Helen Of Troy: A Beauty

| About: Helen of (HELE)

Summary

Helen of Troy Limited continues to be one of the most intriguing companies I have come across.

The stock is flat over the last few months but remains a name I like.

I discuss the just announced quarter and the implications for the name going forward.

Helen of Troy Limited (NASDAQ:HELE) continues to be one of the most intriguing companies I have come across. I was caught by the name, and first covered it, last summer. Since then the stock has ebbed and flowed, but the stock is still up 20% when I covered the name again this past winter. Over the last three months the stock is flat, but has traded up and down, allowing the long-term investor to cherry-pick some buys. This is a consumer goods company, a beauty company, and the name is fitting, as Helen of Troy was the daughter of Zeus and Leda, and was considered the most beautiful woman in the world. What I love is that not only is this an intriguing name, but the company is a beauty itself. What do I mean? Well it makes a killing and faces little direct competition. The stock has been anything but pretty, as it is trading flat in recent months and looks to start the day down today after reporting earnings last night.

I will say this. The company's recent performance has been strong, and the just reported quarter was decent as well. Net sales revenue grew to $347.84 million, up $2 million or 0.8% from last year's revenues. While this is positive news, these revenues missed analysts' estimates by $8.3 million. It is important to note however that foreign currency hit sales for about a 1.1% decline. Gross profit saw a widening however to 43.8%. This is up from the sequential quarter which saw a margin of 42.0%. It was also up nicely from the 41.5% gross profit margin in last year's comparable quarter.

Gross profit margin widened despite that fact expenses rose. The selling, general and administrative expenses were 35.1% of sales versus 32.9% of last year. The good news here despite the year-over-year rise was that expenses as a percentage of sales were down from the 37.1% of net sales in the sequential quarter. That said, operating income was down as well. It came in at $22.9 million. This is compared to operating income of $26.5 million in the same period last year, but was up from the operating income of $16 million last quarter.

While all of these metrics matter, and can move buyers and sellers, it ultimately comes down to earnings growth. The company delivered a strong bottom line beat of $0.15. That said, adjusted net income came in at $44.6 million or $1.27 per share, versus $38.4 million or $1.06 per share. The increase in adjusted income is reflective of sales growth, improved operating leverage, the impact of hyperinflation in Venezuela, and lower interest and tax expense. Julien R. Mininberg, chief executive officer, put these results in perspective:

"Our fiscal year is off to a solid start, with our first quarter results highlighted by increased net sales revenue, expansion in adjusted operating margin, and growth in adjusted earnings per share. These results were driven by solid progress on our key strategic priorities, which brought improvements in our gross profit margin as we benefitted from sales mix, SKU rationalization initiatives, the Hydro Flask acquisition and cost savings efforts. Our Housewares and Health & Home segments led the way during the quarter, with growth in revenues and profitability more than sufficient to offset softer sales in our Beauty and Nutritional Supplements segments. We believe this speaks to the strength of our diversified business model and the discipline with which we operate. Our Housewares segment net sales grew 29.8%, with the core business contributing 7.8%, and the newly acquired Hydro Flask business contributing 22% toward growth. Our Health & Home segment net sales grew 2.3%, even as we rationalized certain parts of that business to further improve profitability. While Beauty adjusted operating margin grew during the first quarter, sales in that segment performed below our expectations primarily due to slower replenishment orders from some key retailers as they adjusted their stocking patterns. Net sales and profitability for our Nutritional Supplements segment also showed a decline, as we continue to transition that business into new channels such as online and select specialty nutrition, reducing the dependency on legacy newsletter subscription and direct mail. Healthy Directions remains a leader in the industry and we continue to strategically invest in the long-term growth and profitability of this business."

I continue to really like this name long-term. I am a buyer if shares dip under $100. Ideally I would like to initiate a position below $95 if we see a broader market sell-off. There are a number of challenges that the company faces but I think they can meet expectations. I said before that I want confidence and expectations to be crushed. We are only partially seeing that here on the earnings front but the sales numbers are still a question. Looking ahead, the company still sees sales of $1.57 billion to $1.62 billion and adjusted earnings per share between $5.85 and $6.35. I will keep a hold rating, but if the stock dips to levels I like, I may pull the trigger.

Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "Follow." He also writes a lot of "breaking" articles, which are time-sensitive, actionable investing ideas. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.