Helen of Troy Beats Earnings, Lowers View - Analyst Blog

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Helen of Troy Limited (HELE), posted better-than-expected earnings of 82 cents per share in the first quarter of fiscal 2014, breezing past the Zacks Consensus Estimate of 69 cents by 18.8% and the prior-year earnings of 74 cents by 10.8%. The upswing in the results was due to higher sales and product innovation.

During the quarter, total sales increased 1.4% year over year to $304.5 million. The increase driven by sales increase in Housewares and Healthcare/Home Environment segments. Total sales, however, lagged the Zacks Consensus Estimate of $310 million.

Gross margin shrank 90 basis points (bps) to 39.5% due to increased promotional expenses, higher product cost across all segments. Operating income climbed 4.9% to $32.7 million backed by tight expense management. Operating margin increased 30 bps to 10.7%, driven by lower selling, general and administrative (SG&A) expenses.

Segment Details

Housewares: Sales in the Housewares category climbed 5.4% to $63.5 million compared with the previous-year period, reflecting double-digit organic sales growth due to the addition of new products under the OXO brand, expanded shelf space at key retailers and new customer distribution.

Personal Care: Sales in this category declined marginally by 1.8% to $115.4 million in the quarter. Soft results in the domestic retail appliance and grooming, skin care and hair care solution product categories offset improvement in professional appliance, brushes, combs and accessory in international markets.

Healthcare Environment: This category witnessed the highest sales growth with an increase of 2.6% to $125.6 million in the reported quarter, reflecting gains in the water filtration category.

Other Financial Details

Cash and cash equivalents at the end of the first quarter of fiscal 2014 stood at $12.1 million compared to $12! .8 million in the prior quarter. Total debt stood at $224.8 million compared to $324.7 million in the prior quarter.

Outlook

Despite strong first-quarter earnings, Helen of Troy expects higher product costs in the coming quarters. Therefore, the company lowered its earnings guidance for fiscal 2014 to the range of $3.13 to $3.23 from previously announced range of $3.50 to $3.60 per share. The company, however, maintained its fiscal 2014 net sales guidance range of $1.29 billion to $1.32 billion. Helen of Troy holds a Zacks Rank #5 (Strong Sell).

Other Stocks to Consider

Others players in the same industry which look attractive at the current levels include Flower Foods Inc. (FLO) and Restoration Hardware (RH), both carrying a Zacks Rank #1 (Strong Buy) and Fortune Brands Inc. (FBHS) which carries a Zacks Rank #2 (Buy).