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Helen of Troy's (HELE) Q3 Earnings Beat Estimates, Sales Up Y/Y

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Zacks Equity Research
·7 min read
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Helen of Troy Limited HELE reported robust third-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 Beauty and Health & Home segments along with solid online growth and contributions from Drybar Products’ acquisition.

Additionally, the company provided an optimistic view for fiscal 2021 on assumptions that the growth trends witnessed during the second and third quarter will persist through the fourth quarter as well.

Furthermore, this Zacks Rank #1 (Strong Buy) company continues to invest in key growth areas, as part of its Phase II Transformation efforts. It is also committed to plans of divesting certain assets of its mass channel personal care business in an effort to focus on growth of Leadership Brands. The company recognizes the assets held for sale as its non-core business. It expects the divestitures to be completed within fiscal 2021.

We note that shares of the company have gained 12.8% in the past three months against the industry’s rise of 17%.

Results in Detail

Adjusted earnings increased 20.5% year over year to $3.76 per share, which surpassed the Zacks Consensus Estimate of $3.11. Higher operating income in the Health & Home and Beauty businesses was the key driver. The upside was partly offset by elevated income tax expenses and lower operating income in the Housewares segment.

Net sales advanced 34.3% year over year to $637.7 million, which beat the consensus mark of $562.2 million. The year-over-year growth was driven by an increase of 30.3% in organic sales along with contributions worth 3.7% from the Drybar Products acquisition. Notably, organic sales growth was backed by increase in brick and mortar revenues, strong international sales along with solid online revenues. The company’s online sales channel registered net sales growth of nearly 34%. Leadership brands registered a rise of 33.9%, while the company’s core business witnessed growth of 35.2%. These upsides were somewhat negated by sluggish back-to-school season stemming from COVID-19 related school closures, declines in non-core business as well as reduced traffic at specific retail stores.

Consolidated gross margin moved up 0.9 percentage points to 45.1%, 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. The upsides were partially offset by increased inbound freight expenses and unfavorable product mix in the Housewares unit.

Adjusted operating income surged 24% to $111.9 million. However 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 and higher bad debt expenses were a drag. These were somewhat offset by higher net sales, favorable product mix within Health & Home and the Organic Beauty business, positive channel mix within the Housewares segment, as well as lower travel expenses due to COVID-19. Adjusted EBITDA grew 24% to $117 million.

Segmental Performance

Net sales in the Housewares segment increased 21.4% to $222.4 million driven by growth of 21.2% in organic business. Organic growth was backed by increased demand for OXO brand products amid COVID-19, which resulted in higher brick and mortar, online and international sales. Adjusted operating income in the unit declined 8.3% to $40.9 million.

Net sales in the Health & Home segment advanced 34.6% to $250.2 million, thanks to organic business growth of 33.8%. 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. Adjusted operating income increased 22.5% to $35.3 million.

Sales in the Beauty segment jumped 56.2% to $165.2 million, thanks to contributions from the buyout of Drybar Products along with organic business growth stemming from strength in the appliance category, retail holiday promotions, expansion in distribution as well as higher international sales. Adjusted operating income surged significantly to $35.8 million.

Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $156.7 million and total debt (short and long-term) of $440.4 million. For the nine months ended Nov 30, net cash from operating activities was $249.7 million.

We note that on Dec 22, 2020, the company entered into a renewed license agreement with Revlon, in respect of the latter’s trademark for hair care appliances and tools. To attain this exclusive global license, the company paid a one-time, up-front license fee of $72.5 million. As a result of this move, the company will not be obligated to pay royalties or other fees to Revlon, from December 22, 2020 onwards.

Additionally, we note that the company repurchased shares worth $191.6 million during the quarter, in the open market.

Helen of Troy Limited Price, Consensus and EPS Surprise


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



For fiscal 2021, the company expects net sales in the bracket of $2.075-$2.1 billion, indicating growth in the range of 21.5-23.0%. For its Housewares segment, the company expects sales growth in the range of 12-12.5%. Sales in the Health & Home unit are expected to rise 27.5%-30%. In the Beauty segment, the company anticipated sales growth of 27% to 28%. Markedly, the Zacks Consensus Estimate for net sales for fiscal 2021 is currently pegged at $2 billion.

Additionally, the company expects adjusted earnings in the range of $11.50-$11.70. The Zacks Consensus Estimate for earnings for fiscal 2021 is currently pegged at $11.08, reflecting growth from earnings of $9.30 in the prior year.

The company’s outlook for the fiscal is based on the assumption that the COVID-19 led demand trends will persist. Also the company expects below average impacts from the cough/cold/flu season during the fourth quarter. Further, the company expects capital asset expenditures between $32 million and $35 million for full fiscal year 2021.

Check These Solid Consumer Staples Stocks

B&G Foods, Inc. BGS, flaunting a Zacks Rank #1, has a trailing four-quarter earnings surprise of 9.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nu Skin Enterprises, Inc. NUS, with a Zacks Rank 2 (Buy), has a long-term earnings growth rate of 7.3%.

The Hain Celestial Group, Inc. HAIN, also with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 24.6%, on average.

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