Q1 2024 WD-40 Co Earnings Call
Well, ladies and gentlemen, thank you for standing by the day and welcome to the WD 40 company first quarter fiscal year 'twenty 'twenty four earnings conference call.
Today's call is being recorded.
This time, all participants are in a listen only mode.
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I would now like to turn the presentation over to the host for todays call Ms. Wendy Kelley, Vice President of stakeholder and Investor engagement. Please proceed. Thank you good afternoon, and thanks to everyone for joining us today on our call today are WD 40, company's president and Chief Executive.
Theres, Steve Brass and Vice President and Chief Financial Officer, Sarah Heizer.
In addition to the financial information presented on today's call. We encourage investors to review our earnings presentation earnings press release and Form 10-Q for the period ending November 30th 2023. These documents are available on our Investor Relations website at Investor Day at WD 40 company Dot com.
A replay and transcript of today's call will also be made available shortly after this call.
On today's call, we will discuss certain non-GAAP measures the descriptions and reconciliations of these non-GAAP measures are available in our SEC filings as well as our earnings document posted on our Investor Relations website.
As a reminder, today's call includes forward looking statements about our expectations for the Companys future performance actual results could differ materially the company's expectations beliefs and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished please refer to the risk factors.
Sales in our SEC filings for further discussion.
Finally for anyone listening to a webcast replay or reviewing a written transcript of this call. Please note that all information presented is current only as of today's date January 19, 2024, the company disclaims any duty or obligation to update any forward looking information as a result of new information.
Future events or otherwise with that I'd now like to turn the call over to Steve.
Steven A. Brass: Thanks, Wendy and thanks to all of you for joining us this afternoon.
Steven A. Brass: Today I'll begin by discussing our sales results for the first fiscal quarter of 2024.
Steven A. Brass: Also provide you with an update on our must win battles and some of our strategic enablers.
Steven A. Brass: Sara will provide further detail first quarter results.
Steven A. Brass: <unk> business model.
Sara: Look for fiscal year 2024, and then we will take two questions.
Sara: I'm happy to share with you that today, we reported net sales of $140 4 million for the first quarter, which was an increase of 12% from the first quarter of last fiscal year.
Sara: Excluding the favorable impact of currency revenue grew 9%, which is in line with both our FY 'twenty guidance and our long term growth projections.
Sara: We're encouraged with the improvement in trends, we experienced in the second half of fiscal year 2023, that's carried into fiscal year 'twenty four.
Sara: This is the first time since fiscal year 2021.
Sara: This has been firing on all cylinders, we saw volume related sales growth this quarter in all three trade blocks.
Sara: Fact, approximately 65% of our constant currency sales increase this quarter was volume related.
Sara: Estimated increases in volume favorably impacted sales by approximately $7 6 million from period to period. Following you about $4 1 million was attributed to increases in average selling price primarily due to the price increases we implemented last year.
Sara: Yes.
Sara: We're also pleased to say that this top line growth is dropping down to the bottom line.
Sara: For the first quarter was $17 5 million compared to $14 million in the first quarter of last fiscal year.
Sara: <unk> of 25% year over year.
Sara: So those of you who have reviewed the press release, we issued earlier today you may have noticed that we have made some changes to the way we report on net sales by product group.
Sara: We have disaggregated maintenance product sales, so that investors have additional transparency into the primary growth focus for the company.
Sara: In addition to reporting net sales by product group, we continue to report net sales by segment.
Sara: Now lets talk about first quarter sales results by segment, starting with the Americas.
Sara: In the Americas, which includes the United States, Latin America, and Canada, Brooke, 10% in the first quarter to $64 1 million.
Sara: The bulk of this growth was driven by higher sales of WD 40, multi use product, which increased 12% compared to the prior year quarter.
Sara: The vast majority of this growth came from strong sales of WD 40, multi use product in the United States, and Latin America, which increased 8% in 2009% respectively.
Sara: In the United States. The increase was due to higher sales volume linked to successful promotional activities.
Sara: Our Latin American distributor markets sales of.
Sara: Favorably impacted due to the timing of customer orders associated with price increases put in place last fiscal year.
Sara: Sales of maintenance products in Canada were also up by 30%.
Sara: Latin America, and Canada was favorably impacted by higher sales of premium products and successful promotional programs.
Sara: In total our Americas segment made up 45% of our global business and this first quarter.
Sara: Now, let's look at ourselves results in EMEA, which includes Europe, India, the middle East and Africa.
Sara: I'm happy to share with you that the recovery would begin to experience.
The second half of last year continued into the first quarter.
Sara: EMEA were up 20% to $48 8 million. The vast majority of this growth was driven by higher sales activity 40, multi use product, which increased 23% compared to the prior year quarter.
Sara: In the comparable period of last year volumes were down in Europe as customers adjusted to the price increases we had implemented.
Sara: We're pleased that we're emerging from the period of price increase related disruption, we experienced last fiscal year in the region.
Sara: Currency fluctuations positively impacted our sales in our EMEA and on a constant currency basis sales would have increased 11% compared to the first quarter of last year.
This is the third consecutive quarter of double digit sales growth in constant currency. We have historically reported <unk> results by discussing our direct operations sales as well as those made through our marketing distributors.
Sara: Our goal is to provide investors with increased visibility into a growing business segment and so going forward. We will begin discussing our EMEA results at the regional level rather than by distribution telecom.
Sara: In the first quarter sales of WD 40, multi use product increased significantly in France, the middle East and the dark region.
Sara: One 9 million $1 6 million and $1 5 million respectively.
Sara: That region includes Germany, Austria and Switzerland.
Sara: The increase in sales in these regions was primarily due to improved sales volume as many of our customers have adjusted to the impact of price increases implemented over the last two fiscal years.
Sara: These increases were partially offset by a decrease in in Europe 9 million linked to the timing of customer orders, we expect the Indian market to recover in the second half of the year.
Sara: In addition to the strong performance of our WD 40, multi use product.
Sara: <unk> also saw strong growth of 11% for WD 40 specialist during the quarter.
Sara: France, leading the way in.
Sara: In total our EMEA segment made up 38% of our global business in the first quarter.
Now on to Asia Pacific sales in Asia Pacific, which includes Australia, China and other countries in the Asia region were up 6% in the first quarter to $27 6 million.
Sara: Once again much of that growth was driven by higher sales of WD 40, multi use product, which increased 4% compared to the prior year quarter.
Sara: It would be fully especially sales also contributed to growth in this segment and increased 19% in the first quarter, primarily due to successful promotional programs and marketing activities in China.
In China sales of maintenance products were up 15% in the first quarter, primarily due to successful promotional programs and marketing activities led to increased sales volume on a constant currency basis sales to China would have increased by 18%.
Sara: In our Asia Pacific distributor market sales of maintenance products were up 4% in the first quarter, primarily due to price increases in these markets from period to period and successful promotional programs in certain regions.
Sara: In Australia sales of maintenance products were up 2% in the first quarter on a constant currency basis sales of maintenance products, Australia would have increased by 5% compared to the first quarter of last year, primarily due to higher sales of <unk>.
Sara: In total our Asia Pacific segment made up 20% of our global business in the first quarter.
Sara: Now a quick update on our homecare and cleaning business sales of our homecare and cleaning products were down 4% in the first quarter compared to the prior year.
Sara: We continue to explore options to further de emphasize our homecare and cleaning brands emphasizing these brands over time, Okay head space for people to bring an even greater focus to our higher margin maintenance products.
Sara: Homecare and cleaning brands our market in a few different geographies around the world. We are currently in active discussions with third parties and some of our home care brands in certain geographies, we look forward to updating investors on this matter in the future.
Sara: Now, let's talk about our growth aspirations last quarter, we introduced our new four by four strategic framework, which was developed to drive profitable growth and sustainable value creation.
Sara: The framework is designed to deliver on our long term growth targets, we charter dry maintenance product revenue growth in the mid to high single digits.
Sara: non-GAAP constant currency basis.
Sara: This is supported by our growth outlook for each trade block I would anticipate the Americas to grow between 5% to 8% I may add to grow 8% to 11% and Asia Pacific to grow 10% to 13%.
Sara: In addition, we believe our full by full strategic framework will drive adjusted EBIT margin expansion as we improve our gross margins and invest across the business to gain efficiencies and productivity improvements.
Sara: I will not be going through the entire strategic framework. Today. However, if you are new to our story, we have made a succinct overview of our strategic framework available to stockholders in the overview section of our Investor Relations website.
Sara: Today I'll review the progress we've made against our must win battles in the first quarter and provide you with an update on a couple of our strategic enablers.
Sara: Starting with must win Battle number one leading geographic expansion in the first quarter of 2024 global sales of agility 40, multi use product grew $13 1 million or 14% over the prior year.
Sara: Experienced strong sales of our signature brand.
Sara: Free trade blocks with 12% growth in the Americas, 23% growth in our EMEA and <unk>.
Sara: 4% growth in Asia Pacific.
Sara: We never stopped investing in the blue and yellow can with little red top throughout the pandemic and subsequent inflation in volatile times.
Sara: We continually made investments focus on building brand awareness and market penetration and identified key markets.
As a result, we made excellent progress and at the same volume recovery in several key markets with strong sales growth of 14, 9% in the dark region, 23% in Mexico.
Sara: 42% in France, 259% in Iberia, which includes Spain and Portugal.
Sara: In fiscal year 2024, we will continue to invest in building our flagship brand with end users around the world.
Next is mostly viral number two accelerating premium amortization.
Sara: Premium amortization is a major contributor to our revenue growth as well as gross margin expansion and our premium <unk> products are low by end users around the world in the first quarter sales of WD 40, smart straw and EZ reach when combined with $47 6 million up 16% compared to the prior year period.
Sara: We have fully implemented to be 40, smart straw next generation capacity within the Americas and at multiple packages in our EMEA, which we expect will help us to accelerate the sales of <unk> products in these segments going forward.
Sara: On a go forward basis, we will be targeting a compound annual growth rate for net sales of premium products of greater than 10% in reported currency.
Sara: Our third must win battle is to drive to be 40 specialist growth.
Sara: In the first quarter sales of WD 40 specialist products for $16 8 million up 9%, we saw growth Adobe 40 specialist products across all three trade blocks with particularly strong growth in our EMEA and China, where sales grew 11% and 70% respectively.
Sara: In the Americas sales Adobe fully specialist grew just 4% compared to the first quarter of last year.
Sara: In the comparable period of last year sales of WD 40 specialist were very high in the Americas due to increased production capacity and improved availability associated with our post pandemic recovery.
Sara: On a go forward basis, we will be targeting a compound annual growth rate for net sales to be 40 specialists of greater than 15% in reported currency.
Sara: Our final must win Battle number four was to turbocharge takes to Commerce digital Commerce is an accelerator for all of our other must win battles.
Sara: First quarter E Commerce sales were up 10%, primarily due to strong growth in demand.
Sara: We believe the greatest benefit of this must win battle is to increase brand awareness and engagement online, which will lead to an improved shopping experience and higher sales across all channels, both in store and online.
Sara: I'll now turn to the second element of our strategic framework, our strategic enablers, which collectively underpay enormous win battles.
Sara: Rather than providing an update on all of our strategic enablers today I will update you on some recent progress made on enablers III pool.
Sara: Strategic enablers, three achieving operational excellence and supply chain.
Sara: Strategic enabler is meant to continue our quest for operational excellence.
To support the strategic enabler, we've established a set of global supply chain Kpis that are being utilized by all three trade blocks. This allows us to understand their operational performance at a deeper level in all regions and through external benchmarking to be able to understand the areas, where we can focus our attention and efforts to improve.
Our operational performance for <unk>.
Sara: Potent API is achieving on time and in full delivery also referred to as <unk>.
Sara: And I'm happy to share with you that customer <unk> scores, where over 95% in aggregate in the first quarter.
Sara: We also carried out our first assessment of environmental sustainability awareness and maturity amongst our largest suppliers.
Sara: This will help us develop our approach for how we engage with our supply chain partners over the coming years to address changing regulatory requirements.
Sara: T program and stakeholder expectations as they go.
Sara: Finally, we are working to improve our forecasting and planning processes, which will help us to make better informed decisions about future demand and supply availability.
Sara: Next is strategic enabler number for which to drive productivity via enhanced systems.
Sara: We are very close to going live with a new cloud based enterprise resource planning system for our U S and Latin America businesses, which is a big step for our organization.
Sara: I want to personally thank the team that has been working on this project as a small company with an employee base of only six people we need to strive to provide the best our it systems to allow them to do their jobs more efficiently and effectively.
Sara: To that extent, we've increased our investments in the past few years on new systems and system enhancements and continued investment will be needed to support this important enabler in the future.
Sara: We recently created a new global role to oversee our it strategy with a focus on identifying opportunities to streamline our tools and processes across our regions.
Sara: This role will also drive our strategic investments in our it in.
Sara: In partnership with local stakeholders to support the growth of the organization.
Speaker Change: With that I will now turn the call over to Sarah.
Sarah Heizer: Thanks, Steve ill begin today with a discussion about our business model then I will walk you through some of our first quarter results and provide an update on our capital deployment.
Sarah Heizer: While our full year top and bottom line guidance remains unchanged I will provide some additional color on our outlook.
Sarah Heizer: Before we begin today I wanted to point out to investors that we have modified how we calculate some of the non-GAAP performance measures related to our 50 530 25 business model.
Sarah Heizer: Beginning this quarter and going forward amortization of implementation cost associated with cloud computing arrangements will be included in our cost of doing business and EBITDA calculations.
Sarah Heizer: Accordingly, we will now refer to our EBIT target included in our 50 530 25 business model as adjusted EBITDA.
Sarah Heizer: As Steve mentioned, we are in the process of implementing a new cloud based enterprise resource planning system.
Sarah Heizer: We will begin to amortize once the system is placed into service.
Sarah Heizer: Implementation of systems like this one are related to our strategic framework and are intended to achieve greater operational efficiencies for our organization.
Sarah Heizer: We consider these noncash charges to be like depreciation of fixed assets and therefore believe they should be treated as such.
Sarah Heizer: WD 40 company's asset light and dynamic business model has helped the company maintained a healthy financial position for years and continues to be our guiding light.
Sarah Heizer: Our $55 30, 25 business model as a long term beacon that we will move toward and align with overtime.
Sarah Heizer: The short to mid term, we think about each critical component of the model in a range.
Sarah Heizer: Let's start with our first quarter gross margin performance.
We target a range of 50% to 55% for gross margin and we have made significant progress to perform well within this range.
Sarah Heizer: Once again, we experienced strong gross margin improvement over the first quarter of the prior year.
Sarah Heizer: In the first quarter, our gross margin was 53, 8% compared to 51, 4% last year.
Sarah Heizer: This represents an improvement of 240 basis points and is the highest quarterly margin. We have reported since the second quarter of fiscal year 2021.
The improvement from prior year was driven by several factors, including positive results from continued actions, we have taken to strengthen our supply chain.
Sarah Heizer: First lower costs associated with warehousing distribution and freight primarily in the U S benefited our margin by 150 basis points.
Sarah Heizer: We continue to make progress in lowering our inventory levels, which we had invested in to stabilize our U S supply chain in prior years.
Sarah Heizer: Our inventory levels peaked in the first quarter of fiscal year 2023, and since then we have reduced inventory by $37 5 million or 31% we.
Sarah Heizer: We will continue to make more progress on our inventory levels in conjunction with our strategic enabler number three.
Sarah Heizer: Also benefiting margin were favorable sales mix and other miscellaneous mix impacts, which positively impacted our gross margin by 130 basis points year over year.
Sarah Heizer: Sales mix can positively or negatively impact our gross margin due to various factors, including geography distribution channels and product characteristics like premium nice formats.
Sarah Heizer: This quarter, we saw benefit from sales mix due to the strong recovery we are experiencing in EMEA.
Sarah Heizer: Margins were also positively impacted by 120 basis points due to tactical price increases.
Sarah Heizer: Currently we are not planning any additional tactical price increases in any of our larger markets in the near term.
Sarah Heizer: As always we will continue to monitor the inflationary environment in our various markets.
Sarah Heizer: Finally, we recognized benefits from lower costs associated with specialty chemicals, which positively impacted our margin by 60 basis points.
Sarah Heizer: These positive impacts to margin were partially offset by higher costs associated with aerosol cans chain.
Sarah Heizer: Changes in miscellaneous other input costs and higher filling fees, primarily in the Americas, which when combined negatively impacted our margin by 200 basis points.
Sarah Heizer: Now, let's take a deeper dive into gross margin by trade block as we continue to focus on our margin improvement plans.
Sarah Heizer: Each trade block continues to be at different stage and recovery in that gross margins.
Sarah Heizer: Within the Americas gross margin of 57% in the first quarter.
Sarah Heizer: While this is relatively constant compared to the prior year first quarter, we have seen sequential improvement of 170 basis points from the fourth quarter of fiscal year 2023.
Sarah Heizer: I may ask gross margin was 54, 9% an improvement of 430 basis points compared to the prior year first quarter and 130 basis points sequentially.
Sarah Heizer: Finally, Asia Pacific gross margin was 59, 2% an improvement of 480 basis points compared to the prior year first quarter and 350 basis points sequentially.
Sarah Heizer: We are incredibly pleased with the improvements we have made to gross margin over the last few quarters.
Sarah Heizer: This progress has positioned us to likely deliver above the midpoint of our fiscal year 2024 gross margin guidance range. However, we continue to believe returning our gross margin to our 55% target will be a multiyear task.
Sarah Heizer: Now turning to our cost of doing business, which we define as total operating expenses plus adjustments for certain non cash expenses.
Sarah Heizer: Cost of doing business is how we measure how efficiently are operating our business and is primarily comprised of three areas.
Sarah Heizer: <unk> and our employees investments in building, our brand and freight expense to get our products to our customers.
Sarah Heizer: We target a range of 30% to 35% as a percentage of revenue for cost of doing business.
Sarah Heizer: As a percentage of revenue our cost of doing business remained constant at 36% compared to the first quarter of last year.
Sarah Heizer: However, on an absolute dollar basis, our cost of doing business increased by $5 7 million or 13% due to higher employee related expenses higher travel and meeting related expenses and increased professional services fees.
Sarah Heizer: In addition, the investments we make in advertising and promotional activities increased period over period.
Sarah Heizer: As a percentage of sales our A&P investment was 5% compared to four 3% in the first quarter of the prior year, but is in line with our fiscal year guidance.
Sarah Heizer: We are making deliberate investments to support our four by four strategic framework to accelerate growth for our future.
Sarah Heizer: We expect to see improvements in the cost of doing business over time as sales growth, which is the most important factor in managing our cost of business towards our long term target of 30%.
Sarah Heizer: Turning now to adjusted EBITDA.
Sarah Heizer: We target an adjusted EBITDA margin range of 20% to 25%.
Adjusted EBIT margins have been under pressure the last couple of years due to the inflationary environment. We have been operating in and that was intentional investments we have made to support our four by four our strategic framework.
Sarah Heizer: Before fiscal year 2022, we consistently delivered EBITDA margins of between 2022%.
Sarah Heizer: Getting adjusted EBITDA margins back above 20% remains a top priority for us and so beginning this fiscal year certain key senior leaders, including myself and Steve will have a portion of our incentive compensation tied to making progress to recovering our adjusted EBIT margin back to the <unk>.
20, 22% range over the midterm.
Sarah Heizer: Once we are consistently back at our historic 20% to 22% levels. Then we will look to leverage scale and returns on our investments across the business as we target, 25% adjusted EBITDA margins over the longer term.
Sarah Heizer: For the first quarter adjusted EBITDA margin was 19%, which improved from 17% in the comparable quarter of the previous year.
Sarah Heizer: This is the result of the improvement in net sales as volumes have continued to recover in the first quarter and stronger gross margin performance.
Sarah Heizer: Now, let me discuss some items that fall below the adjusted EBITDA line.
Sarah Heizer: Net income improved to $17 5 million in the first quarter, which was an increase of $3 5 million or 25% over the previous year's first quarter.
Sarah Heizer: On a constant currency basis, net income would have improved 21% compared to the first quarter of last year.
Sarah Heizer: Our net income reflects the provision for income tax rate of 24, 2%.
Sarah Heizer: Diluted earnings per common share for the quarter were $1 28 compared to $1 two for the first quarter last year, which reflects an increase of 25%.
Sarah Heizer: Our diluted EPS reflects $13 6 million weighted average shares outstanding.
Sarah Heizer: Now, let's look at our balance sheet and capital allocation strategy.
Sarah Heizer: Our resilient and asset light business model, coupled with actions, we have taken to grow our top line, while improving gross margin are all contributors to maintaining a strong balance sheet and liquidity position.
Sarah Heizer: Maintaining a disciplined and balanced capital allocation approach remains a priority for us.
Sarah Heizer: For the foreseeable future, we expect maintenance capex of between one and 2% of sales per fiscal year.
Sarah Heizer: It is in line with our asset light strategy.
Sarah Heizer: One of our more significant non capex investments recently has been our new enterprise resource planning system.
Sarah Heizer: Our investments through November 30th include approximately $10 million in costs, which have been capitalized and will begin to amortize. Once we go live with the new system.
Sarah Heizer: As part of this project, we have incurred and will continue to incur costs that do not qualify for capitalization.
Sarah Heizer: And we expect to incur these costs through the multiple waves of implementation over fiscal year 2024.
Sarah Heizer: In addition, we continue to return capital to our shareholders through regular dividends and buybacks.
Dividends will continue to be targeted at greater than 50% of earnings.
Sarah Heizer: On December 12, our board of directors approved a quarterly cash dividend of 88 cents per share reflecting.
Sarah Heizer: And an increase of 6% over the previous quarter's dividend of <unk> 83 per share.
During the first quarter, we repurchased approximately 11500 shares of our stock at a total cost of approximately $2 $4 million under our current share repurchase plan.
Sarah Heizer: We will continue to be active in the market and we expect to repurchase at least enough shares to offset shares issued for equity compensation.
Sarah Heizer: Going forward, our objective is to return cash to investors in the most accretive manner.
Sarah Heizer: Interest rates May mean share buybacks are not as accretive as they were in the past.
Our cash flow from operations. This quarter was $26 9 million and we elected to use $10 million of that cash to pay down a portion of our short term higher interest rate borrowings.
Our intent is to continue to pay down higher interest borrowings under the current interest rate environment.
Sarah Heizer: With that in mind, we recently reclassified approximately $23 million in borrowings from long term to short term on our balance sheet since we plan to pay down that debt within 12 months.
Sarah Heizer: That concludes my discussion on our reported results.
Sarah Heizer: So let's turn to guidance.
Sarah Heizer: We're off to a very solid start in fiscal year 2024, and we are pleased to see volumes continue to recover and improvement in our gross margin.
However, we know our results can vary quarter to quarter based on the timing of promotional activity and market mix and the impacts of a world, which is filled with volatility uncertainty complexity and ambiguity.
Sarah Heizer: We continue to believe our current guidance is our best estimate and for that reason, we are reiterating our outlook for fiscal year 2024 today.
Sarah Heizer: Net sales growth is projected to be between six and 12% with net sales between $570 million and $600 million in constant currency.
Sarah Heizer: Gross margin is expected to be between 51 and 53%.
Sarah Heizer: However, we believe we are positioned to likely deliver above the midpoint of our guidance range based on our current performance.
Is it mix trends and the current cost trends we are experiencing.
Sarah Heizer: Advertising and promotion investment is projected to be between 5% and 6% of net sales.
Sarah Heizer: The provision for income tax is expected to be between 24 and 25%.
Sarah Heizer: Net income is expected to be between 65 and $70 million.
Sarah Heizer: And diluted earnings per share is expected to be between $4 78, and $5 15, which is based on an estimated $13 6 million weighted average shares outstanding.
Sarah Heizer: Also as a reminder, this guidance assumes no major changes to the current economic environment.
The anticipated inflationary headwinds and other unforeseen events may affect our view of fiscal year 2024.
Sarah Heizer: That completes the financial overview now I would like to turn the call back to Steve.
Steven A. Brass: Thank you Sarah in closing we're proud of the progress we've made this quarter, which is a great start to our fiscal year aligns with our longer term goals.
Steven A. Brass: In summary, what did you hear from us on this call.
Steven A. Brass: You heard that this is a <unk>.
Steven A. Brass: First time since fiscal year 2021, but our business has been firing on all cylinders and we saw top line growth in all three trade blocks.
Steven A. Brass: You heard that we saw volume related sales growth in all three trade blocks on that approximately 65% of our constant currency sales increase this quarter was volume related.
You heard that sales of WD 40, multi use product grew up 14% in the first quarter.
Steven A. Brass: You heard that sales Adobe 40 specialists were up 9% in the first quarter.
You heard that our inventory levels peaked in the first quarter of fiscal year 2023, and since then we have reduced inventory by $37 5 million.
Steven A. Brass: 1%.
Steven A. Brass: We are incredibly pleased with the improvements we've made to gross margin of business progress.
Steven A. Brass: This positions us to likely deliver above the midpoint of our fiscal year 2024 gross margin guidance range.
Steven A. Brass: You heard the beginning this year certain key senior leaders will have a portion of our incentive compensation Hudson, making progress to recovering our adjusted EBIT margins industry back to 20% to 22% over the midterm.
Steven A. Brass: You heard that we continue to return capital to investors through regular dividends.
Steven A. Brass: Raised our dividend last month.
Steven A. Brass: You heard that we reiterated our full fiscal year 2020 for guidance and are proud of the progress we've made this quarter.
Thank you for joining our call today, we'd now be pleased to answer your question.
Steven A. Brass: Ladies and gentlemen, if you would like to register a question. Please press star followed by the number one on your telephone keypad.
Steven A. Brass: Please make sure your mute function is turned off to allow your signal to reach our equipment.
Steven A. Brass: If your question has been answered and you would like to withdraw your registration. Please press the star one again, one moment for your first question.
Speaker Change: Your first question comes from the line of Linda Bolton Weiser from D. A Davidson. Please proceed with your question.
Speaker Change: Yes, Hello, all congratulations on a solid quarter.
Speaker Change: So I was wondering if you could comment on.
Speaker Change:
Speaker Change: Well.
Speaker Change: Environment is regarding pricing because we're actually starting to hear in certain areas of deflationary developments are you getting any.
Speaker Change: Pressure to actually roll back any prices I know historically that wasn't really the practice, but can you just sort of give a little bit more on the pricing front. Thank you.
Speaker Change: Hey, Linda it's Steve so on the pricing front.
Yes, I mean of course with major retailers as always they are excellent negotiators and of course, we're having conversations about.
Speaker Change: About pricing going forward I mean, I think the bottom line is.
Speaker Change: It's hardly a situation where we are profiteering, we are simply recovering our historic gross margin levels.
Speaker Change: And we're very pleased with the progress we're making there. So in summary, yes, we are beginning to have conversations with retailers. We train our people very very well to hold those conversations with our retail partners.
Speaker Change: Yes, those conversations.
Okay and then.
I know when you put the price increases in Europe, but there was some loss of distribution can you just update us on how these fully regained back that distribution and kind of what's the status there.
Speaker Change: Okay.
So in terms of Europe in the mind of distribution losses, we have we have pretty well covered most all of those distribution losses.
Speaker Change: Some of those high level will run into next fiscal year in terms of the full recovery of the volume concerns. So yes, we have recovered just about.
All of the volume we lost from some kind of dialysis.
Some of that recovery will still play out in fiscal year 2025 in Europe.
Speaker Change: Okay.
Speaker Change: Hmm.
Speaker Change: Can you give some.
Speaker Change: Well I can't remember I don't think you've exactly quantified the income statement effect of your ERP implementation cost but.
Speaker Change: Can you give some idea of the cadence of when those will hit the income statement is it more in the first half or second half words with evenly across the quarters any color on that.
Speaker Change: Yes, Linda I can I can take that one so we are still on track to go live with the new system. In Q2. So we will expect some of that amortization began to impact us in the next quarter and then going forward. So the amortization I think we disclosed that we have about $10 million.
Speaker Change: On the books at the end of November and we will start to amortize that through the P&L starting in Q2 as soon as the system goes live and we will there'll be some more transparency on the amount of that as we get into the second and third and fourth quarter of the year.
Speaker Change: Okay, and then finally I guess I was interested in the <unk>.
Speaker Change: Commentary on India, I Didnt catch exactly what you said, but it sounded like something and then growth would resume more in the second half of the year can you give a little more on that issue. Thank you.
Speaker Change: Sure So Linda as Youre aware, our long term growth.
Linda Bolton Weiser: Good trajectory on India has been very very positive.
Linda Bolton Weiser: The recent years, we have a wonderful partner and have a great long term track record.
Linda Bolton Weiser: Okay.
Linda Bolton Weiser: The same kind of disruption that we've suffered pretty well everywhere else in India in terms of these pricing change.
Linda Bolton Weiser: <unk> over the past 18 months.
Linda Bolton Weiser: And we're still kind of going through that we do expect to emerge.
Linda Bolton Weiser: From that in the second half of this fiscal year. There was also some just some shipments deferred between Q1 and Q2 as well. So you should start to see the engine situation improving.
Linda Bolton Weiser: We're disappointed we were negative about $9 million I believe in the first quarter.
Linda Bolton Weiser: You should see that over between Q2 begin to improve and then head back into growth in India in Q3 and Q4.
Speaker Change: Okay. Thank you very much I appreciate it.
Speaker Change: Thank you thanks Linda.
Speaker Change: Our next question comes from the line of Daniel Rizzo from Jefferies.
Daniel Rizzo: Please go ahead with your question.
Daniel Rizzo: Good afternoon, everyone. Thank you for taking my call.
Daniel Rizzo: Just given the strong performance in the first quarter and sales were up over 12%.
Daniel Rizzo: But.
Outlook for the year is largely unchanged I was wondering if this order timing that's involved that would suggest a slowdown in the second quarter or the back half of the year, how should we should think about it again, given the everything still intact, but you had a fairly strong first quarter.
So I'll take that one hi, Danielle this is Sarah so yes, we are very pleased with the results for the first quarter, but it is just one quarter and there is still a lot of uncertainty as we look out for the back half of the year and so at this point in time, we felt that it was appropriate it is still our best estimate that we believe will still be.
Danielle: Within the guidance for the for the rest of the year, we do obviously see fluctuations quarter to quarter. If you go back and look at our business the business can fluctuate quarter to quarter end.
Danielle: We have the the ERP system going in live in Q2. So we're just we're wanting to wait one more quarter to see how the first half of the year shapes up before before taken another look at guidance.
Was there any pull forward in the quarter from the second quarter I know in the past.
Danielle: Particularly sales in Asia have been kind of.
Danielle: Lumpy just because of order timing I was wondering if we saw that at all here in the first quarter.
Lumpy: It was not really totally forward Daniel there is.
Lumpy: Asia Pacific seems to have just entered this cadence of a kind of a.
Danielle: From loaded fiscal year.
Danielle: Part of that is really a cultural down to the way that kind of what is happening.
Danielle: Particularly in the Chinese market and Asian distributor markets, and so I think that that cadence of a strong Q1 I mean, if you look at the overall Asia Pac business World.
Danielle: 6%, 7% at constant currency, China is doing very well local currency up 18%.
Danielle: <unk>.
Speaker Change: Yes, it's <unk>.
Speaker Change: Just as front loaded piece just seems to become the way, we do business that increasingly.
Speaker Change: Okay, and then maybe a dumb question, but given your asset light business model is there any benefit from from improved cost absorption with higher production volumes I mean volumes can be fairly strong I was wondering if that will have.
Speaker Change: Meaningful impact on gross and EBIT margins.
Speaker Change: So yes, we do volume does help us write the more that we can push into our filler network the better pricing, we can get so as volumes continue to recover right, we will be able to.
Speaker Change: See improved filling fees, although fill fees for us have been one of those costs that have been stickier than than others. So if you look at the comparison quarter over quarter, Phil fees are still higher today than they were this time last year and a lot of that is around the labor an inflationary environment that our third party manufacturer as incurred.
Speaker Change: A lot of those increases have just stock so in general to answer your question Daniel Yes, the more volume the better pricing we get.
Speaker Change: But we but we have seen higher fill fees as we sit here today than we than we were a year ago.
Speaker Change: Alright, Thank you very much.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen that does conclude our allotted time for questions. We thank you for your participation on today's conference call and ask that.