Helen of Troy Limited, a consumer products company listed on NASDAQ under the ticker HELE, experienced a notable decline in its share price after announcing results for the third quarter that revealed weakening profit margins and a downward revision of its fiscal 2026 earnings forecast. Despite revenues exceeding analyst predictions, the firm's profitability metrics and guidance have raised investor concerns.
For the quarter, Helen of Troy posted adjusted earnings per share of $1.71, aligning closely with consensus analyst expectations. Net sales came in at $512.829 million, which, while representing a 3.4% decrease compared to the comparable period last year, still outpaced the Street's forecasted figure of $503.587 million.
The reported decline in sales was primarily attributed to a decrease in the company’s Organic business segment. Sales from this segment fell by $57.1 million, equating to a 10.8% reduction year over year. This contraction was largely driven by diminished demand in a range of product categories including insulated beverageware, hair appliances, prestige hair care offerings, thermometers, humidifiers, and water filtration systems.
An important factor weighing on Helen of Troy’s gross profitability was the negative effect of higher tariffs, coupled with a less favorable inventory obsolescence impact relative to the previous year. As a result, the consolidated gross profit margin contracted by 200 basis points, settling at 46.9% for the quarter.
The company’s operating performance deteriorated significantly, with consolidated operating income turning into an operating loss of $8.4 million, which represents a -1.6% margin relative to net sales. This contrasts sharply with the prior year’s operating income of $75.1 million, or 14.2% of sales revenue, underlining the scale of the margin pressure recently encountered.
Adjusted EBITDA also experienced a decline, registering $75.6 million compared to $96.8 million in the prior period, which corresponds to an adjusted EBITDA margin reduction from 18.2% to 14.7%. This compression in operating profitability underscores the amplified cost challenges the company is facing.
Helen of Troy’s liquidity position tightened in the quarter, with cash and cash equivalents decreasing to $27.1 million from the previous $40.8 million. Concurrently, inventory levels rose notably to $505.3 million from $450.7 million, influenced in part by $35 million of higher tariff costs embedded in inventory valuations. The company’s total debt burden increased substantially, reaching $892.4 million from $733.9 million as of the prior quarter.
Revised Fiscal 2026 Outlook
In light of ongoing tariff pressures and inventory-related challenges, Helen of Troy adjusted its outlook for fiscal year 2026. The company lowered its adjusted earnings per share guidance range to between $3.25 and $3.75, a reduction from the earlier estimate which ranged from $3.75 to $4.25. This revised guidance falls below the consensus analyst estimate of $4.02 per share.
Regarding sales projections for fiscal 2026, the company narrowed its forecast to a range of $1.758 billion to $1.773 billion, tightening slightly from the previous range of $1.739 billion to $1.780 billion. This projection remains broadly in line with the analyst consensus estimate of $1.763 billion.
Market Reaction and Trading Activity
Following the release of these financial results and the revision of guidance, Helen of Troy’s stock price dropped sharply by over 12%, closing at $18.50. The shares are now trading close to their 52-week low of $17.01, indicating heightened investor apprehension about near-term profitability and margin expansion prospects.
Photo credit: Piotr Swat via Shutterstock
Key Points:
- Helen of Troy’s third-quarter revenue surpassed analyst expectations but declined 3.4% year over year to $512.829 million.
- Organic business sales fell 10.8%, impacted by lower demand in several product categories including insulated beverageware and hair care appliances.
- Gross profit margin contracted by 200 basis points to 46.9% due to unfavorable tariffs and inventory obsolescence issues.
- The company reported an operating loss for the quarter, a reversal from operating income in the prior year period, with adjusted EBITDA margin decreasing from 18.2% to 14.7%.
- Helen of Troy has lowered its fiscal 2026 adjusted EPS forecast to a $3.25-$3.75 range, under the consensus estimate of $4.02.
Risks and Uncertainties:
- The company faces ongoing challenges from increased tariff expenses potentially pressuring future margins.
- Inventory levels have risen significantly, including $35 million of tariff-related costs, posing risks related to inventory management and obsolete stock.
- Liquidity has diminished with cash reserves declining and total debt rising, which could constrain financial flexibility.
- Demand in key product segments such as insulated beverageware and personal care items remains soft, affecting organic sales growth.