Shares of Helen of Troy
The main reason for the jump was that earnings came in at $0.35, way above the $0.28 average earnings predicted by analysts, who also applauded the strong top-line growth in personal care products and a rebound in Helen's Oxo brand. However, net earnings for the six-month period this year were still behind last year's figures.
Overall, second-quarter sales grew 12.9% to $147.2 million, and for the six-month period ended Aug. 31, 2006, sales advanced 7.7%. Sales in the personal care segment grew 10% during the quarter, while the housewares segment reported impressive growth of 22.6%.
In the quarterly conference call, management highlighted that sales trends have been favorable for the first two quarters of Helen of Troy's fiscal year, but it is choosing to remain conservative for the balance of the year, probably because sales trends have been uneven for some time. As such, it reaffirmed a sales range of $600 million to $620 million and diluted earnings of $1.70 to $1.80 for fiscal year 2007. It also mentioned that further segment details will be available when the company files its 10-Q.
It was nice to see that inventory levels fell 10.6% from the second quarter last year, providing further evidence that sales trends have indeed improved. As it did not provide a cash flow statement for the quarter, I'll wait until the company files its 10-Q, but falling inventories should help operating cash flow trends that have been weak for the last couple of years. For the last two fiscal years, rising inventory and accounts receivable caused cash flow from operations to run way below reported net income.
Helen of Troy's business model is compelling. It is primarily a designer, developer, and distributor of household brands licensed from third parties such as Vidal Sassoon (owned by Procter & Gamble
Overall, Helen of Troy has reported a couple of impressive quarters, and as long as the improved results are indicative of things to come, the 20% jump in the stock price seems warranted. And even with the jump, the shares are trading at a reasonable forward P/E of 12.3. If inventory trends have indeed stabilized, then cash flow growth should follow. Time will tell if the good times are here to stay.
For related Foolishness:
Want to know which stocks Fool co-founders Tom and David Gardner are recommending to soundly beat the market? Check out Motley Fool Stock Advisor free for 30 days.
Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.