The Mid-Cap Stock Behind OXO Kitchen Tools Has a Gripping Future 

I recently had the opportunity to read an excellent article about the making of OXO. This company started with a potato peeler and quickly expanded into all kinds of household tools and gadgets intended to make your life easier. 

OXO founder Sam Farber launched his kitchen tools in 1990 at the San Francisco Gourmet Products Show. The company’s potato peeler cost 3x a conventional peeler. It became a hit with customers. The business took off from there.  

In 1992, Farber sold the company to housewares distributor General Housewares for $6.2 million. In 1999, General Housewares was acquired by KKR & Co. (KKR), which took all of its household-related companies, and created World Kitchen LLC. Five years later, El Paso-based Helen of Troy (HELE) paid $275 million for OXO or about 2.8x sales.  

Eighteen years later, OXO is part of a much bigger enterprise. The future for it and its mid-cap parent, Helen of Troy, remains very bright. 

Here’s why. 

A Diversified Business Model

When Helen of Troy acquired OXO in April 2004, its annual sales were $475 million. Adding OXO increased its sales by 21% overnight. More importantly, it gave the company a brand that consumers would grow to love. 

Today, Helen of Troy’s annual revenues are $2.22 billion, and its operating profit is $272.6 million, 57% of its 2004 revenue. More importantly, it’s grown from micro-cap to mid-cap, and with some luck, it will one day become a large-cap stock.

OXO is one of several company-owned brands that make up Helen of Troy’s Home & Outdoor segment (39% of sales). Its two other operating segments are Health & Wellness (35%) and Beauty (26%). 

Since 2020, the company’s undertaken a second four-year transformation to leverage its nine leadership brands -- OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools, and Drybar -- and the initial results are very encouraging.

For example, its revenue compound annual growth between 2014 and 2019 was 3.7%. In the three years since the transformation began, sales have grown 12.4% annually. The same thing happened with operating income and adjusted earnings per share.  

In 2014, its nine leadership brands accounted for 55% of revenue. In fiscal 2022, it was 81%.

While organic growth is an important part of Helen of Troy’s business strategy, acquisitions also play an important part in its transformation.

A New Third Segment

The company acquired Osprey Packs at the end of December 2021 for $411 million. As a result of this acquisition, it renamed its Housewares segment to Home and Outdoor to reflect the addition of the outdoor-focused backpacks business. 

Osprey generated approximately $155 million to $160 million in revenue in calendar 2021. In the first two months of calendar 2022, Osprey’s sales were $24.4 million. With Helen of Troy’s help, those sales should approach $200 million by fiscal 2024. 

On April 25, the company announced the acquisition of Curlsmith Prestige Hair Care Products for $150 million. The tuck-in acquisition of its parent, Recipe Products Ltd., gives Helen of Troy a leading position in the curly and wavy haircare category. Curlsmith’s calendar 2022 sales are expected to be at least $40 million. It will add to the Beauty segment’s already strong adjusted operating margins.  

“This transaction advances Helen of Troy’s strategy to invest in businesses that can accelerate profitable growth in categories where we can add value and leverage our scalable operating platform,” stated CEO Julien Mininberg in its press release.

It might not deliver blistering sales growth. However, if you buy the stock today and forget about it for 10 years, there’s a good chance you’ll be sitting on significant gains a decade from now.      

The Valuation Rationale

In 2014, at the beginning of the first phase of its transformation, Helen of Troy’s online sales accounted for 6% of revenue. Today, it’s 4x that amount. At around one-quarter of sales, it makes a nice balance to its brick-and-mortar channel. 

In 2022, HELE stock has lost 35% of its value. Its 52-week high in December was $256.26. That was an all-time high. It was due to let off a little pressure. A bear market certainly accelerated its correction. 

As a result, HELE now trades where it did in April 2020, more than 24 months ago. Its price-to-sales ratio is 1.69, 27% lower than its five-year average. Its P/S ratio hasn’t been this low since 2017. All its other financial metrics point to a stock that’s undervalued. 

Over the long haul, Helen of Troy has proven to deliver for shareholders while outperforming the markets.   

Above all else, this mid-cap has proven with brands such as OXO that it knows how to acquire, integrate, and grow brands, making them better than they were before joining Helen of Troy. 

If you’re like me and you gravitate to stocks that fly under the radar, Helen of Troy is a diamond in the rough that’s got a gripping future.   

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