Helen of Troy Ltd.'s (HELE, Financial) continued investments in product innovation could strengthen its competitive advantage and catalyze its stock price.
The consumer goods company’s increasing focus on efficiency and developing its presence across international markets may lead to improved financial performance.
Even though the company has risen 29% in the last year versus a gain of 7% for the S&P 500, it could deliver further capital growth.
Innovation
Helen of Troy’s continued focus on launching innovative new products could increase its differentiation versus peers. For example, the company’s Hydro Flask water bottle brand released two high-performance hydration packs in the most recent quarter. They are designed to provide a lower center of gravity and offer increased stability versus previous models. They fit more comfortably on a user’s body due to an innovative back panel and shoulder strap, which makes them suited to a wider range of potential uses across a variety of outdoor activities.
The company is increasing the size of its total addressable market through innovative products such as the Honeywell Dreamweaver Sleep Fan. It was launched in the most recent quarter and provides a soothing sound frequency zone called Pink Noise, which blocks sound and aids sleep. This provides the fan with year-round appeal, whereas previously it was a seasonal product that generated a high proportion of its sales in summer months.
Growth strategy
The company’s growing investment in international markets could increase the size of its potential customer base. It is expanding into countries where it is currently underrepresented, prioritizing them by the size of the total addressable market in each region. As part of this strategy, it plans to upgrade its infrastructure in regions such as the Asia Pacific and Europe. This is expected to lead to around $100 million in incremental organic revenue by the end of fiscal 2024.
Helen of Troy is seeking to complement organic growth opportunities with merger and acquisition activity. It is targeting smaller, early-stage brands that offer disruptive technology and unique skillsets. In order to achieve this goal, it is expanding the capacity of its merger and acquisition department. Its activity is likely to be focused on international markets, which could lead to an increasingly diverse business and exposure to markets where it is currently underrepresented.
Risks
The potential for further tariffs on Chinese imports could negatively impact the company’s financial performance. Although it has been able to successfully plan for the List-3 tariff increase from 10% to 25% through pricing action, there may be more limited scope to achieve this in the future. This uncertainty comes at a time when the company’s recent operational performance has been lacking. For example, in the most recent quarter, it reported a decline of 4% in its Health and Home segment when compared to the same period last year.
The company is aiming to become increasingly efficient in response to an uncertain trade outlook. As part of this initiative, it is in the process of simplifying, standardizing and systemizing over 150 unique processes across its supply chain. This is expected to lead to lower inventory and better product availability. It also rolled out an upgrade of its demand planning tool in the most recent quarter. This will provide greater efficiency when managing its global portfolio of brands. In addition, the transition of its Hydro Flask direct-to-consumer operations from a third-party partner to its own distribution center was completed in the last quarter. This is expected to reduce costs and improve productivity.
Outlook
Helen of Troy is forecasted to record 6.6% earnings per share growth in the next fiscal year. Since the stock trades with a forward price-earnings ratio of 17.1, it seems to offer fair value given its long-term growth potential.
The company’s focus on releasing innovative products could enhance its appeal among a wider range of consumers through differentiation and improving the customer experience.
Its increasingly efficient business model and plans to expand through mergers and acquisitions could lead to a stronger business in the long run.
Even though it has outperformed the S&P 500 in the last year, the stock appears to offer investment appeal.
Disclosure: The author has no positions in any stocks mentioned.
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