On Wednesday, Canaccord Genuity adjusted its outlook on Helen of Troy (NASDAQ:HELE), reducing the price target to $84 from the previous $137, while still endorsing the stock with a Buy rating. The adjustment follows Helen of Troy's release of first-quarter fiscal year 2025 results on Tuesday, which revealed a 12.2% year-over-year decrease in sales, falling short of both Canaccord's and the Street's expectations. The company's adjusted earnings per share (EPS) of $0.99 also did not meet the anticipated $1.60 by Canaccord and $1.59 by the Street.
The company's disappointing performance was attributed to a mix of execution challenges and a slowdown in consumer demand across its core categories. Management has indicated that the current fiscal year will be a "reset year," shifting the focus towards brand building and restructuring the business.
The company also pointed out several headwinds that affected their first-quarter earnings, including additional costs from their Tennessee distribution center (DC), shipping disruptions, unexpected product liability and health insurance expenses, and the effects of tax reform in Barbados.
Despite these challenges, management remains optimistic, noting that sales and earnings are expected to improve in the second half of fiscal year 2025 due to more favorable comparisons. However, they have also cautioned that there is a risk of further declines in consumer spending. The company's new CEO, Noel Geoffroy, is believed to be steering the company correctly by emphasizing brand innovation and merchandising.
The firm suggests that the current downturn in Helen of Troy's stock price, which dropped 28% on the day of the earnings announcement, was an overreaction, especially considering that the earnings were only revised downward by 19%.
Canaccord points out that management observed more favorable trends in June compared to May, and that the updated guidance for the fiscal year has been set conservatively.
The investment firm sees potential for the company to leverage savings from Project Pegasus to counterbalance investments, and believes the stock is now trading at an attractive valuation, approximately 7.7 times Canaccord's rebased fiscal year 2026 EPS estimate, compared to its historical average of 15 times forward earnings.
In other recent news, Helen of Troy Limited experienced a challenging first quarter for fiscal year 2025, with net sales and adjusted diluted earnings per share (EPS) falling short of expectations.
The company has responded by outlining a plan to revitalize its operations, including strategic investments in brand-building, marketing, and infrastructure improvements. Despite a difficult macro environment and consumer health concerns, Helen of Troy has seen positive share performance in certain categories and expanded distribution for brands such as OXO SoftWorks and Drybar.
Helen of Troy anticipates a decline in net sales for fiscal year '25, alongside a compressed EBITDA margin. The company also reported a discrete tax charge of $6 million due to a tax rate change in Barbados. Despite these challenges, the company maintains a positive outlook for gross margin expansion for the full year.
Looking ahead, Helen of Troy expects a decrease in adjusted diluted EPS by 45% to 35% in Q2, with potential for slight growth in the second half. The company has also forecasted a GAAP effective tax rate range of 27.3% to 29.5% for the full year.
InvestingPro Insights
Turning to real-time analytics, Helen of Troy's financial health and market performance offer mixed signals. With a market capitalization of $1.47 billion and a P/E ratio standing at 13.97, Helen of Troy appears to be trading at a value that reflects its earnings. The adjusted P/E ratio for the last twelve months as of Q1 2025 is lower at 10.63, suggesting a potentially more attractive valuation in the context of the company's earnings. Additionally, the company's price to book ratio as of the same period is under 1, at 0.95, which might indicate that the stock is undervalued relative to its assets.
InvestingPro Tips highlight that Helen of Troy's stock is currently in oversold territory according to the RSI, and with liquid assets exceeding short-term obligations, the company has a solid liquidity position. Moreover, the stock is trading near its 52-week low and has seen a significant price drop over the last year, which could attract investors looking for potential bargains in the market.
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