Q1 2025 ACCO Brands Corp Earnings Call
Hello, everybody and welcome to the ACCO brands first quarter 2025, My name is Elliot there'll be a coordinator today.
Elliot: Hello everybody and welcome to the ACCO Brands first quarter 2025. My name is Elliot and I'll be your coordinator today. If you'd like to register a question during today's event, please press star 1 on your telephone keypad.
If you'd like to register your question Gents. Thanks events. Please press star one on your telephone keypad.
I would now like to hand over to Chris Mcginnis Senior director of Investor Relations. Please go ahead.
Christopher McGinnis: I'd now like to hand over to Christopher Ginnis, Senior Director of Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to the ACCO brands first quarter 2025 conference call. This.
Christopher McGinnis: Good morning, and welcome to the ACCO Brands first quarter 2025 conference call. This is Chris McGinnis, Senior Director of Investor Relations.
This is Chris Mcginnis senior director of Investor Relations.
Tom Tedford: Speaking on the call today is Tom Tedford, President and Chief Executive Officer of ACCO Brands Corporation. Tom will provide an overview of our first quarter results and provide an update on our 2025 priorities.
Tom: Speaking on the call today is Tom <unk>, President and Chief Executive Officer of ACCO Brands Corporation Thomas.
Tom: Tom will provide an overview of our first quarter results and provide an update on our 2025 priorities.
Deb O'Connor: Also speaking today is Deb O'Connor, Executive Vice President and Chief Financial Officer, who will provide greater detail on our first quarter results and second quarter outlook. We will then open the lines for questions.
Tom: Also speaking today as Deb Oconnor Executive Vice President and Chief Financial Officer, who will provide greater detail on our first quarter results and second quarter outlook.
Tom: We'll then open the lines for questions.
Christopher McGinnis: Slides that accompany this call have been posted to the investor relations section of accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude amortization and restructuring costs, non-cash goodwill and intangible asset impairment charges, and other non-recurring items and unusual tax items and include adjustments to reflect estimated annual tax rate on a quarterly earnings. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and slides that accompany this call.
Tom: Slides that accompany this call have been posted to the Investor Relations section of <unk> Dot com.
Tom: When speaking about our results we may refer to adjusted results.
Tom: Adjusted results exclude amortization and restructuring costs noncash goodwill and intangible asset impairment charges and other nonrecurring items unusual tax items and include adjustments to reflect estimated annual tax rate on a quarterly earnings.
Tom: Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and slides that accompany this call.
Christopher McGinnis: Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-gap measures. Forward-looking statements made during the call are based on the beliefs and assumptions of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially.
Tom: Due to the inherent difficulty in forecasting and quantifying certain amounts we do not reconcile our forward looking non-GAAP measures.
Tom: Forward looking statements made during the call are based on the beliefs and assumptions of management based on information available to us at the time. Those statements are made are forward looking statements are subject to risks and uncertainties and our actual results could differ materially.
Speaker Change: Please refer to our earnings release, and SEC filings for an explanation of certain risk factors and assumptions. Our forward looking statements are made as of today and we assume no obligation to update them going forward now I will turn the call over to context.
Christopher McGinnis: Please refer to our earnings release and SEC filings for an explanation of certain risk factors and assumptions. Our forward-looking statements are made as of today, and we assume no obligation to update them going forward.
Tom Tedford: Now, I will turn the call over to Tom Tedford. Thank you, Chris. Good morning, everyone, and welcome to ACCO Brands first quarter 2025 earnings call. Last night we reported first quarter sales in line with our outlook and adjusted EPS above our outlook. A combination of favorable sales mix and our proactive approach to managing costs enable us to expand our gross margin by 60 basis points. Overall, demand trims were largely consistent with our expectations across most categories and geographies. highlighted by growth in computer accessories and a return to growth in Brazil.
Speaker Change: Thank you Chris Good morning, everyone and welcome to ACCO brands first quarter 2025 earnings call.
Speaker Change: Last night, we reported first quarter sales in line with our outlook and adjusted EPS above our outlook.
Speaker Change: A combination of favorable sales mix.
Speaker Change: And our proactive approach to managing costs enable us to expand our gross margin by 60 basis points.
Speaker Change: Overall demand trends were largely consistent with our expectations across most categories and geographies highlighted by growth in computer accessories, and a return to growth in Brazil.
Speaker Change: We made progress on our $100 million.
Tom Tedford: We made progress on our $100 million multi-year cost reduction program, realizing $7 million of additional savings in the first quarter. During the quarter, we repurchased $15 million in stock and closed on a small acquisition.
Speaker Change: Multi year cost reduction program, realizing $7 million of additional savings in the first quarter.
Speaker Change: During the quarter, we repurchased $15 million in stock and closed on a small acquisition.
Tom Tedford: We ended the quarter with a leverage ratio of 3.65 times, which is well below our covenant of 4.5 times.
Speaker Change: We ended the quarter with a leverage ratio of 365 times, which is well below our covenant of four five times.
Speaker Change: Before I review in more detail our first quarter results. Let me give you an update on the actions. The company is taking in response to the recently announced U S tariffs.
Tom Tedford: Before I review in more detail our first quarter results, let me give you an update on the actions the company is taking in response to the recently announced U.S. tariff. Over the last five years, we have lessened our dependency on China. We have had a China plus one approach that today enables us to react quickly to the changing tariff landscape. This strategy has diversified our supplier base by establishing outsourced manufacturing in other countries besides China. However, we are similar to other companies and continue to purchase a meaningful amount of goods globally from China, as it has been the cheapest source of high-quality manufactured products.
Speaker Change: Over the last five years, we have lessened our dependency on China.
Speaker Change: We have had a China plus one approach that today enables us to react quickly to the changing tariff landscape.
Speaker Change: This strategy has diversified our supplier base by establishing outsourced manufacturing and other countries. Besides China.
Speaker Change: However, we are similar to other companies and continue to purchase a meaningful amount of goods globally from China.
Speaker Change: As it has been the cheapest source of high quality manufactured products.
Speaker Change: Our relationships with these manufacturing partners are strong and we have collaborated with them to accelerate U S production into other countries and out of China.
Tom Tedford: Our relationships with these manufacturing partners are strong and we have collaborated with them to accelerate U.S. production into other countries and out of China. We are confident in our ability to move most of these purchases in the next few months. We are also evaluating our manufacturing network to utilize existing capacity where it makes economic sense. We are temporarily investing in inventory, utilizing the 90-day pause on reciprocal tariffs outside of China to mitigate current year financial impacts in the U.S. In addition to our work to optimize the supply chain supporting the U.S., we are implementing price increases in North America.
Speaker Change: We are confident in our ability to move most of these purchases in the next few months.
Speaker Change: We are also evaluating our manufacturing network to utilize existing capacity, where it makes economic sense.
Speaker Change: We are temporarily investing in inventory utilizing the 90 day pause on reciprocal tariffs outside of China to mitigate current year financial impacts in the U S.
Speaker Change: In addition to our work to optimize the supply chain supporting the U S. We are implementing price increases in North America.
Speaker Change: We have communicated two increases with customers and depending on the ultimate tariff resolution, we will adjust price as appropriate.
Tom Tedford: We have communicated two increases with customers, and depending on the ultimate tariff resolution, we will adjust price as appropriate. It is difficult to gauge the demand impact from these pricing actions. due to the uncertainties related to inflation, consumer confidence, and business spending. I do want to remind everyone that about 60% of our business is outside the United States. which is much less impacted by the current tariff situation. Through the strength of our brands and management team, we are confident in our ability to navigate through these uncertainties. Our teams are focused on mitigating the cost due to the global trade dynamics and positioning our brands to better serve our customers and take share in this disruptive time.
Speaker Change: It is difficult to gauge the demand impact from these pricing actions due to the uncertainties related to inflation consumer confidence and business spending.
Speaker Change: I do want to remind everyone that about 60% of our business is outside the United States.
Speaker Change: Which is much less impacted by the current tariff situation.
Speaker Change: Through the strength of our brands and management team, we are confident in our ability to navigate through these uncertainties.
Speaker Change: Our teams are focused on mitigating the cost due to the global trade dynamics and positioning our brands to better serve our customers and take share in this disruptive time.
Speaker Change: Now, let me highlight our first quarter results.
Tom Tedford: Now let me highlight our first quarter results. As a reminder, the first quarter is seasonally our smallest in terms of sales and profitability. First quarter comparable sales were down 8%. The demand environment was challenging throughout the quarter, but consistent with our planning assumptions. impacted by soft consumer and business demand. In the Americas, sales were favorably impacted by early purchases of back-to-school products in the U.S. and Growth in Brazil. but were more than offset by weakness in all other categories.
Speaker Change: As a reminder, the first quarter is seasonally our smallest in terms of sales and profitability.
Speaker Change: First quarter comparable sales were down 8%.
Speaker Change: The demand environment was challenging throughout the quarter, but consistent with our planning assumptions.
Speaker Change: Impacted by soft consumer and business demand.
Speaker Change: In the Americas sales were favorably impacted by early purchases at back to school products in the U S.
Speaker Change: And growth in Brazil.
Speaker Change: But were more than offset by weakness in all other categories.
Speaker Change: Forecasting for this year's upcoming back to school season in North America is challenging due to the uncertainty surrounding tariffs.
Tom Tedford: Forecasting for this year's upcoming back-to-school season in North America is challenging due to the uncertainty surrounding tariffs. Our prior expectation was for the categories we compete in to be down below single digits. Following the tariff announcements by the U.S. government, our customers have slowed purchases and there remains a lot of uncertainty about how the tariffs will impact the consumer. Retailers are responding by being more cautious with inventory. But we are in close contact with them as we prepare for this important time of year. Going into this season, our team won several new placements with retailers and, as we have previously mentioned, have expanded distribution with alternative champs.
Speaker Change: Our prior expectation was for the categories, we compete in to be down low single digits.
Speaker Change: Following the tariff announcements by the U S government, our customers have slowed purchases and there remains a lot of uncertainty about how the tariffs will impact the consumer.
Speaker Change: Retailers are responding by being more cautious with inventories.
Speaker Change: But we are in close contact with them as we prepare for this important time of year.
Speaker Change: Going into this season, our team won several new placements with retailers and as we have previously mentioned had expanded distribution with alternative channels.
Speaker Change: Brazil did returned to volume growth as it ended its back to school season in Q1 due.
Tom Tedford: Brazil did return to volume growth as it ended its back-to-school season in Q1. due to the strength of its premium notebooks and products with popular life. We are encouraged by the start of the year in Brazil and are pleased with the work our team is doing to enhance the value we offer in our product portfolio.
Speaker Change: Due to the strength of its premium notebooks and products with popular licenses.
Speaker Change: We are encouraged by the start of the year in Brazil and are pleased with the work our team is doing to enhance the value we offer in our product portfolio.
Speaker Change: In the international segment, the bright spot was computer and gaming accessories, which grew mid single digits in the quarter driven by a large <unk> computer accessories sale and our international expansion in gaming.
Tom Tedford: In the international segment, the bright spot was computer and gaming accessories. which grew mid-single digits in the quarter, driven by a large B2B computer accessory sale in our international expansion in gaming.
Speaker Change: Sales of office products remained sluggish in the segment across most markets.
Tom Tedford: Sales of Office products remain sluggish in the segment across most markets. Our share is stable and we continue to be leaders in bringing innovative solutions to our customers.
Speaker Change: Our share is stable and we continue to be leaders in bringing innovative solutions to our customers.
Speaker Change: In 2025, we're introducing several exciting new products that support the hybrid work environment and our agronomics product line.
Tom Tedford: In 2025, we are introducing several exciting new products that support the hybrid work environment and our ergonomics product.
Speaker Change: We also made a small acquisition in the Australia, and New Zealand markets that expands our product portfolio and gives us greater scale in that region.
Tom Tedford: We also made a small acquisition in the Australian New Zealand markets that expands our product portfolio and gives us greater scale in that region.
Speaker Change: Now, let me touch on our global technology accessories businesses, Kensington and power.
Tom Tedford: Now let me touch on our global technology accessories business. Kensington and PowerEdge. Kensington had a strong quarter with mid-single-digit growth. As expected, sales for our PowerA brand were down in the first quarter due to aging consoles and low consumer spending trends, as well as the overall gaming accessories category being down almost 20%. We are excited to support the Nintendo Switch 2 launch, which is expected to be in June, with several new licensed products. We expect gaming accessories sales to be down in the first half before rebounding later in the year as our new products gain traction in the market.
Speaker Change: Kensington had a strong quarter with mid single digit growth.
Speaker Change: As expected sales for our power brands were down in the first quarter due to aging consoles and low consumer spending trends as well as the overall gaming accessories category being down almost 20%.
Speaker Change: We are excited to support the Nintendo switch to launch which is expected to be in June with several new licensed product.
Speaker Change: We expect gaming accessories sales to be down in the first half before rebounding later in the year as our new products gain traction in the market.
Speaker Change: Now let me touch on the progress we are making to improve our revenue trends.
Tom Tedford: Now let me touch on the progress we are making to improve our revenue trend. We continue to be energized by the response from our channel partners on our initiative. I previously mentioned we are expanding our ergonomics line in the international segment, which has been a highly successful endeavor for us in some of our EMEA markets. We are evaluating other countries and channels to introduce these innovative new products. In Brazil, we have repositioned key products with features and prices to meet a more constrained consumer as we aim to maintain our category-leading position in student note-taking. We are looking for additional opportunities to expand our share with existing and new channel partners through new product introductions and category-leading service.
Speaker Change: We continue to be energized by the response from our channel partners on our initiatives.
Speaker Change: I previously mentioned, we are expanding our ergonomics line in the international segment, which has been a highly successful endeavor for us and some of our EMEA markets.
Speaker Change: We are evaluating other countries and channels to introduce these innovative new products.
Speaker Change: In Brazil, we have repositioned key products with features and prices to meet a more constrained consumer as we aim to maintain our category leading position in student note taking.
Speaker Change: We are looking for additional opportunities to expand our share with existing and new channel partners through new product introductions and category leading service.
Tom Tedford: We continue our strategic focus on optimizing our cost structure. realizing more than $7 million in savings in the quarter, building upon the $25 million of savings achieved in 2024. In response to the increased uncertainties, we are deferring most discretionary spending and pausing CapEx spend except for new product development and certain IT projects. until we have a firm understanding of the impact of tariffs on consumer and business spending.
Speaker Change: We continue our strategic focus on optimizing our cost structure.
Speaker Change: <unk> more than $7 million in savings in the quarter building upon the $25 million of savings achieved in 2024.
Speaker Change: In response to the increased uncertainties, we are deferring most discretionary spending and pausing capex spend except for new product development and certain it projects until we have a firm understanding of the impact of tariffs on consumer and business spending.
Tom Tedford: I am confident that we are taking the right actions to protect and reposition our business as we navigate this dynamic period.
I am confident that we are taking the right actions to protect and reposition our business as we navigate this dynamic period.
Deb Oconnor: I will now hand, it over to Deb and we'll come back to answer your questions.
Deb O'Connor: I will now hand it over to Deb and we'll come back to answer your questions. Thank you, Tom, and good morning, everyone. As Tom mentioned, first quarter sales were in line with our outlook and EPS was better than our outlook. In the first quarter, the overall demand environment remained soft, as discretionary spending by both consumer and business remained constrained due to the heightened uncertainty in the market. Reported sales in the first quarter decreased approximately 12%. Capital sales, excluding foreign exchange, were down 8% versus the prior year. The sales decline was due to lower volumes globally.
Speaker Change: Yep.
Deb Oconnor: Thank you Pam and good morning, everyone.
Deb Oconnor: As Tom mentioned first quarter sales were in line with our outlook and EPS was better than our outlook in.
Deb Oconnor: In the first quarter, the overall demand environment remains soft as discretionary spending by both consumer and business remained constrained due to the heightened uncertainty in the market.
Deb Oconnor: Reported sales in the first quarter decreased approximately 12%.
Deb Oconnor: Comparable sales, excluding foreign exchange were down 8% versus the prior year the.
Deb Oconnor: The sales decline was due to lower volumes globally.
Deb O'Connor: Growth profit for the first quarter was $100 million, a decrease of 10%, with the margin rate expanding 60 basis points. This improvement reflected a favorable mix of sales, as well as cost savings from our Footprint Rationalization Program. SG&A expense of $93 million was down versus the prior year as cost reduction actions were partially offset by higher inflation and merit. Adjusted operating income for the first quarter was $7 million versus $16 million a year ago.
Deb Oconnor: Gross profit for the first quarter with $100 million.
Deb Oconnor: A decrease of 10% with the margin rate expanding 60 basis points. This improved and that reflected a favorable mix of sales as well as cost savings from our footprint rationalization program.
Deb Oconnor: SG&A expense of $93 million was down versus the prior year as cost reduction actions were partially offset by higher inflation and merit.
Deb Oconnor: Adjusted operating income for the first quarter was $7 million.
Deb Oconnor: Versus $16 million a year ago.
Deb Oconnor: Now, let's turn to our segment results for the first quarter.
Deb O'Connor: Now let's turn to our segment results for the first quarter. In the America segment, sales declined 12% and comparable sales declined 8%. This decline was due to lower sales of technology accessories and office prep. Early back-to-school shipments were higher as certain customers took delivery earlier than last year. This shift will reduce second quarter sales. The America's adjusted operating income margin for the first quarter decreased 40 basis points to 5.8 percent compared to the prior year, as our higher gross margins and cost savings were more than offset by fixed costly leveraging from lower volumes.
Deb Oconnor: In the Americas segment sales declined 12% and comparable sales declined 8%.
Deb Oconnor: This decline was due to lower sales of technology accessories and office products.
Deb Oconnor: Early back to school shipments were higher at certain customers took delivery earlier than last year.
Deb Oconnor: This shift will reduce second quarter sales.
Deb Oconnor: The Americas adjusted operating income margin for the first quarter decreased 40 basis points to five 8% compared to the prior year as our higher gross margin and cost savings were more than offset by fixed cost deleveraging from lower volume.
Deb Oconnor: Now, let's turn to our international segment for the first quarter comparable sales declined 8% as the demand environment remains soft for our business as essential categories.
Deb O'Connor: Now let's turn to our international segment. For the first quarter, comparable sales declined 8% as the demand environment remained soft for our business essential categories. This was somewhat offset by growth in technology accessories driven by the large B2B sale that Tom mentioned. International adjusted operating income margin for the first quarter decreased to 6.7 percent due to volume decline and fixed cost deleveraging as well as higher foreign exchange and inflation. In the quarter, we generated free cash flow of $3 million, which was in line with our expectations, but as anticipated, down to the prior year due to the timing and performance of our sales in Brazil for their back-to-school season.
Tom: This was somewhat offset by growth in technology accessories, driven by the large <unk> sale that Tom mentioned.
Tom: International adjusted operating income margin for the first quarter decreased to six 7% due to volume declines and fixed cost deleveraging as well as higher foreign exchange and inflation.
Tom: In the quarter, we generated free cash flow of $3 million, which was in line with our expectations, but as anticipated down to the prior year due to the timing and performance of our sales in Brazil for their back to school season.
Tom: At quarter end, we had almost $236 million available for borrowing under our revolver, which is more than adequate for our needs.
Deb O'Connor: At quarter end, we had almost $236 million available for borrowing under our revolver, which is more than adequate for our needs. We finished the quarter with a consolidated leverage ratio of 3.65 times, well below our 4.5 times covenant ratio. During the quarter, we returned $15 million to shareholders in the form of share repurchases, while also using $7 million to support our dividends. While we continue to believe a balanced capital allocation is appropriate, in the near term, we will be focused on paying down debt.
Tom: We finished the quarter with a consolidated leverage ratio of 365 times well below our four five times covenant ratio.
Tom: During the quarter, we returned $15 million to shareholders in the form of share repurchases, while also using $7 million to support our dividend.
Tom: While we continue to believe a balanced capital allocation is appropriate in the near term, we will be focused on paying down debt.
Tom: The dynamics of the changing tariff landscape has caused the current economic environment to be uncertain.
Deb O'Connor: The dynamics of the changing tariff landscape have caused the current economic environment to be uncertain. Given this uncertainty, we are not providing full year guidance until we gain more clarity. Customer demand, price elasticity, and various tariff scenarios, as well as the outcome of changing our sourcing locations, makes it difficult to predict our sales volume beyond the second quarter. In certain circumstances, we are seeing customers limit purchases as they lower inventory levels and, in some cases, are pausing purchases until there is greater clarity on tariffs and consumer demand. As Tom said, we are uniquely positioned to accelerate our sourcing to lower-cost countries due to the initiatives put in place prior to the tariff announcement.
Tom: Given this uncertainty we are not providing full year guidance until we gain more clarity.
Tom: Customer demand price elasticity and various tariff scenarios as well as the outcome of changing our sourcing locations makes it difficult to predict our sales volume beyond the second quarter.
Tom: In certain circumstances, we are seeing customers limit purchases as a lower inventory levels and in some cases are pausing purchases until there is greater clarity on tariffs and consumer demand.
Tom: As Tom said, we are uniquely positioned to accelerate our sourcing to lower cost countries due to the initiatives put in place prior to the tariff announcements.
Deb O'Connor: By the end of 2025, there will remain an insignificant amount of high tariff China source product. which will represent slow-moving, low-volume, and secular-declining categories. Given our broad and diverse product portfolio, we will take advantage of this opportunity to rationalize our SKUs and offer item substitutions for high-cost products. In addition, the teams have passed price and anticipate more pricing actions may be needed.
Tom: By the end of 2025, there will remain an insignificant amount of high tier of China sourced product.
Speaker Change: Which will represent slow moving low volume and secular declining category.
Speaker Change: Given our broad and diverse product portfolio, we will take advantage of this opportunity to rationalize our schemes and offer items substitution for high cost products. In addition, the teams have passed price and anticipate more pricing actions may be needed.
Speaker Change: We are providing an outlook for the second quarter based on what we currently know.
Deb O'Connor: We are providing an outlook for the second quarter based on what we currently know. We have assumed that sales will be impacted by muted consumer and business demand. The second quarter will be impacted by changes in buying patterns for back-to-school. There were significant back-to-school purchases in the first quarter, which were pulled forward in anticipation of the tariff. We are also anticipating that orders may be delayed or canceled if customers wait to gain additional clarity on demand. For the second quarter, we expect reported sales to be down 8 to 12 percent, with a lessening foreign exchange impact from the weakening of the U.S.
Speaker Change: We have assumed net sales will be impacted by muted consumer and business demand.
Speaker Change: Second quarter will be impacted by changes in buying patterns for back to school.
Speaker Change: Were significant back to school purchases in the first quarter, which were pulled forward in anticipation of the tariffs.
Speaker Change: We are also anticipating that orders may be delayed or cancelled as customers wait to gain additional clarity on demand.
Speaker Change: For the second quarter, we expect reported sales to be down 8% to 12% with a lessening foreign exchange impact from the weakening of the U S dollar.
Deb O'Connor: dollar. We anticipate adjusted EPS to be in the range of 28 to 32 cents.
Speaker Change: We anticipate adjusted EPS to be in the range of 28% to 32.
Speaker Change: Even though the current year poses challenges, we remain confident in the long term future of our company and our ability to navigate this dynamic period.
Deb O'Connor: Even though the current year poses challenges, we remain confident in the long-term future of our company and our ability to navigate this dynamic period. We have a strong balance sheet with no debt maturities until 2029 and a long history of productivity gains and cost management. We continue to anticipate longer term that we can grow sales modestly from organic and inorganic initiatives with a target growth margin rate of 33 to 34 percent and consistent cash flow generation.
Speaker Change: We have a strong balance sheet with no debt maturities until 2029, and a long history of productivity gains and cost management.
Speaker Change: We continue to anticipate longer term that we can grow sales modestly from organic and inorganic initiatives with a target gross margin rate of 33% to 34% and consistent cash flow generation.
Speaker Change: Now, let's move on to Q&A, where Tom and I will be happy to take your questions operator.
Deb O'Connor: Now let's move on to Q&A where Tom and I will be happy to take your questions. operator. Thank you.
Speaker Change: Thank you.
Operator: If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally.
Speaker Change: Like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: If you would like to withdraw your question. Please press star grew by two.
Speaker Change: When preparing to ask a question. Please ensure your device is on mute locally.
Joe Gomes: First question comes from Joe Gomes with Noble capital. Your line is open. Please go ahead.
Joseph Gomes: First question comes from Joe Gomez with Noble Capital. Your line is open. Please go ahead. Good morning. Hey, Joe. Good morning, Joe. So, first question I wanted to ask on that. contract that you discussed. that you're going to have any additional impact in say the second or third quarters or was that all? in the first quarter. And I don't know if you can give us any more color as to what that added. I think you said Kensington was up mid single digits. You know, what would have been if we didn't get that one contract? Yeah.
Speaker Change: Yes.
Speaker Change: Good morning.
Speaker Change: Hey, Joe Good morning, Joe.
Speaker Change: So first question I wanted to ask on that.
Speaker Change: The largest b to b.
Speaker Change: Contract.
Speaker Change: That you discussed.
Speaker Change: That you're going to have any additional impact.
Speaker Change: Say, the second or third quarter or is that all complete.
Speaker Change: In the first quarter and I don't know if you can give us any more color as to what that added I think you said Kensington was up mid single digits would have been if we didn't get that one contract.
Speaker Change: Yeah. Good question, Joe So first of all to answer the first part of your question, we will not see incremental impact to sales.
Tom Tedford: Good question, Joe.
Tom Tedford: So first of all, to answer the first part of your question, we will not see incremental impact to sales in the balance of the year. It was a one-time shipment that we realized in the first quarter. Had the one-time B2P order not been realized, the business would have been roughly flat. But as a reminder, we have significant one-time events with Kensington throughout the years, throughout the quarters. So this isn't a unique thing. It was just a bit bigger than what we typically get. Right. Thank you for that.
Speaker Change: The balance of the year. It was a one time shipment that we realized in the first quarter.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Onetime <unk> order not been realized the business would have been roughly flat.
Speaker Change: But as a reminder, we have.
Speaker Change: Significant.
Speaker Change: One time events with Kensington.
Speaker Change: Throughout the years throughout the quarters. So this isn't a unique thing it was just a bit bigger than what we typically get.
Speaker Change: Right. Okay. Thank you for that and you've talked about.
Gregory Burns: And you talked about international benefited from some price increases.
Speaker Change: Internationally.
Speaker Change: Benefited versus price increases.
Tom Tedford: And I don't know if you can give us any more detail or quantify what they were. And I know you just mentioned, I think you've indicated two price increases here in the Americas. I don't know if you can give us any more detail on those.
Speaker Change: And I know if you could give us any more detail or quantify what they were and I know you just mentioned.
Speaker Change: I think you indicated two price increases here in the Americas, If you can give us any more detail up to those.
Tom Tedford: Sure. So for the international segment, roughly 2% was the price increase that was communicated to customers going into this year. That is likely going to be the only price actions we'll take in most of those markets as we don't anticipate further inflationary pressures to impact the business outside of the United States. Obviously, as you know, the U.S.
Speaker Change: Sure so for the international segment.
Speaker Change: Roughly 2% was the price increase that was communicated to customers.
Speaker Change: Into this year.
Speaker Change: That is likely going to be the only price actions, we'll take in most of those markets as we don't anticipate further.
Speaker Change: Inflationary pressures to impact the business outside of the United States, Obviously as you know the U S business.
Tom Tedford: business is under some unique circumstances as we navigate the tariff environment. We have announced price increases already this year. We anticipate another price increase in response to the reciprocal tariffs to be implemented by July. So there is a lot of price action happening across all of our categories in the U.S. market. Thank you for that.
Speaker Change: Is under some unique circumstances as we navigate the tariff environment.
Speaker Change: We've announced price increases already this year, we anticipate another price increase in response to the reciprocal tariffs to be implemented by July.
Speaker Change: So there is a lot of price action happening across all of our categories in the U S market.
Speaker Change: Okay. Thank you.
Tom Tedford: You mentioned the acquisition. I'm assuming it was relatively small since you didn't really speak a little bit, much about it. I was just wondering if you could give us a little more color about that acquisition, what it was. I know you mentioned Australia and New Zealand, but you know, kind of sizing and, you know, where that you think that's going to benefit the company. Yeah, so our team has done some nice strategic work, particularly in Australia, looking at categories that they believe are growing and we are either under-indexed or have no presence in. And so this opportunity came about through some strategic work that they had done, and we acquired the business to enter a category, which is ergonomic seating and business seating, so chairs and other types of seating accessories in the market.
Speaker Change: You mentioned the acquisition assuming was relatively small since you didnt really speak a little bit much about it I was just wondering if you could give us a little more color about that acquisition and what it was I know you mentioned, Australia, and New Zealand, but Neil kind of sizing and where that is.
Speaker Change: I think thats going to benefit the company.
Speaker Change: Yes, so our team has done some nice strategic work, particularly in Australia looking at categories that they believe are.
Speaker Change: Our growing and we are either under indexed or have no presence in.
Speaker Change: And so this opportunity came about through some strategic work that they had done.
Speaker Change: And we acquired the business to enter a category, which is our genomic seating.
Speaker Change: <unk>.
Speaker Change: Business seating.
Speaker Change: So chairs.
Speaker Change: And.
Speaker Change: Other types of seating.
Speaker Change: Accessories.
Speaker Change: And the market. So we're excited about that I think they are Australia and team has done a nice job of integrating and we're looking now at what we can do to potentially expand the offering into other markets that likely wont be near term as we want to make sure we stabilize and take advantage of all the opportunities in Australia, and New Zealand, but long term, we see that as an opportunity to.
Tom Tedford: So we're excited about that. I think the Australian team has done a nice job of integrating.
Joe Gomez: And we're looking now at what we can do to potentially expand the offering into other markets that likely won't be near-term, as we want to make sure we stabilize and take advantage of all the opportunities in Australia and New Zealand. But long-term, we see that as an opportunity to expand into that category and other markets globally. Okay, great. Thanks for that. I'll get back in queue. Okay, Joe. Thank you.
Speaker Change: Expand into that category and other markets globally.
Speaker Change: Okay, great. Thanks for that I'll get back in queue.
Jeff: Okay, Jeff Thank you.
Speaker Change: We now turn to Greg Burns with Sidoti. Your line is open. Please go ahead.
Gregory Burns: We now turn to Greg Burns with Sudoti. Your line is open, please go ahead. Okay, just to follow up on the acquisition, I know that was a small deal, given the demand environment. What's your appetite still for acquisitions? Maybe what is the the funnel of opportunities look like for you? Yeah, Greg, so obviously that's a good question. We still believe that acquisitions will be a part of our future strategy. I will say that we'll probably be a bit more cautious in the near term until we get a better understanding of all that is going to happen as a result of the trade dynamics that we're currently navigating through.
Greg Burns: Okay, just to follow up on the acquisition.
Greg Burns: I know that was a small deal given the demand environment, what's your appetite still for acquisitions and.
Greg Burns: Maybe what is the.
Greg Burns: The funnel of opportunities look like for you.
Greg Burns: Yeah, Greg. So obviously, that's a good question, we still and we still believe that acquisitions will be a part of our future strategy I will say that we'll probably with more cautious in the near term until we get a better understanding of all that.
Greg Burns: Is going to happen as a result of the trade dynamics that we're currently navigating through but to reiterate long term, we still think that that's an important part of our strategy.
Tom Tedford: But to reiterate, long term, we still think that that's an important part of our strategy.
Greg Burns: Okay.
Greg Burns: Okay.
Gregory Burns: Okay, and then in terms of some of the new product development that you mentioned.
And then in terms of.
Greg Burns: So the new product development that you mentioned.
Greg Burns: Do you.
Tom Tedford: Do you, maybe what is the timing of the introduction of some of these new products? When do you expect to start to see your revenue flowing from them? And do you have a target on? How much growth or X percent of revenue you'd like to generate from new products in any given year? Yeah, so let me take the first part of the question first. We have in our business plan for 2025 revenue from new products in most of our markets. So they are hitting the shelves literally as we speak. You know, our probably most notable line is going to be products that are going to be supporting the Switch 2.0 launch in June.
Greg Burns: Maybe what is the timing of the introduction of some of these new products. When do you expect to start to see.
Greg Burns: Revenue flowing from them and do you have a target on.
Greg Burns: How much growth or X percent of revenue you'd like to to generate from from new products in any given year.
Greg Burns: Yeah. So let me take the first part of the question first.
Greg Burns: We have in our business plan for 2025 revenue from new products.
Greg Burns: And most of our markets.
Greg Burns: So they are hitting the shelves literally as we speak.
Greg Burns: Our probably most.
Greg Burns: Notable line is going to be products that are going to be supporting the switch to <unk> launch in June.
Tom Tedford: So those products are starting to leave factory and should be in market and on shelf in time to support the launch in June. But we have product that will be launching throughout the year in most of our markets, both for retail and commercial customers. So that work is robust. I think our pipeline has improved quite significantly over the last couple of years, particularly in our Kensington business where the expectation is going to be almost 2x of new product, not revenue, but new product coming out of their product pipeline. So good progress being made really across the business on new product development.
Greg Burns: So those products are starting to leave factory and should be in.
Greg Burns: Market and on shelf in time to support the launch in June.
Greg Burns: But we have product that'll be launching throughout the year and most of our markets both for retail and commercial customers.
Greg Burns: That work is robust.
Greg Burns: Our pipeline has improved quite significantly.
Speaker Change: Difficult Lee over the last couple of years.
Speaker Change: Particularly in our Kensington business, where the expectation is going to be almost <unk> of new product not revenue, but new product coming out of their product pipeline. So good progress being made really across the business on new product development and yes, we do have a target.
Tom Tedford: And yes, we do have a target. We're working with an outside consultant to refine how we think about NPD and how we think about product vitality on a move forward basis. I don't believe we're ready to publicly talk about that at the moment, but we will be at some point in the near future. But that is a part of our business, a part of our business planning. We build in revenue from new products annually and we anticipate that to grow moving forward.
We're working with an outside consultant to refine how we think about NPD and how we think about product vitality on a move forward basis. I don't believe we are ready to publicly talk about that at the moment, but we will be at some point in the near future.
Speaker Change: That is a part of our business that part of our business planning, we build in revenue from new products annually, and we anticipate that to grow moving forward.
Speaker Change: Okay, and then lastly, I just wanted to understand the dynamic in the first quarter I know.
Gregory Burns: Okay, and then lastly, I just wanted to understand the dynamic in the first quarter. I know On a consolidated level, you hit your number or in line from a revenue perspective, but it feels like maybe the But by segment, it's shaped up different than you were looking for with a little bit of pull forward. And I guess based on my model, the international is a little bit lighter than we were looking for. So maybe if you could just talk about some of the segment dynamics and how they shaped up versus maybe what the expectations were going in.
Speaker Change: On a consolidated level you hit your number.
Speaker Change: We're in line from a revenue perspective, but it feels like maybe the.
Speaker Change: But by segmented shaped up.
Speaker Change: Then you were looking for with a little bit of pull forward and I guess based on my model. So the international is a little bit lighter than.
Speaker Change: We were looking for so maybe if you could just talk about some of the the segment dynamics.
Speaker Change: How that shaped up versus maybe what the expectations were going in.
Speaker Change: Yes.
Tom Tedford: Yeah, you know, international got off to a bit of a slow start this year, predominantly driven by our business in EMEA. And what we're seeing there is really driven by two factors. One, at the end of 2024, we had certain customers to decide to chase rebate targets, so they pulled in some inventory, pulled in some purchases from the first part of this year, which obviously impacted sales in January and February. And two, in Germany, we're seeing a bit of softness in our categories, and I think those two factors really were the drivers of soft performance in Q1 in the international segment.
Speaker Change: International got off to a bit of a slow start this year predominantly driven by our business in EMEA.
Speaker Change: And what we're seeing there is really driven by two factors one at the end of 2024, we had certain customers.
Speaker Change: To decide to chase.
Speaker Change: Rebate targets so they pulled in some inventory pulled in some purchases from the first part of this year, which obviously impacted sales in January and February.
Speaker Change: And two in Germany, we're seeing.
Speaker Change: A bit of softness in our categories and I think those two.
Speaker Change: Two factors really were the drivers of soft performance in Q1, and the international segment. The rest of the markets I think performed close enough to our expectations.
Tom Tedford: The rest of the markets, I think, performed close enough to our expectations, but those two factors were really the key drivers in Q1.
Speaker Change: But those those two factors were really the key drivers and in international.
Speaker Change: Okay and then.
Tom Tedford: Okay, and looking forward, I guess, are those dynamics, have they normalized, or where are we at in terms of what you're seeing so far in the first part of this quarter? Yeah, I mean, as you see, we've we've given our Q2 guidance, you know, it's close to the way we finished. the first quarter. So we haven't seen really any drastic changes in trend in Germany. And again, the rest of the markets and international are performing pretty consistent. Yeah, we do think that international perform a little bit better than the first quarter, offset by some of the North America challenges.
Speaker Change: Looking forward I guess are those dynamics have been normalized or.
Speaker Change: Where are we at in terms of what Youre seeing so far in the first part of this quarter.
Speaker Change: Yes, I mean as you see we've given our Q2 guidance.
Speaker Change: It's close to the way we finished.
Speaker Change: The first quarter.
Speaker Change: So we haven't seen really any drastic changes in and trend in Germany.
Speaker Change: The rest of the markets and international are performing pretty consistent yes, we do think that international pro forma a little bit better than the first quarter.
Speaker Change: <unk> offset by some of the North America.
Speaker Change: Challenges.
Speaker Change: Okay, Alright, great. Thank you.
Gregory Burns: All right, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Kevin Steinke with Barrington Research. Your line is open. Please go ahead.
Kevin Steinke: Our next question comes from Kevin Steinke with Barrington Research. Your line is open, please go ahead. Thank you. I just wanted to start off by asking about the favorable sales mix in the first quarter that you mentioned helped gross margin. Was that the large Kensington sale or was there something else at play there? No, I think that was part of it. But we also had a pull forward of some of our back to school, which is a bit more profitable. That happened in the first quarter of this year, just due to the timing of when it was purchased.
Kevin Steinke: Okay. Thank you.
Speaker Change: Just wanted to start off by asking about the.
Speaker Change: Favorable sales mix in the first quarter that you mentioned helps gross margin was that.
Speaker Change: The large kensington sale or was there something else at play.
Speaker Change: Hey, there.
Speaker Change: No I think.
Speaker Change: That was part of it but we also had a pull forward of some of our back to school, which is a bit more profitable.
Speaker Change: That happened in the first quarter of this year.
Speaker Change: Just due to the timing of when it was purchased that helps the North America side.
Tom Tedford: That helped the North America side.
Speaker Change: Okay. Thank you.
Kevin Steinke: Okay, thank you.
Tom Tedford: And you mentioned a target gross margin of 33 to 34%. Now I think that's up from the prior target of 32 to 33%. So maybe if you can just talk about you know, what's driving. that increase to the longer-term gross margin target. Yeah, so we have been on a journey to optimize our cost structure and to reduce our fixed costs. And as we realize those savings, that should positively impact gross margins for the mid to long term.
Speaker Change: And you mentioned.
Speaker Change: Target gross margin.
Speaker Change: 33% to 34% now I think that's up from the prior target of.
Speaker Change: <unk>, 32% to 33%. So maybe if you can just talk about.
Speaker Change: What's driving.
Speaker Change: That increase to the longer term gross margin target.
Speaker Change: Yes, so we have been on a journey to optimize our cost structure and to reduce our fixed cost and as we realize those savings.
Speaker Change: That should positively impact gross margins for the mid to long term.
Speaker Change: Okay, Great and then.
Kevin Steinke: Okay, great. And then, um... I know you said you'd be able to...
Speaker Change: I know you said you'd be able to.
Tom Tedford: move purchasing or most purchasing out of China within the next few months, but could you just maybe give us a ballpark on like, you know, the size of purchasing out of China currently maybe I don't know in terms of the dollar amount of cost of products sold or, you know, some other way maybe you could you know, quantify it. Yeah, so just to make sure we're clear on the statement that we made, right, it's really we're moving products supporting the U.S. business out of China. As a reminder, and of important note, 60% of our business roughly is outside of the United States and, you know, China is still a very viable option for the other markets that aren't impacted by the current supply chain supporting the U.S.
Speaker Change: We are purchasing are most purchasing out of China within the next few months, but could you just maybe give us.
Speaker Change: Ballpark.
Speaker Change: The size of.
Speaker Change: Purchasing out of China currently maybe at all in terms of the dollar amount of cost of products sold.
Speaker Change: Or some other way maybe you could.
Speaker Change: Yes.
Speaker Change: Quantify it.
Speaker Change: Yeah.
Speaker Change: So just to make sure we're clear on the statement that we made but it's really we're moving products supporting the U S business out of China.
Speaker Change: As a reminder, and a important note 60% of our business roughly is outside of the United States and China is still a very viable option for the other markets that aren't impacted by the current tariffs. So the work that we're doing right now is really to optimize the supply chain supporting the U S business.
Tom Tedford: business. So by the end of the year, Kevin, we anticipate an insignificant amount of products supporting the U.S. coming out of China. That work will be moved to either lower cost or lower tariff markets, including markets like Vietnam, or our own manufacturing assets likely in the Americas. So hopefully that adds a little bit more color, but it's important to note that the work that we do supporting the businesses outside of the United States that is in China is not being resourced at the moment.
Speaker Change: So by the end of the year, Kevin we anticipate an insignificant amount of product supporting the U S coming out of China that work will be moved to either lower cost or.
Speaker Change: Lower tariff markets, including markets like Vietnam, or our own manufacturing assets likely in the Americas.
Speaker Change: So hopefully that adds a little bit more color, but it's important to note that the work that we do supporting the businesses outside of the United States that is in China is not being <unk>.
Speaker Change: Resource at the moment.
Speaker Change: Okay got it.
Kevin Steinke: Okay, got it. Lastly, you mentioned $7 million of cost savings in the first quarter from the restructuring program. Is the target for 2025 still about $40 million? I believe that's what you talked about previously. Yeah, that's right, Kevin. We're still targeting the $40 million. And the $7 million was in the first quarter, and it was nicely split between the COGS and SG&A. Okay, great.
Speaker Change: And just lastly, you mentioned $7 million of cost savings in the first quarter.
Speaker Change: From the restructuring program.
Speaker Change: Is.
Speaker Change: Is the target for 2025 still about $48 million I believe is what.
Speaker Change: Talking about previously.
Speaker Change: Yeah, that's right, Kevin we're still targeting the $40 million and a $7 million was in the first quarter and it was.
Speaker Change: Nicely.
Speaker Change: With between the Cogs and SG&A.
Speaker Change: Okay, Great. That's helpful. Thanks for taking the questions.
Kevin Steinke: That's helpful. Thanks for taking the question. Thank you, Kevin.
Kevin Steinke: Thank you Kevin.
Speaker Change: We now turn to Hale Holden with Barclays. Your line is open. Please go ahead.
Hale Holden: We now turn to Hale Holden with Barclays. Your line is open. Please go ahead. Hi, good morning. I have I guess two questions.
Hale Holden: Hi, good morning.
Kevin Steinke: I guess two questions.
Kevin Steinke: Yes.
Tom Tedford: The the pull forward in sales for us back to school from 2Q into 1Q If you think there's a scenario where there's just a short, short product in that channel, and or how that would get filled? I know, I know you're very cautious on on giving us like thoughts on what that looks like. But conceptually, how would you walk through it? Yeah, so, you know, the timing of back-to-school orders, both for the first and the second quarter, often sit right on the quarter end. And so this year, we saw a little bit more of an aggressive approach by a certain retailer to pull orders forward into Q1 in anticipation of avoiding the tariffs and potential supply chain disruptions due to the tariffs.
Kevin Steinke: The pull forward in sales for our U S back to school.
Kevin Steinke: <unk>.
Kevin Steinke: Hi.
Kevin Steinke: How much of normal order flow for school without any because there is typically a replenishment process.
Kevin Steinke: A couple of months early so.
Kevin Steinke: Yes.
Kevin Steinke: Partners are planning for.
Kevin Steinke: If you think there is a scenario where there is just.
Kevin Steinke: Sure.
Kevin Steinke: Short product.
Kevin Steinke: Channel.
Kevin Steinke: And how that would get filled I know I know youre very cautious on giving us thoughts on what that looks like.
Kevin Steinke: Conceptually how would you work right.
Kevin Steinke: Yes, so the timing of back to school orders.
Kevin Steinke: Both for the first and the second quarter, often sit right on the quarter end.
Kevin Steinke: So this year, we saw a little bit more of an aggressive approach by a certain retailer to pull orders forward into Q1.
Kevin Steinke: In anticipation of avoiding the tariffs and potential supply chain disruptions due to the tariffs and so.
Tom Tedford: And so, you know, it's not uncommon that we see this, so it's just a call-out that we made because it did happen where we had orders that we had planned to happen in Q2 move forward into Q1. So, you know, I think it's a relatively insignificant amount for the full season over the three quarters that we support back-to-school. So the second piece of your question, the answer would be, you know, we don't see an environment where retailers will be short on our inventory. We're well-inventoried to support the season, and if they come in late with orders, we'll be prepared to assist them in replenishment to ensure that they're supporting their consumers.
Kevin Steinke: It's not uncommon that we see this.
Kevin Steinke: So it's just a call out that we made.
Kevin Steinke: Because it did happen.
Kevin Steinke: We had orders that we had planned to happen in Q2 move forward into Q1 so.
Kevin Steinke: I think it's a relatively.
Kevin Steinke: Insignificant amount for the full season over the three quarters that we support back to school.
So the second piece of your question the answer would be we.
Kevin Steinke: We don't see an environment, where retailers will be short on our inventory, we're well inventory to support this season.
Kevin Steinke: If they come in late with orders will be prepared to assist them in replenishment to ensure that they are supporting their consumers. So I think where we're uniquely positioned with a really balanced supply chain.
Tom Tedford: So I think we're uniquely positioned with a really balanced supply chain to react quickly to increased demand or order shortages by our customers. That's, that's great.
Kevin Steinke: To react quickly to increased demand or order shortages by our customers.
Kevin Steinke: Okay.
Kevin Steinke: That's great and then.
Tom Tedford: And then I was wondering if the two price increases, or the price increase you've taken on the one that you've announced, if you'd be willing to share what the quantum is on that. Yeah, so the big one obviously is the one sitting in front of us as we react to reciprocal tariffs. We are working through that as we speak. We want to be a bit cautious in talking about that until we understand where the reciprocal tariffs ultimately end up, but what we can reinforce is that we're going to protect our gross margins through our pricing efforts and our resourcing efforts, and I think that's the important message to deliver.
Kevin Steinke: Was wondering if.
Kevin Steinke: The two price increases you've narrowed the price increase you've taken on that one that you've announced.
Kevin Steinke: If you'd be willing to share what the quantum is on that.
Kevin Steinke: Yes so.
Kevin Steinke: The Big one obviously is the one sitting in front of us as we react to reciprocal tariffs.
Kevin Steinke: We are working through that as we speak.
Kevin Steinke: We want to be a bit cautious in talking about that until we understand where the reciprocal tariffs ultimately end.
Kevin Steinke: But what we can reinforces that we're going to protect our gross margins through our pricing efforts and our resourcing efforts.
Kevin Steinke: And I think that's the important message to deliver the exact percentage is still a bit in limbo.
Hale Holden: The exact percentage is still a bit in limbo, but we are absolutely going to protect our margins through this work. So that sort of depends on what happens on the 90-day expiration. Yeah, exactly. Exactly. All right, thank you very much. Thank you.
But we are absolutely going to protect our margins.
Kevin Steinke: This work.
Kevin Steinke: So that's sort of depends on what happens on the 90 day exploration.
Kevin Steinke: Yes exactly exactly.
Exactly got it.
Kevin Steinke: Alright, Thank you very much.
Kevin Steinke: Thank you.
Kevin Steinke: Okay.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now.
Speaker Change: We now turn to William <unk> with Bank of America. Your line is open. Please go ahead.
William Reuter: We now turn to William Reuter with Bank of America. Your line is open, please go ahead. Good morning. Appreciate that 60% of your sales are outside of the US.
Speaker Change: Good morning.
William: Appreciate that 60% of your sales are outside of the U S. Can you share with us at this point what percentage of your cost of goods sold are sourced in China, and then sold in the U S.
Tom Tedford: Can you share with us at this point, what percentage of your cost of goods sold are sourced in China and then sold in the US? You know, I think the answer to that question is that we typically have sourced quite a bit from China because of its low cost, high quality aspect of it. As Tom said, we're currently moving a lot of the production out of China and into other countries in Asia so that by the time we get to the end of the year, we'll have, you know, an insignificant amount coming out of China.
William: I think the answer to that question is that we typically have stores quite a bit from China because of it.
Speaker Change: Low cost high quality aspect of it as Tom said, we're currently moving a lot of the production out of China and into other countries in Asia. So that by the time, we get to the end of the year, we will have an insignificant amount coming out of.
Speaker Change: China. So we're in the process of moving all of that and so it's difficult to get any percentages before and after because there's so much work being done.
Tom Tedford: So we're in the process of moving all of that and so it's difficult to get any percentages before and after because there's so much work being done. Bill, just another note on that point that I think is important that we haven't said is we are doing some pre-buying ahead of tariffs to build up inventories in certain categories to mitigate any intermediate impact to our cost. So we should have sufficient inventory from low-tariffed countries while we're transitioning production to other markets out of China. So I think we're uniquely positioned to navigate this challenge in 2025.
Speaker Change: Hey, Bill just another note on that that point that I think is important that we haven't said is we are doing some pre buying ahead of tariffs.
Speaker Change: To build up inventories in certain categories to mitigate any.
Speaker Change: The immediate impact to our cost so we should have sufficient inventory from.
Speaker Change: Low tariff countries, while we're transitioning.
Speaker Change: Production to other markets out of China. So I think we're uniquely positioned to navigate this challenge in 2025.
Speaker Change: Cool thank you.
William Reuter: Cool, thank you. I know that, you know, certain products, other Southeast countries have gotten pretty good at producing and are at least somewhat price competitive with China. I thought a lot of kind of computer accessory products, there were still pretty substantial price premiums if you go to Vietnam or other countries. Can you talk about when you move to those other countries, what types of price increases or cost increases you may be seeing? Yeah, there's a modest cost increase as we move out of China to other countries. And obviously, we're doing things that make the most economic sense for the company.
Speaker Change: I know that.
Speaker Change: Certain products.
Speaker Change: Other south east countries, they've gotten pretty good at producing and or at.
Speaker Change: At least somewhat price competitive with China, I thought a lot of kind of computer accessory products.
Speaker Change: There were still pretty substantial price premiums if you go to Vietnam or other countries can you talk about when you move to those other countries what types of price increases.
Speaker Change: Our cost increases you might be seeing.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Modest cost increase as we move out of China to other countries.
Speaker Change: And obviously, we're doing things that make the most economic sense for the company.
Tom Tedford: So if the benefit of moving, which in most cases, the benefit is far better than staying for U.S. production, is there, we realize that. But any inflation from our baseline costs, we're going to pass through in price. And so I want to reiterate, our objective is to support the long-term 33 to 34% gross margin targets, while remaining competitive at shelf with the consumer or in business spend. So it's important to note that any increase in costs will be offset in price. You know, the supply chain has evolved pretty significantly over the last five years. And so we have good alternatives outside of China in Southeast Asia, including Vietnam and Malaysia.
Speaker Change: So if the benefit of moving which in most cases the benefit is far better than staying for U S production is there.
Speaker Change: We realize that but any inflation from our baseline costs, we're going to pass through in price and so I want to reiterate our objective as support to support the long term.
Speaker Change: 33% to 34% gross margin targets.
Speaker Change: While remaining competitive at shelf with the consumer in business spend.
Speaker Change: So it is important to note that any increase in costs will be offset in price.
Speaker Change: The supply chain has evolved pretty significantly over the last five years and so we have good alternatives outside of China, and southeast Asia, including Vietnam, and Malaysia, and our Kensington business has been deploying the same strategy as the rest of our business in the U S. China, plus one and so we have a good footprint and we're well.
Tom Tedford: And our Kensington business has been deploying the same strategy as the rest of our business in the U.S., China plus one. So we have a good footprint. We're well positioned to navigate these challenges. And I think, as Deb said, by the end of the year, we're going to have an significant amount of our volume coming from China.
Speaker Change: <unk> to navigate these challenges.
Deb Oconnor: And I think as Deb said by the end of the year, we're going to have an insignificant amount of our volume coming from China.
Speaker Change: Got it.
William Reuter: Got it. And I apologize for a little bit revisiting Hale's question, but, and I appreciate that the largest increase in prices will be the reciprocal tariff. What you've put through thus far, has it been kind of like in like the 10% range in the first round that's already been put in place, and then the subsequent one that you've communicated but is not in place yet? Is that the context it's in? Yeah, so I would I would say the context on the first round is in the single digits from a price increase and then our reciprocals will be, you know, up to 20% depending on where it ultimately ends.
Speaker Change: And I apologize for a little bit revisiting health question, but.
Speaker Change: And I appreciate that the largest.
Speaker Change: The increase in prices will be the reciprocal tariff what you've put through thus far has it been kind of.
Speaker Change: Like the 10% range in the first round Thats already been put in place and then the subsequent one that you've communicated but it's not in place yet that the contact center.
Speaker Change: Yeah, So I would say the context in the first round is in the single digits from a price increase and then a reciprocal will be up to 20% depending on where it ultimately ends.
Speaker Change: Great. Thanks, so much that's all for me.
William Reuter: Great. Thanks so much.
William Reuter: That's all for me. Okay, good. Thank you.
Speaker Change: Okay. Good thank you.
Speaker Change: We have no further questions I'll now hand back to Tom Touchwood for any final remarks.
Tom Tedford: We have no further questions.
Tom Tedford: I'll now hand back to Tom Tedford for any final remarks. Thank you, everyone, for joining us. We are pleased to deliver first quarter sales in line with Outlook and loss per share better than our Outlook. I am confident that our proactive actions are better positioning us for long-term growth. We have a strong balance sheet and generate consistent cash flows, which we will use to invest in both organic and inorganic revenue growth opportunities.
Speaker Change: Thank you everyone for joining us we're pleased to deliver first quarter sales in line with outlook and loss per share better than our outlook I am confident that our proactive actions are better positioning us for long term growth, we have a strong balance sheet and generate consistent cash flows, which we'll use to invest in both.
Speaker Change: Organic and inorganic revenue growth opportunities. We appreciate your interest in ACCO brands and look forward to talking with you. When we report our second quarter results in August.
Tom Tedford: We appreciate your interest in ACCO Brands and look forward to talking with you when we report our second quarter results in August.
Speaker Change: Ladies and gentlemen, today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Operator: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines. [music]
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Okay.
Speaker Change: Yes.
Speaker Change: Yeah.