Helen of Troy Limited (HELE - Snapshot Report) reported second-quarter fiscal 2015 adjusted earnings of 99 cents, up 2.1% from the year-ago level. The earnings figure excluded non-cash share-based compensation and amortization of intangible assets and acquisition-related expenses. Including these, the company reported earnings of 65 cents, in line with the Zacks Consensus Estimate.

Revenues and Margins

Helen of Troy, a designer and marketer of consumer products, reported revenues of $319.9 million, flat with the year-ago quarter, as lower sales in Housewares and Healthcare categories offset the addition of the nutritional supplement category in the company’s operational segments. Sales however surpassed the Zacks Consensus Estimate of $316 million by more than 1% and management’s expectation of a range of $291 to $294 million.

Gross margin inflated 320 basis points (bps) to 41.8% backed by 2.6 percentage point contribution by the company’s recently added category Nutritional Supplement. Adjusted operating income slipped 7.1% to $36.4 million due to higher selling, general and administrative expense ratio during the quarter.

Segment Details

From the second quarter of fiscal 2015, the company started a new operational segment called Nutritional Supplement.

Housewares: Sales in the Housewares category slipped 0.8% to $69.6 million from the year-ago period, due to ongoing slowdown in the home building sector and lower consumer spending.

Personal Care: Sales in this category slipped 14.4% year over year to $99.5 million in the quarter due to a challenging retail environment primarily in the hair care solutions category where competition resulted in lower pricing, promotional discounts and loss of distribution.

Healthcare/Home Environment: This category slipped 5.1% year over year to $126.2 million in the reported quarter due to softness in the air purifier business.

Nutritional Supplement: The company entered the nutritional supplement business in Jul 2014, with the takeover of Healthy Directions, LLC and its subsidiaries for a cash transaction of $195 million. The buyout attributed $26.4 million to revenues during the reported quarter.

Other Financial Details

During the second quarter, Helen of Troy entered into a licensing agreement with the pioneer of healthy non-stick cookware — The Cookware Company.

Under the agreement, Cookware will launch three high-quality cooking utensil made from its premium materials, best-in-class Perfluorooctanoic (PFOA)-free coatings through advanced manufacturing and forging processes and bearing Helen of Troy's flagship brand name — OXO Good Grips.

Fiscal 2015 Outlook

For fiscal 2015, the company maintained its guidance. It expects fiscal 2015 sales in the range of $1.275 to $1.30 billion and earnings per share in the range of $4.55 to $4.65. However, we note that the company lowered its earnings and revenue guidance for fiscal 2015 on Sep 3, 2014 due to weak retail environment and sluggish growth in the Personal Care segment. (Read: Helen of Troy Misses Q1 Earnings & Revs Ests.)

Nevertheless,Helen of Troy expects to deliver sustainable organic growth by investing in human resource and innovation program, brand building advertising and improving its market position. The company is also focused on driving productivity and paying dividends, going ahead. However, it is apprehensive that product costs will remain high and the retail environment will continue to be difficult.

Helen of Troy currently has a Zacks Rank #5 (Strong Sell).

Other Stocks to Consider

Some better-ranked stocks to consider in the apparel industry include V.F. Corporation (VFC - Analyst Report), Perry Ellis International Inc. (PERY - Snapshot Report) and Gildan Activewear Inc. (GIL - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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