Helen of Troy (HELE) Q2 Earnings Top Estimates, Reaffirms View
Helen of Troy Limited HELE posted second-quarter fiscal 2024 results, with the top and bottom lines declining year-over-year but beating the Zacks Consensus Estimate. Results were hurt by ongoing pressure on some categories due to reduced consumer demand and changes in buying patterns. That said, strength in several Leadership Brands and greater International sales were an upside.
Quarter in Detail
Adjusted earnings of $1.74 per share beat the Zacks Consensus Estimate of $1.60. However, the bottom line declined by 23.3% year over year. The metric was mainly hurt by higher interest expenses and reduced adjusted operating income.
Consolidated net sales of $491.6 million surpassed the Zacks Consensus Estimate of $485 million. However, the metric fell 5.7% from the year-ago quarter’s levels. The downside was a result of softness in the organic business to the tune of 6%.
The organic business was hurt by lower sales of fans, heaters and humidification products in the Beauty & Wellness category, as well as lower brick and mortar sales in the insulated beverage category. The downside was due to SKU rationalization efforts, lower consumer demand, shifts in consumer spending patterns and fewer orders from retail customers, among other reasons. Nevertheless, higher consumer demand for travel-related products, growth in online channel sales and increased international sales were positives.
The consolidated gross profit margin expanded 420 basis points (bps) to 46.7% from 42.5% reported in the year-ago quarter. The upside can mainly be attributed to the positive comparative impact of EPA compliance costs, reduced inventory obsolescence expenses and customer mix in the Home & Outdoor category. Reduced inbound freight costs contributed to the gain. However, a less favorable product mix for Beauty & Wellness hurt the metric. We had expected the gross profit margin to expand by 300 bps to 45.5%.
The consolidated operating income stood at $46.8 million, marginally down from the $46.9 million reported in the year-ago quarter. The consolidated operating margin came in at 9.5%, up from 9% reported in the year-ago quarter.
The increase in consolidated operating margin was led by the positive comparative impact of EPA compliance costs, lower inventory obsolescence expenses and a more favorable customer mix within Home & Outdoor. Reduced inbound and outbound freight costs also contributed to the upside. Yet, these factors were somewhat offset by an increase in marketing expenses, a higher annual incentive compensation expense and increased distribution and depreciation expenses, among others.
Helen of Troy Limited Price, Consensus and EPS Surprise
Helen of Troy Limited price-consensus-eps-surprise-chart | Helen of Troy Limited Quote
Segmental Performance
Net sales in the Home & Outdoor segment fell 0.2% to $240 million, as organic business fell 0.5%. The downside was mainly due to softness in the insulated beverage category and reduced home category sales. That said, higher online channel sales and strong demand for travel-related products offered some respite.
We had expected net sales in the Home & Outdoor segment to decline by 5.3% to $227.8 million.
Net sales in the Beauty & Wellness segment declined 10.4% to $251.6 million due to organic business’ decline of 10.7%, stemming from the soft sales of heaters, fans and humidification products. Low consumer demand and orders from retail customers were a downside. The decline was partially offset by solid sales of air and water filtration products and growth in international sales.
We had expected Beauty & Wellness net sales decline of 7.9% to $258.5 million.
Other Details
Helen of Troy ended the quarter with cash and cash equivalents of $24.2 million and total short-and long-term debt of $844.9 million. Net cash provided by operating activities for the three months ended Aug 31, 2023, was $36.7 million.
Restructuring Plan
In the second quarter of fiscal 2023, Helen of Troy focused on developing a global restructuring plan, Project Pegasus. The plan aims to expand operating margins via initiatives designed to improve efficiency and reduce costs.
Project Pegasus includes efforts to optimize the company’s brand portfolio, streamline and simplify the organization, grow the cost of goods-saving projects and improve the efficiency of the supply-chain network. The project aims to streamline indirect spending and improve cash flow and working capital. As part of Project Pegasus, management expects to achieve annualized pre-tax operating profit improvements of $75-85 million, to be substantially generated by fiscal 2026-end.
Fiscal 2024 Guidance
Helen of Troy reaffirmed its financial outlook for fiscal 2024. The company expects fiscal 2024 consolidated net revenues in the range of $1.965-$2.015 billion, reflecting a decline of 2.8-5.2%. The year-over-year decline includes the removal of Bed, Bath & Beyond revenues and the reduction from the Pegasus SKU rationalization initiative. The top-line view reflects a continued slower economy and uncertainty in spending patterns, mainly for discretionary categories. In addition, the company is seeing a reduction of trade inventory on a sequential basis.
The company’s fiscal 2024 net sales view assumes the Home & Outdoor segment net sales decline of 1.7% to growth of 1%. The view also considers Beauty & Wellness net sales decline of 5.8-8%.
HELE expects adjusted earnings per share (EPS) in the range of $8.50-$9.00. This indicates a consolidated adjusted EPS decline of 4.8-10.1%. The outlook reflects additional year-over-year expenses related to the restoration of annual incentive compensation expenses and increased interest and depreciation expenses. Management anticipates consolidated adjusted EBITDA of $338-$348 million, indicating growth of 3.2-6.3% for fiscal 2024.
The company envisions a net sales decline of 2-4% in the third quarter of fiscal 2024. For the third quarter, adjusted diluted EPS is envisioned to be roughly flat. Management anticipates its adjusted EPS to grow by 1.5-12% in the second half of fiscal 2024, with substantial growth in the fourth quarter.
Shares of this Zacks Rank #3 (Hold) company have lost 3.4% in the past three months compared with the industry’s 22.3% decline.
Key Picks
Here we have highlighted three top-ranked stocks, namely, Celsius Holdings CELH, Inter Parfums IPAR and Lamb Weston Holdings LW.
Celsius Holdings, which offers functional drinks and liquid supplements, currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Celsius Holdings’ current fiscal-year sales and earnings suggests growth of 88.9% and 170.3%, respectively, from the year-ago reported numbers. CELH delivered an earnings surprise of 100% in the last reported quarter.
Inter Parfums, which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings indicates 19.7% and 14.9% growth from their respective year-ago reported figures. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
Lamb Weston, a leading supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers worldwide, currently carries a Zacks Rank #2. LW has a trailing four-quarter earnings surprise of 44.8%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 27.4% and 12.6%, respectively, from the year-ago reported numbers.
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