Helen of Troy (HELE) Benefits From Brand Strength & Project Pegasus

Solid investments in its Leadership Brands have been working well for Helen of Troy Limited HELE. The leading consumer products player is on track with Project Pegasus, which aims to expand operating margins via improved efficiency and lower costs. HELE is benefiting from growth endeavors, including consumer-centric innovation. That being said, the company is not immune to inflationary headwinds.

Let’s delve deeper.

Focus on Leadership Brands

The Zacks Rank #3 (Hold) company benefits from its focus on a solid Leadership Brand portfolio. Brands in this portfolio, including OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar and Osprey, are positioned to enhance market share. Helen of Troy’s constant investments in the most productive brands have delivered robust results. In the third quarter of fiscal 2024, the company’s leadership brand sales moved up 1.4% year over year to $457.7 million. Management highlighted that holiday performance for its brands like Osprey, OXO and Hydro Flask remained impressive.

Project Pegasus

Helen of Troy is focused on developing a global restructuring plan, Project Pegasus. The plan aims to expand operating margins via initiatives designed to improve efficiency and reduce costs. Project Pegasus includes efforts to optimize the company’s brand portfolio, streamline and simplify the organization, grow the cost of goods savings projects and improve the efficiency of the supply-chain network. The project aims to streamline indirect spending and improve cash flow and working capital.

Project Pegasus is progressing well and is on track as the company continues executing and delivering its strategic and financial targets. Management expects to achieve average annual growth rates of 3-4% for net sales, a 30-40 basis points adjusted EBITDA margin expansion and at least 10% adjusted earnings per share (EPS) growth. It expects to generate annualized pre-tax operating profit improvements of $75-85 million to be substantially generated by the end of the fiscal 2026.

Strategic Initiatives on Track

Helen of Troy is making major investments in key areas to continue driving growth. The company is focused on investing in consumer-centric innovation, digital marketing and media, new packaging, enhanced production and distribution capacity and direct-to-consumer channels, among others. Management is on track with the multi-year Elevate for Growth strategic plan. In this regard, it is sharpening its brand equity to focus on target consumers and brand positioning. Expanding the international business is also an integral part.

Is All Rosy for Helen of Troy?

Helen of Troy is battling declines pressured by ongoing consumer spending pressure and uncertainties in discretionary categories. Persistent inflation and lower levels of household savings are causing people to be prudent with their money. Moreover, lower illness incidences compared with the pre-pandemic period’s levels and lower-than-anticipated holiday sales are a concern. In addition, increased annual incentive compensation, depreciation and interest expenses are causing these downsides.

Management anticipates fiscal 2024 consolidated net sales revenues in the range of $1.975-$2 billion, representing a decline of 4.7% to 3.5%. For fiscal 2024, non-GAAP adjusted earnings per share is envisioned in the range of $8.60-$8.85, suggesting a decline of 9-6.3%. That being said, efforts to grow its Leadership Brands and other strategic initiatives are likely to aid growth.

The company’s shares have increased 16.8% in the past three months compared with the industry’s growth of 47.4%.

Top 3 Stocks

Some better-ranked stocks from the broader Consumer Staples space are Inter Parfums IPAR, e.l.f. Beauty ELF and Lamb Weston Holdings, Inc. LW.

Inter Parfums currently carries a Zacks Rank #2 (Buy). IPAR has a trailing four-quarter earnings surprise of 45.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings suggests growth of 21.6% and 20.4%, respectively, from the year-ago reported numbers.

e.l.f. Beauty has a Zacks Rank #2. ELF has a trailing four-quarter earnings surprise of 69.2%, on average.

The Zacks Consensus Estimate for e.l.f. Beauty’s current financial-year sales and earnings suggest growth of 71.6% and 83.1%, respectively, from the year-ago reported numbers.

Lamb Weston is a leading global manufacturer, marketer and distributor of value-added frozen potato products. LW currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggest growth of 28.3% and 26.9%, respectively, from the year-ago reported numbers. LW has a trailing four-quarter average earnings surprise of 28.8%.

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