Helen of Troy's Stock Down More Than 57% YTD: Here's Why

Helen of Troy Limited HELE is struggling with operational challenges, heightened macroeconomic uncertainty and a financially-strained consumer environment. HELE is grappling with high costs that are impacting its performance. Unimpressively, the company posted soft results in first-quarter fiscal 2025, following which it lowered its outlook for the fiscal 2025.

The Zacks Rank #5 (Strong Sell) company's shares have slumped 57.4% year to date against the industry's 32.8% decline. The stock has underperformed the Zacks Consumer Staple sector's appreciation of 6.2% during this time.

Let's delve deeper.

Lower Demand Dampens Performance

Helen of Troy is facing a tough macroeconomic environment with lower consumer and retailer demand. Consumers are prioritizing essentials over discretionary items, leading to a slowdown in sales for outdoor products, specialty and mass beauty items and other discretionary household goods like dry food storage. Retailers are tightening inventory management in response, which is heightening the company's exposure to market volatility and reducing clarity on order volumes and timing.

These factors put pressure on HELE's first-quarter fiscal 2025 results, with the top and the bottom line missing the Zacks Consensus Estimate and declining year over year. Quarterly net sales of $416.8 million fell 12.2%, mainly due to reduced sales of hair appliances and prestige hair care products in the Beauty & Wellness unit and lower demand for humidifiers. Quarterly adjusted earnings of 99 cents per share declined 49% due to reduced adjusted operating income and higher tax rates.

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High-Cost Environment

Helen of Troy has been struggling with rising selling, general and administrative (SG&A) expenses. In first-quarter fiscal 2025, the SG&A ratio expanded 560 basis points to 40.9%, driven by higher marketing costs, operational inefficiencies from automation issues at the Tennessee distribution facility, increased depreciation and rising health insurance and product liability expenses. This led to a 35.1% drop in adjusted operating income to $43 million and a 360-bps contraction in the adjusted operating margin to 10.3%, primarily due to increased marketing expenses and automation-related costs, among other reasons.

Road Ahead Seems Challenging

Considering the operational challenges, heightened macroeconomic uncertainty, a financially-stressed consumer base, increased promotional activity and stricter inventory management by retailers, management recently revised its fiscal 2025 forecast downward.

For the fiscal 2025, HELE anticipates consolidated net sales revenues in the range of $1.885-$1.935 billion, indicating a decline of 6% to 3.5% compared with the previous expectation of a 2% decline to 1% growth. This updated sales outlook reflects ongoing concerns about persistent inflation and persistent softness in consumer spending, particularly in certain discretionary product categories. The revised forecast considers anticipated challenges in operational performance at the Tennessee distribution facility, along with heightened macroeconomic uncertainty.

Adjusted earnings per share are now projected to range from $7.00 to $7.50, indicating a decline of 15.8% to 21.4% for the fiscal 2025. Previously, the metric was anticipated to be between $8.70 and $9.20.

Better-Ranked Staple Bets

The Chef's Warehouse CHEF, which distributes specialty food products, currently sports a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 33.7%, on average.

The Zacks Consensus Estimate for The Chef's Warehouse's current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.

Vital Farms VITL offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter earnings surprise of 82.5%, on average.

The Zacks Consensus Estimate for Vital Farms' current financial-year sales and earnings indicate growth of 26.3% and 88.1%, respectively, from the prior-year reported level.

Nomad Foods NOMD, carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.

The Zacks Consensus Estimate for Nomad Foods' current financial-year sales and earnings indicates growth of 4.3% and 11.5%, respectively, from the prior-year reported level.

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