Q1 2022 Edgewell Personal Care Co Earnings Call
Good morning, and welcome to edge Wells first quarter fiscal year 2022 earnings conference call.
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I would now like to turn the conference over to Chris Gough Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us this morning for <unk> first quarter fiscal year 2022 earnings call 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 then hand, it over to Dan to discuss our results in full year 'twenty two outlook before we transition to Q&A.
Call is being recorded and will be available for replay via our website www dot <unk> dot com <unk>.
During the call we may make statements about our expectations for future plans and performance. This might include future sales earnings advertising and promotional spending product launches savings and costs related to restructuring changes to our working capital metrics currency fluctuations commodity costs category value future plans for return of capital to shareholders.
And more any such statements are forward looking statements, which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption risk factors in our annual report on Form 10-K for the year ended September 32021 as may be amended in our quarterly reports on.
Form 10-Q .
These risks may cause our actual results could be materially different from those expressed or implied by our forward looking statements. We do not assume any obligation to update or revise any of these forward looking statements to reflect new events or circumstances, except as required by law.
During this call we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website.
Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business with that I would like to turn the call over to Rod.
Thanks, Chris and good morning, everyone and thank you for joining us on our first quarter earnings call. As you saw in the results. We posted earlier today, the improving underlying consumer demand that we witnessed in many of our categories. As we exited fiscal 2021 continued in the first quarter.
The category strengthened so to get our market share results.
In the quarter, we grew organic net sales two 5% with growth coming from all three segments of the business led by Sun care Women's shave feminine care and men's grooming.
Importantly, our organic growth was driven by both volume and price gains in the quarter.
We also had growth across all geographic regions and importantly, starting to see the first signs of recovery in important markets in Asia and Latin America.
Our aggregate market share in North America increased in the quarter led.
Led by Sun care wet ones disposable razors.
And in the international markets, we were pleased to see continued share gains in Japan.
Most Latin American markets.
In addition to our strong topline performance, we also executed well on the bottom line.
<unk> 42 of adjusted earnings per share and $69 7 million of adjusted EBITDA in the quarter.
Quite significant cost headwinds, resulting from increased inflationary pressure across many commodities freight and distribution costs as well as increase in COVID-19 related impacts on our labor force.
These challenges impacted our ability to meet elevated demand in the quarter, particularly in women's branded chain shave preps and feminine care.
Our organization is working relentlessly to mitigate the impacts of higher cost and supply constraints on the business, while remaining focused on executing against our strategic priorities.
Dan will take you through more details on the supply chain environment and the impact on our business in a moment.
I'm also pleased with how our team designed and now it's executing our price increases thoughtfully balancing a strategy of price leadership with SaaS followership reflective of category brand and market and.
And we will continue to explore further opportunities as inflationary pressures remain at all time high levels.
Let me now pivot to the progress we're making on some of our key strategic priorities, including the investment in our people and brands in support of our goal to deliver sustained top line growth.
Our performance this quarter is again, a testament to our team members, who have executed with excellence in an increasingly challenging environment.
As you've heard me say before we've built a people first culture and we continue to prioritize the safety and wellbeing of all of our teammates.
The protocols, we initiated nearly two years ago have been refined and augment it as the pandemic has evolved ensuring a safe and effective work environment across all of our offices manufacturing and distribution facilities.
We've made the COVID-19 vaccine readily available to all employees to vaccine clinics, some of which had been onsite and offered paid time off for employees to get vaccinated.
Conscious of the impact the pandemic has had on our employees we have implemented several initiatives to date in support of their mental health and wellbeing.
And finally in 2021, we also rewarded our teammates for their dedication and contributions to our success during the pandemic with multiple cash bonuses awarded to our frontline workers and a onetime cash award for all hourly and salaried corporate individuals who previously were not bonus.
Eligible.
And as well we value our teammates and remain committed to our people first objective.
In addition to the investments in our team members. We also made meaningful investments in our brands and in key markets, which contributed to strong sales and share growth in the quarter.
In two important areas of the business the Sun care segment in the Japan market.
In Sun care, we have already secured meaningful new club channel distribution and compelling shelf gains and mass.
Both in aisle and secondary displays and.
We're encouraged by the pace of recovery, we're seeing in several international markets.
Strong distribution gains are a direct outcome of consecutive seasons of share gains in the United States and when combined with our expertise in procurement and formulation position us well for the critical Sun season ahead.
And in Japan, our second largest country based on sales the investments we've made in the men's hydro relaunch drove increased shelf presence and share gains.
The men's hydro relaunched in Japan is just one example of the innovation, we're bringing to consumers this year.
In North America are re branded schick portfolio will be on shelf later this month.
Reinforcing both the authentic and emotional connection between the brand and our consumers and the unparalleled functional product benefits, we provide as part of men's daily shave regimen.
In Sun care.
Banana boat is targeting the unmet needs in our core sport and kids franchises with sports and kids rollout SPF 60.
A new 100% mineral <unk> spray.
While Hawaiian Tropic is launching a unique mineral powder brush made with 100% mineral actives that modifies, while protecting where skin and a convenient fresh format.
And in men's grooming, we're combining the inherent equity and credibility of the criminal brand with the unmatched blade technology of edge well to launch a new premium razor to compete in the more premium end of the category.
These are just a few examples of the commitment we have made to increasing our capabilities in the areas of brand building and consumer centric innovation and I am personally excited about the progress we're making.
And finally in addition to the organic investments.
We're making we completed our acquisition of Billy and the quarter.
Adding the fast growing digitally native leading DTC brand to our strong and differentiated portfolio of women's shaving brands, including intuition shack hydro silk and <unk>.
And the timing couldn't be better as Billy has just begun its national retail launch exclusively in Walmart.
By the end of February really shave essentials, including the starter kit travel case blade refills, and a new wet shave cream will be and over 4000, Walmart stores and fully supported by in aisle and endcap signage and display.
Dwell is now playing the role of disruptive to the category at retail combining a uniquely strong brand with expertise in distribution and retail execution.
So in summary, we are seeing a healthier demand environment across many of our categories, particularly in the United States and we are encouraged by the recovery beginning in other regions of the world.
Second with improving demand environment, we remain committed to investing in our brands and executing on our strategic priorities.
Third our teams remain focused and agile even as the operating environment becomes increasingly challenging as.
As we continue to see heightened cost pressures across many commodity categories as well as higher wages and transportation costs.
Our teams will continue to focus on service, while executing our productivity and efficiency efforts to help mitigate some of these cost headwinds, while ensuring our product remains available for our customers.
Fourth we are executing a price increase as well while continuing to evaluate further price measures in certain markets and.
And finally, as evidenced by our dividend and share buyback execution, we remain committed to a balanced and disciplined approach to capital allocation and returning value to shareholders.
And now I'd like to ask Dan to take you through our first quarter results and also provide details on our outlook for fiscal 2022.
Thank you Rod and good morning, everyone as Rob discussed this was a good start to the year with our top and Bottomline performance in line with expectations.
Driven by improved demand and good execution by our teams, despite increasing supply chain challenges and mounting cost headwinds Adil.
Additionally, we continue to make good progress against our strategic initiatives, which helped to drive more predictable top line growth and enabled disciplined commercial investment.
Importantly, we delivered productivity savings in the quarter that were in line with expectations. Despite the deteriorating macro supply environment, a true testament to the organization's capabilities to both structurally address costs and continue to navigate tightened supply chain challenges.
For the quarter organic net sales increased two 5%.
Adjusted gross margin decreased 140 basis points or 90 basis points organically.
A&P spend increased $5 million and 90 basis points in rate of sale.
Adjusted SG&A improved 110 basis points in rate of sales.
Adjusted EPS decreased 2%, however, core adjusted EPS grew over 9% in the quarter.
And we deployed $33 million of capital through dividends and share repurchases.
Before reviewing our detailed results I would like to provide some additional color on our operations and the continuing inflationary environment.
Our industry continues to face unprecedented supply chain disruption increased bottlenecks and accelerated inflation with little signs of easing in the near term.
Tight labor markets remain increasingly challenging in part made worse by the fast spreading omicron variant and supply and demand imbalances and overall capacity constraints remain broad and sustained across the supply chain.
Conditions this quarter could best be described as volatile, particularly in certain commodities, such as specialty chemicals packaging and metals.
Freight and transportation markets also worsened in the quarter reflective of continued infrastructure challenges and heightened diesel cost inflation.
As we discussed last quarter, our organization is working relentlessly to mitigate the impacts of higher cost and supply constraints on the business and we continue to take aggressive steps to stabilize supply and mitigate these cost headwinds.
In the face of growing labor constraints, we've increased and diversified our efforts to secure the labor pool needed to support our demand outlook.
Ron already shared some of the steps we've taken to further support our employee base.
Spite these efforts we did see sporadic supply shortages in certain categories, most notably in Fem care in shave preps and to a lesser degree women's shave.
And our teams are taking the right actions to mitigate the potential impact going forward.
Including broadened sourcing efforts increased upfront raw material buys.
Staggered production scheduling and overtime utilization and alternative transportation strategies in the U S and across Europe .
We're also tactically building inventory levels through the first half of the year, where possible to ensure product availability and improved service levels to our customers.
Now I'll turn to the detailed results for the quarter.
As mentioned organic net sales increased two 5% equally driven by price and volume gains most of the realized price increases were attributable to fem care and wet ones in North America and to a lesser degree wet shave and international.
Accordingly, the majority of the positive impact that will be realized from pricing occurs as the year evolves.
On a two year stack total company organic net sales increased just over 1% in the quarter versus the same period last year with growth in both North America and international markets.
Our ecommerce business saw strong results increasing by over 9% in the quarter on top of over 40% growth during Q1, a year ago.
In the quarter, our total portfolio gained 30 basis points of market share in the U S led by gains in Sun and wet ones and flat share results in Fem care.
Share results in wet shave, where consistent with 52 week trend.
Looking deeper into our segments wet.
Wet shave organic net sales increased 2% in the quarter largely driven by growth in women's systems disposables and private brands.
Our women's systems business continues to be the primary catalysts for growth with organic net sales, increasing 9% driven by intuition as well as private label, which grew 48% in the quarter. Despite cycling, 51% growth last year in Q1.
International wet shave grew over 4% as women's systems organic net sales grew nearly 12% for the quarter.
Disposables organic net sales increased about 5% and gained share while men's systems organic net sales decreased 6%.
For the third consecutive quarter U S razors and blades category consumption increased growing four 8%.
The category growth in the quarter was seen across men's and women's systems and disposables.
For the 13 week period market share for the shift franchise declined 100 basis points, driven mostly by declines in men's and women's branded shape, while disposable share grew 70 basis points driven by our men's business, which saw strong performance at Walmart and the benefit from distribution gains at Walgreens and Sam's.
John and skin care organic net sales increased about 2% driven by strong global Sun care results and improved men's grooming results.
<unk> organic net sales in North America increased 51%, while international organic sales increased 27% led by initial consumption recovery in Latin America.
In the U S. The Sun category increased 44% for the quarter aided by better weather and increased travel.
Hawaiian Tropic and banana boat bolt outperformed the category with over 70% growth and collectively gained 320 basis points of market share.
Our strong execution and prominent on shelf position drove 450 basis points of share gains in the quarter at Walmart and we saw sequentially improved results across both the drug and grocery channels, where we also delivered strong share gains.
Men's grooming organic net sales increased 8% in the quarter led by criminal strong growth of nearly 20% on the heels of excellent holiday execution as the category was up 27%.
Wet ones organic net sales decreased 41% in the quarter as compared to an increase of over 110% in Q1 of last year.
Representing two year stacked growth of nearly 13%.
Category consumption declined 71% versus a year ago lapping COVID-19 driven sales.
One is consumption declines of 17% was significantly better than the category declines leading to 55% share of the category.
Fem care organic net sales increased about 5%.
Export continued to gain share in the quarter reflective of new product launches and stronger brand support offsetting declines in the carefree and legacy brands.
Fem care category consumption during the quarter grew about 11% in the U S and our portfolio consumption growth was largely in line with the category for the second consecutive quarter.
Now moving down the P&L.
Margin rate on an adjusted basis decreased to 140 basis points compared to the prior year inclusive of 50 basis points of inorganic headwinds as gross inflationary pressures of about 400 basis points were only partially mitigated by just over 100 basis points of favorable pricing promotional efficiency and mix.
And about 200 basis points of productivity savings.
A&P expense increased $5 million this quarter and was 10% of net sales reflecting increases in support of the hydro relaunch in Japan, some execution across the globe and holiday programs and grooming.
SG&A, including amortization expense was $96 9 million or 29% of net sales.
Adjusted SG&A declined 110 basis points as a percent of net sales due to lower incentive and fringe benefit costs.
Adjusted operating income was $46 7 million.
Compared to $49 million last year as lower gross margin and higher A&P costs were only partially offset by lower adjusted SG&A costs.
GAAP diluted net earnings per share were <unk> 20 <unk>.
Compared to 32 in the first quarter of fiscal 2021, and adjusted earnings per share were <unk> 42.
Compared to <unk> 43 in the prior year period, and inclusive of a <unk> <unk> negative impact from the <unk> acquisition.
This <unk> reflects the impact of deferred profit as a consequence of the timing of profit recognized on sales stability as well as higher amortization costs.
Core EPS grew over 9% in the quarter.
Adjusted EBITDA was $69 7 million compared.
Compared to $72 2 million in the prior year.
Net cash used in operating activities for Q1 was $79 million or $3 $5 million improvement over the same quarter last year.
The timing of interest payments and seasonal working capital build related to Sun care results in a Q1 cash outflow.
We ended the quarter with $240 million in cash on hand access to the $221 million Undrawn portion of our credit facility and a net debt leverage ratio of about three three times.
This brings me to the topic of capital allocation.
We remain disciplined in how we are deploying capital and executing in a thoughtful and balanced manner.
Last quarter, we announced our intention to put our healthy excess cash to work and repurchase approximately $300 million in shares over the next three fiscal years.
And in the quarter, our repurchases totaled $24 5 million.
In addition, we continued our quarterly dividend payout and declared another cash dividend of <unk> 15.
For the first quarter.
Turning to our outlook for fiscal 2022.
We are reiterating our outlook for the core <unk> business that was the basis for our original outlook and only updating our estimates to reflect the inclusion of 10 months of the ability of business and the additional negative impact of currency translation.
As we look to the remainder of the year, we're encouraged by the improving demand environment, we see across many of our categories and geographies and are well positioned as a result of the distribution gains discussed last quarter, most notably in Sun and women's shave.
However, we are cognizant that we are operating in a more volatile environment than previously contemplated.
Beyond the cost pressures associated with rapid commodity and wage inflation.
We are also navigating mounting complexity across the supply chain and in the near term, we see little signs of easing.
Before turning to our detailed outlook I want to provide a summary of the impact of now including the acquisition of the <unk> brand in fiscal 2022.
We expect <unk> to add approximately 400 basis points of net incremental growth to our reported net sales for the fiscal year.
We've referred to incremental sales as the net impact of Philly sales, both DTC and to retail less the intercompany shipments that edge, where we'll make that were previously expected to be third party sales.
This change from expected third party sales to intercompany shipments also creates a timing difference with respect to gross profit recognition versus our original outlook and we estimate this amount to be a headwind of approximately $4 1 million.
Incremental amortization costs associated with the intangible assets related to the acquisition will be approximately $9 million this fiscal year.
In total we anticipate that the acquisition will be dilutive to adjusted EPS by approximately <unk> 19.
Which reflects <unk> 13 per share related to the increased amortization costs and <unk> <unk> per share associated with the profit deferral.
For the fiscal year, we continue to anticipate low single digit organic net sales growth with similar growth rates in half one and half two.
As a reminder, Billy third party sales are excluded from the organic growth calculation.
Reported sales are now anticipated to increase by mid single digits, including 400 basis points net from Billy and partially mitigated by an expected additional 50 basis points headwind from currency.
<unk> sales are expected to face somewhat ratably over the remaining three quarters.
As we look to gross margin, we now anticipate approximately 200 basis points year over year declines primarily reflective of the heightened inflationary pressures and the overall challenging supply chain environment.
Year over year gross margin declines will be more pronounced in Q2 before moderating somewhat in the back end of <unk> II as our productivity programs scale and price realization increases.
This outlook largely assumes spot prices across the majority of the commodity basket as well as in transportation and warehousing.
We will continue to invest in support of our brands in key markets and with the addition of the <unk> brand expect A&P spending to be largely in line with last year as our rate of sale.
Adjusted operating profit margin is now expected to contract approximately 130 basis points year over year, reflecting the deleveraging effect of including the billet sales increased amortization costs the headwind associated with the profit deferral and additional negative currency effects.
Adjusted EBITDA is now expected to be in the range of $357 million to $377 million.
Adjusted EPS is now expected to be in the range of $2 74 to.
To $3 <unk>.
Reflecting increased amortization expense in addition to the profit deferral and currency impacts.
We continue to expect to generate about two thirds of our full year adjusted EPS in half two of this fiscal year.
With respect to our share repurchase our outlook only includes the expected share repurchases required to offset dilution.
The benefit to EPS from additional share repurchases transacted over the course of the year have not been contemplated in our outlook and will be additive to EPS and.
And finally free cash flow conversion is expected to be approximately a 100% of GAAP net earnings.
For more information related to our fiscal 2022 outlook I would refer you to the press release that we issued earlier this morning.
And with that I'd like to turn the call back over to the operator to begin 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 youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please.
<unk> Press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Chris Carey with Wells Fargo Securities. Please go ahead.
Hi, good morning.
Good morning, Chris Chris.
Can you just.
Talk about.
Sustainability.
The market share gains that you're seeing in the Sun care business.
Obviously, some some interesting statistics around share at some of your key retailers.
And can you also.
Maybe expand on how youre thinking about how incremental some of these.
Incremental shelf.
Winds are going to be for the business this year.
Walmart Costco and.
Potentially how that's factoring into your thinking for the back half.
And maybe if I could just sneak in on the southern business as well just all in the context of Scott.
The supply chain issues.
You didn't mention it but yeah, just just confidence that youre going to have.
With adequate supply oriented.
The selling season.
So on <unk>, we feel good.
As the headline on what's to come.
We like the plan to Gram changes, we've talked about that we have new incremental distribution in the club channel.
Have higher quality distribution across the balance of food drug mass.
We launched Hawaiian Tropic Dot com.
Year ago, and we're activating online not only with our own channels, but also with people like Amazon.
And there so we have a <unk>.
Really nice distribution footprint, we have good innovation coming.
On banana boat as we look at kids and family.
<unk> franchise.
Refresh on the packaging on Hawaiian tropics that will start to phase in throughout the season, So really solid distribution outcomes really solid innovation pipeline and then as importantly upstream our teams have done an amazing job.
Securing the raw materials in the ingredients to.
Be available.
Throughout the season and so we plan for a big season, we're covered on the supply chain on that front.
We do most everything in house, we control the manufacturing, we're not reliant on third parties and so what we've seen in the early part of Sun season mind, you in quarter, one it's only 6% of the season transact in the quarter. Just finished so the best of what Sun can do for US we think is to come.
<unk>.
Okay. Thanks, Thanks for the perspective.
Thank you Chris Operator next question.
Thank you Mr. Do you have another question I'm sorry.
Just wondering if I could.
If I'm still alive.
Okay.
Just on the just on the concepts of Bob.
Obviously.
The impact of ability coming through on the earnings outlook, but also.
Flowing through the currency impact to earnings as well so.
Okay.
Okay, I guess from here and you talked about a volatile operating environment.
What are the levers that you have at your disposal now right.
In order to maybe preserved where where earnings have been reset.
Is that savings program.
From a pricing standpoint, I wonder if you have any incremental thoughts I know that you want to be surgical in shave and you've already done some phases.
Prime care pricing.
How could that factor into potentially offsetting another move in.
Cost and then just it's all related to this concept of offsets, but just from a from a share repurchase standpoint.
Still only factoring offsetting dilution, but you do have.
A pretty sizable buyback program and yes.
If I look at the pre market and stock is implied down sort of any.
Any thoughts you have there as well thanks so much.
Yeah, Hey, Chris It's Dan Thanks for the question.
Tried to take it there was a lot there I think certainly and you picked up on it from our remarks, we we're certainly operating in a more challenging environment than we had initially contemplated I think that's for sure. We've said now that we anticipate about 500 basis points of macro inflationary pressure on Cogs, that's up about 100 basis point.
From what we said a quarter ago.
And we said that that will translate likely into about a 200 basis points year over year decline in margins.
There is we do have a solid line of sight to some meaningful offsets right and so if I break those down.
First and foremost for us it's in Cogs as it always is in our in our approach here is twofold. One we're continuing to look at what we already do really well, we delivered 200 basis points of productivity savings in the quarter.
We're looking at the opportunity to accelerate existing cost savings programs to bring forward initiatives that were perhaps timed for later in the year, but at the same time.
We're doing significant work to stabilize the environment and meet demand right. So we have to continue to balance that I think we're really good at that.
And that will continue on the revenue side of the house.
I think youre right. There if you look at how we took price or how we thought about price.
There are examples where we have taken broad brush price increases and we've talked about those around wet ones around fem care to a lesser degree wet shave in certain international markets and those prices are now priced in and we have either begun to feel the effects of that in international or have.
Been feeling the effects of that for example on wet ones.
And the rest of the portfolio, we applied more of a surgical approach right where within categories within brands within markets, we thought about it very differently across shave and Sun and grooming and PPG and even perhaps for that matter. So as we're reassessing we are certainly considering.
Both scenarios, we're considering situations, where we did go up in price at a category level and is there opportunity to implement further price. We're also looking at where we have been more surgical and thinking about areas, where perhaps we haven't taken price, where we can reconsider given the environment given what we've seen.
So far in elasticity and then the last thing I would say is.
<unk> just frontline price, we continue to make great progress in our efforts to really better understand the promotional environment promotional intensity return on promotional dollars and that was actually a contributor to what we saw in Q1, and we expect that promo rationalization and just good effective spend will all.
So be a tailwind for us to help offset this environment that we're in.
Thank you Chris.
Operator next question please.
Thank you. The next question comes from Nik Modi with RBC capital markets. Please go ahead.
Thanks, Good morning, everyone.
Just two questions for me Dan is there any way you can quantify the impact out of stocks had on growth in the quarter. If there's any quantification there and then I guess the broader question on this.
Kind of a longer term question on productivity.
Looking at the church and Dwight analysts so I'll ask.
Truck again by the revenue per employee, but also looking at that as well.
I think the way.
It suddenly Charlie 303.
For as well.
<unk> thousand and the average was closer to like five 600 and.
Just wondered if you could comment on that you guys have done such a great job of productivity over the last couple of years, how much do you think there is left in the tank when you really think about the bigger picture.
Yes. Good morning, Thanks for the questions. So on your first one can we estimate.
Sort of the out of stock impact there were sort of two headwinds in the quarter that I think are worth calling out just to understand magnitude. One is the drag wet one pad on our organic growth for the period right. So so we produced a two 5% organic growth rate.
And what once was about a 250 basis point drag in the quarter now we've talked about the category being down 70% and we know Thats a category that is still finding a normal water level. If you will given what a cycling and part of it. So that's the first item the second item more to your point.
Talk to truly estimate right tough to truly estimate what demand was out there that we couldnt meet we know in the two most prevalent areas around fem care, where we had labor shortages.
And in our shave prep business, where we had trouble with commodities and raw material.
Certainly a line of sight to $4 million to $6 million just there alone in those two small businesses of ours that likely adds up to somewhere a point and a five 2% inorganic.
Beyond that tough to understand and really break down sort of what demand was unmatched, but we can certainly call out those two pieces on your second question around productivity look I think whats left in the tank is a is a common question. We get asked on the heels of of the fuel program and the success we saw there.
And we have said publicly that both in Cogs and in in our core SG&A environment, we see meaningful savings opportunities left to go.
And if you go back to our Investor day, we talked about $125 million of savings over the next two years in Cogs, we delivered 200 basis points of productivity savings in the quarter and Youre starting to see that work now shift youre starting to see gains from automation youre starting to see gains from the.
The next level of procurement activity along with the continued focus on eliminating waste.
And really being intolerant to waste across our facilities. So I'm quite confident in that team's ability simply based on demonstrated effect that there is there is certainly more to do there and productivity Nick I'd, just add two points youre seeing the G&A leverage show up so regardless of what statistics look like revenue per head what <unk>.
Have you at the end of the day, we've got to have leverage in the P&L as we grow now we're confident we will grow.
We've got to see the leverage come through Youre seeing that in the quarter right with the G&A leverage showing up the other data point I'll give you that is interesting it's back to your question around out of stocks in the quarter.
Was the perfect storm with omicron, hitting and coming on top of a time, where the labor environment was already very difficult, we had 5% to 10% depending on the factory.
Our hourly manufacturing workforce out as you got towards the end of December .
With either <unk> positive sick or needing to isolate and quarantine out due to a close exposure.
So that situation coming on top of already tight labor environment drove the service outage that Dan referenced before and we're not alone Thats, a national thing and I think the similar impact in our European plant. The good news is as we look at that today, that's in the rearview mirror.
We're back down to what I would call just normal going levels and so we feel really good about the go forward look and service and availability.
Great. Thanks.
Thank you Nick.
Operator next question please.
Thank you. The next question comes from Jason English with Goldman Sachs. Please go ahead.
Hey, good morning folks thanks for calling in.
Quick math question I guess.
You've got 1 billion in the P&L now.
A substantial amount of the Cogs for Billy would seem to have already been in your P&L. Since you were manufacturing the razors for them and selling them to them.
As a result, our back of the math suggests you should be getting somewhere between 50 to 100 basis points margin mix benefit gross margin line.
Which if rate would imply that your gross margin cut of 100 to 120 basis points today on an underlying basis would be quite a bit higher.
Because obviously that that reduction should include the benefit from Billy.
Is that conceptually right and mathematically Directionally correct.
Hey, Jason Good morning, it's Dan I'd be very careful assuming the lion's share of costs, we're already in the P&L.
If you think about their business in two ways one.
We were shipping blades, obviously, but there's other costs involved other products involved there is assembly there is distribution.
So there are other costs within their core business beyond let's say, our Cogs as a as a supplier and then and then secondly, obviously you have the shift to retail which is a slightly different margin profile to it as well so I wouldn't I'm not going to go back through your math point for point, but I wouldn't assume that there is there is margin accretion here.
Simply because we've been we've been already holding are recognizing all of the Cogs that's not true.
Okay.
That is helpful. I'll go back and scrubbed those numbers get a little bit further.
And you were asked earlier like where is the offset to the higher inflation I think you said within Cogs, but.
Youre lowering gross margin pretty much commensurate with the higher inflation. So it looks like in the near term you are not getting the offset in Cogs, whereas the offset coming because you are seeing on an underlying basis Youre still holding your earnings outlook for flat.
Must be somewhere within SG&A, what specifically are you finding where specifically are you finding more efficiency or more leverage.
Yes, I think so I think a couple of things one on the Cogs side I think as I mentioned in my comments, we continue to look at all aspects of the program, we have in place and where we can accelerate that and where we can bring incremental savings into the year that work is ongoing as is the as is the revenue work that we're doing that.
I described so the teams are literally in the process of that work on the cost side I think absolutely we have to evaluate all aspects of both overhead and commercial spend.
Now we have to be really careful here because as we've said many times. We are at a very very important moment for the business. We have seen the impact of what really good investment behind the brands and really good investment behind organizational capabilities do for us in the role. It has played as a catalyst over the last 18 months and <unk>.
Growth.
So we have no intention here on the on the spend lines. If you will to take a step sideways let alone backwards.
Having said that absolutely we are going to evaluate the spend with A&P, we're going to continue to look at effectiveness and make sure every dollar we put to use.
<unk> delivers returns for us.
And really be thoughtful about both our A&P investment and the timing and phasing and how we think about overheads in this environment I think that's something we certainly should be doing and will do so Jason I would add to this.
We're not going to go cut anything that we think is important capability to win in the future.
Or part of strategic narrative around brand building repositioning as we build our brands in the equities moving forward there.
There is an element of this that is also price revenue management related Dan referenced that that's a big place. We want to go I don't think the pricing narrative is done here a lot of this inflation has hit in the last 30 to 60 days of the quarter just finished.
And so it's now opened up the opportunity with that information to go look at pricing again across the portfolio and so we will do that and I think the other thing we will we will really focus on and where all the value. In this business is over time is in a healthy accretive topline performance whether.
That would be price or volume.
We are really focused on driving a better top line outcome here as part of the equation as well.
Okay. Thanks, I'll pass it on.
Thank you Jason Operator next question please.
The next question comes from Bill Chappell with <unk> Securities. Please go ahead.
Thanks, Good morning.
Good morning Bill.
First of all some Billy can you just help us understand on the rollout to Walmart where that shelf space is coming is it is it all kind of promotional in cap.
Enter cap type stuff or are you getting permanent placement in the wet shave aisle.
The second.
What does that where is that coming from is that coming from your existing portfolio or is that coming from from other competitors.
We are really excited about Billy overall, Bill if you look at the profile of the business.
We acquired a $90 million trailing 12, all transacted online so rapid growth.
The.
The impact to us incrementally as we call out today is roughly 400 basis points on top of our organic sales in the year. We're in now.
And as part of that the Big building block that comes on top of direct to consumer is the Walmart launch and if you look at Walmart.
Effectively a national rollout, it's obviously different in the superstore format versus a neighborhood store, but across their entire network. There is permanent in aisle fixed display.
It looks beautiful.
It has stopping power when you when you walk down the aisle.
It's the cleanest most beautiful part of the women's shave section now so it is permanent.
In addition.
There is in cap that comes on top of that on secondary display with full signage and then cap coverage. There. So its high quality distribution, it's beautiful and is there throughout the year.
That's great.
No I appreciate that and then separately kind of differently on wet ones can you give us an idea of what.
Amazon did too.
Category over the past three four months in terms of getting it back to whatever normal looks like for that category. I mean did it accelerate the path to normal people not really come back to to wipes with Amazon like they did for delta or prior versions.
Are we any closer to getting to what normal looks like.
We are close to what new normal looks like Bill. This this quarter just printed here is really the last quarter, where you had 2% to 300% growth in the prior year periods 300. In this case. So you are lapping 300% growth, which was really the rush you saw.
Around the spike.
In December .
A year ago November December a year ago.
And so as we come now to omicron and as people either have their suppliers their stocks or have become comfortable with their new routine and this one will come is effectively a non event I would say.
And so as we look forward, we start to cycle more normal growth that big peak is behind US now so we're lapping more normal quarters as we go forward. The other important point here not to lose that we still feel really good about wet ones and the category is up double digits on a stack basis versus pre pandemic.
And so we do expect the category to continue to grow and we've got a 55% market share position here. We're the leader and we are seeing the shelf consolidate back to what the set look like pre pandemic with people that came in to try to fill the supply gap.
Coming out of the sets.
Great. Thanks for the color.
Thank you. Thank you Bill operator next question please.
The next question comes from Kevin Grundy with Jefferies. Please go ahead.
Great. Thanks, Good morning, everyone. Two for me if I could first one for Dan on guidance and then Rod maybe just building a little bit on the prior question on Billy but then pretty pretty simple I guess first on the guidance.
Bridging where you were in November when you guys commented that Billy was to be slightly positive to cash earnings per share.
EBITDA guidance and then the guidance is I think this is building on Mr. English his question.
The commentary is.
The guidance is simply to reflect the the transaction and slightly worse FX, but we have EBITDA moving lower we have free cash flow moving lower.
Maybe there is some nuance.
Within the ability transaction can you just bridge that for me, where you were in November with a slightly positive comments of cash earnings versus where we are today.
Yes, absolutely good morning, so lets unpack the Billy element first because as we look at our guidance. When you exclude the technical changes, we made related to the ability transaction and the incremental currency headwinds.
Our core outlook remains intact right. That's unchanged, we've talked about the FX piece that we see an additional five.
Of headwinds here. So then it really comes down to to the billing piece and you've got 19.
Of anticipated full year impact driven by by two things Kevin one is the amortization of the intangible we've talked about that last time, we obviously couldn't have predicted what that would be obviously, a noncash charge that's 13.
Of the 19.
Tied up in this in this year one of Billy that obviously was not in our initial guide and then the second piece is really a timing and a comparison piece, which is the impact of deferred profit right. So if you think about our initial outlook, we would've contemplated billions of customer we would've had 12 months of <unk>.
Gross margin on sales to that customer in our outlook and now with Billy coming onboard with 10 months of business not 12, and with an assumed 60 day inventory turn.
Some of those previously thought of as sales become shipments and some of that profit on those shipments gets deferred surely timing Julian the mechanics of the transaction. So 13 related to the amortization charge <unk> related to the impact of deferred profit versus what was in our initial.
Got it.
Okay Alright.
It can take some of that offline and then Brian just building on Billy just taking a step back I think the compound annual growth rate over the past few years has been 50%.
You don't want to comment on specific brands in your outlook, but just for our modeling purposes, what is a reasonable growth rate as you think about the Walmart distribution, perhaps you can put some parameters around ACB or total points of distribution and where do you think that can go as you sort of rollout.
Into Walmart I can pass it on thanks.
Yeah, I'll I'll start Kevin and then go to Dan if he wants to add some commentary.
Billy has got a high CAGR, because it's four years old.
You go from zero to $90 million trailing 12 in four years, you get a high CAGR all online.
Different than some other M&A, we've looked at in the past.
This is times nearly perfectly for us.
We are just starting the retail rollout last month January of 'twenty two.
With what we think is the premier.
Women's brand.
In this more value oriented space just around price point, it's very additive to our portfolio.
With our Schick hydro silk and the intuition brands, it's a differentiated add to our portfolio, where we had a hole.
We believe over time this brand has legs to be everywhere and to be a big part of our portfolio going forward. It's also incremental to us.
Round with the consumer demographic is.
It skews younger it skews more diverse and so it's a nice add into our portfolio and the final thing I'll say with.
Dan.
As we have lacked access to good consumer data they have 3 million customers in their file.
And so this is also a breakthrough for us around not only digital capability, but also consumer data yes.
Yes.
Maybe building on the math, so what we said at the time of the announcement was it was a $90 million.
TTM business topline growing at about 30% of course that was just the DTC business at the time if.
If you fast forward to today and again, recognizing we have 10 months of their business in our P&L. We've said it will add about 400 basis points in reported sales. So you are in the $85 million to $90 million range. Now there are two elements to that there are the Billy third party.
Sales, both retail and DTC.
We are estimating is in the 100 $510 million range and then you have the headwind of shipments that were in our initial plan that now become intercompany shipments.
Plus or minus 2000 $25 million. So you put the two together you land in the $85 million to $90 million range as we think about the business over the 10 months of fiscal 'twenty two.
The fundamentals for this business are therefore twofold, one we're going to continue to invest in DTC growth customer acquisition retention basket growth et cetera for all the reasons. Rob described and then we're going to execute flawlessly at Walmart, So youre really leveraging.
The expertise of the billing team.
The first element and then obviously the retail expertise so that dwell on a second.
The exact cadence and pace and splits and how quickly it scales that obviously, we'll learn our way into 2022, but it's super attractive growth profile and I think just looking at the Walmart and have it compares very very favorably to recent launches in the space.
Okay very good. Thank you Bob good luck. Thank.
Thank you thanks, Kevin Thanks, Kevin Operator next question. Please.
The next question comes from Olivia Tong with Raymond James. Please go ahead.
Great. Thank you.
On.
My question is on pricing, if you could talk a little bit about what you've done of late.
Do you think there needs to be more to offset cost inflation.
Are you on what competition has done and whether there have been any moves or lack thereof by others that make it more challenging for you to put your plans in place and.
You slugged, it out quite a bit to improve your positioning so.
Placing continue how do you sort of think about balancing the desire to.
To offset cost inflation by taking price with the potential implications that may have an on market share. Thanks, so much.
Yes, good morning, Olivia Rod here I'll start and then flip it to Dan.
On pricing I think.
One of the things I learned earlier in my career.
And Gamble is pricing is really important to creating value over time and structural profitability of the business. So we will always look to.
To take pricing, where it's warranted.
Where do you see the warranted by innovation our cost.
It needs to be shared on and passed on we will look to do that where we have leadership with a leading share position.
We will lead pricing under that scenario, where it's warranted.
We're not a leader will follow we play more of a follower role.
And we look to fast follow I think we said that in our prepared comments. That's the strategy. That's the approach all of this through a context over time, we want to maintain and build our share and become more.
Competitive overtime prices, obviously, a piece of that so we never want to be disadvantaged we've got price strategies by brand that we lay out that's part of the overall strategy of building that business and growing share over time.
But there is.
Opportunistic piece to the pricing environment, we live in today that we need to go get for sure, yes, and the only thing I would add Olivia I think just two comments one just a reminder, I know you know this but price is not the only lever that we have here to offset this 500 basis points of inflation.
It is a lever it is not the only lever and I won't go back through the comments on productivity, but we feel really good about our ability to continue to take cost out there on the price front to Rob's point.
We've been Super thoughtful we've executed extremely well with real precision both in how we think about frontline price and also how we think about promotional intensity and effectiveness I think you'd have to look at those.
Together, having said that the world continues to change.
And the teams are actually.
We are quite optimistic and recognize there is more to do here and so we're back at it looking category by category looking brand by brand nothing is off the table on price, obviously, we won't get into the specifics here for competitive reasons, but but we recognize that there is more to do and in fact, the pricing environment remains fairly productive at this point.
The teams feel pretty good about the opportunities that further price has for us.
Got it that's helpful and then just on.
<unk> terminated now that you've done the acquisition Margaret.
Previous ones.
When do you think you have capacity to start looking at sort of a niche tuck ins you've been known for over the last few years and just you're pumping your thoughts on capital allocation.
The share repurchase plans from here.
Yeah look I think for M&A first of all.
We are not out of the game on M&A. We are engaged in looking at things and obviously the bar is high obviously, we're going to need to be really disciplined about what we do from here.
Being three times Levered with the cash profile that we have.
A deal like Billy certainly doesn't take us off the M&A landscape. There is a lot of interesting assets out there and my team spend a lot of time looking at these four similar.
Characteristics that we see with Billy right high growth opportunity.
<unk> growth in a growing segment capability.
Share et cetera, So I think from an M&A perspective.
Still highly engaged and still looking at a lot of interesting assets in the broader capital allocation.
Question look we really like where we are in the sense that we have a very clear very disciplined and very broad approach to capital allocation that we have in fact been executing right a year ago, we initiated the dividend interesting yields 152% solid returns. We then augmented.
With the buyback program that we announced a quarter ago, we executed that extremely well in the first quarter just over about $25 million on track for what we would expect it will obviously continue to evaluate that but you put all of that together with our leverage profile and our two to three times with a cash forecast like we have that can generate.
170 $580 million a year, we really like where we are and we like how we're executing.
Thanks very much.
Thanks, Olivia operator next question please.
Currently we have no further questions I would like to turn the conference back over to Rod little for any closing remarks.
Thank you everyone for your continued interest and time have a great day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Thank you.
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