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Helen of Troy (HELE) Q4 Earnings Top Estimates & Increase Y/Y

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·9-min read
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Helen of Troy Limited HELE posted fourth-quarter fiscal 2022 results, wherein the top and bottom lines grew year over year and surpassed the Zacks Consensus Estimate.

During the quarter, management renamed two of its segments to bring them in tandem with the growth in some particular product offerings and brands. Helen of Troy now reports under the Home & Outdoor, Health & Wellness and Beauty segments. The Home & Outdoor and Health & Wellness units were previously known as the Housewares and Health & Home segments, respectively.

Update on EPA

In July 2021, HELE revealed that it was in discussion with the U.S. Environmental Protection Agency (“EPA”) for the compliance of packaging claims on some of its products in the air and water filtration categories and some humidifier products in the Health & Wellness segment sold across the United States. In August 2021, the company notified that it largely resolved the matter by making some changes in product labeling and initiated the repackaging of the affected products. By the end of the fiscal third quarter, the company returned to normalized shipping activity for most of the affected products. That said, management remains in the process of repackaging the current affected products inventory.

Quarter in Detail

Adjusted earnings of $2.51 per share beat the Zacks Consensus Estimate of $1.73 and soared 59.9% year over year. The increase in adjusted earnings can be mainly attributed to the greater adjusted operating income in the Home & Outdoor and Health & Wellness segments and reduced shares outstanding. This was partly countered by the lower adjusted operating income in the Beauty segment, a higher effective tax rate and increased interest expenses.

Helen of Troy Limited Price, Consensus and EPS Surprise

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

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

Consolidated net sales advanced by 14.3% year over year to $582 million, which beat the consensus mark of $472 million. The upside was backed by higher organic business sales and contributions from the Osprey Packs or Osprey buyout. Organic business sales gained from the strength in brick and mortar and the online channel in the Home & Outdoor and Beauty units, mainly backed by solid demand, higher retailer orders, elevated sales to the club and closeout channels, increased consolidated international sales, elevated customer pricing and some favorable comparison with the year-ago period related to the Winter Storm. This was somewhat offset by reduced net sales revenues from the Non-Core business due to the sale of the North America Personal Care business and soft sales in the Health & Wellness unit due to the adverse comparison with the year-ago period’s pandemic-led higher demand.

The consolidated gross profit margin declined by 2.6 percentage points to 42.6%, mainly due to the adverse impact of cost inflation and a related spike in consumer pricing, EPA compliance costs, increased inventory obsolescence costs and an adverse channel mix in the Beauty segment. This was partly negated by a favorable brand mix in the Home & Outdoor segment and increased Home & Outdoor and Beauty sales in overall consolidated net sales revenues.

The adjusted operating income of $72.6 million increased 69.5% from the year-ago period. The adjusted operating margin rose 4.1 percentage points to 12.5%. Adjusted EBITDA surged 61.9% to $78.7 million.

Segmental Performance

Net sales in the Home & Outdoor segment increased 29.8% to $210.8 million, driven by the 15.2% growth in the organic business and the contributions of 15% from Osprey. The organic growth was backed by increased brick-and-mortar and online channel sales on higher consumer demand and all other factors that backed overall company organic sales.

Net sales in the Health & Wellness segment dropped by 0.4% to $227.6 million due to an organic business decline of 0.2%. The soft year-over-year comparison was mainly due to the higher pandemic-related demand for healthcare and healthy living products in the prior-year quarter. This was partly negated by the increased sales of humidification products and fans stemming from a spike in Omicron cases along with elevated pricing.

Total net sales in the Beauty segment rose 21.4% to $143.6 million, reflecting the strong core business sales growth of 31.5%, partly offset by the divestiture of the Non-Core North America Personal Care business (in the second quarter of fiscal 2022). Core business sales growth was driven by higher sales in brick and mortar and online channel sales due to strong consumer demand. Also, increased retailer orders, higher international sales and expanded distribution in the club channel were some of the drivers.

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Zacks Investment Research


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Other Financial Details

Helen of Troy ended the quarter with cash and cash equivalents of $33.4 million and a total short-and long-term debt of $813.2 million. Net cash used by operating activities for fiscal 2022 was $140.8 million.

In fiscal 2023, management expects to incur capital and intangible asset expenditures in the range of $180-$205 million.

Other Developments

Helen of Troy closed the buyout of Recipe Products Ltd. on Apr 22, 2022. The inclusion of this producer of innovative prestige hair care products for all hair types is likely to boost Helen of Troy’s portfolio and fuel growth.

On Mar 25, 2022, management concluded the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands. It now forms part of the company’s non-core business for all periods presented.

On Mar 30, 2022, a third-party facility (which is used by Helen of Troy for inventory storage) faced major damage due to a weather-related incident. The inventory at this facility is mainly related to the Health & Wellness and Beauty segments. Though the inventory is insured, the debacle may have an adverse impact on the company’s net sales revenues in the first half of fiscal 2023.

Fiscal 2023 Guidance

Due to the sale of most of the company’s Personal Care business in the second quarter and the remaining Latin America and Caribbean Personal Care businesses in March 2022, management is currently not anticipating any material activity associated with Non-Core businesses in fiscal 2023. Hence, the fiscal 2023 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.

The company anticipates consolidated net sales between $2.38 billion and $2.42 billion, implying consolidated growth of 6.8%-8.8% and a Core business increase of 8.5%-10.5%.

The company’s net sales view assumes Home & Outdoor net sales growth of 19-21%, including $180-$185 million sales from Osprey. Further, management expects Health & Wellness net sales growth of negative 1% to rise to the 1% range. Beauty Core business sales are anticipated to increase 4.5-7.5%, including sales worth $30-$35 million from Curlsmith.

The company expects consolidated adjusted earnings per share (EPS) in the range of $12.73-$13.03. This indicates the consolidated adjusted EPS advancement of 3.0%-5.4% and the Core adjusted EPS increase of 4.5%-7.0%. This includes 50-55 cents and 20-25 cents contributions from Osprey and Curlsmith, respectively. Management expects most of its net sales and adjusted EPS growth to be concentrated around the second and third quarters of fiscal 2023, mainly due to higher retailer orders in the fourth quarter of fiscal 2022, tough comparisons with the first and fourth quarters of fiscal 2022 and the adverse impact of the EPA matter on the second and third quarters of fiscal 2022.

The fiscal 2023 guidance assumes that the severity of the cough/cold/flu season will stay in line with pre-pandemic historical averages. It further expects currency exchange rates to remain constant at the April 2022 level for the entire year. Further, it includes the net favorable impacts of the EPA matter on net sales and adjusted EPS to the tune of around $10 million and 10 cents, respectively. The company projects increased after-tax inflationary cost pressure in the band of $75-$80 million for fiscal 2023. This implies the $3.10-$3.30 band of adjusted EPS.

Shares of this Zacks Rank #3 (Hold) company have rallied 5% in the past three months against the industry’s 17.9% decline.

Looking for Consumer Staple Stocks? Check These

Some better-ranked stocks are Sysco Corporation SYY, McCormick & Company MKC and Inter Parfums IPAR.

Sysco, which engages in the marketing and distribution of various food and related products, carries a Zacks Rank #2 (Buy) at present. Shares of Sysco have jumped 12.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and EPS suggests growth of 30.4% and 120.1%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 3.7%, on average.

McCormick, the manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2. Shares of McCormick have risen 2% in the past three months.

The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 1.3%, on average.

Inter Parfums, which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2. Shares of Inter Parfums have dropped 17.4% in the past three months.

The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 12.5% and 10.3%, respectively, from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 46.7%, on average.


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