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Helen of Troy (HELE) Q3 Earnings Beat, Fiscal 2022 View Up

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·8-min read
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Helen of Troy Limited HELE reported third-quarter fiscal 2022 results, with the bottom line beating the Zacks Consensus Estimate and the top line almost coming in line with the same. However, the metrics declined year over year. The company raised its fiscal 2022 guidance owing to better-than-anticipated quarterly performance, favorable trends in Beauty and Housewares along with positive initial trends in the fiscal fourth quarter.

Adjusted earnings of $3.72 per share beat the Zacks Consensus Estimate of $3.15 but declined 1.1% year over year. Adjusted core earnings per share of $3.72 reflected growth of 3% from the prior-year quarter. The decline in adjusted earnings can be mainly attributed to reduced adjusted operating income in the Health & Home and elevated interest expense. This was somewhat offset by increased adjusted operating income in the Housewares and Beauty segments, lower effective tax rate and reduced shares outstanding.

Consolidated net sales declined 2% year over year to $624.9 million, which was almost in line with the consensus mark for quarterly revenues of $625 million. The year-over-year decline can be attributed to the 2.2% fall in Organic business sales due to the U.S. Environmental Protection Agency’s (the "EPA") packaging compliance matter and higher COVID-19 related demand for healthcare and healthy living products in the prior year. Also, lower net sales revenues from the Non-Core business due to the sale of the North America Personal Care business hurt the metric. This was partly negated by increased brick-and-mortar and online channel sales in the Beauty and Housewares segments.

In July 2021, the company revealed that it was in discussion with the EPA for the compliance of packaging claims on some of its products in the air and water filtration categories. Also, the claims related to some humidifier products in the Health & Home segment. In August 2021, the company notified that it had largely resolved the matter by making some changes to product labeling and has initiated repackaging of the affected products. At the end of the fiscal third quarter, the company has returned to more normalized shipping activity for most of the affected products.

Helen of Troy Limited Price and EPS Surprise

Helen of Troy Limited Price and EPS Surprise
Helen of Troy Limited Price and EPS Surprise

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

During the quarter, the Core business reported net sales growth of 0.4% from the prior-year quarter. Meanwhile, Leadership Brands net sales fell 0.2% and online channel net sales declined 7.4% year over year.

Core net sales and earnings per share growth were driven by better-than-anticipated growth across all segments. Core sales for Housewares and Beauty segments improved in double digits, driven by robust consumer and retailer demand. While Health & Home reported core sales decline, it performed better than expectations. Robust demand and swift progress on reworking some products related to the EPA matter were drivers.

Consolidated gross profit margin declined 1.3 percentage points to 43.8%, mainly due to the adverse impact of the increases in inbound freight and a related spike in consumer pricing, EPA compliance costs and a slightly adverse channel mix within the Housewares segment. This was partly negated by a positive product mix in the Housewares and Beauty segments. Also, a favorable mix of increased Housewares and Beauty sales in the overall consolidated net sales revenues led to the growth.

Adjusted consolidated operating income of $106.1 million declined 5.2% from $111.9 million reported in the year-ago quarter. Adjusted consolidated operating margin contracted 60 basis points to 17%. The downside was mainly caused by higher inbound freight expenses and related price increases, elevated distribution costs, increased personnel expenses, unfavorable operating leverage and EPA compliance costs among other reasons. These were somewhat offset by a positive product mix in the Housewares and Beauty segments, lower amortization costs and reduced royalty expense among others.

Segmental Performance

Net sales in the Housewares segment increased 10.7% to $246.1 million, driven by 10.6% growth in the organic business. The organic growth was backed by increased brick-and-mortar and online channel sales on higher consumer demand. Organic sales also benefited from earlier-than-usual orders from retailers as they accelerated orders in the third quarter to avoid the supply constraints during the holiday season. Also, higher consumer prices due to the elevated freight and product costs, increased sales in clubs and closeout channels and international sales growth aided the segment’s sales.

Net sales in the Health & Home segment dropped 18.5% to $203.9 million, thanks to an organic business decline of 18.3%. The soft year-over-year comparison was mainly due to higher COVID-19 related demand for healthcare and healthy living products in the prior-year quarter. Lower sales of air filtration, water filtration products due to the EPA packaging compliance concerns and associated stop shipment actions also affected the segment’s sales. This was partly negated by increased sales of humidification products and product launches.

Total net sales in the Beauty segment rose 5.9% to $174.8 million, reflecting strong core business sales growth of 15.3%, partly offset by the divestiture of the Non-Core North America Personal Care business. Core business sales growth was driven by higher appliance sales in both brick and mortar and online channel sales due to strong consumer demand. Also, earlier-than-usual orders from retailers to reduce the impacts of supply chain disruptions during the holiday season, product launches, higher international sales and expanded distribution in the club channel were drivers.

Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $44.3 million as well as a total short-and long-term debt of $447.5 million. Net cash used by operating activities for the nine months ended Nov 30, 2021 was $53.3 million.

In fiscal 2022, management expects to incur capital asset expenditures of $80-$110 million. This includes the envisioned initial expenses associated with the development of the previously announced new distribution facility for the Housewares unit.

Fiscal 2022 Guidance

Driven by the robust third-quarter fiscal 2022 results and the initial positive trends in the fiscal fourth quarter, management raised its top-and bottom-line view for fiscal 2022. The company anticipates consolidated net sales between $2.10 billion and $2.12 billion, suggesting flat to 1% year-over-year growth. Earlier, the company had expected the metric between 2.02 billion and $2.07, suggesting a year-over-year decline of 3.5% to 1.5%.

The company’s updated net sales view is based on the assumption that its Housewares segment net sales will grow 15-16% and the Beauty segment sales will increase 13-14%. Core Beauty segment sales are anticipated to increase in the range of 26-27%. Meanwhile, management expects Health & Home net sales to decline 19-20%, including a 6.7% decline due to the EPA matter.

Helen of Troy now envisions fiscal 2022 Core net sales in the band of $2.06-$2.08 billion, indicating a growth of 2-3%. Earlier, it envisioned Core net sales in the band of $1.99-$2.03 billion, indicating a decline of 1.5% to growth of 0.5%. Excluding the impact of the EPA matter, management expects Core net sales growth of 5-6% in fiscal 2022.

The company now expects consolidated adjusted earnings per share (EPS) in the range of $11.73-$11.93. Prior to this, the metric was expected in the range of $11.26-$11.56. Management expects Core adjusted EPS of $11.55-$11.75, implying growth of 4.7-6.5%, including a 2.7% impact from the EPA matter. Excluding the EPA matter, core EPS is expected to increase 7.4-9.2% year over year. The company projects year-over-year inflationary cost pressure of $55-$60 million for fiscal 2022.

Shares of this Zacks Rank #2 (Buy) company have gained 7.9% in the past six months against the industry’s 14.5% decline.

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Other Hot Consumer Staples Bets

Some other top-ranked stocks are Flower Foods FLO, United Natural Foods UNFI and Medifast MED.

Flower Foods, a producer of packaged bakery foods in the United States, currently sports a Zacks Rank #2 (Buy). Shares of Flower Foods have increased 17.4% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Flower Foods’ 2022 sales suggests growth of 1.9% from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of 15.4%, on average.

United Natural Foods, the leading distributor of natural, organic, and specialty food and non-food products in the United States and Canada, carries a Zacks Rank #2 at present. Shares of United Natural Foods have moved up 32.1% in the past six months.

The Zacks Consensus Estimate for United Natural Foods’ current financial-year sales and EPS suggests growth of 4.8% and 7.7%, respectively, from the year-ago reported number. UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.

Medifast, a manufacturer of healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank of 2. Shares of Medifast have declined 21.5% in the past six months.

The Zacks Consensus Estimate for Medifast’s 2022 sales and EPS suggests growth of 10% and 18.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 17.3%, on average.


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