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Helen of Troy (HELE) Q1 Earnings & Revenues Beat Estimates

Helen of Troy Limited HELE maintained its positive earnings streak for the eighth time with its first-quarter fiscal 2018 results. Further, the company’s top line also outpaced the estimates after two straight quarters of sales miss. Notably, both its earnings and sales witnessed year-over-year growth.

Positive earnings and sales history can be well reflected in the share price performance of the Zacks Rank #3 (Hold) company, which rallied 8.8% year to date. On the other hand, the Zacks categorized Cosmetics & Toiletries industry, which is currently placed at top 16% of the Zacks Classified industries (41 out of 256), advanced only 1.1%. Meanwhile, the broader Consumer Staples sector, which is currently placed at top 25% of the Zacks Classified sectors (4 out of 16), gained 7.6%.

Q1 Highlights

The company posted first-quarter earnings per share of $1.28 (including non-cash share-based compensation, net of tax) that outpaced the Zacks Consensus Estimate of $1.13 and also jumped 14.3% from the prior-year period. The upside was driven by strong sales growth, mainly in the company’s core business.

Helen of Troy Limited Price, Consensus and EPS Surprise

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

The designer and marketer of consumer products reported consolidated net sales of $359.6 million that increased 3.4% from the year-ago period. The company’s top line also outpaced the Zacks Consensus Estimate of $354 million by 1.6%. This year-over-year revenue growth can be attributed to a rise in core business net sales of 2.2% along with 1.8% increase from acquisitions, partly mitigated by 0.6% negative impact of currency.

Notably, the company’s core business growth was driven by product introductions, solid online growth, incremental distribution as well as rise in international sales. These were somewhat compensated with 12% decrease in the Nutritional Supplements segment and a decline in the personal care category within Beauty, coupled with sluggish retail traffic and soft consumer spending.

Further, the company’s consolidated gross profit increased 2.6% to $156.4 million in the quarter. However, gross margin slipped 0.3 percentage points (pp) to 43.5% versus 43.8% delivered in the year-ago quarter due to higher promotional spending and currency headwinds. Consolidated SG&A climbed 0.7 pp to 34.4% of net sales from the prior-year figure of 35.1%.

Moreover, the company recorded adjusted operating income of $42.6 million in the quarter that decreased 4.5% from the year-ago period. Operating margin came in at 11.9% versus 12.8% delivered in the year-ago quarter. This downturn was attributable to lower operating leverage in the Nutritional Supplements and Beauty segments, coupled with increase in marketing and new product development cost and currency headwinds.

Segment Details

Housewares: Sales in the Housewares category grew 16.3% from the year-ago period to $98.4 million, driven by core business sales growth and acquisitions. However, its adjusted operating margin slumped 0.2 pp year over year mainly owing to higher marketing, advertising and new product development expense as well as currency headwinds.

Health & Home: Sales in this category rose 3.4% to $150.3 million, owing to additional distribution as well as shelf space gains with existing customers, along with higher international sales. These were partially mitigated by lower sales in certain categories due to unseasonal weather and currency headwinds. Further, the segment’s adjusted operating margin inched up 1.0 pp owing to improved operating leverage, lower royalty expense, increased distribution and logistics efficiency coupled with lower outbound freight costs.

Beauty: Sales at this segment declined 1.4% to $79.3 million, due to sluggishness in the personal care category, partly compensated by professional appliance sales improvement. Also, its adjusted operating margin fell 4.2 pp due to lower sales in personal care and its negative impact on sales mix and operating leverage, higher marketing and advertising cost as well as currency headwinds.

Nutritional Supplements: Sales at the segment slipped 12% to $31.6 million, due to sales decline in auto delivery, particularly from the transition to new order management as well as customer relationship management systems. This was somewhat offset by a rise in direct mail, online and brick and mortar sales. Its adjusted operating loss was $0.6 million versus year-ago quarter’s operating income of $2.3 million. This fall was primarily due to lower sales and its unfavorable effect on operating leverage, and higher promotion, advertising and customer acquisition expenses, somewhat compensated with lower personnel cost.

Nevertheless, we note that management remains on track to formulate strategies like investments in online interface and eCommerce channels, divestiture or realignment programs and consolidating operations for its Nutritional Supplements segment. The strategies will improve the segment’s performance by generating higher sales and profitability over the long term. But for now, these alternatives are likely to have additional charges or losses.

Other Financial Update

Helen of Troy exited the fiscal first quarter with cash and cash equivalents of $16.5 million, total short- and long-term debt of $453.8 million and stockholders’ equity of $1,024.4 million.

On May 15, 2017, the board has announced a new share buyback program worth $400 million that replaces the earlier buyback program, of which $83 million was the outstanding balance.

Fiscal 2018 Guidance

Management remains impressed with the solid start in the fiscal year and reiterated its sales and adjusted earnings guidance for fiscal 2018. The company continues to project consolidated net sales in the $1.56–$1.60 billion range, which reflects sales growth of 1.5–4.1%. The sales projection assumes that June 2017 foreign currency exchange rates will remain constant for the balance of fiscal 2018 that is expected to unfavorably hurt year-over-year sales by roughly $3 million or 0.2 pp, as well as the severity of the cough/cold/flu season is estimated to remain in line with long-term historical averages.

Furthermore, management lowered its fiscal 2018 consolidated GAAP earnings in the range of $4.54–4.87 per share from $5.38–$5.71, guided earlier. Meanwhile, the company continues to project its adjusted earnings in the band of $6.50–$6.90 per share excluding after-tax asset impairment charges, share-based compensation expense as well as intangible asset amortization expense. Currently, the Zacks Consensus Estimate for the fiscal year is pegged lower at $6.28. Moving ahead, currency is likely to have a negative impact of roughly 7 cents per share.

Stocks to Consider

Better-ranked stocks in the same sector include Constellation Brands, Inc. STZ, B&G Foods, Inc. BGS and Enigizer Holdings, Inc. ENR all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Constellation Brands has an average positive earnings surprise of 11.7% for the past four quarters, with a long-term earnings growth rate of 18.2%.

B&G Foods generated an average positive earnings surprise of 2.1% over the trailing four quarters and has a long-term earnings growth rate of 10%.

Enigizer Holdings as an average positive earnings surprise of 21.6% over the trailing four quarters and has a long-term earnings growth rate of 9.8%

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