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Why Is Helen of Troy (HELE) Up 16.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Helen of Troy (HELE). Shares have added about 16.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Helen of Troy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Helen of Troy Q4 Earnings Beat Estimates, Sales Down

Helen of Troy released fourth-quarter fiscal 2019 results. Adjusted earnings from continuing operations improved 7.7% year over year to $1.82 per share, which surpassed the Zacks Consensus Estimate of $1.58. The bottom line benefited from increased adjusted operating income and lower shares outstanding, partially countered by higher interest costs. 

Net sales inched down 0.7% to $384.8 million, due to unfavorable impacts from currency fluctuations amounting to around $2.6 million. However, the top line beat the consensus mark of $356 million.

Sales in the company’s core business were flat year on year, courtesy of growth in online sales, strong brick and mortar sales as well as improvements in the beauty appliances category. These were offset by softness in the Personal Care and Health & Home categories.

Consolidated gross margin improved 0.1 percentage points (or 10 basis points) to 40.9%, driven by favorable product mix and lower product costs. These were partially countered by declines in Leadership Brands, higher freight costs and rise in tariffs.

Adjusted operating income increased 1.6% to $53.5 million and adjusted operating margin rose 30 bps. Operating margin was driven by favorable product mix, lower product costs and positive currency impacts among others. However, the metric was partially weighed by higher tariffs, advertising costs, freight expenses and share-based compensation expenses.

Segment Performance

Net sales in the Housewares segment advanced 7.8%, courtesy of solid online sales, club channel sales, product launches and improved international sales. These positives were somewhat offset by reduced closeout channel sales. Adjusted operating income in the unit improved 11.8% and adjusted operating margin expanded 70 bps.

Net sales in the Health & Home segment declined 11.7% due to fall in core business and adverse currency fluctuations. Sluggish core business performance stemmed from weak online sales and adverse impacts from international distribution. Such downsides were partially offset by seasonal growth and new product launches. Further, adjusted operating income in this category increased 22.6%, while adjusted operating margin contracted 350 bps.

Sales in the Beauty segment improved 13.1%, owing to growth in online channel, product launches and improved international sales. These were countered by withdrawal of certain products and brands, decline in Personal Care business as well as foreign currency headwinds. However, adjusted operating income fell 36.8% and margin slumped 820 bps.

Other Financial Details & Developments

Helen of Troy ended the quarter with cash and cash equivalents of $11.9 million and total debt of $320.7 million.

Net cash from operating activities came in at $200.6 million for fiscal 2019.

During the first quarter of 2020, management announced that the company is evaluating prospects regarding the divestiture of Personal Care business, which has been sluggish for a while. The move is likely to enable the company to focus on other prospects like leadership brands.

Fiscal 2020 Outlook

Management is impressed with strong online sales as well as advancements in the Housewares and the Beauty segment. Despite adverse impacts from tariffs and transportation costs, the company managed to deliver growth in operating margin. Further, this Zacks Rank #3 (Hold) company is on track with transformation initiatives which includes efforts such as strengthening leadership brands, developing new brands and increasing operational efficiencies.

That said, management provided outlook for fiscal 2020. Consolidated net sales are projected in the band of $1.580-$1.611 billion. Further, sales in the Housewares and Health & Home units are expected to grow 4-6% and 2-3%, respectively. The same in the Beauty segment likely to decline in low single digits. Adjusted effective tax rate is expected in the range of 8.8-10.5% in fiscal 2020.

Finally, adjusted earnings from continuing operations are projected to be $8.25-$8.50. Bottom line growth is likely to be concentrated toward the second half of the year. In fact, management expects earnings in the first half to decline in the range of 4-8% year on year. A greater portion of this decline is likely to be concentrated in the first quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.09% due to these changes.

VGM Scores

At this time, Helen of Troy has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Helen of Troy has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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