Shares of consumer product company Helen of Troy Limited(HELE) rose 12.2% after the company reported better than expected results in third quarter fiscal 2015 on Jan 8, 2015. It reported third-quarter fiscal 2015 adjusted earnings of $2.13, soaring 61.4% from the year-ago level. Earnings also surpassed Zacks Consensus estimate of $1.50 by 42%.
Earnings exclude non-cash share-based compensation and amortization of intangible assets and acquisition-related expenses. Including these, the company reported earnings of $1.92, 28% higher than the Zacks Consensus Estimate.
Revenues and Margins
The designer and marketer of consumer products reported revenues of $435.7 million, up 14.4% from the year-ago level as lower sales in Personal category was offset by higher sales in Houseware and Healthcare/Home environment. Sales, however, surpassed the Zacks Consensus Estimate of $415 million by nearly 5%.
Gross margin inflated 280 basis points to 41.6% backed by 290 basis points contribution by Helen of Troy’s recently added category Nutritional Supplement. Adjusted operating income went up 28% to $73.2 million due to lower selling, general and administrative expense ratio.
Segment Details
Helen of Troy started a new operational segment called Nutritional Supplement from the second quarter of fiscal 2015. Since then the company is operating through four segments – Housewares, Personal Care, Healthcare/Home environment and Nutritional Supplement.
Housewares: Sales in the Housewares category increased 15% to $86.0 million from the year-ago period backed by the OXO brand's strategy of expanding into adjacent categories. Categories such as tots reported year-over-year growth of 36%. The company also entered the cookware category during the quarter.
Personal Care: Sales in this category slipped 4.3% year over year to $134.2 million due to challenging retail environment primarily in the hair care solutions category where competition resulted in lower pricing, promotional discounts and loss of distribution.
Healthcare/Home Environment: This category gained 6.8% year over year to $177.0 million, backed by product innovations.
Nutritional Supplement: The company entered the nutritional supplement business in Sep 2014, with the takeover of Healthy Directions, LLC and its subsidiaries for a cash transaction of $195 million. The buyout attributed $38.5 million to third-quarter revenues.
Other Financial Details
In Sep 2014, Helen of Troy closed the acquisition of U.S.-based retailer and health publisher Healthy Directions, LLC and its subsidiaries for a cash transaction worth $195 million. Healthy Directions will continue to operate from Bethesda, MD under the current management team. This takeover will facilitate the company’s entry into the vitamins, minerals and supplements (VMS) category.
The Healthy Directions acquisition is expected to be accretive to revenues by more than 10% on an annualized basis and also affect cash flow, adjusted EBITDA and adjusted earnings per share positively. (Read: Helen of Troy Steps into Vitamin Supplements; to Buy Healthy Directions.)
Fiscal 2015 Outlook
The company expects sales in the range of $1.290 to $1.315 billion compared with $1.275 to $1.30 billion. Earnings per share are expected in the range of $5.01 to $5.11 up from $4.55 to $4.65 expected previously.
Helen of Troy expects to deliver sustainable organic growth by investing in human resource and innovation program, brand building advertising and improving its market position. The company is also focused on driving productivity and paying dividends, going ahead. However, it is apprehensive that product costs will remain high and the retail environment will continue to be difficult.
Helen of Troy currently has a Zacks Rank #2 (Buy).
Stocks to Consider
Another stock in the cosmetics sector worth considering includes Elizabeth Arden Inc. (RDEN) carrying a Zacks Rank #2 (Buy). Other stocks in the broader retail space include Brown Shoe Co. (BWS) and Dollar Stores Inc. (DLTR). While Brown Shoe sports a Zacks Rank #1 (Strong Buy), Dollar Stores has the same Zacks Rank as Elizabeth Arden.
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