Helen of Troy's Q2 2026 Earnings Call: Contradictions Emerge on Pricing and Tariff Strategies, Portfolio Strategy, Retail Expansion, and Beauty Segment Performance

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: Net sales down 8.9% YOY
• EPS: $0.59 adjusted EPS, compared to $1.21 in the prior year
• Gross Margin: 44.2%, down 140 bps YOY
• Operating Margin: 6.2% adjusted, down 360 bps YOY

Guidance:

• FY26 net sales expected at $1.74B–$1.78B (-8.8% to -6.7% YOY)
• FY26 adjusted EPS expected at $3.75–$4.25 (-47.7% to -40.7% YOY)
• FY26: Home & Outdoor -11.8% to -9.7%; Beauty & Wellness -6.2% to -4%; Olive & June ~$130M–$137M total (incremental $109M–$112M)
• Q3 net sales $491M–$512M (-7.5% to -3.5%); adj. EPS $1.55–$1.80 (-41.9% to -32.6%)
• Q3: Home & Outdoor -12.8% to -8.7%; Beauty & Wellness -2.9% to +1%; Olive & June $36M–$39M
• FY26 adjusted tax rate 15%–16% (Q3: 22%–25%; Q4: 28%–31%)
• 2H SG&A ratio targeted at 34%–36%; inventory YE at ~$480M–$500M
• 2H margin pressure partly offset by pricing, cost actions, Project Pegasus

Business Commentary:

* Revenue and Financial Performance: - Helen of Troy reported weaker than expected net sales for the second quarter, with a decline of 8.9% compared to the previous year. - The company saw double-digit revenue growth in certain brands like Hot Tools and Curlsmith, but was affected by tariff-related revenue disruptions, which accounted for 30% of the organic revenue decline.

• Tariff Impact and Mitigation:
• Tariffs led to an increased cost of goods sold, with the company expecting a 25% to 30% cost increase from China tariffs by the end of fiscal 2026.

• Helen of Troy implemented various mitigation strategies, including supplier diversification, inventory management, and price increases, to offset tariff impacts.

• Segment Performance:

• The Beauty and Wellness segment experienced a decline of 18.2% in organic sales, primarily due to tariff-related disruptions and broader demand weakness.

• The Home and Outdoor segment saw a 13.7% decline in net sales, with 4 percentage points attributed to tariff-related disruptions and broader category weaknesses.

• Operational and Strategic Focus:

• Helen of Troy is focusing on improving operational effectiveness, such as realigning commercial structures and enhancing consumer engagement.
• The company is planning to strengthen its portfolio by focusing on brand relevance and innovation, with a long-term strategy aimed at restoring growth and enhancing shareholder value.

Sentiment Analysis:

• Management said results were “not at all satisfied,” but Q2 net sales and adjusted EPS were “at or above the high end of our outlook ranges.” They highlighted ongoing tariff headwinds and competitive pressures, yet issued FY26 and Q3 guidance, cited DTC growth (+15% YOY), and noted pricing actions largely in place by end of September.

Q&A:

• Question from Rupesh Parikh (Oppenheimer): How do you view the portfolio and potential divestitures, and is FY26 a reasonable base to grow from into FY27?
  Response: Too early to commit on divestitures; all brands have promise and are under review. FY26 reflects transitory headwinds; expect improvement in 2H and more relief into FY27.

• Question from Robert Labick (CJS Securities): What are the key steps to revitalize slower brands, and thoughts on leverage/covenants?
  Response: Refocus on consumer insights, innovation, and speed by simplifying decision-making; target ~2x leverage over time and likely secure temporary covenant relief with minimal structural interest cost changes.

• Question from Susan Anderson (Canaccord Genuity): Where are the biggest growth opportunities across categories, and how did key brands perform?
  Response: Prioritize fewer, high-impact initiatives and innovation across both segments before M&A; OXO and Osprey are strong, hydration is soft, and focus will rebuild category momentum.

• Question from Olivia Tong (Raymond James): Where will innovation focus, and how do you balance hydration discounting with turnaround plans and tariff mitigation?
  Response: Hydration pressure is mainly in tumblers; pivot to bottles and adjacencies while ensuring consistent price increases across retailers with conservative elasticity assumptions and ongoing supplier cost reductions.

• Question from Peter Grom (UBS): How much of recovery depends on volume stabilization, and what are you seeing in consumer/beauty trends?
  Response: Outlook assumes continued soft demand and conservative elasticity; tailwinds from retail inventory rebalancing and direct-import recovery; some beauty trade-down in specific categories, with innovation as the key driver.