Q1 2025 WD-40 Co Earnings Call
Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 company first quarter fiscal year 2025 earnings conference call.
Today's call is being recorded. At this time, all participants are in a listen-only mode. At the end of the prepared remarks, we will conduct a question-and-answer session.
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Speaker Change: I would now like to turn the presentation over to the host for today's call, Wendy Kelley, Vice President, Stakeholder and Investor Engagement. Please proceed.
Speaker Change: Thank you. Good afternoon and thanks to everyone for joining us today. On our call today are WD40 Companies President and Chief Executive Officer, Steve Brass and Vice President and Chief Financial Officer, Sara Hyzer.
Speaker Change: 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.
Speaker Change: The descriptions and reconciliations of these non-GAAP measures are available in our SEC filings as well as our earnings documents that are posted on our Investor Relations website.
Speaker Change: As a reminder, today's call includes forward-looking statements about our expectations for the company's future performance.
Actual results could differ materially.
Speaker Change: 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.
Speaker Change: 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 10th, 2025.
Speaker Change: The company disclaims any duty or obligation to update any forward-looking information as a result of new information, future events, or otherwise.
Steve Brass: With that, I'd now like to turn the call over to Steve.
Steve Brass: Thanks, Wendy, and thanks to all of you for joining us this afternoon.
Steve Brass: Today I'll begin by discussing our sales results for the first fiscal quarter of 2025. I will also provide you with an update on our must-win battles and one of our strategic enablers.
Steve Brass: Following that, Sara will share additional details on our first quarter results, provide updates on the anticipated divestiture of our home care and cleaning business and our 55-30-25 business model and review our outlook for fiscal year 2025. We'll then take your questions.
Steve Brass: I'm happy to share with you that today we reported net sales of $153.5 million for the first quarter, which was an increase of 9% from the first quarter of last fiscal year.
Steve Brass: Furthermore, we reported net sales of maintenance products, our core strategic focus, of $145.5 million for the first quarter, which was an increase of 10% from the first quarter of last fiscal year, marking the third consecutive quarter of double-digit growth in this category.
Steve Brass: Gross Margin continues to improve and is moving closer to our target of 55%. In the first quarter we reported gross margin of 54.8% which is an improvement of 70 basis points sequentially from the fourth quarter and 100 basis points compared to the first quarter of last fiscal year.
Steve Brass: The gross margin excluding the impacts of the assets we currently have held for sale was 55.4%.
Steve Brass: This improvement of our gross margin is driving increased profitability at the bottom line. Net income for the first quarter was $18.9 million, an increase of 8% over prior year.
Steve Brass: We're pleased with the strong volume performance the business is currently experiencing. In the first quarter, excluding the impact of currency, nearly 90% of our growth was driven by increased sales volume.
Steve Brass: Global sales volumes showed strong progress in two of our larger trading blocks, driving 10% sales growth over prior year within the Americas and 13% within IMF. Asia-Pacific is lapping a strong prior year quarter and was down 8% in the first quarter.
Steve Brass: Now let's talk about first quarter sales results in dollars by segment starting with the Americas.
Steve Brass: Sales in the Americas, which includes the United States, Latin America and Canada, increased 8% in the first quarter to $69.4 million compared to the same period last year. Sales of maintenance products increased 9% in the first quarter to $65.4 million compared to the same period last year.
Steve Brass: The bulk of this growth was driven by higher sales of W40 multi-use product which increased 9% compared to the prior year quarter.
Steve Brass: A significant portion of this growth resulted from strong sales in the U.S. and Latin America, which increased $2.4 million and $2.3 million respectively.
Steve Brass: In the United States, the increase is due to higher sales volume linked to successful promotional activities.
Steve Brass: Sales of W40 multi-use product in Latin America were favorably impacted by our transition to a direct market model in Brazil. This distribution model shift favorably impacted net sales in Brazil by approximately 3.1 million in the first quarter.
Steve Brass: Higher sales in the US and Latin America were partially offset by lower sales of WD40 multi-use product in Canada, which decreased slightly by $200,000 compared to the prior year quarter due to the timing of customer orders.
Steve Brass: In the Americas, sales of WD-40 Specialists increased by 1.1 million or 16% compared to the prior year period, primarily due to new distribution and successful promotional programs in the United States.
Steve Brass: Growth in maintenance products is partially upset by a 7% decline in home care and cleaning products. This drop is due to reduced advertising and promotional efforts for these brands as we shift our focus to boosting maintenance product sales in line with our 4x4 strategic framework.
Steve Brass: In total, our Americas segment made up 45% of our global business in the first quarter.
Steve Brass: Now let's take a look at our sales in IMEA, which includes Europe, India, the Middle East and Africa. Net sales in IMEA increased 18% in the first quarter to $57.5 million compared to the same period last year. Sales of maintenance products increased 19% in IMEA in the first quarter.
Steve Brass: The strong growth in IMEA was driven primarily by higher sales of the B40 multi-use product, which increased 21% due to higher sales volume across almost all regions compared to the prior year quarter.
Steve Brass: Sales increased most significantly in India, France, Benelux and Iberia, which are up 1.9 million, 1 million, 900,000 and 900,000 respectively.
Steve Brass: In addition to the strong performance of our multi-use product, I may also show strong growth of $1.2 million or 17% for WD-40 specialists during the quarter.
Steve Brass: Primarily due to higher sales volume because of increased distribution and higher levels of demand, most significantly in Italy, the UK and Iberia.
Steve Brass: The growth in maintenance products is partly offset by a decline of 19% in home care and cleaning product brands sold in the UK.
Steve Brass: In total, our RMA segment made up 38% of our global business in the first quarter.
Steve Brass: Now on to Asia-Pacific. Sales in Asia-Pacific, which includes Australia, China and other countries in the Asia region, decreased 4% in the first quarter to $26.6 million compared to the same period last year. Despite a year-over-year decline in sales, the first quarter of fiscal year 2025 marks the second highest sales quarter in the segment's history.
Steve Brass: The year-over-year decline was driven by lower sales of the B40 multi-use product in our Asia distributor markets. Most sales decreased $2.6 million compared to the prior year quarter.
Steve Brass: In the first quarter, our Asia distributor markets experienced a decrease in sales volume due to timing of customer orders. You may recall our Asia distributor markets had a very strong fourth quarter and sales of W40 multi-use product in Q4 were up 51%.
Steve Brass: Marketing Distributor customers, particularly in Indonesia, South Korea and Philippines who place large orders in the fourth quarter, did not repeat those orders in the first quarter. This is timing related and the expected activity will pick up in the second half of the year.
Steve Brass: In China, sales of our WD-40 multi-use product were up 13% or 1 million in the first quarter primarily due to successful promotional programs and marketing activities that led to increased sales volume.
Steve Brass: In Asia-Pacific, sales of WD-40 Specialists were up 2% in the first quarter. In China, sales of WD-40 Specialists increased 24% compared to the prior year, due primarily to new distribution.
Steve Brass: The decline in maintenance products is partly offset by an increase of $400,000 in sales of home care and cleaning product brands sold in Australia. In Australia, our home care portfolio boasts a robust brand presence, a solid competitive edge, and significant growth opportunities and a lot of up for sale.
Steve Brass: In total, our Asia-Pacific segment made up 17% of our global business in the first quarter.
[inaudible]
Steve Brass: Now let's talk about our must-win battles. Our must-win battles focus on what we do to increase sales and profitability.
Steve Brass: Starting with Muscleman battle number one lead geographic expansion in the first quarter of 2025 global sales of W40 multi-use product were approximately 119 million representing growth 10% compared to the same period last year.
Steve Brass: We experienced 21% growth of our signature brand in IMEA and 9% growth in the Americas. This growth was partially offset by lower sales in Asia Pacific. It's amazing to me that even after 71 years, the growth opportunity for WD-40 multi-use products remains so significant.
Steve Brass: Using a proprietary algorithm, we've identified the global benchmark sales opportunity for W40 multi-use product to be approximately $1.6 billion. Therefore, there remains approximately $1.2 billion of land and expand growth opportunity across the globe.
Steve Brass: This is where my management team and I primarily focus our efforts. Our job is to unlock opportunities that drive substantial value for stockholders. A W40 company will do that by accelerating our global expansion.
Steve Brass: Today I'd like to spotlight a few of our priority markets, beginning with markets that are driving our growth in the Americas segment.
Steve Brass: In 2020, we took the Mexico market direct, and since doing so, we've virtually quadrupled our Mexico business from $6.8 million to nearly $26 million in FY24, and we're not done, as we see Mexico as a $30 to $40 million market over the longer term.
Steve Brass: Despite short-term fluctuations, our long-term success in Mexico gave us confidence to convert Brazil to a direct market in March of 2024.
Steve Brass: We expect Brazil to be a $20 million plus market within 3-5 years and ultimately to grow to be as large as Mexico over the coming 10 years or so.
Steve Brass: Moving over to Asia-Pacific, we've identified several high potential markets in Asia-Pacific including China, Japan and Indonesia. Indonesia is a fast-growing market for us with a compound annual growth rate of over 7% over the past five years.
Steve Brass: Indonesia is now also one of our largest marketing distributor markets in the world. It's also unique because it's one of our first hybrid markets.
Steve Brass: This means we have both an outstanding local marketing distributor partner, but also a small team of W40 company personnel in market, a formula that's proven to be highly effective for us.
Steve Brass: Also in Asia-Pacific, China has consistently delivered strong growth in recent years. We've been direct in China since 2006 and have a highly capable team of approximately 60 employees there.
This strategy continues to deliver strong results for us.
Steve Brass: And finally, in IMEA, we've identified several hypertension markets in the region, including India. India is one of, if not the, most attractive growth markets in the world right now.
Steve Brass: Since entering our strategic partnership with our local partner six or so years ago, we've more than doubled our sales in India, making it our second largest market in terms of unit sales, and we see huge potential for further growth ahead.
Steve Brass: This increased focus on our key growth markets around the world continues to yield success and Fiscal Year 2025 will continue to invest in building our flagship brand with end-users around the world.
Steve Brass: Next is Muscle and Battle number two, Accelerating Premiumization. Our second muscle and battle is to accelerate sales of premium formats of WD-40 multi-use product. For us, premiumization is a major contributor to our revenue growth, as well as gross margin expansion, and our premiumized products are loved by end-users around the world.
Steve Brass: In the first quarter, sales of WD40 Smart Straw and Easy Reach, when combined, were up 17% compared to the prior year period.
Steve Brass: With premium formats representing only approximately 40% of global unit sales of W40 multi-use products, there is significant upside for growth. On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of premiumised products of greater than 10%.
Steve Brass: Our third must-win battle is to drive WD-40 specialist growth. In the first quarter, sales of WD-40 specialist products were 19 million, up 14% compared to the same period last year. We saw growth of WD-40 specialist products across all three trade blocs with particularly strong growth in the Americas and IMEA, where sales grew 16% and 17% respectively.
Steve Brass: We use a similar algorithm for WD-40 Specialist to the one we use for WD-40 Multi-Use product. We've identified the global benchmark sales opportunity for WD-40 Specialist to be approximately $605 million. Therefore there remains approximately $530 million of land and expand growth opportunity across the globe for WD-40 Specialist.
Steve Brass: On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of the B40 specialist at greater than 15% in reported currency.
Steve Brass: Our final must-win battle is to turbocharge digital commerce. We view digital commerce as an accelerator for all our other must-win battles.
Steve Brass: In the first quarter, e-commerce sales were up 22 percent, primarily due to strong growth in IMEA. 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.
Steve Brass: And now turning to the second element of our 4x4 strategic framework, our strategic enablers which focus on operational excellence and collectively underpin our Muslim battles.
Steve Brass: I will not review all our strategic enablers today because we just shared a robust update with investors at our year-end. However, we just published our 2024 ESG report at the end of November, so I want to provide an update on strategic enabler number two, which is to build an enduring business for the future.
Steve Brass: W4E Company has long been committed to purpose driven growth. We're committed to operating our business in a manner which ensures a balance between economic growth, environmental impact and social well-being, which will help create and protect long-term stakeholder value.
Steve Brass: I'm very proud that we've now gone public with our sustainability targets after a very in-depth process putting together our science-based roadmap for achieving carbon reduction.
Steve Brass: In our November ESG report, we pledge to achieve a 50% absolute reduction in Scope 1 and Scope 2 emissions, along with a 10% to 20% absolute reduction in Scope 3 emissions by 2030.
Steve Brass: We've also disclosed details about the Science-Based Environment Impact Roadmap we'll use to meet these targets.
Steve Brass: Many of our employees are passionate about pivoting our organization to a more sustainable future, and I strongly believe that setting external targets will galvanize the organization to make significant progress in future-proofing the organization.
With that, I'll now turn the call over to Sara.
Sara Hyzer: Thanks Steve. Today I will share an update on the anticipated divestiture of our home care and cleaning business in the Americas and the UK, provide insights into our business model, and review some highlights from our first quarter results.
Sara Hyzer: While our full year 2025 guidance remains unchanged, I will provide some additional color on our outlook.
Sara Hyzer: But first, I want to talk about a new mantra that you are hearing in the halls here at WD-40 Company. Few things, many places, bigger impact.
Sara Hyzer: This mantra has been born out of the company's longstanding strength, focus. Few things, many places to drive a bigger impact has historically been an approach central to our product strategy.
Sara Hyzer: In fiscal year 2024, almost 90% of our revenue and growth came from sales of WD-40 multi-use product and WD-40 specialists.
Sara Hyzer: We see significant growth opportunities for those product lines. With approximately 650 employees, we want each one to wake up every morning thinking about how to grow the blue and yellow brand with a little red top.
Sara Hyzer: That kind of focus is hard to find and incredibly valuable and was the driving factor for us when we made the decision to pursue divesting our home care and cleaning brands in the Americas and the UK.
Sara Hyzer: While I do not have a detailed update for you today on the anticipated divestiture, I can share with you that we continue to make progress on the transaction.
Sara Hyzer: The investment bank we have engaged continue to have discussions with potential suitors on our behalf. While there are no certainties on identifying a buyer when going to the market, our expectation is that we will likely complete the divestiture of these brands over the upcoming months.
Sara Hyzer: We will provide further updates on the divestiture process as appropriate.
Sara Hyzer: Few things many places to drive a bigger impact is now being applied beyond our product strategy and is driving operational efficiencies throughout our business.
Sara Hyzer: We lean into this mantra by streamlining our systems and processes and fostering greater global collaboration.
Sara Hyzer: Later this year, we will be working towards bringing two more locations onto our new ERP system. We are focused on standardization and processes like project and portfolio management, along with streamlined approaches to solution driven decision making.
Sara Hyzer: Lastly, we've established the foundation to move with more intent toward productivity improvements by establishing global centers of excellence along key areas of IT.
Sara Hyzer: We are working on bringing once disparate teams together to harness their collective skills and capacity to focus on our long-term growth objectives.
Sara Hyzer: Few things, many places, bigger impact can also have a tangible impact on our business model, and we continue to make significant strides in our gross margin recovery.
Sara Hyzer: Our 55-30-25 business model continues to be a long-term beacon that we will move toward and align with over time. In the short to mid-term, we continue to think about each critical component of the model in a range.
To begin, let's look at first quarter growth margin performance.
Sara Hyzer: We target a range of 50 to 55% for gross margin, and we have made significant progress to perform at the top end of this range. In the first quarter, our gross margin was 54.8%, compared to 53.8% last year.
Sara Hyzer: This represents an improvement of 100 basis points driven primarily by the impact of favorable sales mix and other miscellaneous mix impacts, which positively impacted our gross margin by 140 basis points year over year.
Sara Hyzer: Lower costs associated with specialty chemicals also positively impacted growth margin by 60 basis points.
Sara Hyzer: These positive impacts to margin were partially offset by higher costs associated with warehousing, distribution, and freight costs, primarily in the Americas, which negatively impacted our margin by 100 basis points.
Sara Hyzer: I'm also happy to share with you that this quarter gross margin continued to improve in both IMAEA and Asia Pacific trading blocks.
Sara Hyzer: Within IMEA, gross margin improved 290 basis points compared to the same period last year, to 57.8%.
Sara Hyzer: Asia Pacific also improved gross margin 130 basis points over the same period last year to 57.6 percent.
Sara Hyzer: In the Americas, growth margin declined slightly by 30 basis points to 50.4%.
Sara Hyzer: Considering our current trajectory, the current cost environment, and macroeconomic factors, we continue to target achieving a gross margin of 55% by the end of fiscal year 2026 at the latest.
Sara Hyzer: However, depending on the cost landscape, timing of execution of supply chain cost initiatives, and if we are successful in divesting of those home care and cleaning brands, we may achieve this goal even sooner, potentially by the end of fiscal year 2025, following the divestiture.
Sara Hyzer: New this fiscal year, growth margin recovery is a central focus for senior leadership who will be incentivized to recover growth margin to 55% and beyond, excluding the impact of the assets held for sale.
Sara Hyzer: Now turning to our cost of doing business, which we define as total operating expenses plus adjustments for certain non-cash expenses.
Sara Hyzer: Cost of doing business is how we measure how efficient we are at operating our business. It is primarily comprised of three areas. Investments in our employees, investments in building our brand, and freight expense to get our products to our customers.
Sara Hyzer: We target a range of 30 to 35% as a percentage of revenue for cost of doing business.
Sara Hyzer: This quarter, our cost of doing business was 37% compared to 36% in the same period last year.
Sara Hyzer: On an absolute dollar basis, our cost of doing business increased by 7.5 million, or 15%, due to higher employee-related expenses, increased professional service costs, higher credit losses due to a customer bankruptcy, and increased freight costs.
Sara Hyzer: In addition, the investments we make in brand building activities increased period over period. As a percentage of sales, our A&P investment was 5.5% compared to 5% in the first quarter of the prior year, but is well in line with our fiscal year guidance.
Sara Hyzer: We expect to see improvements in the cost of doing business over time as sales grow, which is the most important factor in managing our cost of business towards our long-term target of 30 to 35 percent.
Sara Hyzer: Turning now to adjusted EBITDA. In the first quarter, our adjusted EBITDA margin was 18% compared to 19% in the same period of last year. However, EBITDA grew by nearly 4% over the prior year, even after absorbing increased costs.
Sara Hyzer: As we've mentioned previously, if we successfully divest the home care and cleaning brands that we are actively marketing, we know that we will need some time to digest the impacts.
Sara Hyzer: However, we continue to believe we can move adjusted EBITDA margin back to our midterm target range of 20 to 22% over the medium term.
Sara Hyzer: Now, let us discuss operating income and EPS, as well as a subsequent event that will impact our reported results beginning next quarter.
Sara Hyzer: Operating income improved to $25.1 million in the first quarter, which was an increase of 4% over the previous year's first quarter.
Sara Hyzer: Excluding the impacts of the assets currently held for sale, operating income would have been reduced by $1.5 million.
Sara Hyzer: Diluted earnings per common share for the quarter were $1.39 compared to $1.28 for the first quarter last year, which was an increase of 9% over the previous year's first quarter. Excluding the impacts of the assets held for sale, diluted EPS would have been reduced by $0.08 per share.
Our diluted EPS reflects 13.6 million weighted average shares outstanding.
Sara Hyzer: Now I'd like to update you on a non-cash subsequent event that will materially impact both our second quarter and fiscal year 2025 net income and APS.
Sara Hyzer: In fiscal year 2019, we took an uncertain tax position related to the Tax Cuts and Jobs Act.
Sara Hyzer: Specifically for calculating the one-time toll tax on unremitted foreign earnings.
This resulted in a reduction in earnings in 2019.
Sara Hyzer: With the recent expiration of federal statutes in December, subsequent to our first quarter, the company released the unrecognized tax benefit associated with this mandatory one-time toll tax.
Sara Hyzer: The release of this tax benefit will result in a favorable income tax adjustment of $11.9 million net of the federal benefit for fiscal year 2025.
Sara Hyzer: We will back this out as a non-gap adjustment in the second quarter.
Sara Hyzer: Now, a brief reminder on changes we've made that will affect foreign currency impacts this year.
Sara Hyzer: The functional currency for our UK subsidiary, which consolidates the results for the EMEA trade block, has long been the pound sterling.
We reassess this on an annual basis.
Sara Hyzer: As we look out this year and beyond, the shifts in the operating landscape within our MEA region, along with certain strategic actions we are taking, required a change in our functional currency.
Sara Hyzer: A few key factors influenced our decision, including a growing dependence on euro-denominated inventory within our supply chain and an increase in sales and operational expenses tied to the euro.
Sara Hyzer: As a result, beginning this year, we changed the functional currency of our UK subsidiary from pound sterling to euro, with the change being applied prospectively.
Sara Hyzer: As a result of this change, we are utilizing a methodology that is distinct from constant currency during fiscal year 2025 to estimate the translation impact of foreign currency exchange rates on current period U.S. dollar net sales, specifically for our IMEA segment.
The Americas and Asia-Pacific segments were not impacted by this.
Sara Hyzer: Beginning fiscal year 2026, we expect to revert to our customary estimation methodology using constant currency figures.
Sara Hyzer: Our resilient and asset light business model, coupled with actions we have taken to grow our top line while improving growth margin, are all contributors to maintaining a strong balance sheet and liquidity position.
Sara Hyzer: Maintaining a disciplined and balanced capital allocation approach remains a priority for us.
Sara Hyzer: For the foreseeable future, we expect maintenance capex of between 1% and 2% of sales per fiscal year, which is in line with our asset life strategy.
Sara Hyzer: Annual dividends will continue to be our priority and are targeted at greater than 50% of earnings.
Sara Hyzer: On December 11th, our Board of Directors approved a quarterly cash dividend of $0.94 per share, reflecting an increase of 7% over the previous quarter's dividend of $0.88 per share.
Sara Hyzer: During the first quarter, we repurchased approximately 13,750 shares of our stock at a total cost of approximately $3.6 million under our current share repurchase plan.
Sara Hyzer: In total, we returned approximately $16 million to our stockholders in the first quarter of fiscal 2025 through share repurchases and dividends.
Now, let's turn to FY25 guidance.
Sara Hyzer: As a reminder, we issued this year's guidance on a pro forma basis, excluding the financial impact of the home care and cleaning brands currently classified as assets held for sale.
Sara Hyzer: While the exact timing of the transaction remains uncertain, we believe that this approach will provide investors with clarity on the direction of the core business and help minimize the noise surrounding the transaction.
Sara Hyzer: I encourage investors to review our first quarter fiscal year 2025 earnings presentation, which includes a pro forma view.
Sara Hyzer: Therefore, our guidance for fiscal year 2025 is unchanged, and we are estimating
Sara Hyzer: Net sales growth for the pro forma 2024 results is projected to be between 6 and 11 percent, with net sales between 600 and 630 million after adjusting for translation impacts of foreign currency.
Sara Hyzer: Gross margin is expected to be between 54 and 55 percent.
Sara Hyzer: Advertising and promotion investment is projected to be around 6% of net sales.
Sara Hyzer: Operating income is expected to be between 95 and 100 million, representing growth of between 6 to 12% over the pro forma 2024 results.
Sara Hyzer: The provision for income tax is expected to be around 24%.
Sara Hyzer: And diluted earnings per share is expected to be between 520 and 545, which is based on an estimated 13.5 million weighted average shares outstanding.
Sara Hyzer: This range represents growth of between 9 and 14% over the Proforma 2024 results.
Sara Hyzer: This guidance assumes no major changes to the current economic environment. Unanticipated inflationary headwinds and other unforeseen events may affect our view of fiscal year 2025.
Sara Hyzer: In the event we are unsuccessful in divesting the assets currently held for sale, our guidance would be positively impacted by approximately $23 million in net sales, $6 million in operating income, and $0.33 in diluted EPS on a full-year basis.
Steve Brass: That completes the financial overview. Now I would like to turn the call back to Steve.
Steve Brass: Thank you, Sara. In closing, we're proud of the progress we've made this quarter, which is a great start to our fiscal year and aligns with our longer term goals.
Speaker Change: In summary, what did you hear from us on this call?
Speaker Change: You heard that sales of maintenance products were up 10% in the first quarter, marking the third consecutive quarter of double-digit growth in this category.
Speaker Change: You heard that sales of the W40 multi-use product were up 10% in the first quarter.
Speaker Change: You heard that sales of W40 Specialist broke 14% in the first quarter.
Speaker Change: You heard that we're pleased with the strong volume performance the business is experiencing and that in the first quarter nearly 90% of our growth was driven by increased volume.
Speaker Change: You heard that management's job is to unlock opportunities that drive substantial value for stockholders, and that includes increased focus on our key growth markets around the world.
Speaker Change: You heard that we've now gone public with our sustainability targets after a very in-depth process, putting together our science-based roadmap for achieving carbon reduction.
Speaker Change: You heard about our company's new mantra, few things, many places, bigger impact, which is intended to result in operational efficiencies as we grow.
Speaker Change: You heard that we're incredibly pleased with the improvements we've made to Gross Margin and that it continues to move closer to our target of 55%.
Speaker Change: You heard that we continue to make progress in the sale of our home care and cleaning business, currently held for sale, and expect to complete the divestiture in the coming months.
Speaker Change: You heard that we raised our dividend last month and have returned approximately $16 million to our stockholders in the first quarter.
Speaker Change: And you heard that we reiterated our full fiscal year 2025 guidance.
Speaker Change: Thank you for joining our call today. We'd now be pleased to answer your questions.
Speaker Change: Ladies and gentlemen, if you would like to register a question, please press star one on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: If your question has been answered and you would like to withdraw your registration, please press star one again.
One moment, please, for the first question.
Speaker Change: Our first question comes from the line of Daniel Rizzo with Jeffries. Please proceed with your question.
Sara Hyzer: Hi, Daniel. This is Sara. So, yes, there's a couple things that are impacting that. First is the timing.
Speaker Change: You look at the timing of the A&P spend in Q1 this year compared to last year.
Speaker Change: We are up ahead of our pace in the Americas for Q1.
Speaker Change: In addition, I mentioned on my on the call that there was a bankruptcy with one of our customers and 100% of that, which was about $800,000 hit the hit the Americas trading block. So those two are the bigger items. And then we also have a timing of our our growth reward program, accruing at a higher rate in Q1 compared to the prior year.
Okay, that's helpful. And then, so you mentioned, I think,
Speaker Change: I forgot that right, 55% gross margin by 2026, but you're already at 54.8. And I understand what you said, it could come faster, but I was wondering if your base case is suggesting that there will be some give back maybe because of higher logistical costs or warehousing costs, or how should we think about it? Because I mean, it still seems that the end of 26 is still far away.
Speaker Change: Yeah, I, if we even just going back a year, our margin can fluctuate, you know, pretty dramatically quarter to quarter, depending on our sales mix and our
Speaker Change: product mix. So even going back to Q1 of last year, we had a really strong quarter coming or margin coming out of Q1, dropped down a little bit and then ticked our way back up. So it is a very good start. We are obviously seeing a little bit of higher costs on the freight and logistics side in the US.
Speaker Change: but we're cautiously optimistic on holding margin through the rest of this year. So that's why we're saying definitely by the end of next year, we're feeling confident on that but we think we have a chance to get there before the end of this year.
All right. Thank you very much.
Okay.
Speaker Change: Your next question comes from the line of Linda Bolton Weiser from WD40. Please proceed with your question.
Dr. Rizzo Morbelli Morbelli Morbelli Morbelli Morbelli Morbelli
Yes. Hello. Happy New Year.
Speaker Change: So, I was wondering, sorry if you gave some of the details about your year over year increase in SG&A expense. I'm not sure I caught all the details, but it did seem like a big increase of 14% year over year. So, I'm curious, is that the run rate to expect for the whole year or was there something in the quarter that's going to change and go away or something in the remaining quarters of the year? Thank you.
Speaker Change: Hi, Linda. So there was the bankruptcy that we had with one of our customers in the Americas.
Speaker Change: So that is a one time that's hitting the key one. We we are also accruing at a higher growth reward program going into this year than we were going into last year. So there is expected increased expenses in that, but that is built into our guidance for this year.
The End
Speaker Change: Can you quantify the one-time effect in millions of dollars that bankruptcy had on the quarter?
The bankruptcy for the quarter was approximately $800,000.
Okay, thanks. And then
Speaker Change: I believe it. I believe that had a little bit of a positive effect on top line in the quarter.
Speaker Change: Can you update what your thoughts are for that? I guess, how does it work out in the remaining?
Speaker Change: part of the year, does it become negative? Like, like, how has it changed in terms of your projection for that aspect of the sales line?
Thanks.
Speaker Change: trending positively for us. Although if you look at the individual trade blocks, specifically in the Americas, that the Mexican peso and the Brazil real, it is negatively impacting us. So that was offset by positive impact on that currencies elsewhere. If you were to look at the rates,
Speaker Change: Today and kind of take a dramatic look at the rates today and forecast that out for the rest of the year. We do anticipate that it would take a turn globally, that it would then have a negative impact if we forecast it out for the remainder of the year at today's rates.
Speaker Change: When you compare them to the full year rates from prior year.
Okay, thanks and then.
Speaker Change: I think there was some mention in your 10-Q of U.S. promotion.
Speaker Change: In the quarter, it sounded like maybe that benefited the multi-use product sales in the quarter. Can you give more color on that? And that would you regard that as a shifting of some sales from the second quarter into the first quarter? Thanks.
Speaker Change: Hey Linda, it's Steve. So no I don't think there's anything particular in terms of large volume promotions that have really boosted sales. It's really generally I think particularly the home center channel in the US has gone very very strong.
Speaker Change: Our retail sales generally have picked up, our unit sales at POS level.
We're up around 4-5% in the first quarter.
Speaker Change: And so yeah, we're very encouraged by the kind of switching in kind of retail foot traffic and DIY activity looks to be improving. And so we see that as a positive beyond the first quarter.
Okay, and then.
Speaker Change: Just in terms of the cadence, I know you don't want to get into quarterly type guidance at all, but
Speaker Change: The cadence, I mean, you actually have an easy seeming easier comparison priority comparison in the second quarter. And I can't quite remember what that was because of was that when you have a little bobble related to SAP implementation? I can't quite remember. But it does seem like there's an easier kind of comparison both on sales and a little bit on profit growth. Can you just remind us what what that was? Yeah.
Speaker Change: Linda, very good memory. So yes, it was the quarter that we went live with our ERP and we disclosed about a two and a half million dollar impact that we experienced in that quarter alone for with disruption at the top line.
So that's, that's the majority of it.
so then theoretically
Speaker Change: you would have like a higher kind of like so if you're
Speaker Change: US growth rate, or I don't know your overall sales growth was
Speaker Change: What was in the quarter? 9%. So theoretically, it would be higher even in the second quarter because you have that easy comparison all else being equal.
Is that the way to think about it?
Speaker Change: I think you have a couple of caveats. One is that we kind of disclosed last quarter the Asia distributor markets are off to a slow start. That was expected and so we expect that to pick up in the back half of the year. Europe is, you know, out the gate very strong. We expect that to continue, although we do get up in the last half of the year in some quite tough comparables versus prior year.
and then obviously the Brazil impact.
Speaker Change: And so we have, we just had a very strong start in Brazil with over $3 million of growth in Q1. We should get that versus prior year again, something similar or better in Q2. And then obviously that begins to taper off then in Q3 and four, as we lap our taking Brazil direct in Q3 and Q4.
Thank you. That's very helpful. And then
Just
you.
Speaker Change: Just to clarify, if you, if you do not sell the cleaning business by the end of the second quarter,
Speaker Change: Will it be removed because you're restating to have it discontinued Ops or is it going to be in there if you don't sell it?
Speaker Change: No, it'll it'll still be in there if we don't sell it. So it's not a big enough of a strategic shift for us to qualify for discontinued ops.
Speaker Change: So if it's if it's still not sold by the end of the second quarter, it'll still be in our reported results. And we'll, we'll have we would have a similar reporting mechanism, we'll try to be very transparent with so you can do a within without within without view.
Great, gotcha. And then
I think, um,
Speaker Change: Yeah, you did say strong demand in UK Italy. You named a few regions there. Is that is there anything particular driving that market in Europe in terms of the strength that you're seeing there? Yeah.
Speaker Change: So Europe just about everybody just about everywhere was was strong in performance all across Europe I can't really think of anything that didn't really perform the UK was a little flat compared to some of the other markets but you know excellent performance and all of our Muslim battles being executed very strongly
Speaker Change: So there is in the first part of the year just a little bit of distribution where we had kind of
Speaker Change: You know distribution losses that are still coming back in the first half of the year one client in perhaps which may be Positively impacted the first quarter by just under a million dollars Maybe and and we'll continue to have that kind of small impact in terms of a boost
Speaker Change: in the first half of the year, but beyond that, you know, EMEA is back in growth mode, you know, just as it was, you know, back to where it was before the kind of loss of the Russian business and the inflation. So we see very, very strong growth out of Europe.
Okay then, thank you. That's all for me. Thank you.
Thanks, Linda.
Speaker Change: Well, ladies and gentlemen, that does conclude our allotted time for questions. We thank you for participating on today's conference call and ask that you please disconnect your lines.