What happened

Shares of Helen of Troy (HELE 1.91%) were trading sharply lower at the market open on Wednesday after the company reported mixed results for the fiscal second quarter. After the market had time to digest the earnings report, the stock was up 2% as of 12:24 p.m. ET.  

Rising inflation and interest rates have weighed on sales and earnings this year, with the stock down 57% year to date. 

So what

Net sales were decent, rising 9.7% year over year, but management noted changing consumer buying patterns in response to the economic headwinds. As a result of higher costs and slowing sales, non-GAAP earnings per share fell 14% over the year-ago quarter.

Management is moving to improve productivity and lower costs. Major retailers like Target and Walmart were caught off-guard by lower demand earlier this year, causing too much inventory to sit on shelves. Helen of Troy is experiencing a similar problem leading to lower profitability. 

Now what

Management is following a three-year plan it's calling Pegasus to improve margins, reduce inventory, and increase returns on invested capital and cash flow. But the near term will continue to be bumpy.

Management expects the recent soft economic trends to continue, leading to a lower full-year outlook. Net sales are expected in the range of $2 billion to $2.05 billion, representing a core business decline of 8.6% to 6.4%. Adjusted earnings are expected to fall 27.2% to 23.9% over last year.

The stock is selling for a price-to-earnings ratio of 13.3, which is a significant discount to where it traded at the beginning of the year. There's a lot of bad news already priced in to the stock's valuation, which explains why the stock recovered and moved higher. Given the economic situation is still a moving target and we don't know how long the inflationary cost pressures will continue, investors should tread with caution before calling the stock a bargain.