Pricing Initiatives, Growth Plans to Aid Spectrum Brands (SPB)
Spectrum Brands Holdings Inc. SPB looks well-placed, driven by the progress on its Global Productivity Improvement Plan and strategic transformation efforts. The company’s growth initiatives and ongoing cost-takeout plans position it for long-term growth. It is anticipated to retain its strong balance sheet position, enabling it to invest in its business throughout fiscal 2024.
However, higher marketing and advertising investments are likely to result in elevated operating expenses. Slower category POS and retailers’ focus on inventory reduction hurt the top line in fourth-quarter fiscal 2023. Soft sales trends in the Home & Personal Care segment due to lower demand and inventory reduction actions were headwinds.
Shares of the Zacks Rank #3 (Hold) company have gained 24.4% in the past year against the industry’s decline of 16.2%. SPB also compared unfavorably with the Consumer Discretionary sector’s growth of 5.3%.
Image Source: Zacks Investment Research
Factors Aiding Growth
Spectrum Brands is progressing well with its Global Productivity Improvement Plan, which aims at improving the company's operating efficiency and effectiveness, while focusing on consumer insights and growth-enabling functions, including technology, marketing, and research and development.
The majority of the savings are expected to be reinvested into growth initiatives and consumer insights, R&D, and marketing across each business. This plan will also enable the company to deliver value creation and sustainable growth in the long term.
Spectrum Brands is on track with its four core pillars to drive growth. In this regard, the company is streamlining its organizational structure and re-energizing its employee base. It is committed to improving operational efficiencies throughout and limiting risk. Management is protecting and deleveraging its balance sheet while solidifying liquidity. It is focused on transforming the company into a pure-play global Pet, and Home & Garden business.
As part of its strategic transformation, the company completed the sale of HHI to ASSA ABLOY for $4.3 billion in cash on Jun 20, subject to customary purchase price adjustments. It expects $3.8 billion in net proceeds from this sale. With the sale of the HHI business, SPB can refocus on its core businesses and boasts a stronger balance sheet.
Spectrum Brands have been gaining from increased pricing, cost improvements and a favorable mix, which drove margins in fourth-quarter fiscal 2023. The company has been proactive in its cost-takeout actions implemented in the second half of fiscal 2022, including fixed cost reduction by eliminating permanently salaried headcount, and reducing advertising and promotional spending. These actions helped mitigate the EBITDA decline to some extent.
The company notes that its actions position it to deliver EBITDA growth across each business unit. Moreover, it expects consolidated adjusted EBITDA to improve in the high-single digits in fiscal 2024.
Hurdles on the Path
Retailers’ focus on excess inventory reduction due to the difficult consumer environment has been impacting Spectrum Brands’ results. This hurt the company’s results across the board in fourth-quarter fiscal 2023. For fiscal 2024, it expects a low-single-digit sales decline. This includes the adverse impacts of foreign currency.
Spectrum Brands' Home & Personal Care segment has been witnessing a category decline from lower demand, particularly in kitchen appliances, and continued retailer inventory management in North America. This impacted the segment’s sales in fourth-quarter fiscal 2023. Going forward, the company expects the macro-economic environment to remain drab and result in top-line pressure, particularly in the Home and Personal Care business.
Although Spectrum Brands has been proactive with its cost-management actions, operating expenses continue to be elevated. In the fiscal fourth quarter, the company witnessed higher operating expenses, driven by renewed advertising and promotional spending. It stated that it increased investments in marketing and advertising in the fiscal fourth quarter. SPB expects to continue with this trend in fiscal 2024 to drive long-term business growth.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Discretionary sector, namely GIII Apparel Group GIII, PVH Corporation PVH and lululemon athletica LULU.
GIII Apparel currently sports a Zacks Rank #1 (Strong Buy). GIII shares have rallied 90.1% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GIII Apparel’s current financial year’s earnings per share suggests growth of 39.3% from the year-ago period’s reported figures. The company has a trailing four-quarter earnings surprise of 541.8%, on average.
PVH Corp has a trailing four-quarter earnings surprise of 18.9%, on average. It currently carries a Zacks Rank #2 (Buy). PVH shares have rallied 41.3% in the past year.
The Zacks Consensus Estimate for PVH’s current financial-year sales and EPS suggests growth of 1.2% and 16.6%, respectively, from the year-ago period's reported figures.
lululemon has a trailing four-quarter earnings surprise of 9.2%, on average. It currently carries a Zacks Rank #2. LULU shares have gained 58% in the past year.
The Zacks Consensus Estimate for lululemon’s current financial-year sales and earnings suggests growth of 18.4% and 23.8%, respectively, from the year-ago period's reported figures.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
PVH Corp. (PVH) : Free Stock Analysis Report
G-III Apparel Group, LTD. (GIII) : Free Stock Analysis Report
Spectrum Brands Holdings Inc. (SPB) : Free Stock Analysis Report
