Q1 2021 Edgewell Personal Care Co Earnings Call

[music].

Good morning, and welcome to the edge well personal care company first quarter fiscal year 'twenty 'twenty one earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing.

<unk> Star then zero on your telephone keypad.

After todays presentation, there will be and opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Chris Gough.

Vice President Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us this morning, as we discuss as well as first quarter of fiscal year 2021 earnings.

With me. This morning are Rod Little our President and Chief Executive Officer, and Dan Sullivan, Our Chief Financial Officer.

Rod will kick off the call annual and it over to Dan to discuss our results and we will and transition to Q&A. This call is being recorded and will be available for replay via our website www dot <unk> dot com.

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 restructurings changes to our working capital metrics currency fluctuations commodity costs category value future plans.

And 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 and our annual report on form 10-K for the year ended September 32020 as we.

May be amended and our quarterly reports on form 10-Q.

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 and circumstances, except as required by law.

During this call we will refer to certain non-GAAP financial measures.

Non-GAAP financial 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 the press release issued earlier today, which is available at the Investor Relations section of our website.

Management believes these non-GAAP measures provide investors with valuable information and the underlying trends of our business with that I would like to turn the call over to Rod.

Thanks, Chris Good morning, everyone and thank you for joining us on our fiscal first quarter earnings call.

Before we review our results and outlook I want to acknowledge the difficult times, we are living through.

Net adds well we are a people first organization.

Uses joy and to all we do.

And at times like these it is important that we stay true to our purpose and values to guide all of our decisions, while ensuring that we maintain our commitment to the safety and wellbeing of all of our team around the world.

In November we held our Investor day, and outlined our five strategic priorities designed to transform <unk> into a growing sustainable and consumer centric company focused on delivering stable topline growth and predictable profit and cash generation.

We have defined a clear go forward strategy and the results we saw this quarter as well as our outlook for the full year are consistent with this strategy.

We delivered flat organic net sales ex.

Expanded gross margins.

Realized $16 million and gross project fuel savings and continued to invest and our key growth initiatives.

All versus a pre COVID-19 base period, and showing significant sequential improvement versus the beginning of the pandemic when our net sales declined by nearly 15% in the April to June 2020 quarter.

We delivered 43, and adjusted earnings per share and $72 million and adjusted EBITDA.

We also returned cash to shareholders initiating a <unk> 15 per share quarterly dividend.

And repurchased shares.

COVID-19 continues to present challenges across our businesses.

Global consumption and our key categories of wet shave and Sun care and feminine care all decreased on a year over year basis across all of our core market.

With personal hygiene and being the exception.

Looking ahead with expanded Lockdowns in many parts of the world, We see increased near term headwinds, particularly in the second fiscal quarter.

And importantly, we continue to expect a stronger second half.

Vaccine distribution grows and we lap the COVID-19 headwinds of a year ago, particularly and the Sun care category.

Despite these mounting challenges we maintain continuity of operations, yet again, reinforcing the strategic importance of our global operations and supply chain.

All of our global manufacturing plants and distribution centers remained open and fully operational.

Although heightened COVID-19 infection levels have created some minor intermittent strain on operations.

We do see increasing challenges across the supply chain and the near term.

Particularly across our distribution network, which could pressure costs and product availability.

Our teams are tackling these issues and they remain nimble and flexible for meeting the challenges of this COVID-19 environment.

Now, let's turn to a few segment highlights.

As we shared at our Investor Day, we are taking a more strategic approach to managing our portfolio by working to accelerate growth and share gains and the categories, where we have a clear right to win with consumers.

This includes men's grooming sun care and personal hygiene.

Additionally, we are focused on stabilizing our profit pool in wet shave and fem care for.

Latent brand equity and strong technology provide us a clear right to play.

And the Sun and skin care segment, which includes our right to win offerings organic net sales increased by 14% and the quarter.

More specifically and personal hygiene wet ones organic net sales increased over 100%.

Driven by ongoing demand for this trusted brand with increased capacity supporting channel as well as geographic expansion.

Consistent with our efforts to more broadly leverage this brand to meet consumers' needs. We also expanded our portfolio of range launching a new wet ones hand, sanitizer and wet ones plus alcohol wipes near the end of the quarter.

Men's grooming net sales increased by nearly $20 million driven.

Driven by the addition of the newly acquired criminal business, plus 12% organic growth and the combined Bulldog and Jack Black businesses.

All three of these businesses posted strong ecommerce growth and the Amazon and E retailer channel as well as direct to consumer.

And Sun care organic net sales declined over 20%.

However, seasonally this is our smallest quarter and is highly dependent on tourism and broad travel destinations, which continue to be significantly impacted by COVID-19.

Now, let's turn to our right to play businesses.

What shave organic net sales decreased one 5% in the quarter.

Marking another quarter of sequential improvement and further demonstrating signs of stabilization.

Wet shave market share performance and the U S was solid and encouraging.

Schick brand gained share overall.

Reflecting share gains and women's systems and disposables.

Men system share trends improved versus a quarter ago.

And we again gained meaningful wet shave share on Amazon.

And feminine care, our business is not yet stabilized and our work continues.

And our results reflect category declines and intense competitive environment and previously discussed distribution losses, largely at Walmart related to last year's plan O Gram reset.

Across our businesses, we're seeing the result of good execution against our strategic initiatives, which I will now review.

First we're expanding our presence and growing categories, including personal hygiene and men's grooming.

We added to our internal manufacturing capabilities and secured additional third party sourcing for wet ones.

We successfully launched new products.

Cross wipes and hand Sanitizers.

Broadened our ecommerce presence and expanded geographically and both grooming and wet ones.

Importantly, the integration efforts behind the recent criminal acquisition remains on track, providing us not only with and important grooming brand for our portfolio.

But also helping to infuse the organization with a disruptor mindset and unique brand building skills.

Second our digital and E commerce capabilities continue to strengthen.

E Commerce net sales, which now represent approximately 8% of total company net sales increased 40% and the quarter.

<unk> increased digital advertising spending and strong execution.

Next we are strengthening our brands in both men's and women's wet shave.

Underpinned by stronger branding and positioning more effective execution and consumer centric innovations like the recently launched double eraser for our hydro franchise.

Our focus on strengthening key retail relationships and partnerships continues.

And we see the initial results for these efforts and the improved plan O Gram outcomes, and both wet shave and Sun care.

And finally, we're investing behind our strategies, including E Commerce, and digital brand marketing and R&D.

And the second fiscal quarter, you'll see a meaningful increase and brand marketing behind new campaigns, and wet shave and the rollout of exciting new products and both wet shave and personal hygiene.

As I mentioned and a quarter ago and as you saw in our Investor day presentation.

Our teams continue to demonstrate and unrelenting commitment to transformation and improvement.

And that commitment is reflected in our full year outlook.

For the fiscal year, we are maintaining our previous full year outlook, including.

Organic sales growth and the low single digit range.

Our strengthening gross margin profile.

And investment stance and priority brands markets and capabilities.

Adjusted operating profit growth and another year of healthy free cash flow generation.

As I mentioned previously we are seeing some additional near term COVID-19 related headwinds, especially across our international markets.

And the impact and duration of which remain difficult to predict.

Despite these ongoing challenges we continue to manage the business with urgency strong discipline and agility.

And remain ready to pivot as conditions necessitate and as the year progresses.

And we'll take you through all the specifics related to our outlook shortly.

Before turning the call over to Dan.

And as I have done for nearly a year now I want to recognize our teams and the extraordinary efforts they are making across the company and once again extend my gratitude to each and every team member.

It is their resiliency and effort, which underpin our results to date with continuity across our operations enhanced digital and brand building capabilities and better execution at the shelf.

And the macro environment remains challenging our businesses on far more stable footing and we are positioned well to deliver the sustainable top line and profit growth discussed at our Investor day.

And now I'd like to ask Dan to take you through our fiscal first quarter results and provide more detail on our full fiscal year outlook.

Thank you Rod and good morning, everyone.

As Rod discussed this was a good start to the year with flat organic sales and strong gross margin performance serving to largely offset our focused investment and building critical internal capabilities reflected and our planned increase in SG&A spend.

Our teams are focused on executing against the go forward strategy and supporting the initiatives that we outlined at our Investor day in November we.

We still have a lot of work to do but we're very encouraged by the progress, we're making which is reflected in our results and the quarter and and our outlook for the year.

As a reminder, we've developed a clear framework for sustainable value creation reflective of four core priorities we.

We will generate consistent organic topline growth.

We will continue to make efficiency and continuous improvement core to how we run our business and a catalyst for investing and our growth objectives. We will strengthen our gross margin profile with focus on both cost and revenue management and <unk>.

We will direct our attractive free cash flow and a disciplined way to improve shareholder return.

And this quarter, we executed well on our strategic priorities.

Growing important areas of the business wet ones and men's grooming and our ecommerce channel, while delivering meaningful sequential improvement and our wet shave business we.

We expanded adjusted gross margin driven by project fuel savings and enabling us to continue investing and our key strategic initiatives and with our strong balance sheet, we initiated our first dividend and repurchased shares in the quarter.

So as we continue through fiscal 'twenty 'twenty, one and despite the uncertainty related to COVID-19, we do so from a position of operational and financial strength.

Now before getting into the specifics and the quarter, Let me give you a bit more color on what we're seeing and the COVID-19 environment and resulting operational challenges.

Overall, our core categories continue to be impacted by the effects of the latest wave of COVID-19 for our teams have executed with urgency and agility to meet rapidly changing dynamics across our markets.

In Europe, we exited the quarter with broader more stringent lockdowns and there are increasing restrictions across many of our Asian markets.

And the U S. The COVID-19 environment remains heightened and we've encountered industrywide distribution challenges as asset and driver supply constraints and continued port disruptions weighed on overall product flow.

These shipping challenges modestly impacted our supply chain and the quarter and we expect this environment to persist in the near term.

Despite these challenges we continue to manage the business with discipline and importantly remain focused on near term efficiency, while investing in support of sustainable growth, including a meaningful increase in A&P and the current quarter that we foreshadowed previously and which I will elaborate on shortly.

Now I will turn to the detailed results for the quarter.

Organic net sales and the quarter were flat compared to the prior year, reflecting another quarter of sequential improvement and further evidence of continued top line stability for the business.

Organic net sales in North America increased nearly 2%, marking the second straight quarter of positive organic sales growth and was driven by strong growth and wet ones and and men's grooming.

Partly offset by declines and fem care wet shave and Sun care and.

International organic net sales declined about 3% driven by declines in Sun care.

One's and men's grooming delivered strong growth for wet shave was essentially flat.

This was a marked improvement and international wet shave performance over the past several quarters, driven by growth and both men's and women's brand and systems.

In terms of market share performance, we saw accelerated share gains and Japan with strong performance across men's women's and disposables with slight share declines across most of our European markets.

And as Rod mentioned, our E Commerce business grew organically by 40% and the quarter with strong growth in all regions and all segments.

And our largest ecommerce channel Amazon consumption increased by 65 per cent and we gained 150 basis points of market share and the wet shave category.

During the quarter, our team successfully migrated our schick Bulldog and skin to net sites to a new best in class Shopify digital platform.

This combined with the steps we've already taken to enhance content and overall site performance has meaningfully improve the customer shopping experience.

Looking at performance by segment.

Wet shave organic net sales decreased one 5% and the quarter.

Largely driven by COVID-19 related global category declines.

Pricing and mix were unfavorable however growth and women's systems and private label drove overall volume increases.

And the U S. The razors and blades category was down about 8% slightly off the 52 week trends.

The decline in the quarter was across men's and women's systems, and disposables, reflecting continued transitory declines and shaving incidents and the work from home environment and a continued shift to E commerce.

For the 12 week period, our U S market share and razors and blades declined 90 basis points, which was an 80 basis point improvement versus our 52 week performance.

This improvement was primarily driven by our branded business, where our women's systems gain share and our men's business saw solid trend improvement.

Total share for the Schick franchise increased 20 basis points and the quarter. Despite the previously mentioned loss distribution at Sam's and Walmart.

Within that disposables grew share by 100 basis points, driven by increased distribution for our skin to MIT and extreme three brands.

Women's system share increased by 20 basis points, reflecting strong holiday and gift set sales and highly effective media execution and strong sampling campaigns for hydro silk and intuition.

Our men's brand branded system share declined 80 basis points versus a 52 week decline of 120 basis points and when excluding the distribution losses at Walmart and Sam's share was flat for the third consecutive quarter.

Importantly, men's hydro gained 80 basis points of share at Walmart, Despite increasing competition and ahead of our hydro skin comfort launch.

Lastly shaped, perhaps realized 170 basis points of share gains driven by both edge and skin Smith, reflecting increased baseline velocity and distribution gains.

The wet shave category remains volatile as COVID-19 continues to negatively impact the category and competitive intensity remains heightened particularly in the U S.

That being said we are encouraged by the clear progress we're making.

On top of the improve share performance and the U S. We're also pleased with the plan O Gram outcomes and the category.

Across our men's and women's systems, we have a largely neutral outcome in terms of items and facings, which is a marked improvement from past years.

More specifically for Walmart our men's business held facings, despite increased competition and we gained and incremental strike for the skin care brands.

And we're bringing well funded innovation and new news to the category globally, and the second quarter, including the relaunch of Schick Hydro and the U S new packaging for Wilkinson sword and Europe.

And the aforementioned hydro stubble eraser and expanded retail distribution for the Nu skin summit women's systems and shave gels.

Sun and skin care organic net sales increased 14% driven by continued demand for wet ones and strong men's grooming growth Sun.

Sun care organic sales declined 23% significantly affected by COVID-19, and the resulting impact on travel to global tourist destinations.

In the U S with the fiscal first quarter typically only accounts for about 6% of annual consumption for <unk>.

Sun care category declined 17%.

As COVID-19 impacted store traffic travel and outdoor activities.

Banana boat and Hawaiian Tropic collectively lost 90 basis points of share in the quarter and as we've seen in the past everyday brands typically perform better and this off season quarter for the category.

Men's grooming organic net sales increased 12% and the quarter with solid growth and both Bulldog and Jack Black.

Bulldog grew double digits and the U S and its performance was further fueled by distribution gains and Germany, and a highly successful launch in Japan with over 18000 listings gained.

Both brands delivered strong ecommerce growth with traffic gains and healthy conversions.

Wet ones organic net sales more than doubled versus last year with continued strong demand for trusted brands that meet consumers' heightened hygiene and sanitation needs.

As we mentioned a quarter ago, we've essentially doubled our internal capacity versus pre COVID-19 levels through a combination of capital investment and extended operating hours, while also securing additional third party manufacturing.

We also began initial distribution of the new wet ones hand, sanitizer and wet ones alcohol wipes in the quarter.

Despite these efforts there is still unmet demand and many of our retail customers remain on supply allocation.

We expect to continue to scale up existing internal capacity and have plans in place to bring additional capacity online later this fiscal year.

And the quarter the category increased by over 300% driven by new entrants and grocery and drug channels, where retailers remain on allocation for wet ones.

Fem care organic net sales decreased 8% as compared to the prior year period.

Driven by distribution losses, most notably related to gentle glide at Walmart.

The remainder of the decline resulted from overall category softness due to COVID-19, and ongoing heightened competitive pressure.

In terms of consumption Fem care category sales declined two 3% and our market share declined 140 basis points consistent with 52 week trends.

Our online sales and Amazon channel increased 87% and our share increased 130 basis points.

Moving down the P&L.

Gross margin rate on an adjusted basis increased 70 basis points year over year as further fuel savings and lower commodity costs and reduced promotional intensity more than offset segment and geographic mix headwinds from COVID-19.

A&P expense this quarter was nine 1% of net sales, which was comparable to the rate a year ago and largely a pre COVID-19 environment.

Increased spending and men's grooming wet ones and wet shave was offset by lower spending and Sun care as we pulled back investments and regions that continue to be heavily impacted by COVID-19.

Digital penetration of total advertising spend and total working dollars increased significantly versus a year ago.

We continue to expect a meaningful step ups and total spending and rate of sale in the current quarter and supported the new advertising campaigns across hydro skin summit, and Bulldog and use double a ratio of innovation and the wet ones range expansion.

SG&A, including amortization expense was $93 $1 million or 26% of net sales.

Adjusted SG&A increased 100 basis points versus last year, primarily driven by the inclusion of the operating costs associated with criminal.

Investments in key capabilities inflationary pressures and unfavorable currency translation were offset by project fuel savings and reductions in discretionary spending.

Adjusted operating income was $49 million and 11% of net sales compared to $51 $6 million and 11, 4% and the prior year, reflecting the higher SG&A costs.

GAAP diluted net earnings per share were <unk> 32, compared to <unk> 41.

And the first quarter of fiscal 2020.

And adjusted earnings per share were <unk> 43 <unk>.

Compared to <unk> 55, and the prior year period, primarily reflecting the impact of the infant divestiture and higher interest and tax expenses.

Adjusted EBITDA was $72 $2 million compared to $76 $1 million from the prior year.

Net cash used by operating activities for the quarter was $82 5 million.

As a reminder, due to the seasonality of the Companys business, primarily in Sun care. The first quarter is typically the lowest operating cash flow quarter of the year.

Our liquidity remains strong.

And we ended the quarter with $280 million and cash on hand, and have access to a $425 million credit facility.

Our current net debt leverage ratio is about two nine times.

In terms of capital allocation, we were pleased to initiate our first ever dividend and November followed by todays dividend announcement.

We also repurchased shares at a cost of $9 $2 million and the quarter to offset expected dilution and the fiscal year.

That brings us to our outlook for fiscal 'twenty and 'twenty one.

We remain comfortable with our previously provided full year outlook and are mindful that we continue to operate in an environment that has greater uncertainty than normal, making flexibility and agility a key focus.

Let me discuss some of the key elements of our full year outlook and phase.

For the full fiscal year 2021, we anticipate low single digit organic net sales growth.

With declining organic net sales and the first half of the year as we cycle and estimated 240 basis points of Covid tailwind and the second quarter, along with slightly intensifying COVID-19 headwinds as I discussed a few minutes ago.

We expect mid single digit organic net sales growth and the second half of the year as we anniversary the impact of Covid and expect some modest recovery.

Adjusted operating profit margin is expected to be largely in line with 2020 levels.

Adjusted EBITDA is expected to grow largely in line with organic sales growth.

Adjusted EPS is expected to be and a range of $2 62.

For $2 82.

And is inclusive of approximately 22 of.

Headwinds equally attributable to last year's infant care divestiture and higher interest expense associated with the 2028 notes.

In terms of phasing, we expect our first half performance to largely be in line with the outlook. We provided on our year end call in November.

We continue to expect that approximately two thirds of our adjusted EPS will be delivered and the second half of the fiscal year.

As first half operating margins will be pressured primarily by the deleverage effect from lower sales and the planned step up and advertising spend.

More specifically in Q2 and.

A&P spend is expected to be approximately 14% of net sales, reflecting a planned step up and brand investment behind our new brand campaigns timing of our new product launches and cycling of abnormally low levels of A&P spend in Q2 last year.

We will closely monitor the change and Covid environment, and we'll be prepared to pivot our investment stance accordingly, while also optimizing more discretionary areas.

For more information related to our fiscal 'twenty and 'twenty one outlook I would refer you to the press release that we issued earlier this morning.

And with that I'll turn the call back over to the operator to start the Q&A session.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

If you are using a speakerphone please pick up your handset before pressing the keys.

But any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Nik Modi of RBC capital markets. Please go ahead.

Yes, thanks, good morning, everyone.

So just two quick questions Dan maybe you could just give us the David and Union on input costs and you know how you're thinking about some other key inputs and any potential offsets.

And as you kind of move through the fiscal year, and then Rod maybe just talking about wet shave and very good progress there velocities looked like and they're starting to stabilize or kind.

Coming off their their crops and so I just wanted to get your thoughts on how you think the discussions with retailers will go in terms of actually perhaps getting more space at some point.

Later this year, maybe and during the September reset or is that too early.

And to kind of start for question extra space.

Yes.

Sure I'll go and I'll go ahead and and.

Handle the margin question, and then I'll hand, it to Rod Yeah, I think without a doubt the inflationary pressures are growing we sort of saw that.

Through the course of Q1, although it wasn't meaningful.

And commodities.

The biggest pressure will continue to be and resin and thats likely to last with us through the year, we're seeing some movement and and warehouse and distribution costs over the road costs and port congestion, which is adding to the headwinds.

Other commodities, though you know neutral to actually.

Better year over year alcohol appears to have leveled off which is good for us and other areas pulp and others are actually still and a favorable position. So when I put all that together I think that the cost outlook is is still going to be challenging likely unlike the first quarter, where we saw from year over year tailwind will encounter more pressure as we go through.

The year largely due to resin.

We have offsets we continue to execute well against fuel we are driving good revenue and promotion efficiency, which we talked about and our Investor day, and we will stare into the back half year of favorable mix and some.

And last year's Covid impact so net net we remain confident and our and our overall gross margin accretion outlook.

Yes, good morning, NEC and.

And on the wet shave question around progress and and space.

There's a there's.

There's a couple of things that remain in play here first the categories greatly impacted.

And by COVID-19, right as you go back to starting in March of last year.

And with the Lockdowns, we have seen a reduction and shave incidents.

As.

And it's primarily guys go.

Not in the office and go into the office women's has been a little more stable, but the the category still.

Net challenged and until we get out of the Lockdown period here.

And the competitive environment is Reno remains highly competitive so with those two overviews.

We look at our progress that we're making and we feel like we are making good progress internationally, we're very stable I would say overall net.

Net growing our distribution space internationally.

And holding share.

Share and all of our key markets and so the international view.

We think is pretty solid and in this environment.

And the U S market.

Which I know you and other care a lot about.

We remain focused on building our brands being more consumer centric better consumer targeting bringing better campaigns and messaging along with our brands.

Meaningful innovation, where we're just launching stubble eraser and the new hydro skin comfort lines as we speak.

And we've improved our retailer relationships and the net result of that.

Is we've held our space.

Across the planet grams, and wet shave, despite new competitive entrants.

And and spaces fixed and so you can read into that that some others have donated some space.

To make room for the new entrants, but we've we've held our space behind the innovation and messaging and the relationships.

And as Dan mentioned you know.

And the quarter just finished share grew share by 20 basis points.

We've not been able to say that for a while and so it's a it's a holistic effort it takes time.

I think we're optimistic for the future.

And our ability to get space incrementally and get more space will be dependent and I think on how we perform this year and the sales velocities that come out of the plant and Graham resets that are happening with U S retailers right now so.

So still a lot to do but making progress.

Super helpful and I'll pass it on.

Thank you operator next question please.

Yes. The next question comes from Jason English of Goldman Sachs. Please go ahead.

Hey, good morning, folks and congrats and a good start for the year.

A couple of quick questions for me first on private label.

And some gains and private label for the social strength for a couple of quarters and I think.

When we look at the data it looks like private label has actually sitting around and so where where are you getting the games and is there any sort of fine.

And and site for those gains in other words are they coming from.

The contract win that we should be expecting to anniversary some sales.

Good morning, Jason.

And private label I think we remain confident.

And our capabilities and that part of the business.

We did grow both mens and womens and the first quarter importantly, our gross margin and that segment is up as well.

What what you see and some of the tracked and measured data is only part of the story.

For example, we had you know.

80, plus percent growth in and E com and that part of the business and that that's not measured and doesn't get picked up and.

In addition, we've had some some incremental new distribution wins, primarily and our international markets.

And that gives us some tailwind there.

As well and so.

So when you put that all together.

It's an important segment for us, it's 25% of our total wet shave business, we've got a high share in that segment.

And it's a capability that we think we uniquely have and will continue to leverage and Missouri.

We move forward.

Okay.

So no no sorry, pardon me and things to be considered to consider there and it sounds like Youre confident. This is this is durable growth.

Yes, and I hear that right.

Yeah, and then on cash flow real quick I know that this is seasonally a low quarter for you. But this was this is exceptionally low this quarter youre holding onto your full year free cash flow outlook, what would the timing impacts this quarter, what sort of weighed on it and what comes back and the tail end of this year.

Dan go ahead and that one yeah I think it's it's largely structurally around how we thought about the year half one half two the role of the Sun business you said it right at the starches and this is a this is a very very low.

Our cash flow quarter for us relative to our full year, we actually performed at or even better than we thought it would particularly structurally and and working capital. So for the quarter fell and really where we thought it would be and it doesn't change our for your outlook in terms of for your cash flow.

And adjacent and the biggest thing that drives the seasonality here is is the timing of the build of Sun care.

And the inventory we've been building that all quarter to ship out here now and in the coming months and so that that cycles back.

I'm here, and the next quarter, and and and the third quarter as well.

Okay. So you go through inventory it was a bigger drag than usual and you expect it to come back in later this year is that right.

Well, usually and and Sun care, there's seasonality around Sun care for that is true and Dan you can.

Comment on the rest.

I think that's absolutely right, but again the quarter performed as we thought it would there wasn't a drag to our expectation and so if you think about how did the quarter relate to our overall full year view of cash flow and inline if not slightly better.

Okay, Yeah, I'll follow up offline. Thank you I'll pass it on.

Thank you. Thank you Jason Operator next question please.

Yes. The next question comes from Bill Chappell of <unk> Securities. Please go ahead.

Thanks, Good morning.

Yeah.

Two questions first just maybe get a little bit more color on sun care and kind of your expectations and I'm just trying to understand.

So what's yours, what what the Crystal ball is for for travel International travel this summer and and and how you're building for that I think last year. The the big hit was was that lack of international travel and I didn't know if you're expecting to come back as we get to June and hopefully there is you know there and when.

Once fully inoculated or or if youre, not planning for that and and.

Same kind of with the U S and I'm just trying understand what are the building blocks as you're working on production right now.

Yeah, Good morning, Bill and and thanks, one other question.

This is this is nuanced and there's there's three things going on there's a there's and international.

Tourism market.

And it's highly dependent on international travel across borders.

That that market has effectively been shut down or severely impacted since the beginning of the pandemic and.

And continues to be that way today, and I think that part of the.

Sun market isn't going to return to normal until we're through the bulk of the lockdowns and and vaccines are up.

Right.

And so we can all predict when that might be but that's going to continue to be challenged for us and that that's primarily our international business.

In the second piece of this is the U S market.

And then primarily the debt the European and domestic markets as well.

And where where people can travel and get to the coast.

To be at the beach or or feel comfortable and safe to be out at their pools and <unk>.

That is less impacted.

Because people can still go do that safely and fact being outside is encourage to be safe and you need to protect your skin when you're outside so that's the second piece, which is less impacted the third piece of this though is the timing.

And when and how all of this happens.

In addition to the first two impacts last year. The other element. We had is we lost for the early part of the Sun season.

Spring breaks being impacted Easter being impacted memorial day was impacted things didn't really open up domestically and the U S and the European markets for example, swimming pools being open until the middle towards the end of June.

And so as we cycle this period.

We continue to expect.

The international headwinds as I said and and the timing piece of these more domestic driven.

Sun care use occasions, I think you know, we're a little more optimistic that.

And we're gonna be backed and to let's call. It normal consumption, maybe a little sooner than we were last year.

And you know I think we still feel good about the season overall.

In terms of of the consumer are going to be that there's going to be a lot of demand for people to be outside and and out of their homes as we come out of the spring period here and our retailers.

And that as well and so there's there has been good.

Sell in and priority amongst retailers and I think the the view from retailers as they're optimistic as well.

And we executed well last year, we expect to execute well again this year.

Relative to the competitive set and having good islander, and and dial displays and.

And then you know our brands and the messaging will do the rest.

Got it and I'll just follow up on that I mean, so are you producing where we could actually have out of stocks or you own.

K with having a you know a glut at the end of the season, because I know that there's not enough it's going to run on consignment, but it's somewhat you take back the.

Returns and stuff.

The returns in this industry. So I'm just trying to understand how and how that's planning you know what you see at the end of the tunnel or whats your comfortable with.

Yes, we are.

Our production around Sun care is very flexible we do it domestically here in the U S. And then we've got a very responsive model you saw us last year, despite the category and the season being down overall, having no material write offs and fact less.

We in fact shorted some inventory at the end of last year as we were looking to be very careful and to not be and that position.

This year, we can meet all the demand that's there we've been building across the fall.

And so we're ready to go and we can source volume up or down regardless of where it goes, but we don't foresee and out of stock.

Issue, even and a better than expected Sun season.

Great. Thanks, so much.

Yeah. Thanks, Bill. Thank you Bill Operator next question. Please.

The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Yeah.

Hi, good morning.

Good morning.

And just so.

So.

Being more efficient and promotions.

It hasnt been a strategy for the company.

You know clearly promotional levels for.

For the company, but really virtually every staples category.

Was significantly lower in 2020 and.

And from what we can tell remained low in January and Thats, not and as well comment as much as just the.

And the broader sector.

And it sounds like you'd like to maintain I think he said promotional efficiency.

Moving forward, which makes sense.

But I wonder if you can just talk to.

And.

And this concept of maintaining.

Our level of efficient promotions, but that balance with the fact that promotions could well normalized back to pre COVID-19 levels. So underlying the question is just your expectations for how promotional levels across your categories.

<unk> for the.

The next year.

And if it and if you think that you can keep that and lower than what they were pre COVID-19 and then I have a follow up.

Yeah, sure I think Theres, a theres and certainly a reasonable line of thought that says on the other side of Covid promotional levels will likely.

Increased from where they are today I don't know if they'll return.

All categories to where they were but the way we think about promotional efficiency is there's a couple of things one we've put a lot of energy and to measuring them.

And the effectiveness of promotions and and sort of where those tail and promotions go and and what do they actually driving the business. So we have a more fact based view of the effectiveness and that helps us deploy promotional dollars and are far more intentional way.

With with desired outcomes, so that wouldn't be the first thing I think the second thing is and you're seeing the benefits of a more stable business youre seeing the benefits of a top line that is as you saw flat organics and and so your your effort is just different when you are promoting behind concept as opposed to a business that had been down.

And mid single digits and so the intelligence internally is better for tracking and return equation is more clear for us and and therefore were for intentional. So as we think about our margin profile. We've always had fuel as a as a significant tailwind to our efforts on the cost side, we continue to.

Get better on the revenue and the promotional efficiency side and that's what we will continue to do and that certainly doesn't change.

When we get on the other side of Covid will just have more information more ammunition.

And behind our efforts.

Okay. Okay. Thank you and.

And then just two.

Quick more or less modeling questions. I think you mentioned and the press release that there might have been some.

Our stock up and the international business can you quantify that and do you expect a reversal.

It was that material at all and then secondly, wipes are obviously the category is on fire.

Can you just talk to what you see other sustainability, there potentially differentiation versus and increasingly crowded field and obviously you've been increasing capacity. So you do think that the category has legs going forward, but any commentary around.

How do you see that business trending and potentially over over the medium term horizon as a potential growth driver. Thank you.

And also yesterday.

Yeah, sorry, Dan I'll take the the wipes.

Category question, and Dan and throw it over to you.

Good to add anything on wipes and address the the stocking question.

Wipes category as Dan said grew faster.

Then we did part of that is just for the demand and our ability to scale up production.

To meet that demand.

Seeing that and and many other categories.

As well, where there's just there's no way to meet the demand what we feel really good about it as Dan mentioned in his remarks as we've added capacity nearly double that theres more to come and we've got some very smart third party arrangements as well to help us surge and have more flexible capacity.

As well and at the at the end of this consumers.

Going for trusted brands and we have the number one brand and the body hand hygiene segment that is trusted for decades.

And with some new extensions of the brand and the hand sanitizer with really good formulation.

And sent patterns, we've we've expanded the line and to the wet ones plus and alcohol based.

A range that's a new addition, and so as we work through towards more of the end of the pandemic. We believe the demand for wet ones is going to remain very durable.

And and the field, that's gotten crowded to try to fill that demand and the short run and will narrow back to their trusted brands and the players the that consumers trust and so as that comes back into balance and we come online with more capacity.

We're seeing and we'll continue we think to see some of that trade back out.

And a wet ones. So we're bullish on wet ones for the future overall.

Dan anything to add on that and then the stock up question.

No I think you're quite clear on the <unk> piece on the stock up.

Element, we put that in me and the commentary more to provide color around the state of the environment, particularly internationally as we exited Q1, where we are just seeing more stringent lockdown. So that was that was meant to provide a little bit more color on and the environment in terms of the amount, it's not material for less and a point to the.

Our profile for the quarter and so as you think about the organic sales and the quarter at flat, yes, there was a bit of a benefit from the international pull forward, but where we're still operating and a net COVID-19 headwind environment of course, it gets harder to measure as you move farther and farther way, we're basically a year at this now but are.

Best estimate would be low single digit.

Organic underlying performance and the quarter with all of these puts and takes related to COVID-19.

Okay. Thank you.

Thank you Chris Operator next question please.

The next question comes from Jonathan Feeney of consumer edge. Please go ahead.

Thanks, very much you outlined back in November.

And here.

Delineation of what our accelerate brands and particularly your digital investment plans around them could you talk a little bit about the kinds of returns you're getting on those spending investments are you is that what we see in evidence and.

And some of these.

If you look at the other non shave grooming brands this quarter.

For sure and I guess, maybe a related question.

How do you think about the rois on that kind of spending and maybe they are.

Oh wise broadly when you're yeah.

That's all.

And you know how that affects your capital allocation with your stock where it is clearly youre, having some success and integrating brands that make sense for you getting some return on digital spend yet.

And you.

And get your cash flow guidance out there that would suggest the cash on cash returns behind a much more aggressive path of share repurchase would be a great risk adjusted returns so.

I think.

Broadly related questions I, just wanted to think about the financially how how you work through that.

Yeah, I'm happy to start and Broadcom can jump in and it all sort of I'll stick on the A&P digital point I mean your point on.

Share repurchase a fair obviously, we did repurchase some shares in the quarter, but a small amount just to offset dilution.

Dilution and and as we've said going back to November and and previous earnings calls, our our capital allocation strategy is clear and <unk>.

<unk> continuing to invest in growth and organic growth of this business first and foremost, but with a healthy view.

And you towards returning cash to shareholders and so we're not you know we're not oblivious to the point, but our priority right now as you've seen over the last 12 months is to stabilize and grow this business and that's where we remain most focused.

Getting to your question then on how we think about digital spend it's difficult to totally unpack returns at this point because with Covid environment, the consumers, just and a different place and and the role of of our ecommerce business is just different and think we have to acknowledge it's getting natural tailwind at this point and then.

And you have to look beyond that to <unk>.

Look at the efforts that we've made.

And our digital business investment being one of them complete site re platforming better content and copy.

Being others changing the shopping experience for customers. So that it is seamless and engaging it's all part of the mix for US I don't think you can boil it down to.

Our digital spend is the one lever having said that you know, obviously executing our own DTC sites investing and and Amazon.

The whole pay for clicks performance.

And we're doing all of that it's still a.

It's still a reasonably small piece of spend but but we do measure the value that it creates but I think you have to look at it in the totality of our digital business and when you look at for 40% growth that we saw in the quarter and and I think as importantly, meaningful share gains and wet shave meaningful share gains and fam.

We are on the right path, but it but its early on and this in this journey for us.

Yes that makes a lot of time.

Thank you John operating next question. Please.

The next question comes from Kevin Grundy of Jefferies. Please go ahead.

Great. Thanks, Good morning, everyone question for Rod.

Just with respect to balancing investment and topline injective objectives, excuse me with delivering against your earnings guidance and the context here and see how the COVID-19 circumstances more difficult commodity costs and higher of course, and and Dan spent some time on that for the question is balancing priorities between.

We returned the company for organic sales growth, even if that means maintaining investment levels and in the face of some of these pressures or do you potentially pull back on some of this brand support.

In order to deliver against your EPS outlook, you may say, well, that's perhaps a false choice or false dilemma and I'm just curious to kind of get your thoughts on prioritization because both of those things have been really important right and.

And rod, particularly under your watch it's it's getting this portfolio back to organic sales growth and stabilizing EBITDA and and and restoring credibility to the street. So I'm just wondering if commodity costs move higher Covid remains difficult do you continue to invest to deliver against this organic sales growth.

Even if that means potentially taking down your earnings outlook and then I have a follow up thanks.

Yeah, Let me start here, Kevin and and I'll throw it over to Dan for some additional perspective and thanks for the question.

You know, Dan and I, both have talked at length and from the time I joined the company and and Dan's mindset as well and the whole leadership and to be honest is.

Delivering on our commitments and so when we make a commitment we want to deliver on that commitment be consistent reliable deliveries and what we say we will do and so that's very important to us and so when we put our our guide out there for the year.

We were very thoughtful about doing that.

And and being in a position to to pivot towards growth.

Which you see and our guide.

With the right investments and place to go do that.

And then ultimately be able to have the capability to deliver on that and what is a highly dynamic and uncertain environment and so as we put the guide and those expectations out there we felt like we have that all and balance.

We're projecting and returned to growth, albeit you know the bulk of that comes and the second half as we get to a lapping of COVID-19 headwinds tailwind and and it comes with an incremental investment.

And not only brand support that you see and our P&L, but also what you don't see is some incremental G&A investments and things like.

Content creation and house, social media management.

In house.

Design work being done in house, new teams up against E Commerce and winning in that channel. So we made what we think are very balanced and appropriate investments back into the business across brand building and capabilities in totality.

Net leave us and our position to deliver the top and bottom line, we've put out there and it's important that we do both and.

And I think we're confident we can do both and the environment, we're in and what we have line of sight too.

And Dan I'll throw it over to you for anything to add.

Yeah, that's all Super points I think.

And getting to the point of sort of how do we navigate the uncertainty.

And we we put in some pretty stringent process last year, obviously faced with similar situations and so I think for US we're going to continue to invest where we feel really good about our ability to activate and and and the programs, we're investing and and let the consumer is there. If you look at Q1, you know we spent at about 9% and.

And that was below our expectations, we pulled back a bit.

Because we werent comfortable and our ability to execute the 14% rate that we mentioned today for the quarter that we're in and that's actually above the initial plans that we wrote because we really like what we're activating this quarter around the new hydro campaign, and a bulldog campaign wet ones et cetera. So.

You know I think as we look at it we did a really good job last year and navigating we've put the muscle memory and to navigate the uncertainty with the right guardrails with the right hurdle rates to invest and we manage this quarter by quarter with the team. That's the that's the process. We're in right now.

Yes, all fair a quick quick follow up just with respect to the commodity and pricing outlook. So rod do you think incremental pricing is a likelihood here and I know and a number of your categories like particularly grooming you you would follow and not lead but I'm. Just curious if you kind of get your thoughts because it's topical for obvious reasons and then really.

To that like how would you characterize retailers' receptivity to pricing at this point as you're kind of going through shelf space resets et cetera. So just curious to get your thoughts there and the current environment I'll pass it on thanks.

Yeah. It's.

It's it's it's and it's a hot topic.

For obvious reasons, we pass through pricing on wet ones.

And in the environment, where and retailers, where we're open to that and understood that.

And again it is a responsible pricing its not pricing because you know just because we can we had input cost inflation, we spent a lot of money.

Air Freighting running overtime the cost inputs have gone up significantly in some cases and so we've been able to price for that we let a price increase and Sun care last year, the first one and over a decade.

And so you know where we're going to lap that and have a full season of that.

And so where where it makes sense and where there's a story there to to price for for input cost inflation.

Retailers are receptive to it and we've shown and where it makes sense the debt we can drive it and some cases lead it.

Very good thank you and good luck.

Thanks, Kevin Operator next question please.

The next question comes from Olivia Tong of Bank of America. Please go ahead.

Great. Thanks, Good morning, and I apologize, if I don't know a little bit late so I apologize. If this has been aspect and you had mentioned modest second half growth expect them and kept divergence and the comps and.

And I guess that my question is why is it only modest and was there any.

Pull forward or are you anticipating any pull forward ourselves and 10-Q, two or is there any shift and timing right there and any change in your renovation plans to try and back something type of Argentine crush and tell him on it and the second half.

Yeah, good afternoon Olivia.

Yeah. They didn't go out you start and I'll I'll.

And if I need to go ahead, okay. Yeah, I guess, there's two things that have you won for the second half for the year. We said mid single digit organic growth that was the the description we gave not modest so I just want to clarify that I think if you're if you're looking at Q2 in particular.

Where you know.

We just need to acknowledge we're cycling against tailwind last year related to Covid right. So so you're operating in a COVID-19 headwind environment today, and you're in a quarter that had call. It 250 basis points of Covid tailwind and it last year that you now have to cycle. So that's the half two outlook and that little bit of color on Q2.

Yeah, and Olivia the other thing I'll say again, its as Dan said, there's no change and our plant actually we will come through the first quarter and what we have line of sight to feeling like we.

We built a good plan and we're executing that plan exactly as we intended and so we felt really good about the plan for the year, there's no change and that the.

The the piece here that remains very uncertain and very dynamic, though is consumer behavior around COVID-19.

COVID-19 infection rates.

And vaccines and.

And you know if you go back to where we were a late summer early fall I don't think anyone predicted.

And that we would be and the environment. We're in today or it was certainly not the lead prediction, where we're back into heavy restrictions and lockdowns, primarily across Europe, and mobility is heading and the wrong direction here and the states.

And if you you get to a point, where the the the new variant strains.

Dominant and take us back up the curves, we potentially have even tighter restrictions and lockdowns and into the spring here and in the U S and potentially the Canadian markets and so as you and you put all that together.

The thing that will really drive our second half and beyond is what happens to our categories.

Where we're and declining category environments, and wet shave and Sun and skin care right now right that that's been true since the beginning of the pandemic, it's true and the quarter just finished.

And the question is when do those revert to normal they will we're very confident they will when that happens. We don't know again, we planned what we think is that the right way to plan. This.

But that's the biggest thing that's driving that timing and those are all still net headwinds for us even potentially into the second half of the year. When we think we will still be and are positioned to grow.

Got it that's helpful and.

My second question and it's around E commerce, and the growth there because obviously most of and that's our view is that that can come back to where it was pre pandemic and I assume that your from your lifestyle. So how does this influence not only here and a patient but also how you think about merchandising and go to market and and bringing product to market now and.

And a and a N a market where it and Congress is significantly larger thank you.

Yeah, It certainly I think.

For us just brings us back to the importance of the investments that we've been making now for close to a year.

Viewing the opportunity that ecommerce presented us and that opportunity is both in terms of functionality of the site and engagement with the customer capabilities and our organization. We've spent quite a bit of time effort and money and and investing in capabilities to activate better across our ecommerce business.

To get to a place where we are much much more highly engaged with customers and have relationships with customers that weekend and activate DTC, Amazon and retail and other so it actually serves us well for the journey that we've been on and as you saw in the quarter. The results were.

We're quite excited about recognizing you're right and you know.

And we have to be careful about what normal looks like but we know that the consumer is going to continue to expand and increase their participation in this channel that that's for sure and and so we're super excited about the results that we're seeing small sample size COVID-19 tailwind notwithstanding.

For the journey that we've been on and and so for us that bodes well as we look forward and you know them.

And the role that ecommerce will play and our business, it's not an accident that it grew 40% and it's not an accident that it was about eight per cent of our business. So again encouraged from from where we are.

Thank you.

Thank you Olivia operator next question please.

I see that there are no further questions. So this concludes our question and answer session I would like to turn the conference back over to Rob Little Chief Executive Officer for any closing remarks.

Thank you everyone and I appreciate your continued interest and edge, well and take care and be safe.

Next quarter.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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