Q4 2022 ACCO Brands Corp Earnings Call
Hello, everyone and welcome to the ACCO brands <unk> 'twenty earnings Conference call. My name is Emily and there'll be coordinating jaco today.
After the prepared remarks, you will have the opportunity to ask any questions by pressing star followed by the number one on your telephone keypads.
I'll turn the call over to Jack O'brien Senior director of Investor Relations, Chris Mcginnis. Please go ahead, Chris Good morning, and welcome to the ACCO brands fourth quarter 2022 Conference call. This is Chris Mcginnis senior director of Investor Relations.
Speaking on the call today are board Ellison, Chairman and Chief Executive Officer of ACCO Brands Corporation content for President and Chief operating Officer, and Deb Oconnor Executive Vice President and Chief Financial Officer.
Slides that accompany this call have been posted to the Investor Relations section of <unk> Dot com.
When speaking about our results we may refer to adjusted results adjusted results exclude transaction integration amortization and restructuring costs are noncash goodwill impairment charge and the change in fair value of the contingent consideration related to the power <unk> earn out and.
And other nonrecurring items and reflect an adjusted tax rate.
Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and the slides that accompany this call.
Due to the inherent difficulty in forecasting and quantifying certain amounts we do not reconcile our forward looking non-GAAP measures.
Forward looking statements made during the call are based on the beliefs and assumptions of management based on information available to us at the time those statements are made.
Our forward looking statements are subject to risks and uncertainties and our actual results could differ materially.
Please refer to our earnings release and SEC filings for an explanation of certain of these risk factors and assumptions. Our forward looking statements are made as of today and we assume no obligation to update them going forward.
Following our prepared remarks, we will hold a Q&A session now I will turn the call over to <unk>.
Thank you, Chris and good morning, everyone.
Thank you for joining us.
Before I talk about our 2022 performance and priorities for 2023.
Want to say that the solid fundamentals of our business are intact and we believe we have the right strategy and team to <unk>.
Whether the current economic slowdown and continue to deliver sustained organic revenue growth as the economy improves.
Transformative actions, we have taken over the past few years to be more consumer centric and geographically diverse.
Helped us achieve record comparable sales and maintain or grow market share.
In many of our key brands in 2022.
2022, with a tale of two halves.
We began the year strong.
As customers turn to us for surety of product for the important back to school season.
And as office occupancy rates rebounded in North America.
In our EMEA segment, we had strong volume growth, our computer and business products.
With sales tracking above pre pandemic levels.
For the first half of the year.
The trends in EMEA began to change in the summer of 'twenty two.
High levels of inflation the war in Ukraine, and the energy crisis, dampened consumer and business demand.
In North America retailers became concerned about in the appendix economic slowdown and they began to take an aggressive stance on reducing inventory levels in the third quarter that continued throughout the fourth quarter.
Leading to lower overall demand.
North America segment.
These actions were on top of the impacts from pulling orders forward into the first half of the year.
All of these factors reduced our sales volume in the back half of 2022.
Profits in 2022, followed a similar trend as the rate of inflation continued to increase throughout 2022 below material finished goods and transportation.
Outpaced our aggressive pricing actions, which included numerous price increases throughout the year.
We have been active on the cost front limited discretionary spending implementing office hiring freezes flexing direct labor headcount with volume and closely managing our SG&A cost structure throughout the year.
In Q4, we actions additional cost savings and restructuring activities in North America, and EMEA intended to expand margin through initiatives focused on improving operating efficiency and reducing costs.
Importantly, we're seeing deflation in ocean freight rates and moderating rates of inflation and other product costs.
We believe that the lessening the rate of inflation combined with our pricing and cost actions, including our January one price increase.
Better position us to expand margins in 2023.
While one month does not make a quarter or a year. We are encouraged by the gross margin improvements we saw in January .
As largely affected by the rest of the industry, our sales of gaming accessories were down 26% for the year.
In 2020 to the gaming market faced a number of challenges and a difficult comparison to 2020 in 2021 when consumers spend more on in home entertainment activities due to the pandemic.
As demand for the category softened with the reopening of experiential activities.
Main retailers engage in aggressive inventory destocking.
The gaming market also experienced semiconductor chip shortages throughout 2022, which limited both media gaming consoles and gaming accessories production.
While we continue to hold the leading market share position for third party gaming accessories.
We temporarily lost some market share in the fourth quarter due to lack of product availability and a very competitive and promotional holiday season.
Despite these challenges we continue to believe in the long term growth opportunity for gaming accessories and are executing our plans to expand our product assortment and accelerated growth in our EMEA and international segments.
In 2023, we expect the industry backdrop.
To stabilize and improve as the year progresses, and a semiconductor chip supply and new console production improves.
In addition, there are several new game titles coming to market in 2023, which historically has spurred greater gamer engagement and the sales of associated gaming accessories.
Now, let me share with you some highlights from 2022.
Outside of gaming accessories comparable products sales increased 5% fueled by the strength of our brands.
Kensington computer accessories brand grew 10% in North America during the fourth quarter and was up over 13% globally for the full year as we continue to bring new products to market and expand our enterprise sales.
This is our fifth straight year of growth for the cabinets business.
We have continued to enhance the offering introducing a host of new products largely related to productivity and security.
During the 2022 back to school season.
Five star brand gained two points of share and grew 10% for the year.
It was the second largest back to school brand in the U S. During the season.
We demonstrated the strength of our supply chain capabilities to support customers with on time deliveries during highly seasonal and high volume engagements.
Our international segment had an exceptional year, posting 19% comparable sales growth for the full year and deliberate over 40% improvement in adjusted operating profit.
This growth was fueled by our market, leading to Libre and <unk> brands in Brazil as in person education continues its recovery in Latin America.
These successes and strong brand performances from GBC quartet, noble and better retail among others.
I have confidence that our commitment to bringing innovative value added new products to market and investing behind our brands operations and customer service is transforming our company towards faster organic sales growth.
As we look to 2023.
We're focused on four key priorities.
First.
We are laser focused on restoring our gross margin.
As I mentioned earlier.
We have implemented multiple rounds of price increases, including our most recent ground on January one of this year.
And we have the ability to continue to raise prices to offset inflation if warranted.
Our ongoing productivity program delivered $20 million and mostly Cogs savings in 2022.
This included actions to improve our supply chain processes.
Consolidated our manufacturing and distribution footprints in North America.
We also plan to reduce the number of Skus, we offer globally to simplify the manufacturing and distribution processes improve our sourcing capabilities and reengineer, our current product specs for lower cost.
These actions will meaningfully mitigate the inflationary pressures we have experienced over the last 18 months and improve our gross margin.
We will continue to evaluate additional cost reduction measures, including facilities consolidations and response to the current macroeconomic environment and secular trends.
Our second priority is to profitably manage the top line and what is expected to be a slow economic environment, especially in the first half.
We have a complementary assortment of products and brands that occupy value to premium price points.
And net profitable position for various customer segments, including the value segment.
Historically.
We have been able to do that.
With five star and new brands five-star, Ed hail related and lights and the <unk> brands as examples.
We will need to ensure that we're disciplined and offering the right assortment with a price point and not discounting our premium feature which brands.
Third we will continue to invest in new product innovation key brands and growth initiatives.
Innovation and new product development has been a key factor behind the successes of our brands.
And their ability to grow or maintain our immediate market share positions.
We have a host of new product introductions that will continue to drive our growth in 2023.
Fourth we will continue to manage our SG&A spend.
Fluid management with headcount and discretionary expenses.
Offsetting these actions in 'twenty three will be the restoration of the annual incentive plan.
While ACCO brands is not immune to current changes in economic conditions, we have the right strategy and an experienced management team to navigate the current operating environment.
We remain confident in our transformation to drive long term sustainable organic revenue growth.
And now well capitalized with no debt maturities until 2026.
And low fixed interest rates fall over half of our outstanding debt.
We'll continue to generate consistent strong cash flow and we will prioritize dividend payments and debt reductions in 2023.
As I mentioned earlier.
The margin expansion is a top priority for the company.
Our management of price and cost will determine how successful will it be.
And achieving margin expansion goals.
Pricing will be largely established in the marketplace, but our value added cost is something we can control and manage.
I've asked Tom Tetrick, ACCO, Brands', President and Chief operating officer to lead our multiyear effort to improve the efficiency of our physical assets and human capital investments.
Tom has been with ACCO brands for 13 years and in his current role for the last 18 months.
I will now turn the call over to Tom to share with you. The details of this initiative.
Thank you Boris and good morning, everyone.
During the fourth quarter of 2022, we initiated restructuring plans for both our North America and EMEA segments.
The actions are intended to expand 2023 margins.
Through initiatives focused on improving operating efficiency Andrew.
And reducing costs, while continuing to support key seasonal product sets for our retail partners.
And category, leading service levels for all of our customers.
In North America, our actions are focused on streamlining and simplifying the organization.
Through consolidation of supply chain operations.
SKU reduction and automating our sales support process.
In EMEA, we are focused on reducing redundancy and enhancing productivity with SKU reduction and other sourcing initiatives.
We expect to realize $13 million in annual cost savings from these actions.
The majority of which will come in 2023.
We are in the middle of a multiyear journey to rationalize our facilities footprint.
Last year, we closed one distribution center in California, and rebalanced, our manufacturing and distribution capabilities in the U S D.
These actions will save us $2 $5 million.
Per year.
We are looking at additional opportunities to leverage our existing footprint in the U S and shift more outsourced distribution into our facilities.
In EMEA, we recently completed the move from a third party distribution facility in the UK and consolidated shipments to our U K warehouse.
Earlier this month, we approved a manufacturing facility closure and Continental Europe .
We will consolidate its production into another ACCO brands factory in Europe .
This project will be executed this year with the P&L savings to come in 2024.
We are in the process of analyzing other global manufacturing and distribution consolidation opportunities.
And we will announce those as decisions get made.
After appropriate consultations with works council and other relevant entities.
Finally, we are looking at opportunities to reduce our office space. Upon every commercial lease exploration.
Hybrid work arrangements are here to stay and we believe we can save millions by reducing our office square footage, while maintaining or improving the productivity of our workforce.
We have recently reduced our office space in California.
And have approved a move to a smaller office in the UK with more to come.
Ultimately, we expect these initiatives will create operating efficiencies.
Improved profitability.
Enhanced productivity as well as fund future growth initiatives.
I will now hand, it over to Deb and we'll come back to answer your questions.
Deb.
Thank you Tom and good morning, everyone.
When we last spoke to you in November I highlighted significant inventory destocking by retailers with their cautious approach to replenishment.
This activity continued in the fourth quarter and actually accelerated throughout the quarter, especially in North America.
We have also seen a continued decline in the macroeconomic environment and slowing demand.
We reported sales at the low end of our outlook due to these challenges.
This lower sales volume coupled with some one off expenses and higher non operating expense cause EPS to be <unk>.
Below our guidance range.
In the fourth quarter of 2022 reported sales decreased 12% as foreign currency was a 5% headwind.
Comparable sales were down almost 8%.
The decline was due to lower volumes in our North America and EMEA segments.
Offsetting solid growth in our international segment.
As Boris mentioned, we had stronger first half sales due to the pull forward by retailers as well as softer demand trends that began in the third quarter.
With this stronger first half our full year comparable sales were up 1%.
In the fourth quarter, adjusted operating income was $52 million compared with $79 million last year.
Adjusted EPS was <unk> 32.
Versus 54 and 2021.
For the full year adjusted operating income was $176 million versus the $228 million a year earlier.
And full year adjusted EPS was $1 four versus $1 41 in 2021.
In the fourth quarter, our adjusted operating income decline was greater than the reduction in sales volume.
As the lagging effect of significant inflation <unk>.
While inflationary costs are beginning to come down they are lagging effect on our P&L will continue to impact our gross profit in the first quarter of 2023.
But we expect it will improve as we progressed through the year.
Given the lower sales overall, we have also experienced fixed cost deleveraging in some of our facilities.
In the quarter there was some unfavorable one off items.
Canadian operating tax catch up.
The fines related to didn't your age.
And the comparative impact of a favorable inventory reserve release last year.
The total amount of these one off items accounted for 150 basis point decline in our consolidated operating margin for the fourth quarter.
In response to the change in the macroeconomic environment, we initiated a number of cost reduction and restructuring actions in the fourth quarter as Boris and Tom both mentioned earlier.
For the quarter, we booked restructuring charges of approximately $7 million for our North America and EMEA operating segments.
We expect annual cost savings from these actions to yield approximately $13 million, which will largely be recognized in 2023.
Our ongoing productivity initiatives are expected to yield another $15 million of incremental savings in 2023.
The collective some of these savings will help mitigate the reestablishment of incentive compensation and merit increases in 2023.
We are also committed to continue to expand our go to market initiatives, particularly sales and marketing and invest in product development.
Fourth quarter, adjusted SG&A expenses were $93 million compared with $99 million in 2021, primarily as a result of lower incentive compensation cost savings initiatives and the positive benefit of FX.
Partially offset by continued investment in our go to market program and increased bad debt expense.
Full year SG&A expenses were 19, 3% of sales consistent with the prior year.
Now, let's turn to our segment results.
Fourth quarter comparable net sales in North America decreased 16% to $227 million.
The decrease was due to volume declines for gaming accessories.
Lower inventory replenishment by retailer and a slowing demand environment.
In the third quarter, we discussed with you that retailers began to reduce their inventory levels for our products.
These actions increased in the fourth quarter, creating even more of a headwind in the period.
For the full year comparable net sales were down 4%, which includes the stronger first half of the year.
Growth in many of our brands and categories was offset by the decline in gaming accessories.
North America adjusted operating income margin in the fourth quarter decreased due to negative fixed cost leverage from the volume declines.
Higher cost of finished goods and specific commodity materials and higher inbound freight and outbound transportation costs that were not offset by price increases.
Adjusted operating income was also negatively impacted by the previously mentioned one off items.
Which contributed the equivalent of 340 basis points to margin rate decline in the fourth quarter.
For the full year adjusted operating income was down 21%.
Now, let's turn to EMEA.
Net sales for the quarter were down 17% to $156 million.
5% of that decline was due to FX.
Comparable sales were down 5% to $178 million, mainly due to volume decline offsetting our price increases.
In Europe , the current energy crisis, and significant inflation continuing to create a challenging demand environment.
While inflation has shown early signs of moderating in the region consumer sentiment remains low.
For the full year comparable net sales were down only 1%, including the impact of the stoppage of sales to Russia.
In the fourth quarter, and we have posted lower adjusted operating income and a margin rate that was 150 basis points behind the prior year.
Sequentially margin rate improved through third quarter due to our pricing increases and moderating inflation.
We expect our January price increase to further mitigate the overall impact of these inflationary cost increases going forward.
Adjusted operating income was challenged by inflation and lower sales volume, which led to deleveraging of fixed costs.
For the full year adjusted operating income was $37 million a decline of 52%.
Full year margin rate was down 520 basis points compared to the 150 basis point decline in the fourth quarter.
Supporting the fact that pricing actions are taking hold.
Moving to the international segment net sales in the fourth quarter increased 6%.
And comparable sales rose 8%.
This segment has been strong throughout the year with 19% comparable net sales growth in 2022.
Growth was driven by both price increases and volume growth.
Growth in Brazil was very strong at schools and businesses returned to encourage and education and work.
The International segment posted higher adjusted operating income in the fourth quarter as a result of the higher sales.
Full year operating income grew over 40% with margin rate improving 310 basis points.
Switching to cash flow and balance sheet items for the full year, we generated $78 million and adjusted free cash flow below our outlook of $90 million to $100 million.
With the shortfall due to lower EBITDA and a greater proportion of paid inventory given the timing of our inventory receipts.
At this timing normalizes it should provide a tailwind in 2023.
For the full year inventory was down $33 million.
Or 8% despite the higher inflation.
This puts us in a good position for a normal working capital cycle in 2023.
We are proactively managing our inventory levels, given the uncertainty in the environment and demand trends.
We ended the year with a consolidated leverage ratio of four two times.
This was higher than we expected due to lower EBITDA and free cash flow.
Longer term, we are still targeting the 2% to two five times.
We utilized our free cash flow to fund dividends of $29 million pay the contingent earn out of $27 million and repurchased $19 million of shares.
At year end, we had $518 million of remaining availability on our $600 million revolving credit facility.
As shown in our earnings slide more than half of our debt is fixed and not impacted by interest rate increases.
We have no maturities until 2026.
Turning to our outlook.
We are providing both first quarter and full year guidance for 2023.
Our 2023 quarterly sales teams will trend differently than in 2022.
We had strong first quarter and first half sales growth in 2022 with early back to school shipments in North America and good demand.
These trend reverse in the second half of the year at the worsening global economy, and a higher rate of inflation created demand pressures.
In particular, we saw retailers proactively reduced their inventory beginning in the third quarter of 2022.
Which continued through year end.
Therefore, we are projecting our sales to be down year over year in the first quarter and the first half of 2023.
In the second half of 2023 sales growth should mitigate the first half decline as we expect improved economic conditions and inventory replenishment.
Our outlook for sales growth in 2023 is for comparable net sales to be down 3% to flat compared to 2022.
We expect volumes to be down for the year with improved pricing, partially or fully offsetting the decline.
Foreign exchange at current rates is expected to be neutral.
For the first quarter of 2023, we expect comparable sales to decline, 7% to 10% primarily due to the later shipments for North America back to school and unit demand related to the economic environment.
At the higher end of our first quarter outlook comparable sales would be up 3% on a two year basis.
First quarter adjusted EPS is expected to be five to seven.
With lower operating income, reflecting fixed cost deleveraging, along with higher interest and noncash nonoperating pension expenses.
Full year adjusted EPS is projected to increase 4% to 8%.
Two $1 eight.
To a $1 12 approaching.
Approaching low double digit growth in adjusted operating income.
Actually offset by higher interest costs of $6 million and.
And higher noncash nonoperating pension expenses of $5 million.
For the full year, we expect our gross margins to increase and be similar to our 2021 margin rate.
And we continue to target a long term range within 32% to 33%.
While we have reduced our overall cost structure from our fourth quarter restructuring actions.
The restoration of our annual incentive compensation expense as well as increases in merit and go to marketing spending.
We will lead to higher SG&A levels in 2023.
In total we expect improvement in our adjusted operating income margin rate to approach 100 basis points.
The adjusted tax rate is expected to be approximately 29%.
Intangible amortization for the full year is estimated to be $43 million, which equates to approximately 32 of adjusted EPS.
We expect our adjusted free cash flow to be at least $100 million after capex of $20 million.
Looking at cash uses in 2023, we expect to continue to prioritize dividends and debt reduction.
Now, let's move on to questions, where Forex com and I will be happy to take them.
Operator.
Yes.
Thank you. Thank you I'd like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad.
Do you mind I would like to be remains from Makena start.
I'm just trying to ask a question. Please ensure that your device or your microphone unmetered lately.
Our first question today comes from Greg Burns with Sidoti and company. Please go ahead.
Good morning.
Just in regards to the.
Inventory destocking issues.
What are the level of channel inventories right now.
Historically other cyclical downturns have you seen similar patterns and how do how does this play out over the next couple of quarters, because im assuming they can only.
Take inventory down so.
They can only take it down so low so how should we how are you thinking about this issue.
Playing out over the next couple of quarters.
Yes. Thanks for the question, Greg the levels of channel inventory are pretty low right now.
Historically pretty low levels, we see.
Increased levels of out of stocks for our products.
On shelf.
<unk>.
We saw an improvement we saw less destocking over the last few weeks compared to what we saw in Q4.
But right now what we expect is retailers, which is buy to just replenish the Pos we don't think theyre going to bring in additional inventory until they see.
Macroeconomic improvements, obviously that excludes back to school because they will have to bring product for back to school.
And the second part of Q2.
But if you look at Q1 that will probably likely be just.
Pls replenishment and not stocking up on more.
Our inventory.
Okay great.
And then the.
The growth in the international segment was a little lower.
When we were looking for and I guess.
The growth rate was for the <unk>.
First three quarters of the year. So was there any any change in any of the markets. There in particular that maybe led to a little bit slower growth.
Yes, the growth was.
Around 7% and for the year, there were 19% and that was just some.
Compare issues, specifically, Brazil continues to perform well, but we had.
Slow growth outside of Brazil. Some of that is due to just macro issues in Australia and Asia specifically.
In Mexico, we actually didn't have enough product to ship. So that was more of an inventory issue and we expect to make that up in the <unk>.
First quarter of 2003.
Okay, and then the $13 million.
Cost savings.
How should we think about that in terms of the <unk>.
Timing of the realization of that is a back half loaded ratable throughout the year.
What's the timing.
Yeah, it's pretty ratable I'd say, there's a little bit of it backend loaded.
As we've instituted some of the actions later in the year, but.
It goes pretty much throughout the year I would say Greg.
Okay. Thank you.
Thanks, Greg.
The next question comes from Jason <unk> with Nigel Capital Jay. Please go ahead.
Good morning, Thanks for taking my questions.
Good morning, Joe you mentioned.
In the release.
Part of what impacted the sales in the quarter were weaker gaming sales of lower inventory replenishment.
Reduced fine can you kind of size that up as to what each one of the impact was for each one of those for the quarter.
We will have that that well.
Well I think for the quarter, if you look a lot of.
A big proportion would be the inventory destocking.
That was pretty pervasive as you look across North America.
By many of our customers.
And then I would say gaming, it's a smaller piece of the total but declined 26% for the year.
So when you take that into account it had a pretty significant impact in the quarter.
Yes, I would agree with that and because also for gaming, it's the biggest quarter of the year, Joe. So that's why it yet so and expectations were higher for us in Q4.
Those two drove the predominant the decrease in sales.
Inventory Destocking and gaming.
Okay.
I think in the previous quarter you were looking for.
The gaming to be down about 15% for the year. So that's a pretty significant decline in the quarter.
And so again looking at power.
I'm sorry.
No go ahead, I was just going to say as far as strategy.
It's a big season for gaming.
Fourth quarter right right.
So I mean, I think you've touched a little bit on it.
So youre still looking on a longer term basis for that power to show some double digit long term growth.
And I know you've mentioned.
Media into EMEA.
Spanning into EMEA more.
Kind of what maybe you could give us a little more color what are your expectations for power in 'twenty three.
Yes.
While we certainly expect growth.
<unk> and 'twenty three.
And we expect the industry to rebound it will be.
Back half loaded just from a compare standpoint, because Q1 of last year, but still pretty good.
Overall this plenty of supply.
And demand was pretty good.
So the comps will still be difficult in the first quarter, but starting with the second quarter going forward.
Get better and we expect growth overall for the year.
It will be led by our EMEA and international segments.
Even in 'twenty, two despite power being down 26% overall, we saw growth outside of North America. So that will just continue and accelerate we are.
Hiring people.
Both Ian.
EMEA and.
International segment to take power direct to our customers.
Most places.
And that along with a broader product assortment and.
Streamline distribution that Tom referred to.
Should enable continued power array growth in EMEA and international in fact, we expect some acceleration in those two segments.
North America, we just expect a.
Will rebound from what has been a very difficult year in 'twenty two.
And you saw our reporting from other companies in North America, the public companies, including from.
Nvidia yesterday, which indicate just how difficult gaming has been in.
In 2022 so.
While we are disappointed by.
Our performance, we're not unique in what we saw with with gaming.
Okay. Thank you for that.
Last one for me I mean, you've given a lot of great detail for 'twenty three.
And what could possibly in your mind drive results above expectations.
What would be the more likely things that could happen.
That would help potentially drive results above expectations. Thank you.
Okay.
Well, probably a couple of things Joe one is if back to school has really good that should.
Definitely.
Be good for Us I mean, if you look at what's happening in 'twenty three.
Our retailers are being conservative.
<unk>.
Upfront load ins and then we're going to chase inventory during the season.
And if we have a good season that should benefit us because we have domestic manufacturing. Unlike most of our competitors. So they need more product than they planned and we should be able to fulfill it.
This cannot so good back to school season will serve us well and then just a strong.
Economic recovery in the second half of the year everybody is expecting.
A slowdown in the first half.
And that's what's in our guidance.
We expect some recovery in the second half if it's strong.
This should benefit our global sales and unprofitable.
Great. Thanks, guys I appreciate it.
Thanks, Joe.
Our next.
Comes from Kevin Spanky with Barrington Research Kevin. Please go ahead.
Hey, good morning.
In terms of the.
Flat to 3% decline.
Sales you're expecting in 2020 through could you maybe just walk through.
Expectations for your three segments.
If you'd be willing to share.
Sure sure any detail on that.
Yeah, I think we're thinking about EMEA and North America down slightly.
International trending kind of in that mid single digit like the fourth quarter.
Growth Directionally.
<unk> international growth.
North America, and EMEA down slightly.
Yes.
Okay understood. Thank you that's helpful.
So yes, I guess you had the January one price increase.
Do you think the price increase covers.
Or at least the known inflationary headwinds that you're currently seeing or.
Are there plans for.
Additional price increases as we move throughout the year.
We believe the price increase mostly covers all of the known inflation that we're seeing the only exception that would be some of our.
Smaller foreign countries, where they may have to do more just due to the.
Exchange rate changes, but.
But as far as.
North America, and EMEA that acreage should cover.
It's Lisa.
And I think we've mentioned before we've been covering the dollar.
Throughout the year, but we've really taken a bite out of the margin and that's what we.
We need to get back.
Right.
<unk>.
Can you just talk a little bit about the.
The plan to eliminate Skus in.
Assume you've identified some.
The less relevant or underperforming skus that maybe Eric.
Necessarily need to be part of the portfolio and just kind of how you arrived at those conclusions or went through that process.
Yes, Kevin This is Tom I'll take that question.
Yes, we go through a fairly robust SKU analysis annually when we look at the profitability of.
The demand of those skus the complexity of managing those skus.
And each one of the segments has accelerated that analysis.
No.
They should.
Resolve that analysis would result in a number of.
Pretty aggressive SKU reduction actions.
In addition to what we typically do we have looked at what we make.
In our factories.
We've done an analysis on.
Future demand on those products and if it doesn't meet our minimum criteria, we're going to aggressively retire those as well.
But this is a part of an ongoing run.
The rationalization approach that.
We take very seriously as we look at inventory turns improvement and profit management.
I think our teams have a strong track record of doing this we're just we're just putting a little more pressure to accelerate the work in 2023.
Okay. Thank you.
Lastly, I just wanted to again circle back to power.
You mentioned.
Proving chip supply is one of the factors.
Behind your expectations for some improvement in <unk> sales in 2023, so are you seeing kind of a.
Meaningful improvement.
And chip availability for the.
Going into gaming consoles, and therefore console availability improving as well.
We are we are seeing improvement already on the gaming consoles and we see better availability of the chips that we need for our accessories is Jeff there's a little bit of a delay due to the supply chain. Because these are manufactured in Asia and has to be manufactured and shipped.
All of our countries a sale and that process takes a couple of months. So we expect really at the end of Q1 early Q2.
A significant improvement in availability of our products due to the balance sheet availability.
Alright, Thank you very much for taking the questions.
Thanks, Kevin.
The next question comes from William Reuter with Bank of America. Please go ahead.
Yes.
Good morning.
My first question is on the gaming weakness for the year.
You mentioned, both the industry was down you also mentioned that.
You've had supply chain issues and then you also mentioned that you lost a little bit of share I guess, firstly on the share losses.
Is it that you had less availability of product and others or what contributed to that and then if you could try and break down the difference between how much was industry and how much was specific to you guys.
Yeah on the share loss it was largely because we didn't have the product it was.
Wireless accessories score one of the concerns we had a very large market share in that particular category and because we weren't able to supply the demand overall this.
She has shifted to two other products, where we have smaller share. So that's really what drove journey of the share loss and then if I look at.
The reasons for the decline, 95% are industry related issues and about 5%.
On kind of our things such as what I just talked about in terms of.
Lack of chips.
In particular wireless accessory.
Yes, <unk> got it.
Backing.
The destocking of the retailer.
And I put into the industry exactly how are we doing.
Yes.
Is that kind of move to my second question.
It's I think an earlier question that talked about retailer destocking in the gaming accessories do you believe that that Destocking effort is done at this point.
Yes.
Again, just just like for our school and business products, we see the stock of gaming accessories being failure mode and it is typically a low at this time of the year, it's a slow season.
But it is.
Very little of that as well and we just just like for our other products, we have higher levels a lot of stock for gaming accessories as well. So it's the same situation as well.
On the products.
Okay and then just lastly for me on capital allocation, you mentioned you're committed to the dividend you also talked about debt reduction.
Will you consider share repurchases this year or given the challenging macro backdrop should we assume that those are off the table until leverage moves closer to our targets.
Yeah, I would say, we're really focused on the debt paydown and never say never to anything but I guess.
We need to get that leverage ratio down and Thats, what were going to be focused on.
Good to hear Okay. That's it thank you.
Thanks Bill.
The next question comes from Hale Holden with Barclays. Please go ahead.
Thank you good morning, Boris you made a comment around.
Not.
We're really discounting.
Youre better brands, our best brands like ours.
Saar.
I was wondering how you think about that versus a weaker consumer and room for private label.
Hi.
How you might feel that lower tier yet.
Yes.
The benefit of having multiple brands hailed so historically, we've been able to position things both for.
Premium price points and at a price point as well as good price points for value price points and historically for example in our school products need played that role of addressing really mainstream price points successfully.
It's been a good brands, we saw strong demand in 2022 for that brand so that should continue.
As we position things across the spectrum.
Depending on what the consumer segment with targeting the.
The same thing applies in India, we have light switch because more of our premium brand and a cell death, which is more of a mainstream brand and we actually saw growth in 'twenty two with the sell day.
As consumers kind of.
More attracted to those more value price points, so pretty much in every region. We have this multiple tiered approach with our brands.
And historically, we've been successful and I also believe we can be successful in.
2023, as we go through this economic slowdown.
Okay.
I was wondering.
What.
What we're talking about it for back to school.
Full year revenue items, if you were sort of thinking.
Spotify volume declines on a weaker consumer or if there was something else.
I haven't.
Right now we are assuming a flattish back to school and this is really driven by NPD forecast for back to school.
And that flattish assumptions.
Includes lower load ins.
People are being less aggressive in bringing inventory upfront and then chasing it as they see the demand being fulfilled.
So we really wont know until through Q, how that turns out.
That is correct yes.
We will be asking.
With us.
Uh huh.
Oh.
Just I had one other question on on debt repayment.
Which was.
As youre thinking about debt repayment you. Obviously you have two choices right you can take the loan was your floating rate or you could potentially try to purchase a bond at a discount and accelerate the notional amount.
And I was wondering how you were.
Thinking about the trade off our balance.
Yeah. So we think about it and I would tell you with the rate that those bonds carry right now.
They're nice to have and to keep in the portfolio. So we will consistently look at it.
But it keeps us with a good fixed rate.
Great. Thank you so much.
Thanks Al.
Our final question comes from Amit <unk> with AWS financial highlights.
Please go ahead.
Hi, good morning.
Would you just talk a little bit more about this back to school.
Delay in ordering.
I thought your mass merchant retailers, usually give you pretty good insight as to what their ordering habits are.
Are they just holding off and giving you any clarity or are they just holding so much inventory from last year that they just are still nervous about giving you any kind of order clarity.
No no they are pretty clear and they don't have much inventory they just deciding to bring in less.
This year as they are concerned about the macro environment. So we're loading in less than last year, and obviously last year, they're loaded more than typical because they were concerned about supply chain issues.
On a comparable basis.
It's substantial.
Our <unk>.
Q1 guidance is so much lower revenue guidance, so much lower than last year, because a lot of pull forward last year that was happening then we will not see so.
The timing of the orders is very similar to what we see historically, but the amount that we bring in will be a lot less than last year due to the things I just mentioned.
Okay and my other question was just on the <unk>.
SKU strategy and product strategy in general.
How are you incorporating more of a hybrid work environment, what does that mean.
The changes you made last year for people going back to the office, you're reverting back to more being consumer oriented.
Yes, Mark this is Tom Tedford and our teams have responded already to that change in work behavior very successfully our team in Europe in particular during the pandemic, we saw sales growth as they shifted more of their product solutions too.
A hybrid or fully work from home remote environment. Our Kensington business has responded quite well with that so really across the majority of our brands that are focused on.
Work solutions, we've already implemented a nice balance between.
Remote work hybrid work and office solutions for our consumers.
I guess, what I'm trying to ask is.
<unk> solutions used to have.
Our high price tag.
Pretty recurring as far as your expectations over several years what are your expectations on the new work from home kind of.
The supplies.
Producing.
Yes, I think Bruce alluded to it earlier with the portfolio approach that we have multiple brands that we.
Have supporting each category.
We are able to meet the consumer where they are if they are able to.
Purchase a premium product we have solutions for them if they choose to have a more value solution. We also have brands and solutions that meet the.
The consumer at that price point so.
I think over time, we'll continue to see a good mix of our business, but it will continue to shift modestly towards more consumer solutions.
That.
Profit profile really isn't all that significantly different we just have to sell more units to offset the ASP declines, let me add a little more color here.
Just on the environment. So we believe that the hybrid workplace is here to stay.
We see actually.
A quite stable environment with <unk>.
Most companies working.
Hybrid or in the office and very few still are fully remote we see we are seeing a positive trickle back to the office. So it started the year ago and continues its slow but its continue as more companies demand more presence in the office.
The product portfolio.
So that we have.
He is able to meet all of those three environments.
A lot of work back in 2020 in 2021.
To kind of restructure our portfolio so that we can supply both.
In the office and hybrid workers.
And that will continue and then just my other comment.
Comment on the environment.
The inventory reductions that we referred to throughout our discussion today.
The more significant in retail than it is in the business to business side.
We are seeing.
Our <unk>.
Business to business focused channel partners continued to support this week.
We turned to office trickle that we've talked about through the sales there are doing better and certainly the inventory situation is better than it is on the.
Purion retail consumer side.
Okay. That's helpful. Thank you.
Thanks, Amit.
We have no further questions. So I'll turn the call back to the management teams any concluding remarks.
Thanks, Emily and thank you everybody for your interest in ACCO brands.
<unk> managed well in difficult environments and are confident in our ability to navigate current economic challenges.
We're also confident that we have the right strategy and believe we are well positioned to continue to deliver organic sales growth compelling market performance and improved financial results as global economies recover.
We look forward to talking with you in a couple of months to report on our first quarter results. Thank you.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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Sure.