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HELE Posts Q3 Results, Narrows FY24 Outlook; Can it Squeeze Higher?

AInvestMonday, Jan 8, 2024 8:47 am ET
2min read

Helen of Troys Q3 earnings report displays a notable performance, with adjusted EPS of $2.79 beating both the year-ago figure of $2.75 and analyst estimates of $2.75. Although net sales revenue experienced a slight decline of 1.6% year-over-year to $549.6 million, it still surpassed estimates of $541 million. 

The company overcame challenges in the Beauty & Wellness segment due to softer consumer demand and SKU rationalization efforts, offset by stronger consumer demand in the Home & Outdoor segment and increased online channel sales. 

Despite the decline in sales, the company achieved a significant gross profit margin expansion of 210 basis points to 48.0%, primarily driven by lower inbound freight costs, favorable SKU rationalization efforts, and a more favorable customer mix within Home & Outdoor. 

Looking ahead to fiscal 2024, Helen of Troy maintains a positive outlook but has narrowed its consolidated net sales revenue guidance to $1.975 billion to $2.0 billion, implying a decline of 4.7% to 3.5% compared to the previous guidance. The revision considers continued pressure and uncertainty on consumer spending, especially in discretionary categories, a lower-than-usual incidence of illness, and softer-than-expected holiday sales. Despite these factors, the company believes that retail inventory levels are healthy and expects a closer alignment between sell-in and sell-through for the remainder of fiscal 2024. 

In the Home & Outdoor segment, Helen of Troy projects a net sales decline ranging from 1.5% to 0.5%, compared to the previous projection of a decline between 1.7% and growth of 1.0%. The Beauty & Wellness segment is expected to face a net sales decline ranging from 7.5% to 5.9%, compared to the previous projection of a decline between 8.0% and 5.8%. 

Noel M. Geoffroy, the current Chief Operating Officer and incoming Chief Executive Officer, expressed his satisfaction with the third-quarter results. The companys gross margin expansion, expense control measures, and strong cash flow generation highlight its ability to navigate challenges successfully. Additionally, Helen of Troys Project Pegasus, aimed at achieving $20 million in fiscal 2024 savings, is on track. These strategic initiatives, combined with strong cash flow, position the company for continued growth and shareholder value creation". 

The stock slipped 5% last week as it was caught up in the broad market sell off. It has recovered the 20-sma ($118) in early trade following the release of its Q3 results. The report was fine as it beat both the top and bottom-line expectations. The narrowed guidance in a tough environment is also encouraging as it suggests that business remains steady and has not fallen off a cliff. 

The most interesting aspect of this stock is the make up as HELE's small float of 23.5 million shares and high short interest of 17.4%. This could create some additional volatility for the stock. If we see shares hold the 20-sma and the indices bounce, then this could set up for a nice short squeeze in intraday trade. 

Helen of Troys Q3 earnings report demonstrates solid financial results despite market challenges. The companys ability to expand gross profit margins and control expenses showcases operational efficiency and resilience. While some product categories faced headwinds, the companys strategic initiatives and positive outlook for fiscal 2024 bring optimism. 

Note: This analysis is based on publicly available information and does not constitute financial advice. Investors and readers are encouraged to conduct their own research and consult with professionals before making any investment decisions.

$HELE(HELE)

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