Q4 2020 Edgewell Personal Care Co Earnings Call
[music].
Good morning, everyone and welcome to the edge well Q4 2020 earnings conference call.
All participants will be in a listen only mode.
[laughter], placing all conference specialist by pressing the star key followed.
Advice Bureau.
After todays presentation, there will be an opportunity to ask questions. Please.
Please also note todays event is being recorded.
At this time I'd like to turn the conference call over to Mr., Chris Gough Vice President of Investor Relations. Sir. Please go ahead.
Good morning.
We want to thank you for joining us this morning, as we discussed as well as fourth quarter of fiscal year 2020 earnings with me. This morning are Rod Liddle, our president and Chicken Chief Executive Officer, and Dan Sullivan, Our Chief Financial Officer, Rob will kick off the call and then he will hand, it over to Dan to discuss our results and we will then transition to QNX. This call is being recorded and will be available for.
I guess I'd be our website www dot edgewell dotcom during the call. We may make statements about our expectations for future plans and performance. This might include future sales earnings advertising and promotional spending product launches savings and costs related to restructuring changes to our working capital metrics currency fluctuations commodity.
For real costs category value future plans for return of capital to shareholders and more any such statements are forward looking statements, which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption risk factors in our annual report on form 10-K for the year ended September.
I think its thirtyth 2020.
These risks may cause our actual results to be materially different from those expressed or implied by our forward looking statements. We do not assume any obligation to update or revise any of these forward looking statements to reflect new events or circumstances, except as required by law there.
During this call we will refer to certain non-GAAP financial.
Measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are shown in our press release issued earlier today, which is available at the Investor Relations section of our website management believes these non-GAAP measures provide investors valuable information on.
Underlying trends of our business with that I would like to turn the call over to Rob.
Thanks, Chris and good day to all joining us.
I hope everyone is well as we work our way through the ongoing call. It 19 pandemic.
I will keep my comments relatively brief today and we'll be updating you on our overall strategy.
Did you at next weeks Investor Day session.
I will provide a summary of our improved topline and overall financial performance in the quarter.
Including a discussion of the current environment and its impact on our results.
I will then discuss the progress we made this year against our key strategic initiatives and how.
Now we are advancing toward sustainable top and bottom line growth.
You'll hear a lot more about these initiatives next week.
I'll wrap up with a summary of our outlook.
Growth in fiscal 2021.
And then as always Dan will take you through the specific details around both our Q4 performance.
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I met the challenges presented by a global pandemic. This extra ordinary year I could not be prouder of the entire edgewell team across the world.
And all that they accomplished this fiscal year.
I want to personally thank our employees, whose commitment and determine.
Termination allowed us to maintain continuity global operations in an unprecedented pandemic impacted environment.
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Disciplined commercial investment and sharp management of expenses and working capital we successfully navigated this difficult period.
Responsibly invest.
In our brands and now we exit the year in a strong financial position with ample liquidity.
Third our entire organization coalesced around our key strategic initiatives to improve underlying top line trends and bring stability to our results.
While there remains plenty of work.
To do we made notable progress in fiscal 20.
Fourth we have made good progress in increasing internal capabilities with a focus on impactful innovation improved brand marketing and integrated digital capabilities.
Finally, we over delivered on our fuel.
Test program.
Demonstrating a core capability that not only served us well and 2020, but we'll continue to be a source of strength moving forward then we'll say more about this shortly.
We're pleased to close out an unprecedented fiscal year with a quarter that demonstrating a return.
Okay, and more stable underlying top line performance and solid gross margin gains. Despite continued global category headwinds in our core wet shave and Sun care segments.
Our improved performance in the quarter was driven by strength in some of our key focus areas, including well.
And buns, North America Sun care men's grooming and women's wet shave.
It also reflected good execution against our strategic initiatives, particularly in E commerce.
Our strategic focus continues to be on strengthening our brands in both men's and women's wet shave.
Sending our market strengths in Sun care, and men's grooming and leveraging the unique opportunities afforded to our category leading ones brand.
Well, we are encouraged by this progress work clearly remains.
Same care results were disappointing in the quarter.
Although in part.
The result of the previously discussed distribution losses at Walmart relate it to the April Planogram resets.
We know the path back to a flat top line in this category will take time and require better brand activation and execution at retail.
Overall quarter four is a good indicator.
Operator of the progress, we're making across our four business and it positions us well in fiscal 2021 and beyond.
In the U.S. in particular I'm pleased with the results in the quarter.
In Sun care are flat consumption results amidst a declining category. So further share gains.
In skin care are ones that brand again outpaced the category with consumption increases well ahead of significant category growth leading to continued share gains.
And in wet shave, our schick brand held share in the quarter. Despite the previously communicated distribution losses.
Sands with particular strength in womens where weve returned to growth following the new campaigns launched at the end of the second quarter.
And while there is opportunity for improvement across our portfolio. We are encouraged by the clear signs of meaningful progress being made in the U.S. market.
The key point of focus for US entering 2020 was to continue the underlying stabilization of our topline gross margin and cash flow profiles. The current cobot environment notwithstanding.
This has always been an important first step in reshaping our business.
I'm pleased that on an underlying.
Basis, we largely achieved this goal in fiscal 2020, despite the meaningful disruption across most of the categories in which we compete as a result of Cove at 19.
What's the underlying organic sales and gross margin rates essentially flat year over year and having generated 100.
$90 million and free cash flow.
We enter 2021, well position to execute against our new strategy. Despite.
Despite what will surely be continued headwinds related to cope at 19.
Our global operations and supply chain have proven to be a critically important strength of the business.
And this is one of the foundational elements of our company and.
And in this current pandemic impacted environment. It has never been more important to the success of Edgewell.
Our teams have taken necessary steps to ensure safe operations at all of our manufacturing plants.
Maintain the continuity of produce.
Sure and availability of the central products to consumers and all of our global manufacturing plant and distribution centers remained open and fully operational.
In the midst of the most challenging of times. This team also demonstrated great agility as they quickly brought on incremental capacity.
Thank you our weapons business, adding an additional production line, while increasing third party manufacturing supply to better meet market demand.
Having a more stable business underpinned by strong manufacturing technology and IP is a great foundation for the business.
And there are many other steps we took this year to improve the fundamentals of our company.
We've reshaped our leadership team and also continued to build critical capabilities across the organization.
Specific focus and our digital brand marketing and R&D teams.
We over delivered on the.
<unk> cost reduction targets for project fuel and now expect gross savings through fiscal 2021 to be in the range of $265 million to $275 million.
With these demonstrated capabilities core to how we will run the business going forward [noise] disciplined cost management while.
Generating fuel for growth will continue to be an important element of our business model.
Next we invested behind our strategies although.
Although much of our gross savings went to offset higher input costs and the effect of lower volumes over the past few years, we've been able to find important strategic areas of our.
Gretna's, including our Sun care and grooming businesses, the new women's wet shave campaigns in the U.S. and reinforcing our market leading positions in wet shave in Japan.
As I said, we've also invested in enhanced capabilities that will be fundamental to our go forward strategy.
But including E Commerce, and digital brand marketing and R&D.
We increased our focus on strengthening our key retail relationships and partnerships.
I have personally made it a priority to improve and expand our retail partnerships.
Listening to the needs that our retail partners.
Using these insights to improve execution and serve as an important considerations as we co develop unique offerings for the consumer.
Ultimately the impact of these efforts will play out in the spleen Planogram resets.
I'm encouraged by the direction of the discussion so far.
He made important portfolio shaping M&A decisions divesting non core assets and pet care business last December.
An increasing our presence within the fast growing men's grooming category is demonstrated by the closing of the criminal acquisition in the fourth quarter.
Now bring to market.
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Allowing us to compete effectively across all price tiers.
We are extremely well positioned to capitalize on the attractive growth profile that insurgent brands offer in the category.
And lastly, we have designed to an activated a new culture.
Redefining as well has always been about more than our brands and business model.
I've discussed the importance of having the right talent and work environment for our employees and our commitment to creating a culture that attracts and retains diverse world class highly engaged talent.
We are a company that is hungry to win.
Well, just self accountable and is committed to responsible.
Environmental social and governance practices.
In the third quarter, we unveiled our sustainable care 2030 strategy, establishing 10 bold and comprehensive ambitions for the next decade, and reinforcing our role in creating a sustainable future.
Summary, these actions I have described are fundamental to our go forward plan and they are already paying dividends as we made solid progress against each one in fiscal 2020, and we will build on this progress again in fiscal 21.
As we look to fiscal 21.
We are paid.
Pleased to be able to reinstate a financial outlook despite obvious unknowns in.
It is difficult for us to fully contemplate the impact in duration of the current COVID-19 environment.
And as such are forward looking outlook contains a higher than normal degree of uncertainty.
However, despite these.
No no and we felt that it was important for us to be as transparent as possible as we set our expectations for fiscal 21.
What we do know is that we will continue to manage the business with strong discipline and agility and be ready to pivot as conditions necessitate and as the year progresses.
Our team continues to demonstrate an unrelenting commitment to transformation and improvement in a challenging environment.
And we have to find their go forward strategy for edge, well certain elements of which you have already seen in practice.
Following the underlying stabilization of our business in 2020.
Fiscal 21 is an important year for us and we expect.
Organic sales growth in the low single digit growth range.
Bridging our compelling offerings in men's grooming and Sun care and capitalizing on durable demand with wet ones.
Importantly, the foundation.
Additional improvements seen in 2020, we will continue to take and investment stance with respect to our priority brands and markets.
During strong discipline and agility as the markets in which we compete football.
The project fuel will again be a core driver of value creation with expected.
Gross savings of $60 million next year.
With a business poised for topline growth coupled with the strengthening gross margin profile.
We also anticipate operating profit growth and another year of healthy free cash flow generation.
Before turning the call over to Dan.
I want to again recognize the extraordinary efforts of our teams across the company.
Extend my gratitude to each and every team member there.
Their hard work and dedication enabled our progress in fiscal 2020.
We head into fiscal 21, we are confident in our positioning and excited to exit.
Thank you on the next chapter of growth for Hydro.
And now I'd like to ask Dan to take you through our fiscal fourth quarter and full year results and to share more detail on our outlook for fiscal 21.
Thank you Rob and good morning, everyone as Rob discussed we were pleased to close out the year.
During the quarter that demonstrated a return to more stable underlying sales and gross margin performance. Despite a backdrop for our core categories that continue to be impacted by the effects of covert my team.
We saw some improved category metrics in North America, wet shave Sun care and personal hygiene categories in the fourth quarter, but overall we continue.
Our win rate in a highly challenging and uncertain environment.
So as I mentioned a quarter ago, we remain highly focused on managing the business with discipline focused equally on near term efficiency, while taking the right steps to position us well for sustainable growth.
We've stayed laser focused on our core priorities first.
Execution against our commercial and operational strategies, both short and long term.
We saw the benefits this quarter best illustrated by our successful efforts to win in the market during the extended Sun care season in North America, and also with wet ones. We're agile disciplined capacity expansion provided immediate benefits.
Second.
Strengthening the balance sheet by ensuring a strong liquidity position with an emphasis on maximizing cash.
The strong financial discipline, and working capital management, we were able to deliver a 16% increase in cash from operations in the quarter and a 22% increase for the year, resulting in a $190 million in free cash flow generation for fiscal.
School 2020.
Third maximizing our brand building investments by optimizing our media mix, increasing our digital focus and improving in market execution, while prioritizing those investments with the potential to generate the highest returns.
The benefit of increased and more targeted investment levels was evident in our results across women shave.
And North America Sun care.
And fourth executing on projects fuel, where we delivered another quarter of meaningful gross savings and have now increased our three year savings target by about $40 million to $265 million to $275 million by the end of this fiscal year.
We executed well.
Against these priorities, which coupled with sequential category performance improvement enabled us to outperform our own expectations for the quarter and significantly improve our performance versus a quarter ago. We.
We believe this sets us up well to deliver organic net sales and adjusted EBITDA growth in fiscal 2021.
Now I will turn to the detailed results for the quarter.
Organic net sales in the quarter decreased 3.5% a substantial sequential improvement from Q3.
Net sales results improved as the quarter progressed and slightly exceeded our internal expectations. This.
This improved performance was driven by North America with organic sales growth.
Every year of about 3% with.
Within North America, wet shave improved sequentially down about 1% from Q4 last year with women shave growing nearly 13%.
Sun and skin care organic net sales increased over 40% in the quarter driven by good end of season execution in Sun care and continuous.
And you'd accelerated wetlands growth.
International organic net sales declined about 10% in the quarter when adjusting for the impact of last year's consumption tax loading in Japan, reflecting solid sequential improvement from last quarter.
International Sun care was again significantly impacted by the ongoing effects of COVID-19 on tourists.
The client markets.
Our ecommerce business, which for the year represented 7% of total company net sales grew organically by 97% in the quarter with strong growth in all regions and all segments as our efforts to deploy a digitally enabled consumer platform gained traction.
In our largest ecommerce channel.
Strong sales for the full year increased by 90% and we gained 240 basis points of market share.
Looking at performance by segment wet shave organic net sales decreased 5% in the quarter largely driven by COVID-19 related category declined globally cycling the pre consumption tax selling in Japan.
And the impact from the noted distribution losses in North America, partly offset by growth in women's private label shape.
In the us the razors and blades category was down about 6% a sequential improvement over last quarter's decline of 10%.
The decline in the quarter was largely driven by men systems down 9% with.
Continued transitory declines in shaving incidences for men reflective of the continued work from home environment.
Women's systems increased just over 1%.
For the 12 week period, our us market share in razors and blades declined 180 basis points consistent with last quarter and 52 week performance reflects.
Selecting distribution losses at Walmart and Sam's club and heightened competitive pressures in the men's category.
However consumption results in the quarter do point to signs of progress in our wet shave business.
Total share for the ship franchise was essentially flat in the quarter. Despite the lost distribution in Sams and Walmart a significant.
Again improvement from the 52 week trend of down 130 basis points.
Women's disposables grew almost 8% with share gains of 120 basis points, driven largely by skin summit and reflective of distribution gains at B-j's increased promotional support and strong response to our new brand campaigns.
In.
The brand is systems, where we maintain a 30% share position, we declined 7% entirely result of distribution losses, most notably on intuition Bob.
Hydro sales gained 40 basis points of share benefiting from the strong media push behind the new campaign.
Importantly, schick women's continued.
To perform well on Amazon driving 220 basis points of share gains in what is the third largest women shave customer.
And while our men's branded shave business results remained sluggish in the quarter, excluding the distribution losses at Walmart and Sam's Hydro share was flat for the second consecutive quarter.
Lastly.
Shave preps continue to follow similar patterns as the razors and blades category, and we realized 170 basis points of share gains.
As we have said stabilizing our wet shave portfolio is a critical objective for the business and while work remains we are certainly encouraged by recent performance, especially in our women's branded and disposable.
Both categories.
Looking ahead to 2021, while it's still too early to have a complete read a final outcomes. We continue to anticipate that the plan a gram resets at our key strategic retail partners will likely result in a mostly neutral impact versus today across our wet shave portfolio.
There certainly will be puts and takes.
Our aggregate expectation on both men's and women's is for consistent item and facing counts.
Sun and skin care organic net sales increased nearly 9% driven by strong demand for wetlands and 37% growth in North America Sun care.
Partly offset by international which continues to be significantly.
Only affected by Cobot, 19, and the resulting impact on travel to global tourist destinations.
In the us the overall Sun care category declined about 2% in the quarter a marked improvement from the 18% decline seen in Q3 as favorable weather was a catalyst for an extended some season in the us and our brands.
It's continued to perform extremely well.
Anna boat and Hawaiian Tropic gained 60 basis points of share in the quarter with stronger velocities and increased distribution just.
Despite a highly disrupted category our full year results in us on care were strong and our full point of market share gains as evidence of our improved assortment compelling innovate.
Patients and impactful consumer communication.
Men's grooming organic net sales decreased 3.4% in the quarter driven by the impact of Coca 19 related category declines in the U.S market and Europe.
Despite the challenging cobot environment, our grooming business grew almost 5% for the full fiscal year.
Led by 9% growth in Bulldog.
Wetlands organic net sales increased 85% with continued strong demand for products that meet consumers' heightened hygiene and sanitation needs with growth further enabled by our ability to increase capacity.
In the quarter the category increased by 31% and.
Gained 130 basis points of market share.
For the full year, we grew the business by about $40 million, capturing over 500 basis points of share gains in the category.
As we enter fiscal 2021, we have essentially doubled our internal capacity versus pre cobot levels through a combination of capital investment.
We and extended operating hours, while also increasing third party manufacturing all in an effort to further capitalize on this consumer led focus on personal hygiene in support of our category leading brands.
Feminine care organic net sales decreased 11% as compared to the prior year period with half the declines attributable.
Distribution losses, most notably related to general glide at Walmart.
The remainder of the decline resulted from overall category softness due to COVID-19 related pantry loading in the fiscal second quarter and the impact of increased competitive pressures.
In terms of consumption Femcare category sales declined 3.5%.
And our market share declined 180 basis points.
In the quarter, our focus was on activation for carefree brief with increased brand spend and feature and display activity and we remain encouraged by the continued growth in trial and repeat rates.
For the year Fem care organic net sales were down 3% versus.
As a 6% organic sales decline in 2019.
We lost about a point of market share.
Moving down the piano gross margin rate on an organic basis increased 90 basis points year over year to 45.4% driven by lower trade promotional spend higher sun care pricing in the us and savings from.
Our cost reduction actions related to project fuel.
NP expense this quarter was 12.4% of net sales as compared to 11.3% of net sales in the prior year period.
We remain committed to investing in our strategic brands and markets and deploying incremental investments in areas of expected highest return.
We.
Continue to reshape our GMP profile and in the quarter, our working dollars increased over 17%, including digital spend which grew by 25%.
Our investments were focused on the activation of the new hydro silk and intuition campaigns, the new Wilkinson Sword Master brand campaign in international markets and support.
According the extended Sun care season in North America.
SGN, a including amortization expense was $101 million or 20.7% of net sales.
Excluding onetime costs as well as acquisition and integration costs X gene a increased $6.6 million versus the same period last year.
This was primarily driven by increased compensation and incentive costs and higher bad debt provisions largely related to COVID-19.
GAAP diluted net earnings per share were 38 cents compared to 75 cents in the fourth quarter of fiscal 2019, and adjusted earnings per share were 59 cents compared to 86 cents in the prior year period.
Now, let me turn briefly to the full year. Although this was an extremely challenging year and our key categories were significantly impacted by headwinds related to COVID-19, we were encouraged by the underlying stability, we drove in our topline and gross margin in fiscal 2020.
The year essentially played out across three.
Distinct time periods.
Over the first five months ended February organic net sales were up almost 2% gross margin rates had improved about 60 basis points and we saw solid year over year gains in adjusted EBITDA EPS and free cash flow of course things change dramatically in the months of follow and after an initial topline benefit in.
In March due to consumer pantry loading we saw dramatic declines across most of the categories in which we compete.
Leading to steep top and bottom lines declined year over year in Q3.
And then in Q4 as we saw some modest category improvement, we executed our plans extremely while accelerating our fuel efforts and.
Investing in our brands in a disciplined and highly effective manner and generating significant free cash flow as such Q4 reflected a return to a more structural stable business. Despite continued uncertainty around the virus.
Organic net sales for the year decreased 4.4%, including an estimated $100 million impact.
Come COVID-19.
Excluding this we estimate that organic net sales would have been essentially flat gross.
Gross margin rate increased 10 basis points year over year, reflecting the benefit of project fuel savings favorable commodity tailwinds and lower promotional intensity largely offset by the impact of lower volumes and unfavorable category and product.
Mix.
We generated $74 million in gross savings from project fuel in fiscal 2020 slightly above initial expectations as we accelerated efforts in response to the uncertainty created by the pandemic.
As we discussed last quarter, our business model is defined by strong operating cash flow generation and efficient free cash flow.
Correct version, which we demonstrated this year, despite significant top and bottom line headwinds.
Net cash from operating activities for the full fiscal year was $233 million, a 22% increase year over year.
Free cash flow was $190 million driven by improved working capital performance and lower Capex.
Okay, and we strengthened our balance sheet.
During the year, we focused on solidifying our capital structure successfully refinancing and upsizing to our $750 million 2028 notes and executing a $425 million revolving credit facility.
These efforts greatly stabilized our capital profile, which now has a weighted average maturity.
Surety of five years, and a weighted average interest cost of 5.3% we.
We ended the year with $365 million in cash on hand, after closing the Cromwell transaction and a net debt leverage ratio of 2.6 times.
We have ample liquidity with our cash balance plus full access to an undrawn 425.
One dollar credit facility.
So as we enter fiscal 2000 loan despite the uncertainty related to COVID-19, we do so from position of operational and financial strength.
And that brings us to our outlook for fiscal 2021.
Our intent has always been to reinstate a financial outlook for our business once we had greater visit.
Visibility into our categories, our markets and our business.
As Rod mentioned, while there remains a great deal of uncertainty about the path and duration of COVID-19, we do have better insights into many of the components that we expect will drive growth in our business in fiscal 2001.
Having said that given the macro environment and unknowns.
Associated with the virus, we enter the year with greater uncertainty than normal.
For fiscal 21, we anticipate low single digit organic net sales growth fueled by meaningful tailwinds from our wetlands brand.
As continued durable demand and increased capacity and product availability drive further growth in that business.
So we also expect continued topline headwinds as a result of COVID-19 in the first half of the year with anticipated gradual recovery later in the fiscal year.
As such we anticipate slightly declining organic net sales in the first half of the fiscal year.
And mid single digit organic net sales growth in the second half of the year.
As we anniversary the impact of coated and expect some modest recovery.
Adjusted operating profit margin is expected to be largely in line with 2020 levels on a full year basis as further fuel execution and slight commodity cost tailwinds continue to strengthen our gross margin profile, while we remain in an investor.
Our current stance with respect to HPP in support of our growth outlook. However.
However, we expect significant operating margin rate contraction in the first half of the year on the heels of large increases in advertising spend and more modest increases in R&D and SGN, AE and resulting de leverage given first half sales declines.
More specifically in Q2, our planned step up in brand investment and resulting expense deleverage reflects investments behind our new brand campaigns timing of our new product launches and cycling abnormally low levels of MMP spend in Q2 last year.
Adjusted EBITDA is expected to grow largely in line with organic.
Sales growth on a full year basis.
Quarterly interest expense is expected to be about $17.5 million.
Adjusted EPS is expected to be in the range of $2.62 to $2.82 and is inclusive of approximately 22 cents of headwinds equally attributable to last year's infant.
For divestiture and higher interest expense associated with the 2028 notes.
And we expect that approximately two thirds of our adjusted EPS will be delivered in half two of the fiscal year.
Fuel gross cost savings organics affected to be strong at about $50 million to $60 million and free cash flow conversion is expected.
And can be approximately 100% of non-GAAP net earnings.
For more information related to our fiscal 2021 outlook I would refer you to the press release that we issued earlier this morning.
In summary, we close out a historic and unprecedented year with demonstrated progress towards stabilizing our underlying business trends there.
It remains.
James work to be done and we're encouraged by the foundational efforts and clear progress made in 2020.
These efforts have set the stage for top and bottom line growth in fiscal 21, and beyond and we look forward to sharing more about this at our Investor meeting next week, I'm, not going to and with that I'll turn the call back over to the operator to start the Q and a session.
Ladies and gentlemen at this time, we will begin the question and answer session.
Good question you May Press Star then one using a touchtone telephone.
If you are using a speaker phone what you ask you. Please pick up your handset before pressure like eastern shore, the best sound quality.
So it's all your crisis, you May press star and two.
Again that is star and then one to ask a question.
We will pause momentarily to assemble the roster.
And our first question today comes from Bill Chappell from Trust Trust Securities. Please go ahead with your question.
Thanks, Good morning.
Hey, just wanted to do.
Follow up on the kind of the the brand spend that you're talking about especially as we move to to kind of the second quarter and maybe get a little more color and we make a decision based on a week, but where they are which brands you know kind of the focus doesn't understand is this on the ship franchises. This on fem care.
There is this on some of the newly acquired brands like Primo and just trying to understand what the focus of that heavy spend will be in the same vein, maybe if you can talk about.
Early signs early readings of kind of where you will fit followed the planogram resets in terms of like Fem care. If you if your.
You're losing share continuing or its that stabilizing just any early read as we go to the spring both for spending and kind of shelf space would be great.
Yes, Thanks, Bill good morning, I'm going to hear from you.
On the on the first one on the brand spend for for the.
A year ahead, you saw us here in the fourth quarter start to pivot and put more investment behind the business and.
And we do expect that to continue into next year.
Dan and Chris can you quantify kind of how we think about that.
Within the guide but.
We like our campaigns better.
In terms of what's coming to the work being done on the targeting the messaging of the brands. It's just better and so we do feel like it's the right time to start to dial up some of the investment input what that investment back in.
Yeah.
Good to see it broadly across the portfolio, we actually have increased investment in shave broadly.
It probably skews a little heavier towards women's when you look at some of the campaigns that we've launched here in the back half and women's Theyre working it's driven our women's business back to growth.
Grooming is an area, where we have been in investment mode.
On both Bulldog and Jack Black now for the last couple of years.
Increasing our investment year on year, not only in dollars, but keeping the absolute percentage very high.
That will continue you will see us put more investment against.
Demo, so that that men's grooming space, which has been growing nicely and we expect to continue we'll we'll get more investment and.
And then Sun care is another area, where we look at it there is a big question Mark still on the category and how that plays out, but we like the campaigns, we like where.
Both brands are going the messaging is resonating with consumers you saw that in our share growth. This year in that business and so that would be another area, we'd look at as far as the plan O grams if.
If you look across wet shave broadly.
Here in the us.
It's a very.
Very interesting point for us in time, we look at the plant a gram outcomes in shave as basically being unchanged.
In the year to come versus where we sit today.
Despite all the competitive intensity, we expect to have stability in the plan a gram which is the first.
Clearly, we will have had that in the last three or four years one of the problems we've had in the business.
It is our ideas.
At the brand level haven't been good enough to resonate with the consumer.
We havent had velocity at shelf in our retailer partnerships haven't been strong enough.
That's a dangerous combination it ultimately leads to a decline in shelf space and quality. This is the first year, where we feel like we will not lose sales space nor quality.
So again, we got to let that play out in the spring, but thats, what were seeing and across Sun care wet ones. We obviously feel really good about.
About disk.
Distribution outcomes, there fem care still.
Wildcard I would say again I think we're optimistic that we'll.
Have a have a positive to neutral outcome. There, we actually want to get some back that we've lost there we're still working on some of that so thats.
One question.
Got it. Thank you and just one quick follow up what are what are the expectations for next year for for Sun care in terms of international I mean, I think that was the bigger hit in terms of the less international travel and I'm you know I guess, it's we're all kind of questioning whether there is a whole lot of international travel to.
No way beaches.
In most of 2021, so any thoughts there.
Yes.
It's it's an issue.
Bill as long as travel is restricted to.
These tourist beach locations, the bulk of our international business, particularly in Asia and Latin America.
Our fueled by that tourism traffic and so as long as that's down.
I expect our business and Sun care to be down internationally.
Again, who knows when that when that opens that we've tried to be prudent in terms of how we plan. This in us and Europe, it's different.
There. There's why you don't have the same level of tourism travel potentially you know by airplane you have people finding a way to be outside and knowing they need to protect themselves. So I think the bulk of our business sits in U.S. mainland Europe, but your point is right on the international markets.
Great. Thank you.
Thanks, Bill Operator next question please.
Our next question comes from Jason English from Goldman Sachs. Please go ahead with your question.
Hey, guys. Good morning, Congrats on a strong finish to the year.
And thanks for the welcome news I'm quite aggressive next year Thats certainly a relief.
Okay.
Gain on the last line of question International I mean, we can stay stay abroad on areas.
The pond and you could walk us through how your wet shave business is performing maybe in Europe, and Asia and how your your growth initiatives are advancing a little.
Yes, good morning, Jason and thank you for the comments.
The what.
Jay business internationally is I would say challenged.
At the moment, it's nothing about our lack of competitiveness. That's fine. It's the category is still challenged we shave incidents being down due to call the 19th.
You know a few you go region.
By region.
Latin America has been heavily impacted.
By by this and it's primarily a disposables business there and.
And so until we get to the other side of COVID-19, I think we'll still see some headwinds there, particularly in the first half of the year. It starts to moderate once we lap and get to.
The second half of the year.
Europe is much the same as it looks similar to the U.S., we believe in terms of shave incident rates.
And then in Asia, you, you've got them coming out the other side of the pandemic first.
We actually had.
Negative fourth quarter in Asia, but it wasn't anything to do with over 19, we were lapping a big.
Ship in the prior year in Japan around that tax changes when you take that out we're seeing Asia start to normalize and so I think Asia would be the leading region.
To come through this and our performance overall vis-a-vis competition.
Our share position internationally has been very stable.
And Japan, a big market for us, it's actually been quite good. So it's primarily a covert story until we clear that with our our relative.
Competitiveness versus the category.
Largely BNS category average.
Got it that's helpful. Thank you and.
And one more question, if I may switching gears entirely to capital allocation.
Well again, you guys are effectively calling this the transition the inflection for the business.
We thank you.
Stability you are at a turning point a year on the Costco returning to growth.
The market doesn't seem to believe you based on where the value in your stock is still valuing is a secular declining business. If you will so much confidence and conviction why not be more aggressive on buying back your shares you got enough cash on hand at the buyback 20% of your market cap right now.
If this is really the inflection isn't that the best use of cash and capital at this point in time.
Hi, Jason you know, we'll talk more about this next week at the Investor Day.
But you know we like the the investments we're putting in into the organic business.
Yes, now we.
I really like the chromo transaction.
The pricing that that went off that in the ability effectively for chromo to not only be.
Very successful on its own.
But for that to give us a halo back across the balance.
Legacy Edgewell brands in terms of how we build activate the brands connect with consumers.
We have more interesting dialogue with retailers. So we definitely want to fund all of that because we think we do think there is growth to be had.
But there is plenty of excess cash.
Or return.
Turning capital to shareholders, while maintaining a very responsible debt load and so we'll talk more about that next week, but share repurchase is definitely something that we see as being part of the mix.
Understood. Thank you very much I'll pass it up yes.
Yes, Thanks, Jason Operator next question please.
Our next question comes from Olivia Tong from Bank of America. Please go ahead with your question.
Great. Thanks.
So just sticking on wet shave for a second I understand your commentary about kind of guidance, which is great. But can you talk a little bit about the space allocated to shaving and grooming overall does do you think that stayed the same if we are still disproportionately.
I'm home is there any concern that there will be less space or the total category not necessarily just now but.
In years to come as well thanks.
Yes, good morning, Olivia Thanks for the question.
We're not seeing any material changes to the wet shave space.
With retailers and in fact, we.
When you get into the grooming territory, there is actually incremental space being allocated.
To the men's grooming.
So for example, if you just go walk the aisles, you actually see that already that passes the test, but we're not seeing wet shave Luke.
Lose space within the footprint of the stores I think you know retailers look at it the same.
Same way, we and probably our competitive set look at it as there is a transitory event here in Cove at 19.
That is putting people at home rather than in the office in social situations, which has reduced shave incidents I think you you.
Go back to what was the category doing prior to COVID-19.
The globally and even domestically here within the U.S. the category was flat to slightly up flat to up 1%.
And so the view is I think you've heard of some of our competitors talk about this I share the same view that the category.
Lori will return to that flat to slightly positive place. We believe once we get to the other side of COVID-19 until then.
We're just going to have less shave incidents.
And.
That's kind of how we look at it I think the retailers see it the same way. So there's no need to go do a dramatic.
Shifting to space allocation until we get to the other side and I think we return to normal.
Great Thats helpful. And then just a follow up can you talk a little bit about the promotional environment across your category, It's just a little bit more detail.
Gross margin expectations for the coming year pricing plans.
And then specific.
The Q4, you've obviously got a little bit of M&A related improvement is that a one time step up or is this more a function of just replacing lower margin feminine care.
With a higher margin skin care business.
Yeah. So the.
The competitive environment.
I think in general is very very high, particularly if you look at wet shave.
And what's happening across the competitive set so within that it's probably as competitive as I've ever seen it in terms of number of brands and players.
With that.
It does potentially lead to some promotion.
No intensity.
Yeah, we feel like we're in a good spot with our plan of having you know reflected that not only in the last couple of quarters.
But as we go forward you know we've got that all baked in.
To our planned it does have us returning to growth and.
Gross margin expansion.
And so I think the the wet shave intensity is high in Sun care.
Wet ones and some of the other categories you see it.
In that grooming skin space, you've actually seen promotional intensity be down.
Socialist promotional over the last couple of months.
And then in Fem care there was a very promotional period is the big stock up in our Q2 and load up.
And then consumers have been working off that pantry load even in the last quarter in Fem care, we were down the category was down three and.
A half percent.
And on top of that we lost share in the quarter due to a heavy promotional spend by our competitors.
We didnt match at the same rate.
As we get into October November we start to see that moderate and returned to more normal levels. So it's very different by category.
But overall I think it's a pretty competitive environment, we've got baked into our forward looking plans.
Great. Thank you. Thank you. Thanks, Alexia operator next question.
Our next question comes from Nik Modi from RBC capital markets. Please go ahead with your question.
Thanks, Good morning, everyone. So maybe just a quick clarification, then I have a broader question on the womens what's your real. Good result, there can you just talk about you know where there was was there anything else outside of just the advertising I'm just trying to understand like we like where are you really getting that could have a return on the AD spend or was there an all new.
Product launch just some timing issues that that goes that number to be so good.
Yeah Nick.
It was it was strength.
Across.
The cross disposables was a key area for us.
Is a new.
[music].
Brand that we are building out beyond preps as you've seen us consolidate all of our women's disposables, where we had three or four different disposables sub brands.
Underneath the skin intimate brands singularly, so weve consolidated under skin intimate on the disposables range and we've launched.
Really cool new systems.
Launch with within scant them in as well so skimped him in as a brand it's been very strong for us.
Hydro silk has a new is not a new launch, but a new campaign.
Against a really interesting growth area.
Within the women's grooming space around Derma planning and we have hydro silk touch up that we've launched and put a campaign around where it goes at.
Eyebrows of the new lips in amassed environment, where the lips.
Your mouth or sometimes shouldn't the expression comes from the eyes and eyebrows and so we were right on trend with a really good tool to help women shape their eyebrows and so that that's been successful for us.
Then the private label business when we look at.
Table in our supply there that's been very strong as well. So there's there's not a singular thing. It's it's across all of those elements and frankly, it's just really good execution by our teams.
Excellent and I guess the broader question I had is you know you talked that you've been clear for about a year you've spoken about a lot of.
And the now developments within the company you're correctly the block the old Harry's and I'm just wondering what we don't do actually believe this turnaround is in you know and I'm sorry to provide more context next week, but just kind of.
Wanted to get an understanding of kind of where we are and kind of your longer term vision.
Yes, it's a good question Nick as you.
Have to you have to step back from the quarter to quarter movements. We.
We started this fiscal year thinking we were going to be acquiring Harry's and we were very close to making that happen.
And we had no.
Foresight to COVID-19, right that no one even talked about that and.
And we were blocked.
By the FTC on the Harry's transaction in January and then COVID-19 hit really into February beginning of March.
And so as you know as I looked at that and our team looked at it. The view was we've got to leverage this time period to accelerate our profit.
Russ and come out the other side of this pandemic stronger than where we entered it is a different plan than what we had for Harry's.
But I would put us still at the early innings neck of the turnaround we stabilized the business we have organic net sales flat, we've we stabilized the gross margin.
We are projecting a modest return to growth next year at low single digits, we're starting to invest back in the business.
We put wet ones capacity and we've acquired chromo.
We're building our digital E com capabilities, we've got entirely new teams not just leaders teams.
In doing that.
Just shown up during this last six month grown a virus period.
Clarifying our strategy, you'll hear more about that next week I've got my leadership team set the structures in place.
And across.
Across all of that we've delivered on fuel and one thing that I think doesnt get talked about enough thats a real strength of this case.
Capability.
As the operation and supply chain capability that we have it's rock solid it's delivered all through.
The the pandemic, while taking out significant cost what you're now seeing start to show up in margin. So that all kind of just hitting I'm not happy where we are but.
That is definitely on the right track and put us in early innings with a lot to comp.
Great. Thanks.
Thank you Nick Operator next question please.
Our next question comes from Jonathan Feeney from consumer Edge. Please go ahead with your question.
Good morning, Thanks very much.
Thanks.
Specifically about.
E commerce and within wet shave and maybe even to get Super specific within women's it seems like.
You, obviously E commerce or something you've done a lot of thinking about its role in disrupting shape.
Strike me Youre in a natural position to lead that disruption just give.
Given the gold the marketplace knit you inherit.
As you transform the company whats the progress on your E commerce capabilities, how competitive or are you in that channel within wet shave relative to your bricks and mortar business.
You talked about some wins and.
Do you anticipate that being the major driver of your growth going forward or am I off base on that thank you.
Yeah. Good morning, Jonathan you're not off base on that ecommerce is going to be a big driver of growth. It was for us in the year just finished and it will continue to be.
Over the next.
A couple of years co Budd, we're not either way I think this is a durable shift in terms of how people are acquiring products.
I look at ecommerce, particularly in shave in three buckets.
You first as DTC direct to consumer then you've got Etailers, so partnering with retailers that have a brick and mortar presence.
And also a dot com presence and then pure players like Amazon.
And the like so if you go across all three of those you know we have a very strong business with Amazon.
We're growing share in all the categories, we compete in Amazon.
We have a very soon.
On a good capability partnering with brick and mortar retailers and helping them be successful in their own dotcom channels.
And that's a big change just in the last six months and the company is our capability across.
Across both of those and then in in DTC don't work.
Playing from behind quite frankly on the DTC front all of our competitors have.
More customers a bigger sales in the DTC channel.
And while I don't necessarily believe that there's going to be a bunch of brand DTC winners out they're uniquely.
Drawn tumors don't love to shop that way there is some aggregation that happens that's why Amazon is who they are it is very important to play in that DTC channel to have access to the consumer the consumer it.
Information in engagement with the consumer not only to transact to sale, which is important and we obviously.
You want to do more of but we want to have a dialogue with that consumer because today, we're at a disadvantage or historically, we have been that is rapidly closing.
Around how she likes our product what what's the issue. She still has with a product that we can then go address with a better product or different.
Second messaging it it's that that becomes really important as you think about DTC is that that consumer information so definitely a growth channel.
Our capabilities are completely different and far superior than they were even six months ago with the teams we have in place and how we're now activating there so I'm optimistic that will continue.
Different you to grow share if you will in that channel.
Makes a lot of sense. Thank you.
Thanks, John Yu. Thank you Doug Operator next question. Please.
Our next question comes from Pfizer all away from Deutsche Bank. Please go ahead with your question.
Yes, hi, good morning. So I also wanted to just follow up on.
And wet shave and North America, and the E Commerce in law, but I was actually really encouraged by the alright Atlantic sales growth in North America sales decline in North America being down 1% on the data showing something a lot worse. So.
So I was hoping I know you mentioned that you know you had.
Sort of 90% plus growth and Amazon, specifically, but I was hoping to that you know not exactly a bridge, but some kind of a bridge between the data that we're seeing and and you know what you're reporting and some of it might be Amazon or E commerce more broadly and some of it might.
The private label or something else, but just help us how should we think about bridging that gap in the quarter and on a go forward basis.
Yes, hi, good morning Pfizer.
You hit on it there's our organic results are better than what shows up.
In in Nielsen on on share reporting consumption and that's been that way for quite some time, there's a there's a disconnect and it's getting bigger not smaller part of that is ecommerce and just what's not measured.
Within that set but the other part of it is private label doesn't get.
Stuff and captured in that sense and on women's in particular I told you we have had and have some strength there.
So that's the other thing that explains it I think Chris and Dan can give you a little more perspective on that but those are the two big drivers.
Okay and then just my second question is around.
Project you all can you just talk more about it.
Looking back the last couple of years, what you've been able to accomplish.
And what areas of the cost buckets are you attacking now versus what you have been doing in the past.
Yet fuel is.
Something Pfizer that.
We're proud of how weve executed on that one and frankly.
It was super necessary that we got that in place and moving a couple of years ago.
We will deliver and beat our gross savings objectives the.
Versus where we were at the beginning.
The large beat and over delivery of that has been in cost of goods.
In a lot a really good work across our supply chain and operations teams from footprint changes you've seen us change our footprint there.
From procurement.
Of of how we buy materials.
Low cost automation, where we do certain things automating the work that we do and just becoming more efficient that's been the big driver of over delivery.
Unfortunately it.
We gave a lot of that back and we dropped some to the bottom line, we were able to reinvest.
Hi, I'm over the last couple of years, but.
But a lot of that was eaten up with with lower volumes and a net increase in commodity and tariff costs than just running the business.
And so as we move forward off of what we feel really good about from a net savings profile.
It's going to be heavily focused.
So on cost of goods as we continue to move forward, we think there's more there and as we have stabilized the business now you start to see the fruits of some of that actually show up in the PML for example, with an improving.
Gross margin profile in the last couple of quarters and also in the outlook.
Moving forward and so as we stabilize the sales.
We're we're more confident that we'll start to realize the benefits of that in the PNM as we move forward.
Thank you by the operator next question please.
Our next question comes from Kevin Grundy from Jefferies. Please go ahead with your question.
Great. Thanks, Good morning, guys and congrats on the progress in the quarter.
I wanted to come back to us men's grooming.
Specifically not to beat a dead horse on this but specific to what you're contemplating in the current environment and specifically what did you. What gives you optimism that this will be the you can return to growth and no.
No I I guess I guess any context you indicated.
Environments is competitive as you've ever seen it it's not loss in U.S dollar Shave club is Unilever is rolling it out at Walmart. So this is kind of more disruption at an opening price point on the heels of the large degree of success at heritage has had years.
Procter led proctor to cut cut pricing et cetera, we do seem to be.
More risk for both should gain your private label business in an environment that is likely to get more promotional not less so can you spend a little bit of time talking about the assumptions embedded in your guidance and what gives you optimism that you can return to growth. This year and then I have a quick follow up.
Sure Good morning, Kevin.
Yeah, I think the deal.
The invite.
It is competitors, we've seen it as I said earlier and I think you you point out.
At the same time, our capabilities as a company as brand builders and what we put into the market.
Significantly better than where we were a couple of years ago. This.
There's been a lot of.
Good work done by a lot of people every single day on the fundamentals of this business and how we show up.
Our women's business has remained I.
I would say relatively stable and solid through this the private label business broadly as has remained the same iris.
Issue has been in men's and men's systems, we have not been strong enough or good enough with our brand building effort and ultimately connecting with consumers and bringing things that they desire and want to take home and use more of and so as we work through that and sort that out.
We've been putting a lot of energy against that space.
I think you will see with some innovation and what we're launching.
In the year to come.
A movement in the right direction there.
Yes, we've we've held onto our space. We think is this.
Plays out.
And we've got some new innovation coming in so that has to be good enough and cut through the noise of what everyone else is bringing.
It's it it's at the same time, a risk, but it's almost more of an opportunity at this point because what you called out in your reporting side.
Shelf.
At the Walmart walk that you did is the result of not being good enough versus the competitive set over the last three to four years and our shelf space has come down that's what that's what sort RPL. The last few years and so as we sit here today.
We can say we stable.
Lives that we're confident that it's more of an opportunity than a risk as we move forward we have technology IP.
Capability that others do not have and it's up to us to take that and do something with it which comes down to two building brands and messaging.
They will hit resonates with consumers with really interesting innovation to come and so we're on a journey to put all of that back in place and get back some of what we lost and this is a bit of a transition year, but we're optimistic on the direction.
Okay got it thanks for that Rod quick quick follow up please.
Listen the advertising.
Marketing levels and maybe I missed this in terms of what is in the guidance for 21, and whats appropriate longer term and I guess the longer term context here with this is that it's been coming down both on a dollar basis and as a percent of sales. Some of that I guess is the private label dynamic where it's going to be lower so, but but understanding that this is one sort of in the mix.
Teens for now down to 11% when it's also happening I guess within the context of where you guys have done a good job of project fuel savings, but typically that that they are in sort of lies the opportunity to closer to sort of lean in and put it behind your brands. So when you come out on the other side of the sort of productivity restructuring programs that that the.
The portfolio is in a better place so when.
When you have one year left on project few I suspect on Dec can jump in it's probably more to come beyond just what you're what you're going to realize but that's all sort of like the bigger wind up here, what's the appropriate level, what's what's in your guidance or has there been any concern broad from your perspective, but this has been sort of the slow drift down.
Or where your market share trends have not been in.
Great, where you where you want them to be so your commentary there would be helpful. Thank you.
Yes, let me address the past briefly.
Briefly Kevin and I'll flip it to Dan for more perspective, it dance actually been on point as we look at return on our a and P. spin for the for the whole company on this but if you look at it.
The last couple of years, we have come down you're right. Yes. My view is you have to have good things to invest in or put money against otherwise, it's a wasted spend.
And my assessment is Ben and not just me other other leaders in the company.
But.
Some of our our mess.
Gene has been to legacy oriented so built against an environment that existed in 2016 17, not 2020 2021 in terms of how we engage with consumers.
The channels, we use the messaging, we give all of that and so as we are working to get all of that.
Fixed and you look at return of some of that legacy approach. It's just not there and so beyond just being good stewards of the piano and managing bottom line profitability and cash flow delivery. There was just a reality that we didnt have a lot of good campaigns to be investing in which has gotten us to where we are today.
How its different right as we we start to flip the pivot we see ourselves putting more back end, so down I'll throw it over to you on that second piece, yes, sure I think as you as you look at 21 hour our guide contemplates a clear investment stance and MP as Rob said, we feel much better about qual.
Quality of campaign quality of message and ability to execute.
And that was always an important deliverable for us having felt much better about that we're leaning in we're going to get behind key execution and our new campaigns were going to invest certainly in the grooming category, particularly.
As chromo joins the family, we've got some interesting new products coming.
So yeah, we're certainly in an investment stance for a MP, we called out in the prepared remarks that Q2 in particular for all the reasons I mentioned plus the cycling of last year's Q2, where we obviously pulled back in light of coated.
Sort of all of that informs our thinking and as you look at Q4 for Us 2020.
Rate of spend was more like a 12% and that's that's certainly a better indicator of the go forward and I think thats always been our position once we felt like we got the messaging right and here. We are so we're excited about that.
Got it thanks for all the time guys.
Okay, Mike Thank.
Thank you Kevin Operator next question please.
Okay.
Ladies and gentlemen, if you would like to ask a question. Once again, please press star and then one so its all yourself from the question.
Press Star and two again that is star and then one to ask a question.
And we do have an additional question from Carla Casella from JP Morgan. Please go ahead with your question.
Hi couple of questions related to wet lands on you commented last quarter I didn't miss it could be approaching $100 million brand and I'm wondering if you're there given the strong growth in this quarter.
And also if that was a retail or a wholesale.
Ill figure and then a second part to that is you flextor capacity significantly for wet ones.
I'm wondering how much how flexible that is to go up or down based on further fluctuations.
Dan go ahead, yes.
So the short answer is it's $100 million branch.
We we executed extremely well in the quarter and achieved exactly what we thought we would we're incredibly bullish on this going forward, we've we've essentially doubled our.
Our capacity from pre coated levels just internally.
And we've added additional third party capacity as well.
Okay. So super excited about this it's durable demand we think we're in a good place to meet that demand. We do have further flex operationally, which will continue to invest in and as I said in the in the upfront remarks. This is the lion's share of our of our organic growth thinking for the year of a low single digit. So we think a lot of.
A runway here for the brand.
Yes, Carlo the other point on wet ones I think is important not to lose sight of.
It's the leading brand in this segment and its a trusted brand in one of the opportunities. We have as you look at what's being put out in the market today, there's a lot of products that don't live up to the promise, they're making and that's.
He sorted out right now and so that's another thing with wet ones being a trusted leading brand that.
Is part of the durability of the story.
Thank you. Thank you Carla operator next question please.
[noise] yeah.
Ladies and gentlemen at this time I'm showing no additional questions I'd like to turn the conference call back over to Mr. little for any closing remarks.
Yes. So thanks, everybody look forward to seeing some of you virtually next week at our Investor Day, we'll talk more about our strategy and the path ahead, but in pretty shape the interest and.
Continued engagement with us.
Ladies and gentlemen, with that we'll conclude today's presentation. We do thank you for joining you may now disconnect your lines.