) Beats on Q1 Earnings & Sales, Ups View

Zacks Equity Research

Helen of Troy Limited HELE released first-quarter fiscal 2020 results, with earnings and sales beating the Zacks Consensus Estimate. Also, the top and the bottom line improved year on year.  The quarterly results gained from strong performance in the Housewares unit as well as growth in leadership brands and online sales. Markedly, the robust start to the fiscal prompted management to raise its view.

On the flip side, the company continued to witness sluggishness in the Personal Care and Health & Home categories. Unfavorable currency impacts were also a drag.

Results in Detail

Adjusted earnings from continuing operations improved 10.2% year over year to $2.06 per share, which beat the Zacks Consensus Estimate of $1.68. The bottom line benefited from increased adjusted operating income in the Housewares unit and lower shares outstanding.

Net sales advaced 6.1% to $376.3 million and surpassed the Zacks Consensus Estimate of $353.2 million. The upside was driven by a 6.8% rise in the core business, 28% surge in online sales and 7.4% growth in leadership brands. Notably, core business growth was supported by improved brick and mortar sales in the Housewares unit. These were offset by lower international sales in the Health & Home category and softness in the Personal Care sales. Unfavorable currency movement weighed on the top line by almost $2.5 million.

Helen of Troy Limited Price, Consensus and EPS Surprise

 

Helen of Troy Limited Price, Consensus and EPS Surprise

Helen of Troy Limited price-consensus-eps-surprise-chart | Helen of Troy Limited Quote

 

Consolidated gross margin declined 0.5 percentage points (or 50 basis points) to 40.8%, driven by adverse currency fluctuations, higher freight costs and rise in tariffs. These were partly countered by growth in Leadership Brands and increased mix of housewares sales.  
 
Adjusted operating income increased 6.9% to $59.3 million and adjusted operating margin rose 20 bps to 15.8%. Operating margin was primarily driven by improved sales, lower product liability claim costs, growth in leadership brands and greater mix of houseware sales. However, the metric was partially weighed by higher tariffs, advertising costs, freight expenses, new product development costs as well as increased incentive compensation expenses.

Segment Performance

Net sales in the Housewares segment advanced 23.6% to $144.9, courtesy of growth in point of sale, increased distribution with brick and mortar customers, higher online sales as well as innovations. These positives were somewhat offset by reduced club channel and international sales. Adjusted operating income in the unit improved 35.3% and adjusted operating margin expanded 200 bps.

Net sales in the Health & Home segment declined 5.2% to $154.9 million mainly due to fall in core business. Sluggish core business performance stemmed from adverse impacts of international business, impacts from cough/cold/flu season and unfavorable foreign currency. Such downsides were partially offset by higher distribution and early replenishment of certain products. Further, adjusted operating income in the category fell 15.2%, while adjusted operating margin contracted 160 bps.

Sales in the Beauty segment improved 3.4% to $76.4 million, owing to growth in appliances and improved international sales. The upside was countered by reduced brick and mortar sales and softness in Personal Care business. However, adjusted operating income fell 26.8% and margin slumped 200 bps.

Other Financial Details & Developments

Helen of Troy ended the quarter with cash and cash equivalents of $18.4 million and total debt of $321.1 million. Consolidated shareholders’ equity stood at $1,036.1 million.

Net cash from operating activities during the quarter came in at $15.7 million.

Fiscal 2020 Outlook

Management is impressed with the improvement in the first quarter. This indicates that consistent investments in leadership brands and the core business are yielding. Also, the company is on track to bolster online business. Further, this Zacks Rank #3 (Hold) company is progressing well transformation initiatives that include efforts such as strengthening brands and increasing operational efficiencies.

Following robust performance during the first quarter, management raised its view for fiscal 2020. Consolidated net sales are now projected in the band of $1.590 -$1.620 billion compared with previous projection of $1.580-$1.611 billion.

Sales in the Housewares and Health & Home units are expected to grow 6-8% and 2-3%, respectively. The same in the Beauty segment likely to decline in low single digits. Adjusted effective tax rate is expected in the range of 9.1-10.7% in fiscal 2020.

Finally, adjusted earnings from continuing operations are projected in the band of $8.40-$8.65 compared with the earlier view of $8.25-$8.50. The Zacks Consensus Estimate for fiscal earnings is currently pegged at $8.38.



Price Performance

Shares of the company have gained 11.4% in the past three months compared with the industry’s rise of 8.3%.

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