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Helen of Troy (HELE) Q4 Earnings Beat Estimates, Sales Down

Zacks Equity Research

Helen of Troy Limited HELE released fourth-quarter fiscal 2019 results, with earnings and sales beating the Zacks Consensus Estimate. Also, the bottom line increased year on year, courtesy of improved margins. However, the top line was affected by unfavorable currency impacts as well as sluggishness in the Health & Home and Personal Care categories. Management also provided view for fiscal 2020.

Results in Detail

Adjusted earnings from continuing operations improved 7.7% year over year to $1.82 per share, which surpassed the Zacks Consensus Estimate of $1.69. The bottom line benefited from increased adjusted operating income and lower shares outstanding, partially countered by higher interest costs.  

Net sales inched down 0.7% to $384.8 million, due to unfavorable impacts from currency fluctuations amounting to around $2.6 million. However, the top line beat the consensus mark of $356 million.

Sales in the company’s core business were flat year on year, courtesy of growth in online sales, strong brick and mortar sales as well as improvements in the beauty appliances category. These were offset by softness in the Personal Care and Health & Home categories.

Consolidated gross margin improved 0.1 percentage points (or 10 basis points) to 40.9%, driven by favorable product mix and lower product costs. These were partially countered by declines in Leadership Brands, higher freight costs and rise in tariffs.

Adjusted operating income increased 1.6% to $53.5 million and adjusted operating margin rose 30 bps. Operating margin was driven by favorable product mix, lower product costs and positive currency impacts among others. However, the metric was partially weighed by higher tariffs, advertising costs, freight expenses and share-based compensation expenses.

Segment Performance

Net sales in the Housewares segment advanced 7.8%, courtesy of solid online sales, club channel sales, product launches and improved international sales. These positives were somewhat offset by reduced closeout channel sales. Adjusted operating income in the unit improved 11.8% and adjusted operating margin expanded 70 bps.

Net sales in the Health & Home segment declined 11.7% due to fall in core business and adverse currency fluctuations. Sluggish core business performance stemmed from weak online sales and adverse impacts from international distribution. Such downsides were partially offset by seasonal growth and new product launches. Further, adjusted operating income in this category increased 22.6%, while adjusted operating margin contracted 350 bps.

Sales in the Beauty segment improved 13.1%, owing to growth in online channel, product launches and improved international sales. These were countered by withdrawal of certain products andbrands, decline in Personal Care business as well as foreign currency headwinds. However, adjusted operating income fell 36.8% and margin slumped 820 bps.

Other Financial Details & Developments

Helen of Troy ended the quarter with cash and cash equivalents of $11.9 million and total debt of $320.7 million.

Net cash from operating activities came in at $200.6 million for fiscal 2019.

During the first quarter of 2020, management announced that the company is evaluating prospects regarding the divestiture of Personal Care business, which has been sluggish for a while. The move is likely to enable the company to focus on other prospects like leadership brands.



Fiscal 2020 Outlook

Management is impressed with strong online sales as well as advancements in the Housewares and the Beauty segment. Despite adverse impacts from tariffs and transportation costs, the company managed to deliver growth in operating margin. Further, this Zacks Rank #3 (Hold) company is on track with transformation initiatives which includes efforts such as strengthening leadership brands, developing new brandsand increasing operational efficiencies.

That said, management provided outlook for fiscal 2020. Consolidated net sales are projected in the band of $1.580-$1.611 billion. Further, sales in the Housewares and Health & Home units are expected to grow 4-6% 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 8.8-10.5% in fiscal 2020.

Finally, adjusted earnings from continuing operations are projected to be $8.25-$8.50. Bottom line growth is likely to be concentrated toward the second half of the year. In fact, management expects earnings in the first half to decline in the range of 4-8% year on year. A greater portion of this decline is likely to be concentrated in the first quarter.

Price Performance

Shares of the company gained 21.4% in the past three months compared with the industry’s rally of 26.5%.

Looking For Consumer Staples Stocks? Check These

MEDIFAST MED, with long-term earnings growth rate of 20%, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

General Mills GIS, with a Zacks Rank #2 (Buy), has long-term earnings per share (EPS) growth rate of 12.9%.

Estee Lauder EL, with long-term EPS growth rate of 11.9%, carries a Zacks Rank #2.

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