November 24, 2020

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4 Reasons Why Helen of Troy Appears to be a Lucrative Stock

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While the outbreak of COVID-19 has crumbled several businesses, many companies in the consumer staples...

While the outbreak of COVID-19 has crumbled several businesses, many companies in the consumer staples space appear to be on firm grounds. One such consumer staple player benefiting from such trends is Helen of Troy Limited HELE, with its shares up as much as 40.6% in the past three months compared with the industry’s growth of 18.7%. The company’s Health and Home segment has been benefiting from consumers’ rising demand due to the pandemic.

In fact, this was witnessed in the company’s recently reported first-quarter fiscal 2021 results, wherein both top and bottom lines increased year over year and beat the Zacks Consensus Estimate.

Apart from the rising COVID-19-induced demand, Helen of Troy has been gaining from its robust strategic endeavors. Notably, the Zacks Consensus Estimate for fiscal 2021 earnings has gone up 14.2% in the past seven days to $9.73. Let’s delve deeper into the factors working well for this Zacks Rank #1 (Strong Buy) company, which also has a long-term growth rate of 6.5% and a VGM Score of B.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy Limited Price, Consensus and EPS Surprise

Helen of Troy Limited Price, Consensus and EPS Surprise

Helen of Troy Limited price-consensus-eps-surprise-chart | Helen of Troy Limited Quote

COVID-19-Induced Demand Aids Health & Home Unit

Results in the first quarter largely gained from strength in the Health and Home unit, thanks to higher demand amid the pandemic. Also, solid online sales and contributions from Drybar Products’ acquisition were drivers. Adjusted earnings grew 22.8% year over year to $2.53 per share, easily surpassing the Zacks Consensus Estimate of $1.57. Higher operating income in the Health and Home segment was the key driver. Further, net sales advanced 11.8% year over year to $420.8 million, beating the consensus mark of $369.3 million. The year-over-year upside was driven by 11.1% organic sales growth and gains from the acquisition of Drybar Products. Notably, organic sales growth was backed by brick and mortar strength in domestic as well as international sales in the Health and Home unit along with solid online sales.

Net sales in the Health & Home segment advanced 29.1%, thanks to Organic business growth of 30.2%. Organic sales were backed by burgeoning demand for healthy living and healthcare products across domestic and international markets, both in stores and online. The store closure impact was lesser in this segment as core retail giants like Walmart WMT, Target TGT and Amazon AMZN, to name a few, and the drug store channel remained operational and saw high traffic. These factors were partially offset by an unfavorable currency movement as well as the impact of net distribution changes. Encouragingly, management noted that growth at OXO continued in the second quarter of fiscal 2021. Also, sales at Hydro Flask improved strongly since early May via robust online growth and gradual customer store reopenings.

Strength in Leadership Brands

Helen of Troy has been focused on making solid investments in its “Leadership Brands,” which is a portfolio of market-leading brands. The company’s constant investments in these brands that are considered most productive have been delivering robust results. The company made another move in this direction, when it acquired Drybar Products in January 2020, which has been yielding results. During the first quarter of fiscal 2021, sales from the company’s eight Leadership Brands grew 15.7%, largely driven by double-digit improvements in all Health & Home leadership brands. We note that, as part of its strategy of maintaining focus on Leadership Brands, the company had decided to divest some assets from its mass-market personal care business (Personal Care) during the fourth quarter of fiscal 2020.  The company expects the divestiture to close in fiscal 2021.

Robust Online Business

Helen of Troy is also likely to keep gaining from its consistent online sales and digital marketing efforts. Notably, online sales advanced 33% year over year in the first quarter of fiscal 2021 and contributed 28% to the company’s top line, up from around 24% in the preceding quarter. Management remains on track to make continued investments in this arena, in an attempt to keep pace with the evolving consumer environment. In fact, the company is persistently augmenting its digital presence through sophisticated marketing plans and improved content. The company stated that online development has been a key area of focus for its transformation plan — both Phase 1 and 2.

Transformation Plan Looks Solid

Apart from this, the company concluded Phase I of its multi-year transformation plan and is on track with Phase II, which is expected to drive growth for the next five years. Phase II of the plan includes continued investments in Leadership Brands, with plans to grow the same through customer-friendly innovation, international expansion and acquisitions. In this context, the company recently completed the acquisition of Drybar Products LLC, which is strengthening the Beauty segment. Also, the company aims to enhance its operating efficiency and shared service facility. Long-term goals of Helen of Troy’s transformation plan include better organic sales growth, continued margin expansion and efficient capital allocation.

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Helen of Troy Limited (HELE) : Free Stock Analysis Report
 
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