Q1 2022 WD-40 Co Earnings Call
Please refer to the risk factors detailed in our SEC filings for further discussion.
Finally for anyone listening to a webcast replay or reviewing a written transcript of this call. Please note that all information presented is currently only as of today's date January six 2022, okay.
The company disclaims any duty or obligation to update any forward information, whether as a result of new information future events or otherwise.
I'd now like to turn the call over to Gary.
Thank you Wendy.
Thanks for joining us for today's conference call.
Today, we reported net sales of $134 7 million for the first quarter of fiscal year, 2022, which was an increase of 8% compared to last year. We are pleased with these top line results. However, this is a different game, we're playing now.
We are facing to volatile and challenging environment.
First quarter gross margin came in at 51%, reflecting significant cost inflation.
As a result net income for the first quarter was $18 6 million compared to $23 6 million in the first quarter of last fiscal year, a decrease of 21%.
Jay will talk in greater detail in a few moments about what has impacted our gross margin and what we're doing to restore to historic levels.
But first let's start with a discussion at that our strategic initiatives. Our strategic initiatives is continuing plan, we have in place to achieve the company's long term aspirations as most of you will recall, we recently decided to refresh our strategic initiatives.
More accurately and Holistically reflect the top priorities of how we will get limitation.
Our strategic initiatives support our long term revenue growth aspirations, which is to drive net sales to between $650 and $700 million by the end of fiscal year 2025.
We strive to do so while following 50 530 25 business model.
Strategic initiative number one is to build a business for the future.
Under this initiative is to build an enduring business that will be proud to pass on to the next generation the desired outcome for this strategic initiative is to further embed infinite minded decisions.
Business and to fully integrate ESG initiatives into the heart of our strategic planning process.
We recently completed an internal diversity equity inclusion and belonging survey in support of both our ESG efforts as well as strategic initiative number two which is to attract develop and engage outstanding tribe members.
Believe that by building and nurturing an inclusive and diverse purpose driven learning and teaching organization at <unk>.
<unk> will succeed together wallach selling as individuals.
One of our tribe attributes as belonging.
We believe that belonging is the psychological feeling of acceptance connectedness security support inclusion and identity I'm.
I'm happy to share with you that 92% of our tribe members experience a sense of belonging and 88% agreed that WD 40 as inclusive place to work.
Although these results are positive and work is not done.
We are exploring new ways to create an even more diverse equitable an inclusive workplace, where all trial.
A sense of belonging.
Strategic initiative number three is to strive for operational excellence.
Now under this initiative is to foster a culture of continuous improvement in which operational excellence is the responsibility of every time in.
The world is full of volatility uncertainty complexity and ambiguity more so now than we've ever seen in our lifetime almost everything we buy is traveled alone some of the millions of miles of networks that make up the world's supply chains.
Many other companies we've been unable to fully meet increased consumer demand for our products in some markets due to the current state of the global supply chain.
Spirit of making it better than it is today.
We are proactively increasing the capacity and the resilience of our supply network in our markets in the United States, We will double the number of third party manufacturers will be partner with.
This fiscal year.
Adding the extra capacity is very important.
It's equally important that we maintain our high quality standards throughout this process.
Our tribe members are working diligently to maintain consistently high product quality as we move through this project to onboard new manufacturers.
Strategic addition out before is to grow WD 40, multi use product.
This initiative is to make the blue and yellow can with little Red top available in more places to more people who find more uses more often.
Prior to <unk>.
<unk> 40, multi use product line through continued geographic and digital expansion increased market penetration educating end users about new uses and through the development of new and unique delivery systems that make the product easier to use.
In the first quarter sales of WD 40, multi use product increased 14% globally to a $107 1 million.
The desired outcome for this strategic initiative is to grow sales of WD 40, multi use product to approximately $525 million by 2025.
Strategic initiative number five is to grow the WD 40 specialist line.
Our goal under this initiative is to leverage the WD 40 brand by developing new products and categories, which builds and reinforce the core brand positioning and create growth through continued geographic and digital expansion.
In the first quarter sales of WD 40 specialist decreased 5% globally to $12 5 million, Steve will speak in a few moments about the causes of these declines. He will also share some very positive news of how WD 40 specialist sitting some new exciting benchmarks.
The desired outcome for WD 40 specialist in this initiative is to grow sales to approximately $125 million by 2025.
Strategic initiative number six is to expand and support portfolio opportunities that help us grow.
Our goal under this initiative is to expand and support brands that provide us protection and help us grow brands. Under this initiative include three in London, GTA, five as well as our homecare and cleaning products brands and the first quarter sales of products included under this initiative decreased 12% globally to $15 1 million.
Haven't clear and cleaning products were up against a very strong comparable period as they benefited from increased demand as a result of the pandemic last year.
In addition, we've been unable to fully meet consumer demand for our products due to the challenging supply chain environment. The desired outcome for this strategic initiative will be sales in this category of approximately $50 million by 2025 to reach that number we expect sales growth of brands like three in one of them.
<unk> 5001, and nothing more.
Any of our other 100 care and cleaning products brands will most likely decline in sales, but we will continue to contribute healthy returns.
Supporting our strategic initiatives our must win battles. These are focused action plans that supports the strategic initiatives.
I'd now like to pass the call to Steve who will share an overview of our sales results and update on the buyout must win battles.
Thanks, Gary and good afternoon.
When we last spoke I shared with you that end user demand for our products continued to be exceptionally strong.
September was the second largest sales month in the company's history.
Today Im happy to report total global sales growth of 8% for the quarter.
Back to the double digit growth, we experienced for most of fiscal year 2021 sales results have soften debate, but remember we did not guide to the level of sales growth that we saw last year.
Important for investors to appreciate is that the watermark is high and now <unk>.
Despite our comparable period being very strong we continue to experience strong demand for our products and believe that many of the new end users who have interacted with them to independent <unk> have become permanent uses of all brands.
Let's take a closer look at what's happening and I'll tried look starting with the Americas.
Net sales in the Americas, which includes the United States, Latin America and Canada.
4% in the first quarter to $56 3 million sales.
Sales of maintenance products increased 7% in the Americas due to increased sales in Latin America grew 42%. This increase was due to higher sales in many markets in the region, including our newest direct market in Mexico.
We continue to see momentum in Mexico from the shift we made in fiscal year 2020 from a distributor model to a direct market.
In addition in an American distributor markets, we saw strong sales due to successful promotional programs and increase productivity and ability as well as the timing of customer orders.
The increase in maintenance product sales in Latin America was mostly offset by decreases in sales in both the United States and Canada.
Sales of maintenance products in the United States decreased 1% compared to last year.
We experienced strong end user demand in the United States, resulting in a 5% increase in sales of WD 40, multi use product.
Unfortunately, this was completely offset by declines in sales of WD 40, specialist and three one which declined 28% and 30% respectively.
While we continue to experience very strong end user demand from maintenance products, we were unable to fully meet those demands due to capacity constraints in our U S supply chain.
In Canada net sales of maintenance products decreased 2%, primarily because we were up against a very strong year over year comparable period.
As a reminder, our maintenance products exclude our homecare and cleaning brands.
Our homecare and cleaning products in the Americas decreased 24% compared to year, largely due to lower sales of spot shot 2000, flushes and <unk> 14.
Total our Americas segment made up 42.
About global business in the first quarter over the long term, we anticipate sales within this segment will grow between 5% to 8% annually.
They want to EMEA net sales in EMEA, which includes Europe, the Middle East Africa and India.
5% in the first quarter to 57 5 million.
Changes in foreign currency exchange rates had a favorable impact on sales for the EMEA segment from period to period.
But it comes from currency basis sales would have increased by 1% compared to last year.
Sales of maintenance products increased by 6% in EMEA due to the increased sales in both our direct and our EMEA distributor markets, which increased 4% and 9% respectively.
In our EMEA direct markets, we experienced a 4% increase in sales productivity 40, multi use product and WD 40 specialist.
Particularly strong sales in Italy, France, and Spain, but sales were up 17%, 9% and 18% respectively.
These sales increases were primarily due to new distribution and successful promotional programs in the first quarter net sales in our EMEA direct markets accounted for 63% of the region sales.
In our EMEA distributor markets, we experienced a 10% increase in sales of WD 40, multi use product, we saw particularly strong sales in Poland, Russia and India.
Sales were up 68%, 15% and 30% respectively.
Sales increases were primarily due to new distribution and successful promotional programs and favorable changes in foreign currency exchange rates. We continue to experience very strong end user demand for our products in these regions.
We were unable to meet some of this demand due to shipping container and transportation shortages related to the current state of the global supply chain.
In the first quarter net sales in our EMEA distributor markets accounted for 37% of the region sales.
In total our EMEA segment made up 43% of our global business in the first quarter over the long term, we anticipate sales within segment will grow between 8% to 11% annually.
They want to Asia Pacific net sales in Asia Pacific, which includes Australia, China and other countries in the Asia region.
And 4% in the first quarter to $29 million changes in foreign currency exchange rates had a favorable impact on sales for the Asia Pacific segment from period to period on a constant currency basis sales would have increased by 31% compared to last year.
In China net sales were $6 million in the first quarter up 69% compared to last year, driven primarily by successful promotional programs as well as the timing of customer orders, we remain optimistic about the long term opportunities in China, we expect volatility along the way due to the economic and health related impacts of Covid.
<unk> the timing of promotional programs the building of distribution shifting economic patterns and varying industrial activities.
In our Asia distributor markets net sales were $9 3 million in the first quarter of 36% compared to last year.
These sales increases were primarily driven by improved economic conditions as a result of reduced lockdown measures during the first quarter, which resulted in increased demand and higher sales, particularly in Indonesia, Malaysia, Taiwan and Hong Kong.
In Australia net sales of $5 5 million in the first quarter up 7% compared to last year due primarily to increased sales of 240 specialist which were up 45% compared to last year.
In total our Asia Pacific segment made up 15% of our global business in the first quarter.
Long term, we anticipate sales within this segment will grow between 10% to <unk>.
Okay.
A brief update on our must win battles must win battles are the primary areas of action that will enable us to deliver against our revenue growth aspirations to drive net sales to between $650 $700 million by the end of 2025. These hyper focused actions support pivotal strategy. Another key drew.
Why because of revenue growth.
Our largest growth opportunity in our first must win battle is it geographic expansion, but the blue and yellow can literally little red top we continue to experience impressive growth of our flagship brand with global sales of 50 40 multi use product <unk>.
14% compared to last year. We've recently made some significant investments in brand building and awareness of what we refer to internally as making the end user aware and these investments are paying off.
Seen significant growth and priority markets, like China, Mexico, India, and Russia or in the first quarter sales of the blue and yellow can with little Red top increased by 17, 9%, 58%, 30% and 14% respectively.
In fiscal year 2022, we will continue to invest in building our flagship brand with end users around the world.
Second must win battle as the premium amortization that there'll be 14, multi use product premium amortization creates opportunities for revenue growth gross margin expansion and most importantly, it delights our end users.
In the first quarter sales of WD, 40, smart straw and EZ reach when combined with $48 3 million up 10% compared to last year.
<unk> next generation delivery system is currently being rolled out in Canada, and the United States and we expect it will be made available in Europe later this fiscal year.
So next generation supports our objective to grow premium delivery system penetration to greater than 60% of our WD 40, multi use product sales by 2025.
A third must win battle is to grow to be 40 specialist that Gary mentioned earlier global sales of <unk> 40 specialist were down 5% compared to last year.
We saw solid sales of WD 40 specialist in EMEA, and Asia Pacific, where sales were up 4% and 21%.
These increases were entirely offset by lowest sales United States.
<unk> to experience very strong.
Strong end user demand could there be 40 specialist in the United States, we were unable to fully meet those demands due to capacity constraints in our U S supply chain.
We're beginning to see improvements, but we do not expect to be able to fully meet demand 40 specialist in the Americas until the second half of fiscal year 2022.
We believe that for the full fiscal year to be 40 specialist will grow.
Towards restoring our supply chain and reap the benefits of our new packaging and brand architecture. We are seeing very positive results in the regions, where we have rolled out the new packaging such as in Australia, where it is setting a new benchmark with sales of WD 40 specialist, reaching 36% of WD 40, multi use product sales in the car.
Tree.
Our final must win Battle is digital commerce, our vision for digital Commerce is to engage we are and always have been channel agnostic a critical factor in our success has always been that we distribute our products in over 62 unique trade channels around the world, which makes it easy to buy.
Whether end users choose to purchase L brands online or in physical stores, we aim to provide a seamless online and offline experience.
C driving digital engagement of all brands is a key accelerator of our growth going forward.
That being said in the first quarter, we've seen a rebalancing itself towards brick and mortar locations.
Comp sales were down 22% compared to last year.
For the full fiscal year, we continue to expect strong digital commerce growth.
Hey, Tony I will now turn the call over to Jay who will provide you a financial update on the business. Thank.
Thank you Steve.
We delivered solid results in our first quarter fueled by strong end user demand in the face of a volatile and challenging.
$55 32.
25 business model.
Guide our business.
Thank you.
<unk> gross margin, which we target to be at 55% of net sales.
The 30 represents our cost of doing business, which is our total operating.
And expenses, excluding depreciation and amortization.
Our goal is to drive.
It represents our long term target.
For EBITDA.
First the 55, our gross margin.
Okay.
The <unk>, 8% compared to 56, 4% last year.
This represents a decline of 560 basis points.
Last four quarters, you've seen a consistent decline in gross.
And the challenges.
Third we're experiencing cigna.
Vacation costs as well as increased costs from our third party manufacturers.
Our opportunity this fiscal year is to reverse this.
Back up to historic levels.
There are changes in specialty chemicals.
Those were the primary driver of this decline negatively impacted our gross margin by 390 basis points.
Higher warehousing distribution and freight costs.
I'm rarely from supply chain constraints in the Americas, and EMEA negatively impacted our gross margin by 140.
40 basis points.
Gross margin was also negatively impacted by 80 basis.
It's this points due to foreign currency exchange rates and service fees paid to our third party <unk>.
Tracked manufacturers primarily in the Americas.
These factors were partially offset.
By a benefit of 120 basis points from sales price increases we've implemented over the last 12 months.
The impact to gross margin linked to foreign currency exchange rates is due to fluctuations in exchange rates for the euro and the U S dollar against the pound Sterling in our EMEA segment.
This is because in EMEA. The majority of our finished goods are sourced in pound sterling, while approximately 70% of revenues are generated in currencies other than the pound sterling.
To offset these declines in gross margin price increases are being implemented across all of our markets and geographies.
Yes.
However, tactical price increases like those we recently implemented take time to embed their way into our reported results.
And we have yet to see the full benefit of the price increases we implemented this quarter.
This operating environment is different than anything we've seen in a long time.
Historically, we've implemented price increases when necessary to offset rising input costs. This is usually resulted in price increases being made on a very infrequent basis.
This is a different game.
And we are using a different playbook.
We expect the operating environment to remain challenging and volatile and we expect to continue to face incremental.
Cost headwinds.
The current inflationary environment, we will be implementing multiple price increases this fiscal year.
We are confident that our plans to rebuild margin coupled with the advancement of our margin accretive must win battles will enable us to deliver on our long term gross margin and sales goals.
It may take a few quarters.
We will take the necessary actions to restore our gross margins to 55 or higher.
And to continue to drive sales growth to the mid to high single digits.
Now I'll address the 30 or our cost of doing business.
In the first quarter, our cost of doing business was approximately 32% of net sales flat.
Flat compared to last year.
Although SG&A expense increased by $2 $5 million compared to last year, our cost of doing business as a percentage remained flat due to the increase in revenue this quarter.
Kris and SG&A expense in the quarter was primarily due to changes in foreign currency exchange rates higher travel and meeting expenses, along with higher freight costs.
First quarter, 79% of our cost of doing business came from three areas.
People costs or the investments we make in our tribe.
The investments, we make in marketing advertising and promotion.
As a percentage of sales our A&P investment was four 2% in the first quarter and finally, the freight costs to get our products to our customers.
Our long term goal is to drive our cost of doing business towards 30% of net sales.
And this brings us to EBIT the last of our $55 30 25 measures.
EBITDA was 19%.
Sales for the first quarter.
Which is down significantly compared to last year, primarily due to lower gross margins we reported.
We expect to return to historic EBIT levels as we rebuild our gross margin.
Well that completes the discussion on our business model now lets discuss some of the items that fall below the EBIT line.
The provision for income taxes was 19, 8% this year compared to 15, 7% last year.
Kris and the effective income tax rate was primarily due to an increase in nondeductible performance based compensation expenses.
We expect that our effective tax rate will be approximately 21% to 22% for the full fiscal year 2022.
Net income for this quarter was $18 6 billion compared to $23 6 billion last year.
And diluted earnings per common share for the quarter.
A $1 34 compared to $1 72.
The same period.
Now worried about our balance sheet and our capital allocation strategy.
Company's financial condition and liquidity remained strong.
Capital allocation strategy includes a comprehensive approach to balance investing in long term growth, while providing strong returns to our shareholders.
To return capital to shareholders through regular dividends and share repurchases.
On December the 13th our board of Directors approved a quarterly cash dividend of <unk>.
78 per share, reflecting an increase of more than 8% over the previous quarter's dividend.
Last quarter I shared with you that our board of directors had approved a new $75 million share repurchase plan, which became effective November one.
During the first quarter, we repurchased 32000 shares of our stock at a total cost of approximately $7 $4 million under under this plan.
In fiscal year 2022, we expect to invest approximately $14 million in capital projects, the majority of which will be used to complete the procurement.
Scenery in equipment, we are using to manufacture our next generation smart straw delivery system.
One item that I would like to call. Your attention is the recent increases in our inventory levels as we improve the resilience of our U S supply chain, we have increased the number of components and finished goods that we have in inventory.
Our ability to meet the market demand.
Now, let's turn to fiscal 2022 guidance, while our net income range remains the same we have updated our guidance to reflect higher sales as well as higher costs associated with the inflationary pressures that continue to impact our gross margin.
With that we expect net sales growth projected to be between seven and 12% with net sales between $522 million and $547 million gross margin for the full fiscal year is expected to be between 52 and 54%.
<unk>.
Advertising and promotion investment is projected to be between five and a half just 6% of net sales in.
And the provision for income taxes are expected to be between 21% and 22%.
Net income is projected to be between $71 $7 million and $73 6 million and diluted earnings per share is expected to be between $5 24 and.
And $5 38.
Based on an estimated $13 7 million weighted average shares outstanding.
We want to remind everyone that there are dynamics outside of our control that may impact our fiscal year 2022 results, including the impact of fluctuating foreign currency exchange rates.
We anticipated inflationary headwinds and other unforeseen events. This guidance does not include any future acquisitions or divestitures.
And that completes the financial overview now I'll turn it back to Gary.
Thanks Jay.
Summary, what did you hear from us on this call today.
You heard that we are operating in an environment that is volatile uncertain complex and ambiguous and that this is a different game, we're playing now.
The total net sales were up 8% in the first quarter.
You heard that south of WD 40, multi use product were up 14% in the first quarter.
Net sales in Asia Pacific were up 34% in the first quarter.
You heard that we continue to return capital to investors through regular dividends and we've raised our dividend by more than 8% last month.
We have been experiencing pressure on gross margin, we have a restoration plan in place that will take some time to execute.
You had and then we've adjusted our guidance for fiscal year 2022, and we believe that net sales will grow between 7% to soon.
In closing today I'd like to.
To share a quote with you from Seth.
If the game is designed the utilities.
Current client that guy.
For one.
Thank you for joining us today, and we would be pleased to take your questions.
Ladies and gentlemen, if you would like.
So that just kind of a question. Please press star one on your telephone keypad.
Please make sure mute function is turned off to allow us now to each alright.
What's your question I'm sorry.
Was it just.
Just trenching.
Press the pound key.
One moment please.
Great question.
The first question comes from the line of Paul.
Yeah.
<unk> of Jefferies.
You did have one question.
Hi, everyone. Thank you for taking my questions.
You indicated that some sales where there is some.
More so I guess in the quarter due to supply chain to shrinks.
I was wondering if there were lots of deferred if it's just delaying the sales or if it's something that it's really tough to get back.
Thanks, Daniel This is Gary that's not an easy question to answer I. You know my history has been if you lose the sale you lose the sale.
Now having said that.
The thing that's really important is that in the quarter, 80% of our revenue came from our core product, which is W. D 40 map and it was up 14% in the quarter.
And as you know Daniel much of our long term growth is based on the expansion of our WD 40, multi use product. So there's a lot of noise going on around the business in certain areas. Some areas are up significantly some are little slow or supply chain or whatever but I think it's important to really reflect on the <unk>.
That 80% of our business, which is our core business was up 14%.
Okay. That's helpful and then with the strength in China, which I think was up 60 plus percent.
I was wondering if that was that there was some pull forward there I know it can be fairly lumpy from time to time.
And some portion of the password and down 40% because of <unk>.
Delays I was wondering if there was any pull forward here in anticipation of the Chinese new year or something like that.
Not materially Chinese new year is coming up.
And we would expect.
Hopefully that the Chinese new year, we will go through in its normal way and we won't see any massive disruption, but we're.
We're looking for a solid year in China of all markets in the world that are COVID-19 affected it seems to be the most stable right now because of its.
It's China.
We would think that this year will be a reasonably good year.
China market.
Okay.
Just a couple more.
You mentioned.
But by 2025.
60% of <unk> sales can be I'm, sorry, yes.
T cells will be smart straw.
What the percentage is now like what is the.
Growth projection there.
Steve would you like to address that.
Sure Hi, Daniel.
Yeah. So.
First quarter sales with just.
Mid forty's.
Last year, we closed at 50 for the full year. So we expect for the year to be approaching at 50% plus.
Great between smart straw and EZ reach sales combined.
Yeah.
Okay. Okay, and then finally, you mentioned raising awareness in China, one of the strategies really West, China, Russia, India and Mexico.
Wondering how you do that sort of like is it like a AD campaign or billboards or I mean, I know you're going to do I think to like commercial firms. So I'm just wondering what specific steps you take if you can provide any color on that.
Steve would you like to.
Speaking on that.
Sure. So it's the old formula on expanding distribution, so making the product available in more places, but it's also making the end user aware and a big part of making end user aware to be 40 company globally sampling program. So China a lot of that growth that we're seeing in China now is coming from big investments. The most substantial investments we made at the end of <unk>.
Last year in sampling.
Industrial end users across all of China, So sampling programs across all of our major growth potential markets.
Our effective way of us, bringing in new users.
Yeah.
You May remember you may remember Daniel in Q4 last year.
That's the reference we made a substantially larger marketing investment.
And we referenced the fact that we were doing it in these markets as Steve said, we're starting to see some of those sampling programs payoff.
Okay. Thank you.
Thank you. Our next question comes from the line of.
Welcome to Walter I'll deal with him.
Please proceed with your question.
Yeah.
Yeah. Thank you hi, happy new year, how are you doing.
Linda went great.
Good.
So.
You know me well here top line results certainly were strong in the quarter and you've talked about the fact that our core.
On the product.
So up double digit I can pretty much a hard comparison last year. So can you just give a little more color on.
Like what is going on I mean, do you think that this isolation.
Consumer behavior is continuing.
There'd been normal behavior doing more stuff around.
Or whatever and <unk>.
Do you think there is.
Can you comment too if there's anything in your business in particular related to all of them a crowd that you think is affecting demand.
Well, Hi, Mccaughan, who knows.
I think what we're seeing and I'll talk a little bit I'm not going to pass to Steve to talk about some of the the new end uses that we feel that we've pulled in but.
Again, I think what we're what we're really witnessing in our business and you can see it by the different growth rates in different countries around the world and specifically now I'm talking about Caribbean, we're seeing the positive resilience of having a very diversified business around.
The world because I just returned from Australia, two days ago, and while I was there omni con blew up.
Massive way.
And we're seeing pockets of this everywhere, but because we're so diversified globally.
We still saw in Europe in the past quarter very strong growth in Italy, as we talked about spine.
Areas, where things open up and closed down so I think we've we've kind of.
Got used to maneuvering these really unusual business conditions, but thank goodness, we have the infrastructure and the global awareness and distribution that we have because were not getting hit all at once in one place.
So that's my view.
The continued learning of the effect of Covid anomaly economy, who knows what the next one is I don't know.
Steve do you want to talk about the overall demand and how we're seeing end users et cetera.
Sure Thanks, Gary Hi, Linda.
Is that kind of DIY boom, the isolation renovation phenomenon, Gary referred to many times.
Those new users, we believe will be permanent uses of our brands and that will carry forward.
Been a definitely a reduction across many areas of the world not all but many areas of the world.
The DIY side, so our DIY channel sales of flattening somewhat but that's been replaced by a switch to suddenly towards professional use our industrial sales across the globe are doing really really well. So I believe our industrial sales were up mid thirties.
And across the World and that includes China and those investments, we've made which are mainly in industrial sampling to industrial end users in China. So there's been some switch there. Some rebalancing you heard of ecommerce rebalanced towards physical stores as well so theres been some channel shifts, but thankfully, it's still resulting in strong overall.
Revenue growth.
Yeah.
Okay, Great that's helpful.
Hmm.
Looking at your gross margin you know it.
It was a little bit lower than we had thought in the corner.
And I guess the way we have modeled that we thought it might have bottomed out last quarter, and then maybe gone up sequentially this quarter and yet it went down sequentially again.
Do you think that third quarter is the bottom I know, it's hard to project, but do you think this is.
Kind of a trough and then you have I think once all little bit of increase maybe in the second quarter.
Have any view on that.
Jay do you want to talk on that.
Yes, Thank you Gary.
Yes, Linda.
Prized as well.
From a standpoint of where we ended up the quarter we had.
And it really has been a result of just continue cost increases that have come out have come at us.
And like we've said in the in the call.
We are attempting and we'll be having.
Additional price increases too.
And to help recover that gross margin, so the timing of which.
We are modeling it today suggests that we'll be able to.
CA.
A flattening out with some slight uptick in margin in the.
In the second quarter, but you know I hate to make that commitment given the fact that we continue to see waves of growth.
Cost increases.
But we would expect that to where we're really going to see the the.
<unk> of margin will be.
Closer to the fourth quarter.
At the level that we were.
At historical levels, rather than kind of in the third quarter, where we had initially thought so.
We have been pushed out a quarter, probably a little bit longer maybe.
Okay. Thank.
Thank you that's very helpful and then Hum.
I think you know I think you can explain that so I think I asked it like a couple of quarters ago about the specialist supply chain issues and why it's different from regular WD 40.
Different factories or different like why is if there's a problem with that but not so much what there might be a problem.
Because we chose to prioritize.
The specialist supply chain issue was mainly in the United States and Thats, where we had the most pressure on aerosol manufacturing supply in the world.
So we made a choice we said we will forever protect alcohol.
And we will full goes from WD 40 specialist business to ensure that that 80% of our business is in the most.
Robust supply can be now.
As you may have heard we.
We are doubling the amount of manufacturers, we have in the U S and progressively now those new manufacturers are coming online and primarily to support our specialist product line. So it was a SaaS value for us because specialist is proven and is proving to be a <unk>.
Really.
Really.
A huge opportunity, particularly since we made the change in the trade press you might have heard Steve referenced but in Australia, now, where we've had no disruption in the specialist supply. It's now 37% of our mob sales and when we first came out with specialist our estimate was.
We could get it to 25% of our mop sales.
A number of markets around the world, we proven that the benchmark is higher which means the long term opportunity is higher but we will recover in the U S and we're slowly getting there as.
As we bring on new suppliers, we have to go through stability quality checking.
It's not easy to tune on the supply.
And maintain our high quality standards as we must do so that's the reason Linda it was a choice we made.
And.
We are working through it and we will get over it and we will be.
Be back on track.
Near term.
Okay. Thank you that's very good explanation.
Finally, let me just one thing we're more about your A&P ratio in the quarter was a little lower than we had expected at four 2% and that's a little lower than what you are kind of planning for the year is there any laid out.
And give us some guidance on how that will go.
In the corner I mean here for more spending in the second half of the year or so hard to is that hard to come back.
Yes, we would expect to come in for the full year in the range that we're predicting now some of this is timing of that ability to be able to execute programs. As you know a lot of our marketing is around sampling and if we get shutdown and market, sometimes it's hard to do so it shifts.
Also our revenue was a little higher than.
I guess you predicted also so.
The percentage is a little lower.
But we what do you think that the range we have for the year will work out that way.
We don't run our business on a quarter to quarter basis.
Right, Okay, well. Thank you so much and good luck with everything.
Thank you thanks for that.
The questions I appreciate it.
Thank you and ladies and gentlemen that does conclude our allotted time for questions.
Thank you for your participation on today's conference call.
Please disconnect your room.
Okay.