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Helen of Troy (HELE -2%), a manufacturer of houseware, home, and beauty products, is pulling back today despite delivering a double-digit earnings beat and a narrower-than-expected sales decline of just 10.6% yr/yr in Q3 (Nov). HELE also raised its FY23 guidance, expecting adjusted EPS of $9.20-9.40, up $0.20 on the low end from prior guidance, and sales of $2.025-2.05 bln, up $0.025 bln from the low end of its previous forecast.

Despite these strong points, HELE's macroeconomic comments sparked some concerns. The company noted that consumption remains soft across some of its categories, and retailers continue to reduce orders as they work through their inventory. Also, adjusted operating margins dipped by 40 bps yr/yr to 16.6%. Meanwhile, in connection with HELE's restructuring plan, dubbed "Project Pegasus," the company plans to lay off approximately 10% of its global workforce as it changes its organizational structure.

Other minor details regarding Project Pegasus involve HELE combining its Beauty and Health & Wellness segments into one reportable segment referred to as Beauty & Wellness. The company is also creating a North America Regional Market Organization responsible for sales in all regional categories and channels. Lastly, HELE is enhancing its focus on certain functions under shared services, particularly in Operations and Finance.

Overall, the restructuring plan is estimated to result in the same benefits HELE outlined last quarter, including $75-85 mln in annualized savings beginning in FY24 (Feb), which should drive adjusted operating margin expansion.

Although these blemishes provide the kindling needed for shares of HELE to erase this week's gains, there were still some highlights from Q3 outside of strong headline numbers worth mentioning.

• Although HELE's Health & Wellness segment saw an 11.5% sales decline yr/yr, it still experienced some tailwinds powered by a marked increase in various viruses, leading to a strong sell-through of thermometers, humidifiers, and inhalants. As a result, HELE's major retailer customers quickly saw a reduction in inventory for these products. A similar story materialized internationally as well.
  • Furthermore, replenishment orders from retailers have been robust to start Q4 (Feb), leading HELE to forecast strong shipments of its cold and cost-related products.
• The Home & Outdoor segment also fell, declining 7.0%, driven by softening consumer demand. However, total POS for the OXO brand remains firmly ahead of pre-pandemic levels, underscoring a sturdier foundation HELE has continued to build off of since the pandemic.
• International sales were above expectations, climbing 15.3% yr/yr with notable strength in EMEA and Asia.

Bottom line, HELE's results did not pop, and commentary remains somewhat cautious. As many of HELE's products are discretionary, the near term remains hazy as inflationary pressures could continue dampening consumer sentiment. However, HELE's restructuring plan is progressing nicely, allowing the company to return to margin growth and rebuild market share for its most promising brands.