Beauty-care maven Helen of Troy
When we last checked in, there was some disagreement over whether Helen was taking a step forward or a step back. The firm's second-quarter numbers offer a similarly confusing picture, with an acquisition jump-starting results.
The more organic revenue rise was 12.4%, with the combined revenue growth rate -- including the results of recent acquisition OXO -- coming to 34% more than the prior-year quarter. The final tally reached $141 million.
Don't be snowed by the claim of a 44% increase in earnings. Sure, that's the growth at the bottom line, but as a shareholder, your cut was sweetened by a much slimmer 36%. Still looks great, but remember that's comparing apples and oranges.
The Street's problems with the stock are related to Q3 earnings guidance, which came in a penny shy of analysts' expectations. My problem with the stock is a bit more fundamental: slow organic growth and crummy free cash flow (FCF). Doing a bit of back-of-the-napkin math to strip out the OXO acquisition, it looks like the company's earnings growth would have come in closer to 10%. When buying the stocks of slowish consumer-products firms, it would be nice to see some robust FCF. But with Helen, cash from operating activities tends to get chewed up by capital spending. Last year, $51 million went toward purchasing trademarks alone.
As a result, the firm put up only $11 million in FCF, a tiny drop compared with the $1 billion enterprise value. Sure, it looks cheap on a price-to-earnings basis, but what's the bottom line for investors? No pop. No sizzle. No huge discount. There are plenty of reasons to be skeptical of this aging beauty.
For related Foolishness:
- Last quarter, there was little to annoy at Helen of Troy.
- Beauty peer Avon Products
(NYSE:AVP)has cleaned up nicely.