Helen of Troy breaks out following top and bottom line beat

Helen of Troy (HELE) posted a better-than-expected Q2 earnings report with net sales of $474.2 million, which exceeded analyst estimates of $458.8 million, despite a 3.5% decline year-over-year. The company also reported adjusted diluted EPS of $1.21, outperforming the consensus estimate, although it was lower than the $1.74 reported in the prior-year quarter. Home & Outdoor segment revenue was a highlight, growing 0.8% year-over-year to $241.9 million, surpassing expectations of $225.4 million, driven by sales in insulated beverageware and international expansion. However, the Beauty & Wellness segment saw a 7.7% decline in sales, primarily due to reduced demand for hair appliances, air purifiers, and water filtration products.

Shares of HELE broke out following the release. The stock rallied from $62 to $77 before seeing some profit taking. Today's session low will mark a key level for daytraders who like to trade island patterns.

The company's gross profit margin decreased to 45.6% from 46.7%, primarily due to a less favorable product and customer mix in the Home & Outdoor segment and inventory obsolescence expenses. Operating margins also contracted significantly, with a GAAP operating margin of 7.3% compared to 9.5% in the prior year, driven by increased SG&A expenses related to brand reinvestment and inefficiencies in the Tennessee distribution facility. Despite these challenges, Helen of Troy managed to reduce its interest expenses slightly to $13.2 million, reflecting lower average borrowings.

Project Pegasus, the company's restructuring initiative, is progressing as planned, aiming to deliver savings between $26 million and $30 million. The program focuses on optimizing the brand portfolio, enhancing supply chain efficiency, and streamlining operations to improve cash flow and working capital. The initiative remains on track, with expectations to complete the restructuring by the end of fiscal 2025, as the company continues to report operational efficiencies from these efforts.

Helen of Troy reaffirmed its fiscal 2025 outlook, maintaining its guidance for consolidated net sales between $1.885 billion and $1.935 billion, with adjusted diluted EPS expected to range from $7.00 to $7.50. However, the company updated its free cash flow guidance, now projecting between $180 million and $200 million, down from its previous estimate of $200 million to $240 million. This adjustment reflects increased investments in growth initiatives and ongoing challenges in the current economic environment.

The Home & Outdoor segment showed resilience, with operating income slightly declining to $31.2 million, or 12.9% of segment net sales, impacted by higher marketing expenses and unfavorable product mix. In contrast, the Beauty & Wellness segment faced significant pressure, with operating income dropping to $3.7 million from $10.7 million, largely due to reduced sales in core categories and increased marketing expenditures. The outlook for Beauty & Wellness remains cautious, with expected net sales declines of 9.0% to 7.5%, reflecting ongoing challenges in consumer demand.

Guidance for the third quarter of fiscal 2025 includes a projected decline in net sales of 4.5% to 1% and an adjusted diluted EPS decrease of 10% to 3%. The company also anticipates its adjusted EBITDA to be in the range of $287 million to $297 million, indicating a year-over-year decline as it continues to reinvest savings from Project Pegasus into growth initiatives. Despite these pressures, the company remains optimistic about achieving its targeted efficiency levels by the end of the fiscal year.

CEO Noel Geoffroy expressed confidence in Helen of Troy's strategic direction, emphasizing progress in long-term initiatives to reset and revitalize the business. The company aims to strengthen its core brands, optimize marketing, and expand distribution despite macroeconomic headwinds. Geoffroy highlighted the early success of these efforts, which have led to improved brand fundamentals and increased value for stakeholders, positioning the company for long-term profitable growth.