Helen of Troy's Q3 2026 Earnings Call: Contradictions Emerge on Tariff Strategy, Financial Priorities, and Beauty Segment Outlook

Date of Call: Not specified

Financials Results

• Revenue: Consolidated net sales decreased 3.4% (organic net sales declined 10.8%)
• EPS: Adjusted EPS $1.71, in line with expectations
• Gross Margin: 46.9%, decreased 200 basis points YOY
• Operating Margin: 12.9%, decreased 370 basis points YOY

Guidance:

• Full year fiscal '26 net sales outlook tightened to $1.758B-$1.773B.
• Home & Outdoor net sales expected $812M-$819M; Beauty & Wellness expected $946M-$954M.
• Adjusted EPS lowered to $3.25-$3.75 range.
• Full year GAAP SG&A ratio expected 38%-40%.
• Full year adjusted effective tax rate expected 13.4%-14.7%.
• Year-end inventory expected $475M-$490M, including $39M incremental tariff costs.
• Expect margin pressure to persist in Q4 due to consumer trade down, promotion, pricing realization delays, and cautious retail behavior.
• Expect modest improvements in direct import orders and program shifts to warehouse replenishment.
• Tariff impact on operating income now less than $30M for full year, up from prior $20M expectation.

Business Commentary:

• Revenue and Profitability Trends:
• Helen of Troy Limited reported third quarter net sales in line with expectations, with an overall decline of 3.4%. Organic net sales declined by 10.8%.

• The decrease was due to tariff-related revenue disruptions, including paused or canceled direct import orders from China and changes in China market dynamics.

• Segment Performance:

• The Home and Outdoor segment experienced a decline of 6.7%, while the Beauty & Wellness segment saw a decrease of 0.5%. International sales fell by 8.1%.

• Declines in Home and Outdoor were due to softness in insulated beverage wear, lower online sales, and reduced closeout channel sales. Beauty & Wellness was impacted by lower international sales and pricing-related stop shipments.

• Tariff Impact and Mitigation:

• Gross unmitigated tariffs had a $31.3 million impact on gross profit year-to-date, with an expected full-year impact of $50 million to $55 million.

• Mitigation strategies included supplier diversification, SKU prioritization, cost reductions, and price increases, but some pricing realization was less than expected due to necessary stop shipments.

• Innovation and Brand Focus:

• Helen of Troy emphasized product innovation across brands like Osprey, Olive & June, and OXO, with new launches in fiscal '27 aimed at strengthening brand loyalty and consumer engagement.

• The focus is on restoring business growth through investments in brand building, storytelling, and commercial execution capabilities.

• Financial Outlook and Strategy:

• The company adjusted its full-year fiscal '26 outlook, tightening the revenue range to $1.758 billion to $1.773 billion and lowering adjusted EPS expectations to $3.25 to $3.75.
• The strategy involves shifting focus from cost reduction to revenue improvement, preserving investments in people, innovation, and brands to drive sustainable growth.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledged 'challenging external environment' and 'disappointing' results but expressed being 'encouraged by our Q3 progress' and 'renewed enthusiasm'. Stated 'full year results will not be the bottom' and 'we know much more improvement is needed' while highlighting investments in growth and innovation. Tone balances current difficulties with forward-looking optimism.

Q&A:

• Question from Rupesh Parikh (Oppenheimer & Company): Going back to some of the top line trends and the performance of your brands... where you are with the progress in turning around these brands?
  Response: Management is encouraged by strong 'green sheet' brands but acknowledges work is needed on underperforming categories like beverage wear and hair appliances, focusing on innovation, commercial execution, and resource allocation to create value.

• Question from Rupesh Parikh (Oppenheimer & Company): ...as you look at your earnings guidance this year, is there any way to say whether you believe that maybe that's the bottom in earnings power?
  Response: Focus is shifting from cost-cutting to revenue improvement to drive sustainable growth; near-term bottom-line pressure is expected as investments are made in innovation and brands, with operating leverage to come later.

• Question from Bob Labick (CJS Securities): Why was consumer-centric innovation deemphasized?... how long does that take to re- emphasize and translate into top line?
  Response: Attributed past issues to transitions and market misreads; now identifying 30-40% of portfolio with growth upside, expecting improvement in Q4 and greater acceleration in FY '27, but not a straight-line recovery.

• Question from Peter Grom (UBS): What are you seeing from a category standpoint... underlying demand trending? Could optimism on U.S. consumer (tax refunds) drive sequential improvement?
  Response: Brands with strong propositions continue to win; consumer resilience is tested by ongoing pricing. Some categories are growing, others shrinking, and response to inflation will be key, but no specific call on near-term improvement from exogenous factors.

• Question from Peter Grom (UBS): Can you speak to the moving pieces in Q4 outlook vs. prior... is this a one-time dynamic?
  Response: Q4 revision driven by pricing realization leakage, stop shipments, higher trade-down, less favorable mix, higher promotional expense, and inventory rebalancing; represents a strategic shift to revenue growth over cost reduction, with more investment planned for FY '27.

• Question from Susan Anderson (Canaccord Genuity): Are there certain underperforming areas you'll touch for innovation? What went wrong in Beauty & Wellness?
  Response: Innovation targeted at brands with upside; underperforming brands are in renovation phase. In Beauty, work includes reset and focus on strategic clarity, with improvement expected in FY '27 but more on stabilization than high growth.

• Question from Susan Anderson (Canaccord Genuity): How are you thinking about leverage longer term? Portfolio rationalization to help pay down debt?
  Response: Base plan focuses on tightening balance sheet (inventory reduction, consolidation) to generate cash for debt paydown; divestitures are considered but are distracting and require careful evaluation after growth strategy is solidified.

• Question from Olivia Tong Cheang (Raymond James): Based on innovations, do you find a revenue inflection in FY '27? What are incremental hits post-tariffs?
  Response: Tariff-related revenue disruption is stabilizing; focus is on recapturing lost revenue base first, then using operating leverage for margin expansion. Steady-state double-digit EBIT margins possible over time but dependent on revenue growth.

Contradiction Point 1

Tariff Impact and Mitigation Strategy

This represents a significant shift in the narrative around a major financial headwind. The focus has evolved from quantifying a massive, specific cost impact to a strategic story of revenue recovery and reinvestment, with less emphasis on the precise cost burden. This changes the perceived severity and nature of the challenge.

What incremental impacts should we consider once tariffs are fully reflected in the base by late spring? - Olivia Tong Cheang (Raymond James)

20260108-2026 Q3: Tariff-related revenue disruption is stabilizing... The company will reinvest tariff-related benefits (potential refunds) back into the business for steady growth. - Brian Grass(CFO)

Can you quantify the dollar amount of the 20-30% of tariff impacts not mitigated after cost savings? - Rupesh Parikh (Oppenheimer)

2025Q4: At current tariff rates... the estimated impact to fiscal 2026 is over $200 million. - Brian Grass(CFO)

Contradiction Point 2

Financial Priority and Investment Focus

This is a direct and material change in company strategy. The stated financial priority has shifted from a "cost-neutral" mitigation approach and cautious spending to an explicit strategy of prioritizing growth investments over cost reduction, even if it pressures short-term earnings. This signals a major change in capital allocation philosophy.

Does this year's earnings guidance represent the bottom of earnings power, and how does this inform expectations for next year? - Rupesh Parikh (Oppenheimer & Company)

20260108-2026 Q3: The focus is shifting from cost reduction to growth investments in innovation, brand building, and execution... The strategy is pivoting to revenue improvement first, which will drive better operating leverage in the long term, even if it pressures the bottom line in the short term. - George Uzzell(CEO), Brian Grass(CFO)

Do you have visibility into Q1 cost or margin trends? - Peter Grom (UBS)

2025Q4: The goal is to achieve cost-neutral production in new geographies... The company is being very cautious with spending in Q1 due to the expected revenue softness and broader macroeconomic uncertainty. - Brian Grass(CFO)

Contradiction Point 3

Portfolio Evaluation and Divestiture Strategy

This involves a notable evolution in strategic posture regarding asset management. The stance has moved from a firm declaration that all brands have promise with no immediate divestiture plans to explicitly considering the portfolio for fit and acknowledging that some brands are in a renovation phase, setting the stage for potential action.

Is portfolio optimization part of the recent review of the business? - Peter Grom (UBS)

20260108-2026 Q3: Portfolio evaluation is part of the strategic review... The company will also assess the overall portfolio for fit in the midterm/long term but has no specific divestiture plans to announce yet. - George Uzzell(CEO)

Are the Pegasus cost savings included in the 70-80% mitigation for fiscal 2027, considering diversification is largely complete? - Peter Grom (UBS)

2025Q4: Plan A is to tighten the balance sheet... to generate cash for debt paydown. Divestitures are considered but are distracting... The focus is first on executing the growth and balance sheet plan. - George Uzzell(CEO), Brian Grass(CFO)

Contradiction Point 4

Tariff Impact and Revenue Recovery Timeline

This represents a change in the expected timeline for financial recovery. The narrative shifts from a clear expectation that large transitory impacts (including tariffs) will dissipate in the near future, providing a growth building block, to a more protracted view that recapturing lost revenue is still a "work in process."

What incremental impacts should we expect once tariffs begin to affect the base in late spring? - Olivia Tong Cheang (Raymond James)

20260108-2026 Q3: Tariff-related revenue disruption is stabilizing, but fully recapturing the lost revenue base is still a work in process. - Brian Grass(CFO)

Is this guidance a sustainable earnings base for future growth? - Rupesh Parikh (Oppenheimer & Company)

2026Q2: they noted that there are large transitory impacts on revenue and expenses in fiscal 2026... that are expected to dissipate in the second half of 2026 and especially in fiscal 2027, providing a building block for future growth. - Brian Grass(CFO) and Tracy Schuerman(ACFO)

Contradiction Point 5

Beauty Category Performance and Outlook

This is a direct contradiction regarding the health of a key business segment. The characterization shifts from having an "exciting innovation pipeline to drive growth" to the segment needing stabilization and not expecting high growth, indicating a significant change in management's assessment of its core business.

What went wrong, and what steps are needed to turn around the liquid and fixture sides? - Susan Anderson (Canaccord Genuity)

20260108-2026 Q3: Beauty has work to do, expects stabilization in FY '27, not high growth. - George Uzzell(CEO)

Do you have a view on future growth opportunities in specific categories, such as Beauty & Wellness? - Susan Anderson (Canaccord Genuity)

2026Q2: Beauty is an area where the company believes there is opportunity and has an exciting innovation pipeline to drive growth within the category. - Brian Grass(CFO)