As the dust starts to settle on 2020, beauty companies that successfully navigated the last year, like Helen of Troy, are turning their attention back to M&A growth.
With nearly $1.49 billion in revenue for fiscal year 2020, Helen of Troy pales when compared to the likes of L’Oréal Group or Estée Lauder Companies at $36.2 billion and $14.3 billion, respectively. But Helen of Troy has managed to become a stealth strategic buyer in the beauty industry, opting to carefully carve out a hair tools niche. Many leading CPG and beauty companies exhausted their appetite for aggressive acquisitions at the end of 2019, with Unilever’s acquisition of Tatcha, L’Occitane’s purchase of Elemis and Shiseido’s acquisition of Drunk Elephant. At the same time, alternative buyers like S.C. Johnson and Puig made notable purchases of their own, but have otherwise demonstrated limited interest in further M&A. Helen of Troy, which is smaller but still influential, has cash to spend.
Within beauty, the El Paso, Texas-based company owns mass brands like hair-care brand Bed Head and device brand Hot Tools Professional. It also has a housewares division with brands like water bottle company Hydro Flask, and a health and home division, with Vicks VapoRub and Honeywell appliances in its portfolio.
But Helen of Troy has greater ambitions in beauty. It notably acquired the product division of Drybar in Jan. 2020. More recently, in Dec. 2020, it signed an exclusive global license of Revlon hair-care appliances and tools for 100 years. The company paid a one-time, up-front fee of $72.5 million for the license. Beauty represents the smallest of its three company divisions, but it’s growing in tandem with the others. It delivered a total sales growth of over 56% year-over-year, including 40% organic net sales growth in the third quarter of its 2021 fiscal year. Its overall beauty division was buoyed by investments in new product development, customer support and Hot Tools sponsorships with partners like the Country Music Awards in 2020. Linda Bolton Weiser, a D.A. Davidson Companies analyst, said that she projects the company’s beauty division will reach $489 million in sales for fiscal year 2021.
“Beauty grew, in spite of Covid, not because of Covid,” said Julien Mininberg, Helen of Troy CEO, during the company’s fiscal year 2021 third-quarter earnings call in January. Mininberg said the company’s goal is to own “outright or preserve long-term use of the brands that are important to our portfolio.” This is part of the company’s Phase I of its business transformation, which was introduced in 2015 to improve the performance of its three business divisions and strengthen its shared service capabilities.
Newer Helen of Troy addition Drybar contributed net sales revenue of $17.5 million, or 16.6%, to segment net sales growth in latest earnings, beating some analyst expectations. With Drybar salons temporarily affected by government-mandated closures between March and June, the product side of the business represents a better long-term opportunity and already represents 80% of the brand’s overall revenue, according to Helen of Troy.
“[Drybar] improved sequentially again during our recent third fiscal quarter, despite retailers and salons still struggling with the challenges of stay-at-home recommendations in certain areas,” said Julianne Dubois, Helen of Troy senior director of marketing for Drybar.
To further invest in Drybar’s growth, Helen of Troy is giving its DTC website a major overhaul, with a slated debut by the end of March. Though Drybar declined to cite specific changes, there will be new content and entirely new backend systems that “cost a fair amount of money,” according to Brian Grass, Helen of Troy CFO. Grass noted during the earnings call that the new website would not stimulate demand in the fourth quarter, but that it is expected to in fiscal year 2022. Drybar declined to share investment figures.
Drybar is not the only portfolio star, either. One notable Revlon innovation, the One-Step Volumizer, has gained cult status through social media. It has now amassed more than 150,000 online reviews at an average of 4.6 stars on Amazon alone. The tool was called out in Helen of Troy’s latest earnings call for being referenced in Walmart’s and Amazon’s early holiday reporting. The Revlon business has also more than doubled “in recent years,” according to Mininberg in the latest earning call.
This is all amid a more significant decline in hair tool sales. According to previous Glossy reporting, Kline Group found that the U.S. market for hair tools and appliances declined by 1% in 2020 sales, propelled by a lack of blow dryer purchases. The hot tools category is not expected to return to normal until 2023, when it’s projected to reach 2% growth.
“Julien Mininberg has transformed the company,” said Weiser of the CEO who joined the company in 2014, “Helen of Troy used to be more like a holding company, under the previous management, and he has brought about shared services capabilities, and improved the performance of the company dramatically around margins and top-line growth.”
The company is now in its five-year Phase II plan for the business, which was announced in 2019. It includes further M&A, additional organic sales growth and margin expansion. It also includes divestment of its personal care business, which houses 12 brands like Condition 3-in-1, Vitapointe and Skinmilk. Previously the company has stated interest in its divestment in 2019 before calling it off that same year. But now Helen of Troy is targeting completion of divestment by the end of this fiscal year, in April. According to Bolton Weiser, the personal care business represents about $100 million in revenue.
Given that the beauty division is the smallest section of Helen of Troy’s business, and that it’s about to become smaller with the divestment in the personal care part of the beauty division, the only significant way to grow it again is through acquisition, said Bolton Weiser. Under these circumstances, Helen of Troy is poised to make notable acquisitions of prestige brands. However, she noted that the company could make acquisitions for its other business divisions, as well.
Regardless, Helen of Troy is not champing at the bit to make multiple acquisitions in one fell swoop. Ronald Anderskow, Helen of Troy global president for beauty, referred to the company’s M&A strategy as a “string of pearls” approach. The company previously attempted to enter the wellness market with the acquisition of Healthy Directions nutritional supplements in 2014, before selling it in 2017 at a loss. Therefore, Helen of Troy is taking a more cautious approach to future M&A.
“M&A is an important choice in our Phase II Transformation strategy,” Anderskow said. “We are disciplined and remain very selective to ensure we are adding businesses that complement our portfolio. We will also consider [incorporating] some early-stage innovators into our portfolio.”
As a result of this disciplined approach, Helen of Troy repurchased shares worth $191.6 million in the open market during the third quarter. Steven Marotta, a C.L. King analyst, attributes the stock buyback, in part, to a lack of suitable acquisitions for Helen of Troy to use its profits to make a purchase.
“Despite having the appetite for an acquisition, they will not compromise their rubric,” said Marotta. “If they don’t find something that is a leader in a new category with a growth opportunity that’s financially sound and is not a turnaround [project] — something that checks all those boxes — they will buy back stock like they did last quarter.”