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Can Helen of Troy's Restructuring Efforts Pare Hurdles?

Zacks Equity Research

Amid high tariffs and soft sales in the Beauty segment, Helen of Troy Limited HELE is relying on prudent strategies to regain sheen. In sync with this, management is focusing on core brands, boosting digital presence as well as restructuring certain units and supply-chain network. Let’s take a closer look.

Efforts to Boost Brands & Online Sales

Helen of Troy is focused on making investments in its ‘Leadership Brands’, which include OXO, Honeywell, Braun, PUR, Hydro Flask, Vicks and Hot Tools. These brands contribute approximately 80% to the company’s sales and are among the highest margin providing, volume generating as well as efficient businesses. The company’s constant investments in these brands are delivering robust results. Markedly, Leadership Brands’ sales improved nearly 4.9% year over year in the third quarter of fiscal 2019. Notably, management is on track with product launches, marketing efforts and e-commerce strategies for Leadership Brands.

Further, Helen of Troy is likely to keep gaining from strong online sales and digital marketing efforts. Notably, online sales advanced 6% year over year in the third quarter and contributed almost 18% to the top line. Management plans to make further investments in this arena to keep pace with the evolving consumer environment. In fact, the company is constantly augmenting its digital presence through sophisticated marketing plans and improved content.

Project Refuel to Support Growth in Key Areas

The company is on track with Project Refuel, which was initiated to improve the performance of the Beauty and Nutritional Supplements units. During the first quarter of fiscal 2019, the company expanded this program to realign and streamline supply-chain network. Management expects to conclude Project Refuel by the first quarter of fiscal 2020. Further, it continues to expect annualized savings of nearly $8.0-$10.0 million from this program during the designated course.



Will Strategies Revive the Stock?

Volatilities in the trading environment, are making a negative impact on the company’s domestic as well as China based consumers. In fact, high tariffs affected Helen of Troy’s cost of goods sold and adjusted operating income in the third quarter. In addition to tariff changes, management expects commodity inflation and high freight costs to weigh on Helen of Troy’s cost of goods sold in fiscal 2019, which are likely to impact gross margin.

Further, the company has been struggling with softness in the Beauty segment, stemming from drab Personal Care business as well as withdrawal of certain products and brands. Well, sales in the Beauty segment have not witnessed even a single quarter of year-over-year growth since the beginning of fiscal 2018. Thanks to these headwinds, the company’s shares have declined almost 11.7% in the past three months, against the industry’s 23.9% rally.

Nevertheless, management recently announced plans to divest the Beauty unit and focus on other lucrative growth areas, such as Leadership Brands. This along with efforts to bolster e-commerce and results from Project Refuel are likely to enable the Zacks Rank #3 (Hold) company to help overcome the aforementioned hurdles and uplift investors’ sentiments.

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