This was a weak HELE Q. Sure, it was a headline beat and reiteration of the year (much like last Q), but the guide down for HELE’s 3Q sales is a concern and cash flow was far weaker than last Q. This Q organic growth got slightly less bad at -6% vs -7.7% last Q. But with the expectation of revenue inflecting to growth, the company guided revenue is ~4pts below consensus, -3% at the midpoint, talking about more cautious ordering patterns. This is when the company is comping against -20% LY and -2% the year before. This is supposed to be a portfolio of “staple like” products. We’d argue it’s a mish mash of mid-level, poorly positioned, discretionary goods, with lots of small home appliance exposure and brands that have been underinvested in and over earning. Now even on the easy destocking compares the top line isn’t going to grow. EPS was down 23% on the non-gaap adjusted numbers despite the beat. Cash flow not as bullish as last Q, with CFFO of $36mm vs $121mm last Q. With payables up $33mm, the company looks to be running out of the working capital tailwind that aided cash flow last Q. The debt balance went up this Q, and cash went down. The company had its typical accounting add backs making non-GAAP EPS about 50 cents higher than what it probably should report. We’re ok with intangible amortization being added back, but not ok with share-based comp or the excessive ‘one time’ charges. The company noted Project Pegasus charges will extend into 2025, vs the prior completion of 2024. The company will hold an investor day in a couple weeks (Oct 17th), but we don’t think the company has a real way out of the P&L problems without taking down margins materially to invest in growth. It will also be a strange meeting given the company is in the middle of a CEO transition, yet the old CEO is still in the seat for this event, and the company just today announced it has a permanent CFO in Brian Grass. HELE remains a Best Idea Short. We think the game this company has been playing of buying decent assets in a zero percent rate environment and milking them for margin while underinvesting in the brands is now over. HELE will not grow organically, margins will compress, and ultimately earnings are headed much lower. Best Idea Short that we think has downside to $40.
*Hedgeye EPS includes share based compensation as an expense.
