Strong Brands Aid Helen of Troy, Macro Headwinds Hurt

Helen of Troy Limited HELE is focusing on its Leadership Brands, emphasizing innovation and improving distribution channels. Initiatives such as Project Pegasus aim to increase efficiency and reduce costs. However, the company continues to encounter challenges such as economic volatility, inflationary pressures and changes in consumer spending patterns.
Let's delve deeper.

Strong Leadership Brands

The Zacks Rank #3 (Hold) company is focused on making solid investments in its Leadership Brands, which is a portfolio of market-leading brands. Brands in this portfolio, including OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar and Osprey, are positioned to enhance market share. These brands account for a significant chunk of the company's sales, which generate solid margins and volumes.
In fourth-quarter fiscal 2024, the company's leadership brand sales inched up 1% year over year to $418.9 million. Management highlighted that performance for its brands like OXO, Hydro Flask, Osprey, Drybar and Braun remained impressive in the quarter. Continued investments in these top-performing brands are expected to yield strong and consistent results.

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Strategic Growth Endeavors

Helen of Troy is focused on investing in consumer-centric innovation, digital marketing and media, new packaging, enhanced production and distribution capacity, as well as direct-to-consumer channels, among others. In October 2023, management unveiled Elevate for Growth, a six-year strategic plan representing a significant pivot. It is a transformative strategy, prioritizing innovative portfolio management, incremental investment in brands and capabilities and exploration of distribution avenues. This comprehensive approach is designed to ensure the achievement of the company's goals in the fiscal 2025 and beyond.

Project Pegasus: Another Growth Driver

Helen of Troy is actively developing a global restructuring plan known as Project Pegasus. The plan seeks to bolster operating margins through initiatives aimed at enhancing efficiency and reducing costs. Project Pegasus encompasses strategies to optimize the company's brand portfolio, streamline organizational structures, expand cost-saving projects and enhance supply chain efficiency. By optimizing indirect spending and improving cash flow and working capital, the project aims to drive sustainable growth. As part of Project Pegasus, management expects to achieve annualized pre-tax operating profit improvements of $75-85 million over time.

Macro-Economic Headwinds Dent Outlook

HELE is facing declines due to consumer spending pressures and uncertainties in discretionary sectors. Persistent inflation, rising interest rates and reduced household savings are prompting cautious spending behaviors. Concerns also arise from lowered growth forecasts from certain retailers.
In the fiscal 2025, the company expects consolidated net sales to range from $1.965-$2.025 billion, indicating a decline of 2% to growth of 1%. This considers ongoing inflation and restrained consumer spending on non-essential items. Adjusted earnings per share are forecast between $8.70 and $9.20, possibly declining by up to 2.4% or increasing by up to 3.3%.
In first-quarter fiscal 2025, the company anticipates a sales decline of 7% to 5%. The first half of the year is expected to witness a slight decline in adjusted EPS, with a drop of 15% to 20% in the fiscal first quarter, nearly balanced by growth in the second quarter.
That being said, the company's focus on the upsides mentioned above is likely to offer some respite.
HELE's shares have moved down 12.2% in the past three months compared with the industry's decline of 13.8%.

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