It’s no secret that the consumer sector has been alive and well recently, and it’s also no secret that this is a theme I’ve been pounding the table on for a long time now.
Tech tends to grab a lot of headlines because of billion-dollar mergers and new highs, but consumer stocks are still killing it with a stealthy rally. I have raved about the resilience of consumer confidence. Wall Street calls these surveys and polls “soft data,” but those emotions are morphing into reality — otherwise known as “hard data.”
Forget what the experts are saying. People are spending money at brick-and-mortar stores. We saw this first-hand in Helen of Troy’s (NASDAQ:HELE) strong fiscal first-quarter earnings report that was released earlier this week.
Consumer Are Out in Force
HELE, a leading global consumer products company offering brands such as OXO, Honeywell, Vicks, Revlon and much more, saw a 32.6% increase on the bottom line from $1.41 a share last year to $1.87. This was well off the Street’s expectation of $1.46. Revenue was up 9% to $354.68 million, again better than the consensus at $325.49 million.
The company has been making a transition away from its traditional beauty business and into the faster-growing health, home and housewares business. And in the last two quarters, HELE has seen strong momentum in its top segments.
|Revenue Momentum||February Quarter||May Quarter|
|Housewares||$87.8 million (+2.1%)||$117.3 million (+18.5%)|
|Health & Home||$186.4 million (+5.3%)||$163.4 million (+8.4%)|
|Beauty||$133.8 million (-0.3%)||$73.9 million (-6.2%)|
Looking ahead, management reaffirmed their full-year revenue guidance of $1.485 billion – $1.510 billion but raised their expectations for earnings from $7.30-$7.55 a share to $7.45-$7.70. For fiscal 2020, the Street is looking for $8 a share while just three months ago the consensus was at $7.67.
At this point, it’s clear that management has ironed out inconsistent earnings execution, and the stock has responded as a result. HELE soared on the strong numbers, finishing the day up more than 12.5% after briefly touching a new all-time high of $119.25.
The stock was higher again the following day, although it did pull back on Tuesday on what I suspect was a bit of profit-taking. It has been holding strong since then.
HELE’s rally is yet another example of the strength we’re seeing in consumer stocks right now — over time I see it climbing toward $130 — and the fact that volume was 9X higher than usual on Monday tells me that a lot of investor interest was piqued. With the second-quarter reporting season just getting underway, we could be in for many more upside surprises in the months ahead.
I continue to watch the consumer space and see a lot of names that are deeply oversold and look compelling. Earnings season may bring some near-term volatility, but you can be sure we’ll jump on the opportunities in great American companies leading the charge over the long term.
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