Helen Of Troy Is What We Fear Most About Q2 Earnings

Helen Of Troy Beats Consensus But Guides Lower 

Helen of Troy (NASDAQ: HELE) had a strong quarter in Q2 but the results and guidance are what we fear most about the Q2 earnings reporting cycle. Not only were the results boosted by businesses and consumers trying to front-run inflation but the guidance is terrifying. Execs at Helen of Troy noted a marked shift in consumer and wholesale trends that led to a significant reduction in the guidance. Multiply these results across the broad market and what you’ll get is a massive reduction in the earnings outlook and one that could send the S&P 500 down another 10% to 20%. But back to Helen of Troy. 

“As noted in our April earnings call, we did see consumer buying patterns begin to change in the quarter, resulting in a slowdown in demand in some categories, partially offset by retailer orders intended to replenish prior consumption and/or raise holdings in anticipation of price increases,” said CEO Julien Mininberg. 

“Since our April earnings release, the macroeconomic outlook has changed significantly as consumers shift their buying patterns and adapt to a number of factors including the impact of inflation and interest rates rising more rapidly than expected. In response, many of our major retail customers announced actions to rebalance their inventory stemming from rapid revisions to their sales forecasts. We have lowered our sales and EPS outlooks for fiscal 2023, reflecting our current assessment of the impact of these new headwinds on our business.”

Helen Of Troy Cuts Guidance 

Helen Of Troy had a good quarter reporting $508.08 million in consolidated revenue. The revenue is down 6.1% from last year but last year was the peak of COVID spending so the comp is pretty tough. The is up 43.7% versus 2019, however, and beat the Marketbeat.com consensus by 715 basis points On an organic basis, sales are down 15.5% while on a core basis they’re down a smaller 2.5% with noted weakness in Health & Wellness and Beauty due to divestitures and a slowdown in spending. Home & Outdoors grew by 21%. 

Moving down to the margin the news is mixed. The company expanded the gross margin by a slim margin but the gains were more than offset by an increase in SG&A costs. SG&A costs increased by 610 basis points to nearly 35% which cut deeply into the results. The decline is attributed to share-based compensation, increased acquisition expense, and EPS costs but also to higher wages, marketing, shipping, and deleveraging of fixed expenses. The good news is that margin came in above expectations and resulted in adjusted earnings of $2.41versus $1.86 expected by the analysts. The bad news is that strength expected later in the year happened in FQ1 and the outlook is darkening. 

The company lowered its full-year guidance for revenue and earnings to a range well below the consensus. The revenue is expected to fall between $2.15 and $2.20 billion and earnings between $9.85 and $10.35 versus $2.37and $12.27. This suggests to us not only has business growth peaked but the pullback could be severe, more severe than the -20% EPS growth the guidance is now expecting. 

The Technical Outlook: Helen Of Troy In Downtrend 

Helen of Troy's share prices fell 10% in pre-market action following the release of the Q1 results. The move confirms the downtrend and resistance at the short-term moving average but may not results in a new low. Price action is still above the most recent low and the level may provide enough support to it up. If so, the stock may be at the bottom but it is too soon to tell. If not, this stock could fall down into the $120 range.