Q2 2025 Prestige Consumer Healthcare Inc Earnings Call
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Speaker Change: Please be advised that today's conference is being recorded I would now like to introduce your host for today's call conference call filter Lilly Vice President Investor Relations. Please go ahead.
Speaker Change: Thanks, operator, and thank you to everyone who has joined today on the call Rama Bharti, our chairman, President and CEO and Christine Sacco our CFO.
On today's call to review the second quarter fiscal 2025 results.
Speaker Change: Our full year outlook, and then take questions from analysts.
A slide presentation accompanies today's call can be accessed by visiting prestige consumer healthcare <unk> com clicking on the investors link and then on today's webcast and presentation.
Speaker Change: Remember some of the information contained in the presentation today includes non-GAAP financial measures.
Reconciliations to the nearest GAAP financial measure are included in our earnings release and slide presentation.
Speaker Change: On today's call management will make forward looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on page two of the slide presentation that accompanies the call.
These are important to review and contemplate business environment uncertainty remains heightened due to supply chain constraints inflation, which have numerous potential impacts.
Speaker Change: This means results could change at any time and the forecasted impact of risk considerations is the best.
Speaker Change: Estimate based on the information available as of today.
Speaker Change: Additional information concerning risk factors and cautionary statements are available in our most recent SEC filings and our most recent company 10-K.
Speaker Change: I'll now hand, it over to our CEO Ron Lombardi from.
Ron Lombardi: Thanks, Bill, let's begin on slide five.
Ron Lombardi: Our Q2 results exceeded the expectations, we communicated back in August and improved on Q1.
Ron Lombardi: Sales of $284 million declined slightly versus the prior year, largely due to clear eyes supply chain limitations in Q1 timing.
Ron Lombardi: I will provide an update on clear eyes, and our wrap up thanks.
Ron Lombardi: Thanks to our diverse portfolio, we offset most of this decline in other business areas led by strong and broad based growth in our international segment and its hydroid brand as well as our Canadian portfolio, which I'll touch on shortly.
Ron Lombardi: Resulting earnings and cash flow are stable in Q2, thanks to our business strategy and disciplined capital deployment.
Ron Lombardi: Gross margin improved sequentially and was approximately stable to the prior year.
Ron Lombardi: And we generated EPS of $1 nine up slightly to the prior year.
Ron Lombardi: Strong free cash flow of $68 million grew double digits versus the prior year and continues to enable capital deployment that is used to enhance shareholder value and.
Ron Lombardi: In Q2, we reduced debt by $40 million that resulted in a leverage declined to two seven times, while still repurchasing shares opportunistically.
Ron Lombardi: Now, let's turn to page six for a review of our Canadian business.
Ron Lombardi: In addition to our fast growing international business. We also have a well positioned portfolio in Canada that represents about 5% of our annual sales are.
Ron Lombardi: Our Canadian business is comprised of many leading number one brands in niche categories.
Ron Lombardi: The highlights of which are shown on the left side of the page.
Ron Lombardi: Many of these are similar brand to the U S. With the addition of Gaviscon sleep fees and newly added Hydrolyte, which we acquired the rights to in early October.
Ron Lombardi: On the right side of the page you'll see that in total our portfolio grew at a sales CAGR of approximately 4% since fiscal 'twenty with even stronger high single digit growth year to date.
Ron Lombardi: This solid performance was driven by execution of our proven brand building tactics, just like our U S business.
And we generated EPS of a dollar nine up slightly to the prior year.
Strong free cash flow of $68 million grew double digits versus the prior year and continues to enable capital deployment that is used to enhance shareholder value.
Ron Lombardi: One example, driving this performance is gaviscon, which is our largest brand in the country and growing in excess of the overall Canadian growth rate.
Ron Lombardi: Our marketing for Gaviscon is targeted around the benefits of having one product to both treat and protect against heartburn.
Q2, we reduced debt by $40 million that resulted in a leverage declined to two seven times, while still repurchasing shares opportunistically.
Ron Lombardi: The communications are wide ranging across video social media search and targeted partnerships.
Now, let's turn to page six for a review of our Canadian business.
Ron Lombardi: We then support these efforts with targeted shopper programs likely display shown on the page as well as consistent long term innovation. Most recently gaviscon introduced flavor blend, which is gaining momentum and now one of the top selling skus in the category.
In addition to our fast growing international business. We also have a well positioned portfolio in Canada that represents about 5% of our annual sales.
Our Canadian business is comprised of many leading number one brands in niche categories. The highlights of which are shown on the left side of the page.
Ron Lombardi: Launched in late 2023, Gaviscon flavor blend as a great tasting lower sugar version of our top selling chewable tablet designed to relieve heartburn due to acid reflux.
Many of these are similar brands to the U S. With the addition of Gaviscon freebies and newly added Hydrolyte, which we acquired the rights to in early October.
Ron Lombardi: In aggregate. These brand building efforts continued to drive growth for our largest Canadian brand over the long term.
On the right side of the page you'll see that in total our portfolio grew at a sales CAGR of approximately 4%.
Ron Lombardi: In summary, our Canadian portfolio shared similar growth strategies to our U S business and there is further enhanced by long term growth of Gaviscon.
It's about 20 with even stronger high single digit growth year to date.
The solid performance was driven by execution of our proven brand building tactics, just like our U S business.
Ron Lombardi: These tactics and portfolio positioning have us set up well for continued success.
One example, driving this performance is gaviscon, which is our largest brand in the country and growing in excess of the overall Canadian growth rate.
Ron Lombardi: With that I'll turn it over to Chris to discuss the financials.
Chris: Thanks, Ron and good morning, everyone.
Chris: Turning to slide eight and review our second quarter fiscal 'twenty five financial results as a reminder, the information in today's presentation includes certain non-GAAP information is reconciled to the closest GAAP measure in our earnings release.
Our marketing for Gaviscon is targeted around the benefits of having one product to both treat and protect against heartburn.
The communications are wide ranging across video social media search and targeted partnerships.
Chris: Q2 revenue of $283 $8 million declined 90 basis points from $286 3 million in the prior year.
We then support these efforts with targeted shopper programs like a display shown on the page.
Chris: We experienced broad based growth in the Gi category, including strong performance across brands, such as fleet Dramamine and Gaviscon.
Well, it's consistent long term innovation.
Recently.
Chris: We also experienced growth in our international segment headlined by Hydrolyte.
<unk> introduced flavor blend, which is gaining momentum and now one of the top selling skus in the category launched.
Chris: We expected this growth was offset by declines in our eye and ear care category, owing to clear eyes supply constraints as well as the timing of cough and cold ordering patterns.
Launched in late 2023, Gaviscon flavor blend great tasting lower sugar version of our top selling chewable tablet designs relieve heartburn due to acid reflux.
Chris: EBITDA margin was consistent in the low thirty's, but down slightly to prior year, owing to the timing of marketing spend.
In aggregate. These brand building efforts continued to drive growth for our largest Canadian brand over the long term.
Chris: EPS increased one 7% versus prior year, thanks to the benefits of our capital allocation strategy and improvement in interest expense and share count.
In summary, our Canadian portfolio share similar Gulf strategies to our U S business and there is further enhanced by long term growth of Gaviscon.
Ron Lombardi: Let's turn to slide nine for detail around consolidated results for the first half.
These tactics and portfolio positioning.
Ron Lombardi: For the first six months of fiscal 'twenty five revenues decreased two 5% organically versus the prior year.
Set up well for continued success.
With that I'll turn it over to Chris to discuss the financials.
Ron Lombardi: Segment, excluding FX North America segment revenues decreased three 7% and international segment revenues increased four 8% versus prior year.
Chris: Thanks, Ron and good morning, everyone.
Chris: Turning to slide eight and review our second quarter fiscal 'twenty five financial results.
Chris: As a reminder, the information in today's presentation includes certain non-GAAP information is reconciled to the closest GAAP measure in our earnings release.
Ron Lombardi: The first six months sales declines were due to anticipated impacts of the <unk> supply chain constraints previously discussed.
Chris: Q2 revenue of $283 $8 million declined 90 basis points from $286 3 million in the prior year.
Ron Lombardi: The planned impact of retail ordering in the cough and cold category and pressure in women's health largely in the first quarter.
We experienced broad based growth in the Gi category, including strong performance across brands, such as fleet Dramamine and Gaviscon.
Ron Lombardi: As targeted we are experiencing sequential improvements in summer's Eve with the second quarter sales flat with prior year.
Also experienced growth in our international segment headlined by Hydro light and.
Ron Lombardi: As discussed on recent calls our brand positioning new products and marketing campaigns are improving consumption trends and we continue to feel good about further improvements moving forward.
Chris: We expected this growth was offset by declines in our eye and ear care category, owing to clear eyes supply constraints as well as the timing of cough and cold ordering patterns.
Ron Lombardi: We also continued to experience nice growth in the international OTC segment in the first six months led by Hydro life, along with impressive double digit year over year growth in the E Commerce business, continuing the long term trend of higher online purchases.
Chris: EBITDA margin was consistent in the low thirties, but down slightly to prior year, owing to the timing of marketing spend.
Chris: EPS increased one 7% versus prior year, thanks to the benefits of our capital allocation strategy and improvement in interest expense and share count.
Ron Lombardi: Total company gross margin of 55, 1% in the first six months was down slightly versus the prior year and we expected owing to the expense associated with the continued expedited freight as clear eyes.
Chris: Let's turn to slide nine for detail around consolidated results for the first half.
Chris: For the first six months of fiscal 'twenty five revenues decreased two 5% organically versus the prior year.
Ron Lombardi: For the full fiscal year, we still anticipate a gross margin of approximately 56% we.
Chris: Segment, excluding FX North America segment revenues decreased three 7% and international segment revenues increased four 8% versus prior year.
Ron Lombardi: We still expect the increase from the prior year to be driven by pricing actions and cost savings more than offset inflationary cost headwinds.
Ron Lombardi: Q3 gross margin is estimated to be approximately 55%.
Chris: The first six months sales declines were due to anticipated impacts of the clear eyes supply chain constraints previously discussed.
Ron Lombardi: Advertising and marketing was up in dollars and as a percentage of sales coming in at 14, 7% of sales for the first six months.
Chris: The planned impact of retail ordering in the cough and cold category and pressure in women's health largely in the first quarter.
Ron Lombardi: For fiscal 'twenty, five we still anticipate A&M up in dollars versus prior year, while we expect Q3 A&M to approximate 13% of sales.
Chris: As targeted we are experiencing sequential improvement in summer's Eve with the second quarter sales flat with prior year.
Ron Lombardi: G&A expenses were 10% of sales in the first six months due to the timing of certain expenses, we still anticipate full year G&A of approximately nine 5% as a percent of sales.
Chris: As discussed on recent calls our brand positioning new products and marketing campaigns are improving consumption trends and we continue to feel good about further improvements moving forward.
Ron Lombardi: Finally, adjusted EPS of $1.98 compared to $2 13 in the prior year down from the impact of lower Q1 revenues airfreight costs as well as the timing of A&M and G&A spend partially offset by more favorable interest expense.
Ron Lombardi: We expect more favorable interest trends to continue thanks to our long term debt reduction efforts and now anticipate full year interest expense of less than $50 million.
Ron Lombardi: Our Q2 tax rate was 24, 1%, resulting in a first half tax rate of 23, 6% and we still anticipate a tax rate of approximately 24% for the remaining quarters of fiscal 'twenty five.
Ron Lombardi: Now, let's turn to slide 10, and discuss cash flow.
Ron Lombardi: For the first half, we generated $121 4 million and free cash flow up double digits versus the prior year.
Ron Lombardi: We continue to maintain industry, leading free cash flow and are maintaining our outlook for the full year of $240 million or more.
Ron Lombardi: At September 30, our net debt was approximately $1 billion and we achieved a covenant defined leverage ratio of two seven times.
Ron Lombardi: For the first six months, we've now repurchased 566000 shares for approximately $38 million.
Speaker Change: These repurchases were enabled by our low leverage and consistent business performance, which gives us strategic flexibility with our capital. We will continue to evaluate further opportunistic repurchases as well as M&A as part of a disciplined capital deployment strategy with that I'll turn it back to Ron.
Ron Lombardi: Thanks, Chris, Let's turn to slide 12 to wrap up.
Ron Lombardi: As expected halfway through the year, we are realizing accelerating business momentum thanks to our proven business strategy and diversified brand portfolio for fiscal 'twenty. Five we continue to anticipate revenues of $1 billion $125 billion to $1 billion 140, and organic revenue growth of approximately 1%.
Ron Lombardi: Versus fiscal 'twenty four.
Ron Lombardi: <unk> Q3 revenue of approximately $286 million returning to year over year growth.
Ron Lombardi: In Q3, we expect momentum in multiple brands and categories to offset pressure from clear eyes supply constraints.
Ron Lombardi: We continue to work with our partners as they execute upgrades that will support high quality products long term supply chain reliability and inventory recovery for our third quarter, we expect revenue for clear eyes to improve sequentially versus the second quarter for EPS. We continue to anticipate adjusted EPS of <unk> <unk>.
Ron Lombardi: $4 40.
Ron Lombardi: To $4 46 for the full year, but anticipate the higher end of the range. Thanks to our debt reduction efforts for Q3, we would anticipate EPS of $1 16.
Ron Lombardi: Lastly, we continue to anticipate free cash flow of $240 million or more we have ample capital deployment optionality that has a history of maximizing value for our shareholders.
Speaker Change: With that I'll open it up for questions operator.
Speaker Change: Thank you very much at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from <unk> <unk> of Oppenheimer <unk> Company. Your line is open.
Speaker Change: Good morning, and thanks for taking my question. So I had two questions starting with clear eyes of Summer's Eve. So unclear is we'd love to get the latest update in terms of how you guys are thinking in the back half of the year and then when do you think youll be passed all of the supply chain headwinds and then for Summer's Eve upbeat commentary and improvement Youre seeing sequentially I just wanted to get a sense of how you think you have to back out for the back half of the year there.
Speaker Change: Hey, good morning refresh so let's start with with the <unk> question. So in terms of clear our supply chain. We finished really right, where we expected for the first half in terms of sales.
Ron Lombardi: As we communicated back in August higher Q1 sales benefited from some shipment timing at the end of the quarter.
Ron Lombardi: Balanced out in Q2 to our original forecast for the first half.
Ron Lombardi: As I mentioned in my prepared remarks today.
Ron Lombardi: We're starting to see sequential improvement in clear eyes, and expect sales improvements in Q3 versus Q2.
Ron Lombardi: We believe inventory levels at retail are hitting their low point now based on this sales outlook and we expect to see stabilization of trends during the remainder of Q3.
Ron Lombardi: More importantly, we're still taking decisive action to strengthen the brand supply chain through two key initiatives first implementing strategic improvements with current partners, including upgrades and expanding capacity, while executing our long term strategy to further diversify and expand our supply base.
Ron Lombardi: We think these are the right long term steps that will enhance the brand long term.
Ron Lombardi: Clear eyes is still the largest OTC brand in the category and units at retail and given its iconic nature. We think it's well set up for a return to growth as supply improves.
Ron Lombardi: So for Summer's Eve.
Ron Lombardi: We've talked previously in last quarter about some of the new products introduced as well as new digital.
Ron Lombardi: Messaging, that's out there and it's largely taking hold right.
Ron Lombardi: And starting to move the brand forward. So in Q2 Summer's Eve was flat in North America, and we're making good progress towards returning the brand to growth.
Ron Lombardi: It is still the clear market leader in this segment and we think Theres a number of ways. The brand can continue the momentum we started in Q2 through the end of the year and I think just as importantly, or more importantly, we actually began to see a share gain at the end of the second quarter for the first time in about three years. So we continue to feel.
Ron Lombardi: Really good about.
Ron Lombardi: Our execution against these long term brand building strategies to the new products and the momentum we're beginning to see in Summer's Eve.
Speaker Change: Great and then maybe one follow up question a lot of concerns out there on the drugstore channel and I know, we've seen closures within our channel in recent quarters. So is historically what have you seen from drugs somebody's drugstore players closing clothing stores and it seems like a lot going forward from a closure perspective or how do you guys think about that impacting your business.
Speaker Change: Sure actually over the last month or so we actually have seen some clarity on what to expect out of the drug chain and the clarity and what.
Speaker Change: We're hearing is that the expected store closures are going to be fairly consistent with what's been going over going on over the last couple of years past. So you know the.
Speaker Change: The level of store closures closures thats anticipated is kind of in the base business already and for US, we really don't care, where the consumer buys the product on our products broadly available our gross margin is consistent around.
Speaker Change: Across channels. So we just look to win with the consumer wherever they choose.
Ron Lombardi: To shop, and then continue to work with the retailers to help them be successful in their objectives.
Ron Lombardi: So I really say its more of the same in terms of what we expect from the drug channel.
Speaker Change: Great. Thank you I'll pass it along.
Ron Lombardi: Okay. Thank you.
Speaker Change: Thank you very much one moment for our next question.
Ron Lombardi: Yeah.
Speaker Change: Our next question comes from the line up Susan Anderson of Concordia Genuity Susan Your line is open.
Susan Anderson: Hi, good morning, nice job on the quarter.
Ron Lombardi: Wondering if you could maybe talk about the international business, particularly hydro.
Speaker Change: They continue to do very well over there.
Speaker Change: Curious what youre seeing in that market feels like in the U S. We're definitely seeing a number of new hydration company jump into the category.
Speaker Change: The old brands as Gatorade empowering.
Speaker Change: It seems to be getting more competitive just curious if you're seeing that same dynamic over in Australia, and how that competitive landscape has changed.
Ron Lombardi: Excuse me good morning, Susan It's Chris So international had another strong segment.
Speaker Change: <unk> performance for the quarter right up about 5%, which is consistent with our long term algorithm.
Ron Lombardi: Hydro later as you noted had nice growth consumption was up double digits.
Ron Lombardi: We're seeing new entrants in the category over in Australia, but remember different in the U S may be hydro <unk> has a very long standing history in connection with consumers.
Ron Lombardi: Starting at over a 90 share so hydrolyzed still still growing very nicely we've made investments there.
Ron Lombardi: With behind the brand and it seems to be paying off now it's worth noting for this quarter international It wasn't just hydro later, Australia, we had a few other brands and geographies are doing well Latin America. For example had a pretty strong quarter, so diversified a bit over there just as it is here in North America.
Speaker Change: Okay, great. Thanks, and then maybe just on cash flow was pretty strong in the quarter I guess.
Speaker Change: Are there any change to how youre thinking about capital allocation between balancing share repurchases and then M&A and then just in terms of the M&A landscape I guess 80, seeing anything any brand becoming more attractive out there you know any more opportunities.
Speaker Change: Yeah, great. So yes, our quarter was strong from a cash flow perspective, obviously enables our ability to do multiple things at once to drive value where with our leverage at two seven times. So we're still anticipating reducing leverage in fiscal 'twenty as we sit here today, we're still looking to buy back shares opportunistically and when the first.
Ron Lombardi: We offset share grant dilution.
Ron Lombardi: And we did some more opportunistic share buybacks in Q2.
Ron Lombardi: Now almost $40 million year to date, so we think there'll be further buybacks in the back half balanced against the M&A landscape right, which is our preference.
Ron Lombardi: And unlikely to pay off our remaining variable debt, which stands at $60 million at the end of September likely heading to zero by the end of the fiscal.
Ron Lombardi: So we have ample remaining authorization under our repurchase program remember it was a $300 million.
Ron Lombardi: And thus far we've completed about 38 of that so really a testament to the long term consistent robust cash flow and we will we would expect those trends to continue from an M&A perspective, I guess I would say more of the same as we usually say.
Ron Lombardi: We're looking at multiple things will continue to do that we think there'll be further opportunity as you continue to hear from some large players around.
Ron Lombardi: Around spinouts consumption so.
Ron Lombardi: Sure.
Ron Lombardi: Definitely a preference first use of cash flow after investing in the business now that leverages standing where it is.
Speaker Change: Okay, great if I could maybe one more just on I guess.
Ron Lombardi: Promotional or competitive environment in the U S.
Ron Lombardi: <unk> targeted talked about lowering prices, we've definitely seen some of that across the personal care category I mean, maybe it's a little.
Speaker Change: A bit different for you guys. Since your products are so niche space, but I guess, maybe just any thoughts on that front in terms of are you seeing the environment get any more competitive from promotions are.
Ron Lombardi: Any type is lowering of prices.
Ron Lombardi: Hey, good morning, Susan it's Ron here, so for our categories, right, which are quite a bit different than personal care and other aisles in the store.
Ron Lombardi: Our products are used for incident based largely you wake up someone in your household is sick you need the product.
Ron Lombardi: So it's a different usage occasion in addition to that during the high inflationary periods. We didn't have the kind of cost and selling price increases that other categories had I think at the peak.
Ron Lombardi: Our pricing selling price increase was about $25 million in a given year. So we're not facing the same kind of inflation in our categories that others are facing so we're not seeing it.
Speaker Change: Okay, great. Thanks, so much good luck throughout the year.
Speaker Change: Thank you Susan thank.
Speaker Change: Thank you very much as a reminder to ask a question. Please press star one on your phone and your answer.
Speaker Change: Put into the queue.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from Anthony Lipinski of Cider and company Anthony Your line is open.
Anthony Lipinski: Yes, good morning, and thank you for taking the questions.
Anthony Lipinski: Just in terms of your exposure to E. Commerce can you speak to that as far as what percentage of your revenue is coming through E. Commerce now and maybe if you could separate that for North America versus international how do you see that trending going forward.
Anthony Lipinski: Hey, good morning, Anthony It's Chris So right now the economy is at about 15% of our business overall and it's largely based in North America. So as we continue to see the E. Comm platform rollout internationally, certainly we've got the playbook and will utilize it but for right now it is very largely driven by North America.
Anthony Lipinski: Gotcha.
Speaker Change: And then in terms of your organic growth. So for this year, you're guiding to roughly 1% excluding FX.
Speaker Change: Obviously, the performance has been affected by the <unk> situation.
Speaker Change: That being said.
Speaker Change: Do you guys think you can get back to that 2% to 3% growth algorithm.
Speaker Change: Whether it's not sure sometime after that.
Speaker Change: How do you think about the business longer term.
Speaker Change: Yeah. So we talked about this year's guided about 1% a clear eyes supply impacting that by about 1%. So certainly and we just talked on the call about expecting sales for <unk> in the third quarter improved sequentially over Q2, and Ron talked about some of the strategic investments that are being made along the supply chain front around our eyecare Prada.
Speaker Change: So as.
Speaker Change: As we sit here today, obviously nothing fundamentally happened.
Speaker Change: Happening.
Speaker Change: <unk> gives us pause on our long term algorithm.
Speaker Change: Great. Okay, and then my last question as far as gross margin.
Speaker Change: There was some impact from higher airfreight costs in the second quarter.
Speaker Change: Do you still expect that to be an issue.
Speaker Change: In the back half of fiscal.
Speaker Change: Fiscal 'twenty five or just just overall, how do you guys think about gross margins longer term.
Speaker Change: Yes, so youre right. We are expect expecting some continued airfreight to support customer service levels. Our guide anticipates that we are expecting to incur less air freight as the year progresses.
Speaker Change: Then in terms of your organic growth so for this year, you're guiding to roughly 1% excluding FX.
Speaker Change: But just generally speaking if you think about the guide for the year at approximately 56% gross margin will continue to apply.
Speaker Change: Obviously, the performance has been affected by the <unk> situation.
Speaker Change: That being said.
Speaker Change: With cost improvements and we believe that pricing actions and cost improvements can offset future inflation.
Speaker Change: Do you guys think that you can get back to that 2% to 3% growth algorithm.
Speaker Change: Whether it's next year or sometime after that.
Speaker Change: So the March back again, nothing fundamental to our business that would prevent us from marching back to historical gross margin level.
Speaker Change: How do you think about the business longer term.
Speaker Change: Yeah. So we talked about this year's guide at about 1% and a clearer I supply impacting that by about 1%. So certainly and we just talked on the call about expecting sales for <unk> in the third quarter improved sequentially over Q2, and Ron talked about some of the strategic investments that are being made along the supply chain front around our eye care products. So.
Speaker Change: Thank you very much and best of luck.
Speaker Change: Thank you very much.
Speaker Change: At this time I am showing no further questions I would now like to turn it back to Ron Lombardi for closing remarks.
Ron Lombardi: Thank you operator, and thanks for everyone for joining us today, and we look forward to providing another update.
Speaker Change: As we sit here today, obviously nothing fundamentally.
Speaker Change: At the end of Q3 have a great day.
Speaker Change: Happening that that gives us pause on our long term algorithm.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
Speaker Change: Great. Okay, and then my last question as far as gross margin.
Speaker Change: There was some impact from higher airfreight costs in the second quarter.
Speaker Change: Do you still expect that to be an issue.
Speaker Change: In the back half of fiscal.