• Consolidated Net Sales: Declined 3.5% year-over-year.

• Gross Profit Margin: 45.6%, a decrease of 110 basis points.

• GAAP Operating Margin: 7.3%, down from 9.5% last year.

• Adjusted Operating Margin: Decreased 290 basis points to 9.8%.

• Net Income: $17 million or $0.74 per diluted share.

• Non-GAAP Adjusted Diluted EPS: $1.21 per share.

• Free Cash Flow: $39.7 million, an increase of $11.7 million year-over-year.

• Total Debt: $713 million, a sequential decrease of $35 million.

• Net Leverage Ratio: 2.34 times, compared to 2.37 times in the previous quarter.

• Home & Outdoor Sales: Grew almost 1% year-over-year.

• International Sales Growth: Almost 5%.

• Beauty & Wellness Sales: Decline due to lower sales of hair appliances, air purifiers, and humidifiers.

• Board Authorized Stock Repurchase: $500 million.

• Fiscal '25 Net Sales Outlook: $1.885 billion to $1.935 billion, a decline of 6% to 3.5%.

• Fiscal '25 Adjusted EPS Outlook: $7 to $7.50, a decline of 21.4% to 15.8%.

• Fiscal '25 Adjusted EBITDA Outlook: $287 million to $297 million.

• Fiscal '25 Free Cash Flow Outlook: $180 million to $200 million.

• Warning! GuruFocus has detected 5 Warning Sign with HELE.

Release Date: October 09, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Helen Of Troy Ltd (NASDAQ:HELE) reported second quarter results that were above expectations, indicating positive progress in their strategic initiatives.

• The company saw a 9% year-over-year increase in US weighted distribution, enhancing brand availability and market share.

• Project Pegasus is on track, providing resources for reinvestment in brands, leading to improved marketing and innovation.

• International performance, particularly in EMEA, remains strong, contributing to overall positive growth.

• The company successfully resolved operational issues at the Tennessee distribution center and integrated Curlsmith into their network ahead of schedule.

Negative Points

• Consolidated net sales declined by 3.5%, primarily due to a decrease in the Beauty & Wellness segment.

• The Beauty segment underperformed expectations, with softer consumer demand and increased competition impacting sales.

• GAAP operating margin decreased to 7.3% from 9.5% in the same period last year, reflecting operational challenges.

• The company paused its divestiture process due to offers not meeting the business's perceived value.

• The macroeconomic environment remains challenging, with increased promotional activity and softer retail replenishment impacting outlook.

Q & A Highlights

Q: Can you break down the factors contributing to the upside in the quarter and what's embedded in the outlook from a category perspective? A: Noel Geoffroy, CEO, explained that the upside was due to both category performance and strategic actions. The company has been focusing on brand building, consumer understanding, and product innovation, which are starting to show results. Distribution gains, such as Hydro Flask's performance in Costco and OXO's success in Walmart, also contributed. Category-wise, there is a mix of performance, with some categories like dry food storage showing softness, while others like kitchen utensils have stabilized.

Q: What are your thoughts on the timing and execution of the stock buyback program? A: Brian Grass, CFO, stated that the stock buyback authorization was a routine refresh by the board, with no immediate plans for execution. The company will consider buybacks as opportunities arise, but there is no specific timeline set.

Q: Given the competitive beauty category, what are the key efforts to drive growth, and how long might it take to see improvements? A: Noel Geoffroy, CEO, highlighted foundational work in brand building and consumer segmentation as critical steps. New leadership has been brought in, and there is a focus on leveraging consumer insights for marketing and product development. Curlsmith is performing well, and new product launches are expected to drive growth. The timeline for improvement is ongoing, with some results already visible.

Q: How are data and analytics being used to inform business decisions and investments? A: Noel Geoffroy, CEO, emphasized the importance of data and analytics in understanding consumer segments and optimizing marketing spend. The company has implemented a marketing mix model to evaluate return on ad spend across brands and tactics, allowing for more informed and efficient investment decisions.

Q: What are your expectations for consumer spending and promotional activity during the holiday season? A: Noel Geoffroy, CEO, expects consumers to be selective in their spending due to economic challenges. The company anticipates a focus on value and will maintain its promotional plans without significant changes in discount depth. Retailers like Walmart and Costco, perceived as value-oriented, are expected to perform well.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.