Helen of Troy (HELE, Financial) dropped 30% to decade lows after Q1 (May) results revealed significant economic challenges. The personal care and houseware product manufacturer faced wide earnings and revenue misses, alongside slashed FY25 (Feb) guidance, due to persistent inflation and weak discretionary spending.
Despite owning brands like Oxo and Vicks, most of HELE's products are non-essential, making them vulnerable to reduced consumer spending. HELE also faces stiff competition from name brands and private labels, and relies heavily on third-party retailers like Amazon (AMZN, Financial), Walmart (WMT, Financial), and Target (TGT, Financial), which account for 40% of FY24 revenue. These retailers prominently display competitors' products, potentially driving consumers towards cheaper alternatives.
- HELE's Q1 report was disappointing, with adjusted EPS at $0.99, marking its first earnings miss in five years. This was despite being in the midst of a restructuring plan, Project Pegasus, aiming for annualized operating profit improvements of $75-85 million by FY27, with 35% of savings expected in FY25.
- Sales dropped 12.2% year-over-year to $416.8 million, significantly impacting the bottom line. The Beauty & Wellness segment was the main drag, followed by Home & Outdoor. Hair products underperformed, similar to peers like Ulta Beauty (ULTA, Financial) and L'Oreal (LRLCY, Financial). Lower replenishment orders from retailers also affected the Home segment, with supply issues playing a role.
- Management expressed disappointment and announced immediate actions to reset the business, initiating two restructuring programs. Despite weak demand dynamics, this reset led to a slashed FY25 EPS outlook of $7.00-7.50, down from the initial $8.70-9.20 forecast.
- Persistent economic headwinds resulted in a reduced sales estimate of $1.89-1.94 billion, down from $1.965-2.025 billion. Segment growth targets were also revised, with Home & Outdoor now expected to decline by 1.0-3.0%, and Beauty & Wellness sales projected to fall by up to 8.0%.
HELE's Q1 report highlights the impact of inflation and other economic challenges. Despite disinflationary trends, prolonged high prices have forced consumers to cut back on spending. With shares now at 2014 levels, the sell-off may seem excessive, but investors will likely wait for a few quarters of recovery before regaining confidence in HELE's restructuring efforts.
