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Growth Initiatives to Aid Spectrum Brands (SPB): Stock to Gain

Spectrum Brands Holdings Inc. SPB is a stock to watch, given its progress on growth initiatives and ongoing cost-takeout plans, which position it for long-term growth. The company is anticipated to retain the strength in its balance sheet position, enabling it to invest in its business throughout fiscal 2024. Its Global Productivity Improvement Plan and strategic transformation plans remain on track.

However, slower category POS and retailers’ focus on inventory reduction hurt the top line in fourth-quarter fiscal 2023. Soft sales trends in the Home & Personal Care segment due to lower demand and inventory reduction actions were headwinds. Higher marketing and advertising investments are likely to result in elevated operating expenses.

Shares of the Zacks Rank #3 (Hold) company have gained 4% in the past year against the industry’s decline of 24.3%. SPB also compared unfavorably with the Consumer Discretionary sector’s growth of 2.6%.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

What Keeps Spectrum Brands Strong?

Spectrum Brands is anticipated to retain its business strength through the focus on its four core pillars to drive growth. In this regard, the company is streamlining its organizational structure and re-energizing the employee base. It is committed to improving operational efficiencies throughout and limiting risk. Management is protecting and deleveraging its balance sheet while solidifying liquidity.

The company is focused on transforming into a pure-play global Pet and Home & Garden business. As part of the strategic transformation plan, it completed the sale of HHI to ASSA ABLOY for $4.3 billion in cash on Jun 20, subject to customary purchase price adjustments. It expects $3.8 billion in net proceeds from this sale. With the sale of the HHI business, the company can refocus on its core businesses and boasts a stronger balance sheet.

Additionally, Spectrum Brands is progressing well with its Global Productivity Improvement Plan (GPIP), which aims at improving the company's operating efficiency and effectiveness, while focusing on consumer insights and growth-enabling functions, including technology, marketing, and research and development.

The majority of the savings are expected to be reinvested into growth initiatives and consumer insights, R&D, and marketing across each of the businesses. This plan will also enable the company to deliver value creation and sustainable growth in the long term.

Spectrum Brands’ results continue to reflect gains from increased pricing, cost improvements and a favorable mix. This aided margins in fourth-quarter fiscal 2023. The company has been proactive in its cost-takeout actions, implemented in the second half of fiscal 2022, including fixed cost reduction by eliminating permanently salaried headcount and reducing advertising and promotional spending. These actions helped mitigate the EBITDA decline to some extent.

The gross margin expanded 2,100 bps to 33% in fourth-quarter fiscal 2023, while gross profit improved 2% year over year. Adjusted EBITDA advanced 52% year over year in the fiscal fourth quarter. The adjusted EBITDA margin expanded 540 bps to 15.4%, driven by better gross margins and interest income.

Looking ahead, the company’s actions position it to deliver EBITDA growth across each of its business units. Moreover, SPB expects consolidated adjusted EBITDA to improve in the high-single digits in fiscal 2024.

Hurdles to Overcome

Spectrum Brands suffers from retailers’ focus on excess inventory reduction due to the difficult consumer environment, which has been impacting its results. The company witnessed slower category POS and reduced inventory stemming from retailer inventory management strategies in the fiscal fourth quarter, weighing on its top-line performance. Although sales declined in the fiscal fourth quarter, the company noted that the pace of the sales decline has slowed down considerably.

Spectrum Brands' Home & Personal Care segment has been witnessing a category decline from lower demand, particularly in kitchen appliances, and continued retailer inventory management in North America. This impacted the segment’s sales in fourth-quarter fiscal 2023. Going forward, the company expects the macro-economic environment to remain drab and result in top-line pressure, particularly in the Home and Personal Care business.

Stocks to Consider

We have highlighted three better-ranked stocks from the Consumer Discretionary sector, namely The RealReal REAL, PVH Corporation PVH and Skechers SKX.

The RealReal currently has a Zacks Rank #2 (Buy). Shares of REAL have rallied 32.1% in the past year. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for REAL’s current financial year’s earnings per share suggests growth of 39.9% from the year-ago period’s reported figures. The company has a trailing four-quarter earnings surprise of 22.1%, on average.

PVH Corp has a trailing four-quarter earnings surprise of 18.9%, on average. It currently carries a Zacks Rank #2. Shares of PVH have rallied 34.1% in the past year.

The Zacks Consensus Estimate for PVH’s current financial-year sales and EPS suggests growth of 3.7% and 15.3%, respectively, from the year-ago period's reported figures.

Skechers has a trailing four-quarter earnings surprise of 50.3%, on average. It currently carries a Zacks Rank #2. Shares of SKX have gained 36.3% in the past year.

The Zacks Consensus Estimate for Skechers’ current financial-year sales and earnings suggests growth of 8.2% and 44.5%, respectively, from the year-ago period's reported figures.

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PVH Corp. (PVH) : Free Stock Analysis Report

Spectrum Brands Holdings Inc. (SPB) : Free Stock Analysis Report

The RealReal, Inc. (REAL) : Free Stock Analysis Report

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Zacks Investment Research