HELEN OF TROY (HELE): Reset Creates Opportunity
Brought to you by Drew Millegan & The Woodworth Contrarian Fund
Executive Summary
We at the Woodworth Contrarian Fund specialize in finding buying opportunities when the market is selling. This means buying early and selling early - if you wait for the last drop of blood, they’re already dead, so to speak. Now with Q2 2026 Earnings in the rear view mirror, we think that this company is a classic contrarian value opportunity.
Helen of Troy Limited (NASDAQ: HELE) reported fiscal Q2 2026 results on October 9th, 2025. On the surface these results appeared weak, with the company recording a sizable non-cash goodwill impairment, resulting in a GAAP net loss of $13.44 per share. However, this bottom-line unadjusted result reflects a balance sheet reset rather than an operational collapse. Adjusted earnings (earnings with non-cash and special items removed) remained positive at $0.59 per share, consistent with ongoing underlying profitability. Analysts expected earnings of about $0.52 per share, meaning the company beat consensus estimates on an adjusted basis, even if simple GAAP reporting appeared weak.
Despite near-term headwinds from elevated debt and tariff-related margin compression, the Woodworth Contrarian Fund views Helen of Troy as a fundamentally sound consumer platform trading at distressed valuations. Post-earnings in reaction to the large unadjusted loss, HELE declined nearly 25% in just one day of trading, and is down over 65% YTD. The current dislocation presents an attractive long-term entry point for patient investors.
Key Results and Drivers
Net sales declined 8.9 % year-over-year to $431.8 million, reflecting softer discretionary spending, retailer inventory reductions, and tariff pressures.
Gross margin fell modestly to 44.2 % (–140 bps), primarily due to tariffs and promotional activity.
Adjusted operating margin of 6.2 % (vs 9.8 % prior year) shows the temporary nature of the current cost cycle.
Non-cash impairment of approximately $326 million on goodwill and intangibles drove the GAAP loss but did not affect cash flow or day-to-day operations. This accounting adjustment was the result of the 2024 acquisition of the nail polish brand Olive & June, and simply resets book value to better reflect the decline in value of HELE’s stock following the purchase. Furthermore, the acquisition is still expected to drive revenue growth going forward despite the impairment - meaning the company is locking in a non-cash valuation loss now on an cashflow-accretive asset.
Operating Cash flow was negative $10.5 million for the quarter, as inventories remain elevated at $528.9 million. Management expects working-capital normalization to release cash over the coming quarters, and without one-time items for tariff management and elevated inventory purchases, the company still has positive cash flows.
Debt increased to $893 million, prompting discussions with lenders regarding potential covenant amendments. While this adds some uncertainty, Helen’s consistent adjusted profitability and lender cooperation mitigate refinancing risk. Elevated debt appears largely related to the transition of their supply chains away from more heavily tariffed jurisdictions, in addition to elevated inventory purchases ahead of tariffs.
Operational Outlook
Management reaffirmed full-year fiscal 2026 sales guidance of $1.74 – $1.78 billion and adjusted EPS of $3.75 – $4.25. The company continues to:
Diversify sourcing to reduce reliance on China (targeting 25–30 % of cost of goods by year-end). Similar to Apple, HELE plans to sell more products within the country they are produced when possible, which means they expect to sell more of the products produced in China into Chinese markets and elsewhere, as opposed to exporting to the US.
Tighten expenses, pausing non-critical projects and lowering discretionary spend.
Realign production and inventory, which should support gross-margin recovery as promotional pressure eases.
Longer-term, Helen’s brand portfolio (including OXO, Osprey, Hydro Flask, Revlon appliances, and Drybar) remains strong in consumer recognition and shelf presence. These assets provide durable pricing power once macro and tariff headwinds subside. In the short-run the company has run at a negative operational cashflow in part to finance inventory purchases ahead of tariffs, but this should save the company money in the long-run.
Valuation & Positioning
At recent prices, HELE trades at a price to adjusted earnings ratio of just over 8× and less than 0.4× sales, a discount to historical averages and peers in branded consumer goods. Despite recording massive write-downs of Goodwill assets on their balance sheet, HELE also still trades at a deep discount of just 0.48× to book value. Even modest stabilization could justify a return toward 12× normalized earnings, implying potential 50 – 60 % upside over Woodworth’s two-year risk time horizon.
Woodworth’s constructive view is supported by:
Non-cash nature of impairment – accounting, not economic, loss.
Solid brand equity and recurring demand despite temporary margin pressure.
Operational actions already underway to restore cash flow and reduce leverage.
Valuation dislocation typical of contrarian opportunity sets.
One-time expenses to reposition ahead of tariffs for long-term planning.
Risks
Debt renegotiation uncertainty: Ongoing discussions with lenders around covenant thresholds introduce short-term volatility, though management expects no material change to liquidity access.
Tariff exposure and supply-chain timing: Diversification efforts take time; further trade escalations could delay margin recovery.
Consumer spending softness: Continued macro weakness may weigh on volume growth through fiscal 2026.
Technical Analysis
HELE 1 Year Chart Analysis
Putting in a base: Following three post-earnings drops, HELE has put in another short term base just over $19 per share. Absent news, the company isn’t likely to appreciate above $25 until the next earnings report in January, although the company does typically recover somewhat following a post-earnings drop.
HELE 10 Year Chart Analysis
Oversold conditions persist: From highs in the $220-260 range, HELE has sustained a quite impressive decline of over 90% from 2022 to present. The market is decidedly not just pessimistic on the retail sector, but specifically pessimistic about HELE’s prospects, likely due to its exposure to Chinese supply chains combined with bottom-line earnings contraction. On a technical basis, HELE has made several attempts at putting in a base, but remains in a long-term downward channel. Q3 and Q4 earnings results will be key times to monitor investor confidence in the company’s turnaround plan. If the company price breaks out above $22-25, this would be a very positive signal that the investor sentiment has turned a corner.
Potential for downside risk: On the other hand, a risk remains that if the company’s transition takes longer than expected, investors may continue to view the company negatively. Positive cash flows will be key to demonstrate operational strength despite continued elevated costs. In the case that investor pessimism continues, this is the kind of stock that Woodworth will re-evaluate often, and may buy more of in the event of a continued price decline without a worsening future outlook.
Investment View
Helen of Troy’s fiscal Q2 results mark a turning point, not a breakdown. The goodwill impairment — while optically large — is an accounting recognition of prior acquisitions’ market value, not a reflection of operating distress. The company remains profitable on an adjusted basis, owns resilient brands, and is executing credible cost and sourcing initiatives. It is also worth noting that the company’s CEO, G. Scott Uzzell, was appointed in September of this year, which may also help to explain the sizable write-offs - it is not uncommon for new leadership to try and “clear the slate” in a manner of speaking. Showing big upside in the quarters following a large accounting adjustment is a great way for a CEO to prove their worth to the board and shareholders, and helps to emphasize operational gains.
We believe the market has over-reacted to headline losses and underappreciates the underlying earnings power. For investors with a multi-quarter horizon, Helen of Troy offers a favorable risk-reward profile with potential for meaningful multiple expansion as debt concerns and tariff effects moderate.
Rating: Accumulate on Weakness
Time Horizon: 12–24 months
Buy Target Range: $22 - 25
Sell Target Range: $55 – $65
Risk Factors: Execution risk in leverage reduction, tariff persistence, retail demand volatility
Helen of Troy will report fiscal third quarter 2026 results in early January 2026, marking the first full quarter under their new CEO Scott Uzzell’s direction.
Please note that the Woodworth Contrarian Stock & Bond Fund, LP, of which the Millegan Brothers manage and are invested in, currently holds a position of HELE as of the publication date of this article. They may or may not choose to decrease or increase their exposure to this name for any reason at any time. This is not a recommendation to buy or sell HELE or any other name - investments incur significant risk, our risk tolerance may be significantly higher than the average investor, and any discussion in this article does not take into consideration your individual circumstances.
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Quinn Millegan (left) & Drew Millegan (right)
About the Managers: Brothers Drew Millegan and Quinn Millegan manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.
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