Helen of Troy (HELE) is trading higher this morning after reporting 1Q18 (May) earnings last night.
In case you're not familiar, Helen of Troy is a consumer products company with a wide variety of products. It has four business segments:
- Housewares (27% of MayQ revenue, 20.1% adj op mgn): This segment sells a range of consumer products for the home, including food prep tools, gadgets, storage containers, cleaning, organization, baby and toddler care products. Key brands include OXO, OXO Good Grips, OXO Soft Works, Hydro Flask etc.
- Health & Home (42% of MayQ revenue, 11.3% adj op mgn): This segment focuses on healthcare devices such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration systems; and small home appliances such as portable heaters, fans, air purifiers, and insect control devices. Key brands include Vicks, Braun, Honeywell, PUR, Febreze, Stinger, Duracraft, and SoftHeat.
- Nutritional Supplements (9% of MayQ revenue, 6.5% adj op mgn): This segment is a provider of branded vitamins, minerals and supplements. Key brands include Omega Q Plus Resveratrol, Omega Q Plus, Probiotic Advantage, Vision Essentials etc.
- Beauty (22% of MayQ revenue, 10.5% adj op mgn): This segment sells electric hair care, beauty care and wellness appliances; grooming tools and accessories; and liquid, solid- and powder-based personal care and grooming products. Key brands include Revlon, Vidal Sassoon, Dr. Scholl's, Toni&Guy, Sure, Pert Plus, Infusium 23, Brut, Ammens, Hot Tools, Bed Head, Karina, Sea Breeze, and Gold ‘N Hot.
You are probably reading some of these brands and saying to yourself you didn't know HELE owned them and actually you are correct, they don't. HELE makes a lot of products where they pay a license fee in order to put the brand owner's name on the product. This is done only in two of HELE's operating segments: Healthcare / Home Environment (licensed brands: Braun, Vicks, Honeywell, Febreze) and Personal Care (licensed brands: Revlon, Vidal Sassoon, Dr. Scholl's, Bed Head, Seabreeze).
While licensing brands is a big part of HELE's business, they also own a lot of brands themselves. Its Housewares segment is entirely made up of its own brand: OXO. Its OXO food prep tools and storage containers are quite popular. Bed, Bath & Beyond (BBBY) carries a lot of OXO products. In its Healthcare / Home Environment segment, HELE owns the PUR water filtration brand and makes a lot of products using that brand. Its Nutritional Supplements segment is entirely brand-owned. And its Personal Care segment owns a lot of brands including, Pert Plus, Sure, Brut, PRO Beauty Tools and Karina, among others. HELE turns the tables on a lot of these brands as it's a licensor of many of its own brands to other manufacturers.
HELE made a pretty large acquisition in March 2016 when it acquired Steel Technology, doing business as Hydro Flask. Hydro Flask makes high performance insulated stainless steel food and beverage containers for active lifestyles. The purchase price was approximately $209.3 mln in cash.
Turning to the MayQ earnings results, non-GAAP EPS rose 8% YoY to $1.37, which was higher than market expectations. Revenue rose 3.4% year/year to $359.6 mln, which was slightly above market expectations. In terms of guidance for FY18, HELE reaffirmed its prior non-GAAP EPS guidance of $6.50-6.90. It also reaffirmed prior revenue guidance of $1.56-1.60 bln. HELE saw some margin compression in the quarter as non-GAAP operating margin fell to 11.9% from 12.8% in the prior year period. Margins were impacted by lower operating leverage in the Nutritional Supplements and Beauty segments. Also, HELE spend more on advertising.
Overall, HELE says it was a solid start to the fiscal year. Core business sales were driven by successful new product introductions, online channel growth of over 30%, incremental distribution, and growth in international sales. The quarter was led by the Housewares segment, which increased sales by 16.3%, including growth in both Hydro Flask and OXO. Health & Home grew core business sales by 3.4% and improved its profitability.
In Beauty, core business sales declined 1.4%, which was better than expectations, as product innovation contributed to market share growth in the US. Nutritional Supplement revenue was down 12% due primarily to the transition to new systems. HELE says it's now past the majority of the system transition challenges and is encouraged by the progress with its omni-channel strategy.
In sum, the stock has been trading sideways in a fairly narrow range of $90-98 since the beginning of 2017. With brick-and-mortar retail struggling to deal with online competition, that has hurt HELE's business to some degree. However, the company has been working on an omni-channel strategy to help in that regard. Also, HELE has done a good job in terms of new product introductions.