A month has gone by since the last earnings report for Helen of Troy (HELE). Shares have lost about 12.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Helen of Troy due for a breakout? 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 Lags Q1 Earnings Estimates, Cuts FY25 View
Helen of Troy posted drab first-quarter fiscal 2025 results, with the top and the bottom line missing the Zacks Consensus Estimate and declining year over year. Management lowered its fiscal 2025 outlook.
Quarter in Detail
Adjusted earnings of 99 cents per share missed the Zacks Consensus Estimate of $1.59 and declined 49% year over year. The downside was due to reduced adjusted operating income and higher tax rates. These were somewhat countered by lower interest expense.
Consolidated net sales of $416.8 million missed the Zacks Consensus Estimate of $446.2 million. Also, the metric fell 12.2% from the year-ago quarter’s tally. This downtick was mainly caused by reduced sales of hair appliances and prestige hair care products in the Beauty & Wellness unit and lower demand for humidifiers. In the Home & Outdoor sector, the decline was primarily due to lower orders from retail customers and challenges related to shipping disruptions at the company's Tennessee distribution facility. The decline in net sales was partly mitigated by international expansion and increased sales of fans within the Beauty & Wellness category.
The consolidated gross profit margin expanded 330 bps to 48.7%. A favorable segment mix in the Home & Outdoor segment mainly drove the rise in consolidated gross profit margin. Lower year-over-year inventory obsolescence expenses and reduced commodity and product costs resulting from Project Pegasus initiatives contributed positively. However, these gains were partially mitigated by less favorable product and customer mixes within the segments and increased sales dilution from trade discounts, allowances and promotional activities in the Beauty & Wellness sector. We expected the gross profit margin to expand 100 bps to 46.4% in the fiscal first quarter.
The consolidated SG&A ratio increased 560 bps to 40.9%. The rise in such costs was mainly due to increased spending on marketing, additional costs and operational inefficiencies resulting from startup issues with automation at the Tennessee distribution facility, higher depreciation charges and unfavorable expenses related to health insurance and product liability. The downside in net sales led to less favorable operating leverage. Nevertheless, reduced expenses for share-based compensation offered some respite. Adjusted operating income declined 35.1% to $43 million, with the adjusted operating margin contracting 360 bps to 10.3%.
Segmental Performance
Net sales in the Home & Outdoor segment fell 8.6% to $198.5 million. The downtick was caused by reduced replenishment orders from retail customers, lower consumer demand, changes in consumer spending patterns, a global slowdown in outdoor packs and accessories, heightened competition in insulated beverageware and disruptions in shipping at the company's Tennessee distribution facility. These setbacks were somewhat mitigated by gains from new and expanded distribution channels, additional sales following the launch of the travel tumbler and an uptick in international sales.
Net sales in the Beauty & Wellness segment declined 15.2% to $218.4 million. The decline was mainly caused by reduced sales of hair appliances and prestige hair care products stemming from softer consumer demand, changes in consumer spending habits and increased competition. Shipping disruptions stemming from challenges with the Curlsmith system integration affected sales. Lower sales of humidifiers were primarily due to lower orders from retail customers following a milder illness season in 2023 and 2024. Increased sales dilution from trade discounts, allowances and promotional programs also contributed to the decline. There was a decrease in water filtration sales due to the expiration of a licensing agreement. Nevertheless, these challenges were partly balanced by an increase in fan sales. We expected Beauty & Wellness net sales to decline 12.8% to $224.6 million.
Other Details
Helen of Troy ended the quarter with cash and cash equivalents of $16.1 million and total short and long-term debt of $748.4 million. Net cash provided by operating activities for three months ended May 31, 2024, was $25.3 million. The free cash flow for the same period was $16.2 million.
Outlook
For the fiscal 2025, the company anticipates consolidated net sales revenues to range between $1.885 billion and $1.935 billion, indicating a decline of 6% to 3.5% compared with the previous expectation of a 2% decline to 1% growth. The company anticipates a 1-3% drop in net sales in the Home & Outdoor segment for the fiscal 2025. For the Beauty & Wellness segment, net sales are projected to decline 5-8% over the year. The company anticipates fiscal 2025 EPS to be between $4.69 and $5.45 compared with the previous range of $6.68-$7.45. Adjusted EPS are now projected to range from $7.00 to $7.50, indicating a decline of 15.8% to 21.4%. Previously, the metric was anticipated to be between $8.70 and $9.20. The company's revised outlook for adjusted EBITDA is now forecast at $287-$297 million, down from the previous range of $324-$331 million and suggesting a fall of 11.8-14.6%. The free cash flow is expected to be $220-$240 million. The net leverage ratio is anticipated to be between 1.60X and 1.50X. The company expects interest expenses between $44 million and $46 million.
For the second quarter of fiscal 2025, the company expects a decline in sales of 4-7%. Management expects a drop of 2.5% to growth of 1% in the second half of fiscal 2025. The company now anticipates a decline in adjusted EPS of 35-45% in the fiscal second quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -51.08% due to these changes.
VGM Scores
Currently, Helen of Troy has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 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 these revisions indicates a downward shift. It's no surprise Helen of Troy has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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