What happened

Shares of Helen of Troy (HELE -1.52%), the diversified consumer products company that owns brands like OXO, Hydro Flask, Vicks, Braun, and PUR, were heading lower after it reported solid results in its second-quarter earnings report, but its guidance missed the mark.

As of 12:57 p.m. ET, shares of Helen of Troy were down 9%.

A woman shopping in a drugstore

Image source: Getty Images.

So what

As expected, the company continues to see revenue decline as it proceeds with a turnaround plan to return to profitable growth.

Revenue in the quarter fell 5.7% to $491.6 million, which topped estimates at $485 million. Sales in the home and outdoor segment were essentially flat, while beauty and wellness revenue fell 10.4%

Despite the sales decline, the company delivered solid gross margin improvement, up 420 basis points to 46.7% as it streamlined its inventory, which was down 32% to $435.7 million and benefited from lower freight costs.

However, selling, general, and administrative expenses rose 390 basis points to 36.5% of revenue due to increased incentive compensation, higher marketing spending, and increased distribution expenses. 

As a result, adjusted operating margin fell from 13.9% to 12.7%, and the company reported adjusted earnings per share of $1.74, down from $2.27 a year ago, but that still beat estimates at $1.64.

CEO Julien Mininberg said, "During the quarter we delivered net sales and adjusted EPS at the high end of our expectations. I'm pleased with the consistency of our results as we work toward returning to growth. During the quarter we achieved our revenue expectations for the majority of our Leadership Brands and international performance was particularly strong."

Now what

For the full year, Helen of Troy continues to expect a revenue decline of 2.8%-5.2% to $1.965 billion-$2.015 billion, which is in line with analysts' expectations of $2 billion. 

On the bottom line, it also reaffirmed its guidance of adjusted EPS of $8.50-$9.00, which implies a decline of 4.8%-10.1% and compares to the analyst consensus at $8.91. It also said it expected a slight decline in gross margin in the second half of the year due primarily to a sales mix shift.

Overall, the sell-off seems exaggerated though the rising selling, general & administrative expenses indicate a return to profit growth may take longer than expected. Analysts currently expect EPS to return to growth next year.