Helen of Troy Limited (NASDAQ: HELE) reported robust second-quarter results, meeting net sales and adjusted earnings per share expectations. The company also announced progress in gross margin improvement and cash flow generation, with gross margins expanding due to lower inbound freight costs and skew rationalization.
Key takeaways from the earnings call include:
- The company has generated positive free cash flow and repurchased approximately $50 million of shares.
- Helen of Troy closed the sale of its El Paso office and distribution facility and plans to relocate to a new facility in the same city for its U.S. headquarters.
- The company is maintaining its full-year expectations, including returning to growth in the fourth quarter.
- Brian Grass will continue his role as CFO on an ongoing basis.
- The company expects a decline in net sales for the third quarter but anticipates growth in the fourth quarter.
- Helen of Troy has revised their estimate for restructuring charges and now expects an increase in GAAP diluted EPS for the full year.
During the earnings call, Helen of Troy discussed the performance of its various segments. The Home & Outdoor segment saw growth driven by new product introductions and an improved inventory position. The Beauty and Wellness segment, however, experienced a decline in net sales due to rationalization of certain products and softness in humidification, heaters, and fans. Despite the decline, the Revlon and Hot Tools brands performed well, with Revlon seeing improved trends and CurlSmith experiencing strong growth.
The company also highlighted its success in the international market, particularly in the UK and Germany. In terms of financials, the company reported a decrease in net sales but improved gross profit margin. They maintained their full-year expectations for net sales, adjusted EPS, adjusted EBITDA, free cash flow, and ending net leverage ratio.
Helen of Troy also provided an update on its Project Pegasus charges and expectations. The company now estimates lower total pre-tax restructuring charges of $60 million to $65 million, due to a favorable revision in the assessment of a potential exit from one of their businesses. This is a reduction from the previous estimate of $85 million to $95 million.
In the last quarter, the company launched the Hydro Flask travel tumbler and a new unique-shaped Hydro Flask sport bottle. They also introduced new formulas in the Beauty wellness portfolio, particularly for Drybar and CurlSmith. The company anticipates more innovation in both products and commercial offerings going forward.
During the call, a question was raised about the company's decision to allocate cash towards share repurchases instead of debt repayment. The company responded that they viewed the share repurchase as a good investment and a win-win, allowing them to return capital to shareholders while maintaining a strong balance sheet position. The company feels confident in its forecast and has factored in potential downside impacts while leaving room for upside if strategic initiatives are successful. The full-year gross margin is expected to be slightly lower than originally guided due to a shift in revenue mix, but the company expects to see gross margin improvement in the future as Pegasus savings continue to build.
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