Helen of Troy's (HELE) Leadership Brands Aid, High Costs Ail
Helen of Troy Limited HELE is benefiting from strength in its Leadership Brands. The leading consumer products player's focus on strategic growth efforts is yielding. That being said, Helen of Troy is reeling under global supply-chain disruption and elevated cost inflation.
Let's take a closer look.
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What's Working for Helen of Troy?
Helen of Troy is focused on making solid investments in its Leadership Brands, which is a portfolio of market-leading brands. Brands in the portfolio, including OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, Hot Tools and Drybar, are positioned well to enhance market share. These brands account for a significant chunk of the company's sales, which generate solid margins and volumes. The company's constant investments in these productive brands have been delivering robust results. In December 2021, Helen of Troy concluded the buyout of Osprey Packs, Inc worth $414.7 million. The buyout marks the company's ninth Leadership Brand and will fuel further growth. On its last reported quarter's earnings call, management highlighted that it expects Osprey to be already accretive to almost each key consolidated financial metric.
During the third quarter of fiscal 2022, Drybar and Hot Tools product lines performed well. OXO and Hydro Flask witnessed robust organic growth across the domestic and international regions. Solid demand in Drybar and Hot Tools contributed significantly to growth in the Beauty category. As part of its strategy to focus on Leadership Brands, the company divested its mass-market Personal Care business (excluding the Latin America and Caribbean regions) to HRB Brands LLC on Jun 8, 2021.
Helen of Troy is making major investments in key areas to continue driving growth. To this end, the company is focused on investing in consumer-centric innovation, digital marketing and media, new packaging, enhanced production and distribution capacity as well as direct-to-consumer channels, among others. Management continues to invest in key growth areas as part of its Phase II Transformation efforts. In an attempt to stay focused on the plan, Helen of Troy finalized a land purchase in Gallaway, TN, to construct a state-of-the-art distribution center. The highly-automated under construction 2-million square foot facility will enhance the company's Housewares portfolio. Growing the company's international business is also an integral part of its Phase II transformation plan.
Hurdles on Way
In the third quarter of fiscal 2022, Helen of Troy's consolidated gross profit margin declined 1.3 percentage points to 43.8% mainly due to the adverse impacts of the increases in inbound freight and a related spike in consumer pricing, the U.S. Environmental Protection Agency's (the "EPA") compliance costs and a slightly adverse channel mix in the Housewares segment. Adjusted consolidated operating margin contracted 60 basis points to 17%, mainly caused by higher inbound freight expenses and related price increases, elevated distribution costs, increased personnel expenses, unfavorable operating leverage and EPA compliance costs, among other reasons. Management projects year-over-year inflationary cost pressure of $55-$60 million for fiscal 2022.
Focus on the aforementioned upsides is likely to help this Zacks Rank #3 (Hold) company to stay afloat amid such hurdles. Helen of Troy's shares have dropped 15.2% in the past three months compared with the industry's 22.9% decline.