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Helen of Troy (HELE) Poised on Leadership Brands, Online Growth

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Zacks Equity Research
·4 min read
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Helen of Troy Limited HELE looks well placed, courtesy of strength in its Leadership Brands as well as digital operations. Moreover, the company’s focus on strategic growth efforts looks impressive. Such upsides have helped Helen of Troy’s shares surge 59.2% in the past year compared with the industry’s growth of 41.8%.

Let’s delve deeper.

Strength in Leadership Brands

Helen of Troy is focused on making solid investments in its Leadership Brands, which is a portfolio of market leading brands. Brands in this portfolio like OXO, Hydro Flask and Vicks among others are positioned well to enhance the company’s market share. Moreover, Helen of Troy’s constant investments in these brands that are considered most productive have been delivering robust results. Progressing along these lines, it acquired Drybar Products in January 2020. Drybar Products, which marks the company's eighth Leadership Brand, is yielding results and contributed to the top line in third-quarter fiscal 2021.

During fiscal third quarter, sales from the company’s eight Leadership Brands surged 33.9%, including 4.6 percentage points of growth from the Drybar products acquisition. Also, as part of its strategy of keeping focus on Leadership Brands, the company decided to divest certain assets of its mass channel personal care business. It expects the divestiture to be completed within fiscal 2021.

Others Factors Supporting Helen of Troy

Helen of Troy is making major investments in key areas to sustain growth. To this end, the company is focused on investing in direct-to-consumer channels, new product development, customization, marketing, next-gen distribution infrastructure among others. Notably, management is on track to investing in key growth areas as part of its Phase II Transformation efforts.

Moreover, the company expects to create further value though strategic acquisition in the future. In December 2020, Helen of Troy, via its subsidiaries, entered into a 100-year exclusive Trademark License Agreement with Revlon to license the trademark for hair care appliances and tools of the latter. Management, in its fiscal third-quarter earnings call, highlighted that its Revlon business has more than doubled in recent years, making it a major catalyst of its global hair appliance business. Well, this marks another step for Helen of Troy to bolster its Beauty business and strengthen its brand portfolio.

Apart from these, the company is likely to keep gaining from its consistent online sales and digital marketing efforts. Notably, online sales advanced nearly 34% year over year in the fiscal third quarter and contributed nearly 24% to the company’s top line. Management is on track to make continued investments in this arena to keep pace with the evolving consumer environment. In fact, the company is persistently augmenting its digital presence through sophisticated marketing plans and improved content.

Well several other companies in the cosmetic space have been benefiting from their online business, especially amid the pandemic-led social distancing. Such trend bodes well for players like The Estee Lauder Companies Inc. EL, Coty Inc. COTY and Nu Skin Enterprises, Inc. NUS.

Is all Rosy for Helen of Troy?

During the third quarter of fiscal 2021, Helen of Troy’s adjusted operating margin contracted 1.4 percentage points to 17.6%. The downside was triggered by higher marketing, freight and distribution expenses as well as adverse product mix in the Housewares unit. Moreover, increased royalty expenses, legal and other professional fees as well as higher bad debt expenses were a drag.

Along with this, Helen of Troy’s international presence exposes it to risks associated with adverse currency movements. The same was noticed in the fiscal third quarter, wherein unfavorable currency fluctuations affected sales in the company’s Beauty segment.

All said, we believe that the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company stay afloat amid such hurdles and keep its growth story alive.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report

Helen of Troy Limited (HELE) : Free Stock Analysis Report

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Coty Inc. (COTY) : Free Stock Analysis Report

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