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Why Helen of Troy's Earnings Beat Barely Made a Ripple

By Motley Fool Staff - Oct 13, 2019 at 6:20PM

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Wider headwinds may have taken the wind out of its sails.

There are plenty of people who wouldn't connect the name Helen of Troy (HELE -2.25%) to a business, but they surely know some of its brands. The housewares, personal care, and beauty products company owns names like Revlon, OXO, Pur, and Braun. It also owns a pretty good-looking second-quarter report: It beat on profit and revenue, and raised its guidance. In response, its share price on Tuesday hit an all-time high, briefly, before sinking down toward a loss for the day.

In this segment of the MarketFoolery podcast, host Chris Hill and senior analyst Ron Gross discuss the situation at this lesser-known company and what it's doing right, why Wall Street dinged it Tuesday, and more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 8, 2019.

Chris Hill: Shares of Helen of Troy briefly, oh, so briefly, hit an all-time high this morning after second quarter profits and revenue came in higher than expected. Helen of Troy is the parent company, they've got household and beauty products, where the brand names are probably better known. Hydro Flask. You were telling me, I was not aware, those kitchen tools, OXO. That's Helen of Troy. Also things like Revlon, Shed Head. The stock was up 6%. It's actually come down. It's basically flat. I don't know, this seems the opposite of Domino's. This is a really good quarter.

Ron Gross: It was a very good quarter. Maybe the stock is just getting away from itself just a little bit. It's actually not that expensive. Would be a little bit surprised if that was the reason. But the market is very weak today. That could be the reason. It's a consumer products company, which doesn't necessarily command the highest multiples when you're looking at valuation. But it's a wonderful company. The stock's up about 175% over the last five years. Crushed the market. As you mentioned, it's an accumulation of some really nice brands in the housewares, health and home, and beauty divisions. All doing pretty well, except health and home was a little weak this quarter. Comps were down around 10%, sales were down around 10%. But they had some really tough comps last year that they were up against. It was a really strong quarter this time last year.

As you have to nowadays, they've embraced the online world. Online channel net sales were up 25%, now make up about a quarter of their overall sales. They were able to widen margins because the product mix leaned more toward housewares this time around, which has better margins. You had adjusted earnings up 13%. They raised guidance. It's a nice little company that most people haven't heard of.

Hill: Yeah, that's the thing. On top of this great quarter, Helen of Troy comes out, they raise guidance for the full fiscal year, and this is not a big company. It's about a $4 billion market cap. I don't know the management, so I don't know the degree to which they are adamant about staying on their own, but it really seems like a business that's running really well, that someone much bigger, obviously, would look to acquire at some point.

Gross: I think that's right. There's some impressive brands here. Eighteen and a half times forward earnings right now. Consumer products companies can't demand much higher than that, really. In fact, most of them are somewhat lower than that. Some significantly lower than that, more like 10 to 15 times. So not a cheap stock, but a company that continues to put up these pretty impressive growth numbers. I could easily see them becoming part of a bigger company at some point.

Chris Hill has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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