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Helen of Troy (HELE) Cuts FY23 View Despite Q2 Earnings Beat

Helen of Troy Limited HELE posted second-quarter fiscal 2023 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Earnings declined year over year while net sales increased. Management lowered its sales and earnings guidance for fiscal 2023 to reflect the impact of headwinds like the shift in consumer buying patterns, inflation and rising interest rates.

Quarter in Detail

Adjusted earnings of $2.27 per share beat the Zacks Consensus Estimate of $2.22 but declined 14.3% year over year. The metric was hurt by reduced adjusted operating income in the Beauty unit and increased interest expenses. These were somewhat offset by increased adjusted operating income across the Health & Wellness and Home & Outdoor units, lower adjusted effective tax rate as well as less weighted average diluted shares outstanding.

Consolidated net sales of $521.4 million surpassed the Zacks Consensus Estimate of $519.1 million. The metric grew 9.7% from the second quarter of fiscal 2022. The upside can be contributed to the gains from the Osprey and Curlsmith buyouts. These were somewhat offset by softness in organic business to the tune of 1.5%. Declines in the organic business mainly reflect reduced sales in the Beauty unit hair appliances category and home-related categories in the Home & Outdoor segment owing to less consumer demand, shifts in consumer spending patterns as well as reduced orders from retail customers. Net sales revenue drop in Non-Core business stemming from the divestiture of the Personal Care business was a hurdle. Higher sales in the Health & Wellness unit, improved international sales, increased prestige market personal care category sales in the Beauty segment and the impact of customer price rise associated with higher freight and product costs offered respite.

Helen of Troy Limited Price, Consensus and EPS Surprise


Helen of Troy Limited price-consensus-eps-surprise-chart | Helen of Troy Limited Quote


The consolidated gross profit margin came in at 42.5%, down 1.8 percentage points. The downside was mainly caused by the unfavorable impact of lower Beauty segment sales, unfavorable product mix in the Home & Outdoor unit, higher EPA compliance costs, increased inventory obsolescence expenses and the net dilutive impact of inflationary costs and associated customer price increases. A positive product mix across the Beauty segment was a breather.

Consolidated operating income stood at $46.9 million, down from $67.3 million reported in the year-ago quarter. The consolidated operating margin declined 5.2 percentage points to 9% due to higher outbound freight costs, an increase in EPA compliance costs, a rise in marketing expenses and greater salary and wage costs among others.

Segmental Performance

Net sales in the Home & Outdoor segment increased 11.8% to $240.6 million, driven by contributions from Osprey. The upside was somewhat offset by declines in the organic business.

Net sales in the Health & Wellness segment increased 27.6% to $180.5 million owing to organic business growth of 27.9%.

Net sales in the Beauty segment fell 15.4% to $100.3 million.The downside was caused by a decline in organic business to the tune of 23.1%.

Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $39.7 million and a total short-and long-term debt of $1,169.7 million. Net cash used by operating activities for six months ended Aug 31, 2022, was $75.5 million.

In fiscal 2023, management expects to incur capital and intangible asset expenditures in the range of $180-$190 million.

Restructuring Plan

In the second quarter of fiscal 2023, Helen of Troy focused on developing a global restructuring plan Project Pegasus, aimed at expanding operating margins via initiatives designed to improve efficiency and reduce costs. The project includes efforts to optimize its brand portfolio, streamline and simplify the organization, grow the cost of goods savings projects, improve the efficiency of the supply chain network, streamline indirect spending and improve cash flow and working capital. Management expects to achieve annualized savings of $75-$85 million through Project Pegasus.

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Fiscal 2023 Guidance

Due to the sale of the company’s Personal Care business, management is currently not anticipating any material activity associated with Non-Core businesses in fiscal 2023. Hence, the fiscal 2023 updated guidance includes consolidated results. Since fiscal 2022 results include the material activity associated with Non-Core businesses, the consolidated and Core business year-over-year growth rates are different. Management considers the Core business growth to be the most relevant.

Management now anticipates consolidated net sales between $2.00 billion and $2.05 billion, implying a decrease of 7.8%-10% and a Core business decline of 6.4%-8.6%. Earlier, the company had anticipated consolidated net sales between $2.15 billion and $2.20 billion, implying a decrease of 3.3%-1% and a Core business decline of 1.8%-0.5%.

The company’s updated net sales view assumes Home & Outdoor net sales growth of 3.5-5.5%, including $180-$185 million in sales from Osprey. Management expects Health & Wellness net sales decline of 11-13%. Beauty Core business net sales are anticipated to decrease 19-21%, including sales worth $30-$35 million from Curlsmith.

The company now expects adjusted earnings per share (EPS) in the range of $9.00-$9.40. This indicates the consolidated adjusted EPS decline of 23.9-27.2% and the Core adjusted EPS drop of 22.8-26.1%. This includes 35-40 cents and 15-20 cents contributions from Osprey and Curlsmith, respectively. Earlier, management had anticipated adjusted EPS in the range of $9.85-$10.35, indicating a consolidated adjusted EPS decline of 20.3-16.3% and the Core adjusted EPS drop of 19.2-15.1%.

Management expects a mid-teen percent sales decline in the fiscal third quarter and a high-teen sales decline in the fiscal fourth quarter. The company expects a high-twenties percent decline in adjusted EPS for the fiscal third quarter and a low-twenties percent decline in the fourth quarter.

Shares of this Zacks Rank #4 (Sell) company have slumped 31.5% in the past three months compared with the industry’s 15.2% decline.

Some Stocks to Consider

Some top-ranked stocks are Lancaster Colony LANC, Hershey HSY and The J. M. Smucker SJM.

Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks Rank of 1 (Strong Buy). LANC delivered an earnings surprise of 170% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lancaster Colony’s current financial year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.

Hershey, the largest chocolate manufacturer in North America as well as a global leader in chocolate and non-chocolate confectionery, presently has a Zacks Rank #2 (Buy). HSY pulled offa trailing four-quarter earnings surprise of 8.7%, on average.

The Zacks Consensus Estimate for Hershey’s sales and EPS for the current financial year suggests respective growth of 13.9% and 14.4% from the year-ago reported figures.

J. M. Smucker, which manufactures and markets branded food and beverage products, carries a Zacks Rank #2. J. M. Smucker delivered a trailing four-quarter earnings surprise of 20.8%, on average.

The Zacks Consensus Estimate for SJM’s current financial year sales suggests growth of 4.4% from the year-ago period’s reported figure.

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