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Consumer products company Helen of Troy (HELE) had some blemishes in its 3Q25 earnings report, causing its stock to sink sharply lower, continuing a steep downward slide that has seen shares tumble by 25% since the beginning of December. Although HELE surpassed EPS expectations for the second quarter in a row -- following a huge miss in 1Q25 -- revenue fell just short of expectations and the company slightly adjusted its FY25 sales outlook lower. Similar to recent past quarters, soft consumer spending trends due to lingering inflation and a more promotional retail environment pressured sales, especially in the Beauty & Wellness segment.

• After declining by about 8% last quarter, sales in Beauty & Wellness fell by over 9% yr/yr in Q3 to $284.6 mln. The segment, which owns brands such as Vicks, Revlon, Braun, and Hot Tools, was negatively impacted by a weak winter and illness season, as well as soft consumer demand for hair appliances. HELE characterized the illness season as the weakest in the U.S. in the past eight years (not including the COVID years of 2020 and 2021), hurting sales of its Vicks products.
• HELE is hopeful that its recent $240 mln acquisition of Olive & June, a nail care brand, will provide a much-needed boost to its struggling Beauty & Wellness segment. For FY25, the company expects Olive & June to contribute about $17-$18 mln in high-margin sales that add to adjusted EPS.
• The news is more upbeat in the Home & Outdoors segment, where revenue increased by 4.3% to $246.1 mln, bolstered by ongoing strength in Hydro Flask insulated beverageware products. An expanded assortment of Hydro Flask products at Costo (COST) is helping the cause, while the segment also continues to experience strong international sales.
• An encouraging sign is that adjusted operating margin has stabilized and improved, expanding by 30 bps yr/yr to 16.6%, following a 270 bps drop last quarter to 15.0%. This improvement is mainly a function of HELE's "Project Pegasus" restructuring plan that it initiated in October 2022. The restructuring initiative, which aims to expand operating margins by optimizing the brand portfolio, streamlining the company, and accelerating cost of goods savings projects, is on track to deliver savings of $26-$30 mln by the end of FY25.

The main takeaway is that business conditions remain mixed-at-best for HELE as the slowdown in discretionary spending continues to provide a stiff headwind in the Beauty & Wellness segment. There are some bright spots, most notably including the Hydro Flask brand, but the stock will likely remain grounded until the Beauty & Wellness segment shows signs of a meaningful turnaround.