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Helen of Troy (HELE) Beats on Q2 Earnings & Sales, Lifts View


Helen of Troy Limited HELE came out with second-quarter fiscal 2019 results, wherein both top and bottom lines grew year over year and surpassed estimates. While sales marked its third straight beat, earnings kept its positive surprise streak alive for the thirteenth consecutive quarter. Moreover, management raised its sales and earnings outlook, which raised investors’ optimism.

Shares of the company gained 1.3% yesterday. In fact, this Zacks Rank #3 (Hold) stock has rallied 10.3% in the past three months, against the industry’s decline of 0.8%.

Adjusted earnings from continuing operations jumped 20% year over year to $1.98 per share. Also, the bottom line surpassed the Zacks Consensus Estimate of $1.67. The upside was backed by improved adjusted operating income in the company’s Health & Home and Houseware segments, reduced interest costs and lower share count.

Helen of Troy Limited Price, Consensus and EPS Surprise

Helen of Troy Limited Price, Consensus and EPS Surprise | Helen of Troy Limited Quote

Net sales advanced 14.1% to $393.5 million, cruising ahead of the consensus mark of $351 million. Continued strength in Leadership Brands (up 20.5%), strong online sales (up 16.1%) and core business advancement of 14.2% led to top-line growth. Notably, higher brick-and-mortar sales in the company’s Housewares and Health & Home segments and solid international sales were major drivers, which was partly offset by softness in the Beauty segment and adverse currency movements.

Consolidated gross margin contracted 2.2 percentage points to 39.4%, owing to adverse product and channel mix, and increased mix of direct import shipments, partly made up by margin improvements from strength in Leadership Brands.

Consolidated SG&A expenses as a percentage of sales fell 3.8 percentage points to 26.3%, attributable to favorable year-over-year comparison, owing to charges associated with TRU’s bankruptcy in the same year-ago period. Also, enhanced efficiency in distribution and logistics, positive impacts from increased mix of direct import shipments and reduced amortization costs aided results, which was partly countered by escalated incentive compensation costs.

Adjusted operating income grew 16.7% to $59.6 million, whereas the adjusted operating margin expanded 30 basis points (bps) to 15.1% due to factors impacting the SG&A expenses (as a percentage of sales), and gross margin.

Segment Performance

Housewares net sales surged 19.4%, courtesy of solid online sales, higher points of sales with domestic consumers, greater club-channel sales, product launches and rise in some customer inventories. However, these positives were somewhat offset by reduced international sales.

Adjusted operating income soared 19.7% to $30.8 million, whereas the adjusted operating margin remained flat at 22.4%.

Net sales at Health & Home segment rose 20.3% on the back of solid online sales, greater international sales, increased seasonal product sales and enhanced distributions related to existing customers.

Adjusted operating income jumped roughly 32.3% to $18.5 million, whereas the adjusted operating margin expanded 90 bps to 10.5%.

Beauty sales dropped 4.2%, thanks to persistent weakness across brick-and-mortar channels, rationalization efforts for certain brands and products, and foreign currency headwinds. This could only be partly compensated by increased online sales.

Adjusted operating income fell 9.5% to $10.3 million, while the margin contracted 80 bps to 12.8%.

Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $19.9 million and total debt of $301.1 million.

Net cash from operating activities came in at $37.3 million for the first half of fiscal 2019.

Project Refuel Update

Helen of Troy is on track with its previously announced Project Refuel program. Expected to conclude by the first quarter of fiscal 2020, the plan is likely to entail cumulative restructuring charges of $4.4-$5.5 million over the tenure of the program. Further, management now expects Project Refuel to lead to annualized profit growth of nearly $8.0-$10.0 million, up from the old guidance of $8.0-$9.0 million.

Fiscal 2019 Outlook

Management is impressed with the company’s sturdy second-quarter show, which reflects strength of its transformation plan. Though the company expects impacts from tariffs, and freight and commodity cost inflation to remain headwinds in the second half of the year, it is confident about countering most of these hurdles with its strategies. In fact, management is focused on increasing marketing investments in Leadership Brands in the remainder of fiscal 2019.

Based on a strong first half performance, management raised its outlook for fiscal 2019.

Consolidated net sales are now expected to increase 3.8-5.5% to $1.535-$1.560 billion. Earlier, the company projected net sales to increase 0.4-2.1% to $1.485-$1.510 billion. The sales outlook includes impacts from the adoption of Revenue Recognition Standard ASU 2014-19 in fiscal 2019, with compliance to reclassifications in fiscal 2018. Also, net sales growth guidance includes expected unfavorable impact of nearly 1.1% from the severity of the cold/cough/flu season.

Sales in Housewares segment are anticipated to grow 9-11% compared with the previous forecast of mid-single digit increase. Health & Home sales are now expected to increase 5-7%, up from low-single digit growth anticipated earlier. Sales in this unit are likely to bear a 2.3% adverse impact from the average cold/cough/flu assumption. Beauty sales are still projected to decrease in low to mid-single digits.

Adjusted effective tax rate is likely to be 8-10% in fiscal 2019.

Finally, adjusted earnings from continuing operations are now projected to be $7.65-$7.90, up from the previously guided range of $7.45-$7.70 per share. The year-over-year bottom-line growth is likely to get impacted by an anticipated rise in investments to fuel the company’s Leadership Brands.

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