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Will Sale of Personal Care Business Aid Helen of Troy (HELE)?

Zacks Equity Research

Helen of Troy Limited HELE is focusing on areas with higher growth potential, which is evident from the company’s latest announcement regarding its Personal Care business. Well, the company revealed that it its exploring the sale of its Personal Care business, which forms part of its Beauty segment.

Markedly, the company’s Personal Care business has been weak for quite some time now, denting the Beauty unit. Thus, this divestiture will help Helen of Troy shift focus to more prospective areas like its Leadership Brands.

Will the Latest Move Help Uplift Stock?

Helen of Troy has long been struggling with softness in the Beauty segment, which can be largely accountable to drab Personal Care business. Well, the company’s Beauty segment sales have not witnessed even a single quarter of year-over-year growth since the beginning of fiscal 2018. The unit’s performance has been impaired by persistent weakness across brick-and-mortar channels, decline in Personal Care business, and withdrawal of certain products and brands.

In fact, a cosmetic big-wig like Coty COTY is also struggling with softness in its Consumer Beauty segment, owing to supply-chain hurdles and persistent softness in mass beauty categories in the United States and Europe. Coming back to Helen of Troy, the company’s Beauty segment sales dropped 3% in the third quarter of fiscal 2019. Unfortunately, management earlier projected Beauty segment sales to decline in low to mid-single digits in fiscal 2019.

These headwinds along with gross margin weakness and tariff-related concerns have caused shares of the company to plummet almost 20% in the past three months, against the industry’s 11.3% growth. Nonetheless, the aforementioned divestiture is expected to help management concentrate more on its portfolio of market-leading brands (Leadership Brands).

Brands in this portfolio, including OXO, Honeywell, Braun, PUR, Hydro Flask, Vicks and Hot Tools, are positioned well to enhance market share. Leadership Brands, which account for approximately 80% of the company’s sales, are among the company’s highest margin providing, volume generating and efficient businesses.

The company’s constant investments in these brands have been delivering robust results. Notably, Leadership Brands’ sales improved nearly 4.9% year over year in the third quarter of fiscal 2019. Moreover, management is on track with investments in product launches, marketing efforts and e-commerce strategies for Leadership Brands.

We believe that focus on Leadership Brands, which gets reinforced by the planned divestiture of the Personal Care business, is likely to uplift investors’ sentiments in this Zacks Rank #3 (Hold) stock.

Don’t Miss These Solid Cosmetic Stocks

Estee Lauder EL, with long-term EPS growth rate of 12.5%, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inter Parfums IPAR, with long-term EPS growth rate of 12.3%, carries a Zacks Rank #2 (Buy).

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