Q4 2025 The Clorox Co Earnings Call

July 31, 2025

Well listen only mode at the conclusion of our prepared remarks, we will conduct a question and answer session.

You would like to ask a question you May press star one on your Touchtone pad at anytime.

If anyone should require assistance during the conference. Please press star zero on your Touchtone pad at any time.

As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference call Ms. Lisa <unk>, Vice President of Investor Relations for the Clorox Company. Mr. Hutton you may begin your conference.

Thank you Dan Good afternoon, everyone and thank you for joining us on the call with me today are Linda <unk>, our chairman and CEO.

And Luke <unk> our CFO.

Please note also that our earnings release and prepared remarks are available on our website the Clorox company Dot com.

Just a moment Linda will share a few opening comments and then we'll take your questions.

During this call we may make forward looking statements, including about our fiscal year 2026 outlook. These statements are based on management's current expectation, but may differ from actual results were outcome in.

In addition, we may refer to certain non-GAAP financial measures.

Please refer to the forward looking statements section, which identifies various factors that could affect such forward looking statements, which has been filed with the SEC. In addition, please refer to the non-GAAP financial information section in our earnings release, and a supplemental financial schedule in the Investor Relations section of our website for reconciliation of non-GAAP financial measures to the most directly comparable GAAP.

Now I'll turn it over to Linda.

Thank you for joining us today, our Q4 and fiscal year 2025 performance was mixed with weaker than expected topline growth balanced by strong margin and earnings performance for the year.

About half of the year, our fundamentals on consumer category tariffs played out largely in line with our expectations.

In the back half our category slowed when macroeconomic uncertainties picked up while this largely stabilized in Q4 it is not yet normalized.

To put the quarter in context, we executed many of the elements with off once as we shipped higher than get incremental orders to temporarily builds retailer inventories in support of our ERP launch in the U S.

And as a reminder, our new ERP is a critical part of a digital a strong digital foundation that enables us to better leverage data and insight to drive revenue and efficiencies.

We also delivered strong gross margin and earnings in the quarter.

At the same time when consumers are stressed the bar goes up and we didn't deliver on all elements of our plan for value superiority on some of our businesses. This quarter. We also lapped abnormally high demand creation activities from last Q4, as we continue to rebuild shares following supply restoration from our August 2023 cyber attack.

This led to lower than expected sales for the quarter when we exclude the ERP retail inventory build.

Looking ahead, we are clear sighted on what we need to do to win in the marketplace and deliver clearly superior experiences and value to our consumer.

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We see opportunity ahead as consumers continue to seek better experiences and we will lean into this with our innovation pipeline in the back half of the year importantly.

Importantly, we are excited to advance our transformation and begin to fully unlock the new modernized capabilities we've built.

While we have more work to do I'm confident we have the right plans capabilities and investment levels not only to win with consumers, but also to deliver strong financial performance in fiscal year 2026 and beyond.

With that Luke and I will now take your questions.

Thank you Ms Wendel, ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone.

And our first question will come from Peter Grom with UBS.

Thanks, operator, and good afternoon, everyone.

As you know.

Sean I wanted to ask on the sales performance in the quarter.

We can see in the data.

And from your peers.

Category trends have been underwhelmed, but if you backed out the ERP benefit that you called out of European performance is a bit weaker than what we can see in the data and kind of a bit below what you talked about was contemplated in the guidance a few months back. So can you maybe just help us understand the gap between.

The implied performance in terms of the consumption we can see.

And I understand having near term visibility is difficult given all the many moving pieces, but just how does it all play out versus your expectations. Thanks.

Hi, Peter This is Luke why don't I, just give you the breakdown from our offense performance all the way to consumption and then I think you've seen that wanted to just offer perspective on our consumption performance.

So.

If you look at our organic sales growth was about 8% and if you back out the 30.

10% to 14% and the related to the.

Inventory retailer inventory build at the retailers you get ISG colleagues about negative five and remember at our last earnings we had estimated that excluding the impact of the ERP, we were expecting to be maybe maybe two to three so thats slower than we expected.

That is also lower than the consumption, which was about <unk> three but the gap is the inventory destocking that we had mentioned in our last earnings. So really negative three consumption is lower we would have expected to be in line with the category, which was slightly negative and the difference is really.

Lower performance than anticipated.

And Peter maybe I'll I'll take on what we experienced in share and where we miss versus our expectation and maybe it'd be helpful. Just to take a step back and put the quarter in an overall context.

And then you talk about what where we have confidence moving forward and this was a pretty dynamic quarter and we knew it was going to be we are lapping a quarter from last year that had very high spending and had high merchandising.

And that was due to many of the activities we put in the marketplace to recover from the cyber attack, we had experienced the year before so we knew we were lapping that and we have made a lot of decisions to adjust spending and adjust our merchandising plans at the same time, we saw a very very dynamic consumer environment as consumers were trading off trading into smaller sizes moving to different <unk>.

Tailors.

And then of course, we were preparing for our ERP transition so a lot going on.

And just quite frankly in a few businesses. It didn't go as we had expected choose some of those elements, we didn't execute as well as they could have.

And things were lower than expected.

On the flip side there are some businesses that weren't exactly as we expected you know cleaning is a great example of that where we continue to grow share innovation plans worked extremely well the changes we've made some merchandising played out and so that's really the delta between where we thought we were going to be in Q4, and where we landed.

We never like that but we see clear opportunities to improve moving forward and our plans for 'twenty six contemplate that.

And really begin to ramp up in the back half.

And we felt good about that and obviously, we will make progress over the over the next couple of quarters on that.

But that's really just comes down to a very very dynamic quarter and he didn't all get did it didn't get it all right.

We're clear sighted on where he didn't and what we need to do moving forward. The only thing I'll note is well it really importantly for US we look at our brands to say it was just a brand issue or was this an execution issue and our brands continue to be incredibly healthy with consumers.

We grew household penetration in fiscal year, 'twenty, five and although we lost share in Q4, we grew share for the year and we came off of a quarter in Q3, where we maintain share and if you look at our consumer value metric that remains.

With that and really begin to ramp up in the back half and we feel good about that and obviously, we will make progress over the over the next couple of quarters on that.

At a high point in fiscal year 'twenty five so we know it's not our brands they still resonate with consumers.

But there's really just comes down to a very very dynamic quarter and we didn't all get did it didn't get it all right, but we're clear sighted on where he didn't and what we need to do moving forward. The only thing I'll note is it really importantly for US we look at our brands to say it was just a brand issue or was this an execution issue and our brands continue to be incredibly healthy with consumers.

And have everybody to perform and we're going to we're going to make sure that that execution comes through for fiscal year 'twenty six.

Thank you for that and I guess, maybe just to that point.

Maintaining kind of the sequential improvement that was mentioned in the prepared remarks that consumption trends would remain sluggish, but improving in the second half.

We grew household penetration in fiscal year, 'twenty, five and although we lost share in Q4, we grew share for the year and we came off of a quarter in Q3, where we maintained share and if you look at our consumer value metric that remains at a high point in fiscal year 'twenty five so we know it's not our brands they still resonate with consumers.

Can you just unpack that a bit and kind of what drives the confidence that trends are going to improve is that a is that a category based on something or was that a reflection of some of the actions you're taking.

I've improved share performance.

Yeah, Peter that's it's both but let me focus on what we control.

And have every right to perform and we're going to we're going to make sure that that execution comes through for fiscal year 'twenty six.

And and kind of walk you through it we're really seeing in the front half of the year as continued sluggish category and we've adjusted our plans, which will take our impact effect over time to address what we're seeing in consumer behavior. So as theyre going after larger sizes. We've adjusted our plans to deal with that Youre going to see those types of activities ramp up through the front half of the year.

Thank you for that and I guess, maybe just to that point.

But given kind of the sequential improvement that was mentioned in the prepared remarks that cause something signs would remain sluggish, but improving in the second half can you just unpack that a bit and kind of what drives the confidence that trends are going to improve as done a we've got.

But really take hold firmly in the back half and then the other thing that I would mention we have a very strong innovation plan in the back half of the year as you might recall, we talked about in fiscal year 'twenty five that we would be building on current platforms innovation platforms that we had and then beginning in 'twenty six we would be launching new platforms and that really was a result of the <unk>.

Category based on something or was that a reflection of some of the actions we're taking.

To drive improved share performance.

Yeah, Peter that's it's both but let me focus on what we control and and kind of walk you through it what we're really seeing in the front half of the year is continued sluggish categories and we've adjusted our plans, which will take our impact you know effect over time to address what we're seeing in consumer behavior. So as they're going after larger sizes, we've adjusted our plan.

<unk> carefully experience, we decided to double down on what we had versus launching new but now we're at that point, we'll be launching new innovation in the back half, which we're excited about and that will support not only category growth, which we care first and foremost about but also we believe market share improvements. So you know looking.

Two to deal with that Youre going to see those types of activities ramp up through the front half of the year, but really take hold firmly in the back half and then the other thing that I would mention we have a very strong innovation plan in the back half of the year as you might recall, we talked about in fiscal year 'twenty five that we would be building on current platforms innovation platforms that we had.

Looking at the category lens I would say it still remains uncertain.

Tumors are definitely still under stress.

We continue to expect our categories to perform below what they normally do and.

And we'll see how that progresses throughout the year, but I can't tell you with certainty what the categories will look like but what's under our control will sequentially improve throughout the year.

And then beginning in 'twenty six we would be launching new platforms and that really was a result of the cyber attack, we experienced we decided to double down on what we had versus launching new but now we're at that point, we'll be launching new innovation in the back half, which we're excited about and that will support not only category growth, which we care first and foremost about but also we believe market share improvements.

Got it thanks, so much I'll pass it on the computer.

Our next question will come from Andrea Teixeira with Jpmorgan.

Thank you operator and.

I want to just to go through the the mass.

So you know looking at the category lens I would say it still remains uncertain consumers are definitely still under stress. We continue to expect our categories to perform below what they normally do and.

Getting back to the levels as you did your ERP and then pull forward.

The impact the negative impact seems like a little more outside it actually not a it'll probably be more outsized than the benefits I just want to go for the MF or like.

Unlike any other.

Tier and the industry, having the same impact from Destocking. So in other words do stocking that is happening.

Got it thanks, so much I'll pass it on a computer.

Our next question will come from Andrea Teixeira with Jpmorgan.

And so we see channel shifting to E. Commerce that is even exacerbating that impact is that an additional destocking on top of the destocking for the ERP.

Thank you, operator, and I want to dive a little bit.

So to go through.

The mass.

Getting back to the levels as you did your ERP and then pull forward.

Got it well why don't I had two things let me address your you're more just industry. Destocking question, then I'll get into the ERP and I own a pass it to Luke to walk you through how to think about Q4 as it relates to the ERP from a performance perspective, and then how to think about 'twenty six.

In fact, the negative impact seems like little more outside that are actually not a little probably more outsized than the benefits I just want to go for the MF or like any other paid tier and the industry, having the same impact from Destocking. So in other words do stocking that is happening.

Coming out of that and what what will happen in numbers because we acknowledge there is a lot of noise right now going on in that and what we'll try to provide as much clarity as we possibly can.

And as we see channel shifting to E. Commerce that is even exacerbating that impact is that an additional destocking on top of the destocking from the ERP.

So first on Destocking, you know as we talked about at the end of Q3, we did expect some destocking to continue in Q4 and largely what we saw was in line with our expectations, we saw a bit more.

Got it why not why don't I hit two things, let me address your you're more just industry. Destocking question, then I'll get into the ERP and I own a pass it to Luke to walk you through.

And a couple of our businesses, we don't look at that as a structural issue. We look at that as more retailers continuing to do what we do which is get better inventory management without experiencing out of stocks we.

How to think about Q4 as it relates to the ERP from a performance perspective, and then how to think about 'twenty six.

We do not have any material retailer destocking outside of the ERP, which we'll talk about which is a different thing and our plans for fiscal year 'twenty six but we continue to watch it very very closely.

Coming out of that and what what will happen in numbers because we acknowledge there is a lot of noise right now going on in that and what we'll try to provide as much clarity as we possibly can.

And that wasn't the big story for Q4, and as we think about fiscal year 'twenty six.

So first on Destocking, you know as we talked about at the end of Q3, we did expect some destocking to continue in Q4 and largely what we saw was in line with our expectations. We saw a bit more in a couple of our businesses. We don't look at that as a structural issue. We look at that as more retailers continuing to do what we do which is get better at.

With that let's turn to the ERP and I'll do some framing and then again hand it to Luke.

First of all we're on track to complete the implementation of our ERP. This year in the U S, which is terrific and.

And I think it's helpful to remind everybody that the ERP happens at the beginning of the July of July and it happens in phases throughout the year, but the big portion really went live at the beginning of July and we are now in a stabilization phase so I wouldn't say we're done.

<unk> management without experiencing out of stocks we.

But we're still in the ramp up phase.

And to put the size of the ERP transition in context, which will connect the data that Luke will share on the actual numbers. This was not an upgrade of an ERP. This was a complete greenfield implementation of an ERP in the U S and.

And that wasn't the big story for Q4, and as we think about fiscal year 'twenty six.

With that let's turn to the ERP and I'll do some framing and then again hand it to Luke.

And that's because our current ERP off one of our European now with 25 years old. So we really needed to start from scratch and that means this was incredibly complex.

First of all we're on track to complete the implementation of our ERP. This year in the U S, which is terrific and.

And it took years of planning and of course these type of implementation come with exceptionally high complexity and you know as you think about what we just executed over the last.

Call. It eight weeks, we had to build our own prebuilt and ensure that retailers have the right amount of inventory for when we shut our system down because there was a period of time you can't take orders and then you have to bring the system back on.

But we're still in the ramp up phase.

You have the nervousness of when you turn on the system on and turn it I'll turn it off and turn it back on.

And then of course, beginning to ramp up those processes and the good news is most of that went exceptionally well we experienced the normal bumping us as we're in the ramp up phase and the good news is retailers have been terrific partnering with us so that as we encounter issues, we're able to solve them quickly and move on.

And that's because our current ERP Europe with our European now with 25 years old. So we really needed to start from scratch and that means this was incredibly complex.

And it took years of planning and of course these types of implementation come with exceptionally high complexity and you know as you think about what we just executed over the last.

But we are still in the middle of that ramp up phase here and will be for the next few weeks and then we'll finish the implementation for the rest of the year.

Call. It eight weeks, we had to build our own prebuilt and ensure that retailers have the right amount of inventory for when we shot our system down because there's a period of time you can't take orders and then you have to bring the system back on.

So as I hand, it to Luke just the takeaway is.

You know there is a lot of noise between fiscal year 'twenty five 'twenty six because of the size of this implementation and we have to make sure that we had the right inventories at the right places to ensure that this went smoothly and that's why I think youre seeing more than what you might hear other companies are much bigger pre builds and then of course, we have to deal with that.

You have the nervousness it when you turn the system on and turn it I'll turn it off and turn it back on.

And then of course, beginning to ramp up those processes and the good news is most of that went exceptionally well we experienced the normal bumping. This as we're in the ramp up phase and the good news is retailers have been terrific partnering with us so that as we encounter issues, we're able to solve them quickly and move on.

In the year and again it is just noise between years and nothing structural but I'll hand, it over to Luke to walk to walk through the different timeline yeah. Thanks Nina.

But we are still in the middle of that ramp up phase here and will be for the next few weeks and then we'll finish the implementation for the rest of the year.

There maybe a foot.

Let me have a couple of comments on what happened in Q4, because it was a little different than our expectations.

So as I hand, it to Luke just the takeaway is.

Once I do that just let me walk you through the impact of the.

Tony.

Ali.

Yeah P shipments to the outcome.

Oh, the retailer inventory build ended up being much higher than we anticipated. If you remember we had anticipated that.

As with auto between one and one in on weeks of inventory and that was it.

In the year and again it is just noise between years and nothing structural but I'll hand, it over to Luke to walk that to walk through the different timeline yeah. Thanks Nina.

Equivalent to about two to three points off on your own books.

Now it is short discussion with retail partners in the spring the own indicated about one another tweaks and based on the learnings from the timing we didn't get it down so based on some benchmarking we have done versus prior year.

There may be all for.

A couple of comments on what happened in Q4, because it was a little different than our expectations.

As I do that just you know what let me walk you through the impact.

Implementation.

We expected a true and all of those to be lower than it could be months.

The the early.

Shipments to the outcome.

Well most of it ended up ordering more not less than their commitment in fact, I've seen many irredentist, although the maxi Bob Hello.

Oh, the retailer inventory build ended up being much higher than we anticipated.

Remember, we had anticipated that.

I think it speaks volume.

Retailers with auto between one and one in on weeks of inventory and that was equivalent to about two to three points off on your own books.

Of their past experience with those type of conditions and the risk involved with those transitions. So we ended up shipping about two weeks of inventory, which is equivalent to three and a half to focus X.

Now it is short discussion with retail partners in the spring they own indicated about one another tweaks and based on the learnings from the time, it's we didn't get it down so based on some benchmarking we have done.

Now why do we have a range.

We do have a very robust striking process in place, but as probably see there's still an element of triangulation probably as many of you know several of our customers have an algorithm based ordering system, which makes it challenging to separate all the pre buy orders and regular orders. So we expect that we will have a bit of perspective and appointed.

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Implementation.

We expected a true and all of those to be a little lower than it could be months.

Well most of it ended up ordering more not less than their commitment in fact, I've seen many irredentist, although the maximo Hello.

Sometimes after the inventory drawdown and we appreciate that this creates even more complexity.

It speaks volume.

Of their past experience with those type of conditions and the risk involved with those conditions. So we ended up shipping about two weeks of inventory, which is equivalent to three and a half to focus on.

The last thing I'd mentioned on Q4 is that the gross margin.

Impact was higher than what we had anticipated.

Anticipated a fairly minor impact on margin and about 50 basis points for the quarter and 10 basis once for the year.

Now why do we have a range.

We do have a very robust striking process in place, but it's probably see there's still an element of triangulation probably as many of you know several of our customers have an algorithm based ordering system, which makes it challenging to separate all the pre buy orders in regular audits. So we expect that we will have a better perspective than a point.

And there were two drivers first we expected benefits from operating leverage from the higher shipments and second we were actually planning to incur incremental expenses like external warehousing.

As we build our.

As we build up our own internal inventory.

And so the reason the gross margin impact is higher about about 50 basis points on a per euro and 150 basis points for the quarter as two phones one.

Estimates, sometimes after the inventory drawdown and we appreciate that this creates even more complexity.

The last thing I'd mentioned on Q4 is that the gross margin.

The higher shipment created higher operating leverage.

<unk> impact was higher than what we had anticipated.

And second because we ended up shipping a lot more than we anticipated we did not build inventory and done and so we did not incur the expenses that we had planned.

Had anticipated a fairly minor impact on margin and about 50 basis points for the quarter and 10 basis once coming here.

And there were two drivers first we expected benefits from operating leverage from the higher shipments and second we were actually planning to incur incremental expenses like external warehousing.

I'll, just give you a little bit of perspective, and kind of bridge the actual impact of the ERP in Q4 related to our two.

So the expectation that we had set.

Now looking at the impact of the ERP on the outlook.

As we build our.

As we build up our own internal inventory.

And again, we appreciate that this is both material and complex and so maybe what I'll do is first let's step back and let me describe a little bit what happened in the transition because I think it does provide the right context to understand what's what happened from a timing standpoint.

And so the reason the gross margin impact is higher about about 50 basis points on a per euro and under 50 basis points for the quarter as two phones one.

The higher shipment created higher operating leverage.

And second because we ended up shipping a lot more than we anticipated we did not build inventory and done and so we did not incur the expenses that we have planned.

So as we transition into new system at the beginning of July essentially we had a blackout period, where for about a week, we were not able to process orders and after that just ethylene dimension you stopped.

I'll, just give you a little bit of perspective, and kind of bridge the actual impact of the ERP in Q4 really peaked two or.

Processing all of those would you ramp up and you do still progressing.

To the expectation that we had set.

So retailers knew that it would not be able to receive product for a period of time in July and as a result, the really essentially ordered about two weeks of July orders.

Now looking at the impact of the ERP on the outlook.

And again, we appreciate that this is both material and complex and so maybe what I'll do is.

Injured.

And.

Let's step back and let me describe a little bit what happened in the transition because I think that provide the right context to understand what happened from a timing standpoint.

And temporarily buildup of inventory for that period of time.

So really when you look at our offense.

<unk> were higher than what they would have been if it had been the transition and July says.

As we transition into new system at the beginning of July essentially we had a blackout period, where for about a week, we were not able to process orders and after that just ethylene dimension yourself.

Lower than what they would have been at that when the transitions.

And so because those two weeks of inventory are worth about three and a half to four point of annual sales.

Oh processing all of those would you ramp up and you do so progressively.

Due to a 25 sales are higher by three and half to 4% in fiscal year 'twenty success by three and a half.

So retailers knew that it would not be able to receive product for a period of time in July and as a result, the really essentially ordered about two weeks of July orders.

Two follow ups.

And when you look at the P&L of the same thing happened in margin and EPS.

In June.

So maybe the last thing I'd mention is that from a phasing standpoint, there's really two quarters in fiscal year 'twenty six whether year over year growth is going to be impacted.

And you know.

And temporarily buildup inventory fault for that period of time.

So really when you look at all things.

June sales were higher than what they would have been <unk>.

That'd be the first quarter or is it just mentioned the absolute dollars and cents are nowhere because when we say two weeks <unk>.

It had been the transition and July says are lower than what they would have been at that when the transitions.

And that impact would be about maybe 14%, 15%. But then you also have the fourth quarter, because you would be lapping a quarter of prior year that add two additional week upsets.

And so because there's two weeks I mean naturally are worth about three to four points of annual sales.

He stood at 25 cents, a higher likelihood of okta to 4% in fiscal 'twenty success are lower by three and a half two.

And so those are like the two the two quarters that would be impacted.

Two follow ups.

And when you look at the P&L of the same thing happened in margin and EPS.

So I hope that helps frame a little bit the year over year impact, which gets pretty material and complex. The main thing to remember is it is transitory.

So the maybe the last thing I'd mention is that from a phasing standpoint, there's really two quarters in fiscal year 'twenty six whether year over year growth is going to be impacted.

And.

When do you start putting in aggregate, we're looking at seven or eight points of organic sales under.

That'd be the first quarter or is it just mentioned the absolute dollars incentives on Noel because when we say two weeks off.

100 basis point of margin in 22% to 25% of adjusted EPS growth and when you exclude that essentially.

<unk>.

And that impact would be about maybe achieve 14% to 15%. But then you also have the fourth quarter, because you would be lapping a quarter of prior year that add two additional week absence.

Our our outlook assume minus one to plus 2% organic growth gross margin being flat to 50 basis points and adjusted EPS growing 2% to 4%.

And so those are like the two the two quarters that would be impacted.

So I hope that helps frame a little bit the year over year impact, which gets pretty material and complex. The main thing to remember is it is transitory.

That's super helpful. I just wanted to.

Like the 7% to 8% volume impact is greater than the positive trade show for that's why into India in fiscal 'twenty is high that's very simplistic to say it but just to.

And.

When do you start thinking in aggregate looking at seven or eight points of organic sales under.

How the impact is bigger.

100 basis point of margin in 22% to 25% of adjusted EPS growth and when you exclude that essentially.

This upcoming fiscal I guess, what the benefit was in fiscal 'twenty five.

Our our outlook assume minus one to plus 2% organic growth gross margin being flat to 50 basis points and adjusted EPS growing 2% to 4%.

Andrea I think what it is is you just have a higher base in 'twenty five and so you have to take that out and then you have the reversal and that's why it's not double the impact is simply the math between years that's right.

That's super helpful. I, just wanted to see.

Great I'll pass it on thank you very much for both.

Like the 7% volume impact is greater than the positive trade show for that's why in 'twenty and fiscal 'twenty five that's very simplistic to say it but just to see how the impact is bigger.

Thank you.

We'll move next to Filippo Maloney with Citigroup.

Hey, good afternoon, everyone.

So maybe just starting with the topline guidance.

This upcoming fiscal I guess, what the benefits are large in fiscal 'twenty five.

Excluding the ERP sector.

The negative one to positive to the nuclear medicine on a underlying basis can you talk to us a little bit about what category growth I assume.

You mean within the guidance from an organic sales standpoint, and then also from a promotional level. We've seen how long have you looked at it as being very promotional someone from your competitors.

Great I'll pass it on thank you very much for both.

Thank you.

It sounds from some of your actions and kind of later.

Yes.

We'll move next to Filippo Maloney with Citigroup.

How do you think the promotional environment will play out.

Hey, good afternoon, everyone.

Thank you.

Okay.

So maybe just starting with the topline guidance.

Yeah. Thanks Filippo.

Any perspective on the organic sales growth.

Excluding the ERP sector.

Ranch and.

The negative one to positive two that you just mentioned one of them.

I believe that can just provide a little more on the promotion so we.

Underlying basis can you talk to.

Is it a little bit about what category growth are you assuming within that guidance from an organic sales standpoint.

We have a fairly wide range.

This is really a reflection that we continue to assume that the external environment remains volatile and challenging. So we continue to expect the consumer will continue to display value seeking dws.

And then also from a promotional level, we've seen how long have you kind of just being very promotional some from your competitors.

We continue to expect competitive activity to remain at a heightened level and we continue to expect the sow cost and tariff environment to remain uncertain.

From some of your action later.

How do you think the promotional environment will play out.

I look at the organic sales growth range it might be easier to talk about what we assume for the middle and then just talk a little bit about the high end and north.

Thank you.

Okay.

Yeah. Thanks Filippo.

Prior to any perspective on the organic sales growth.

For the middle of the range and the midpoint of our estimates, we essentially assuming that U S category would be stabilized, but not yet normalized and so essentially growing at an average of zero percent to 1%.

Ranch and.

I believe that can just provide a little more on the promotion. So we have a fairly wide range.

This is really a reflection that we continue to assume that the external environment remains volatile and challenging so.

Now we.

Good and May see numbers outside that ranjan, if any specific months because of the volatility.

We expect the consumer will continue to display value seeking behaviors.

From a share standpoint, we assumed.

We continue to expect competitive activity to remain at a heightened level and we continue to expect the sow cost and tariff environment to remain uncertain.

Continued pressure in the front office and as Linda mentioned, just improving sequentially and especially in the background.

As I look at the organic sales growth range it might be easier to talk about what we assume.

We're clearly not satisfied with our performance in tobacco.

25, but we feel really good about our planning for fiscal 'twenty six we have strong innovation plans and strong net revenue management plan as well in the backups.

For the Middle and then just talk a little bit about the high end and north.

For the middle of the range and the midpoint of our estimates we essentially assuming the U S category would be stabilized, but not yet normalized and so essentially growing at an average of zero percent to 1%.

Now.

Two more comments on the range I would say volume growth would be fairly close to organic census growth.

We expect price mix to be maybe negative one or slightly better which is an improvement.

Now we <unk>.

Food and May see numbers outside that range and if any specific months because of the volatility.

What we've seen this year and while we continue to expect to see some headwinds from consumers seeking value behavior channel shifting and promotions.

From a share standpoint, we assumed.

Continued pressure on the cone thousand as Linda mentioned, improving sequentially and especially in the background.

That would be generally offset or partially offset by strong net revenue management initiatives and again as I mentioned a lot of them are into backgrounds.

Clearly not satisfied with our performance in the back half just due to a 25, but we feel really good about our planning fiscal 'twenty six we have strong innovation plans and strong net revenue management plan as well in the back half.

So from a phasing standpoint.

If you look at the product, it's probably we expect negative low single digits.

Now.

Maybe two more comments on the range I would say volume growth would be fairly close to organic census growth.

And then in the background for probably low single positive low single digits.

So that's for the ranch.

We expect price mix to be maybe negative one or slightly better which is an improvement of what we've seen this year and while we continue to expect to see some headwinds from consumers seeking better behavior channel shifting and promotions.

As far as promotions and pass it onto Linda Yeah.

And we've seen largely promotional fairly rational and we're not seeing significantly elevated levels and aggregate. There are a couple of pockets, where we're seeing more competitive activity, particularly and our trash business as well as cat litter, where we're continuing to see some pretty high promotional levels.

That would be generally offset or partially offset by strong net revenue management initiatives and again as I mentioned a lot of them are in the backgrounds.

And some very deep discounting.

So from a phasing standpoint.

If you look at the product, it's probably we expect negative low single digits.

But that is pretty consistent with what we've seen over the last several months and we do expect that to continue for fiscal year 'twenty six so largely a rational promotional environment with a couple of pockets.

And then in the background, probably low single positive.

Low single digits.

So thats for the ranch.

And cat litter and trash that we would expect to continue to be more competitive.

As far as promotions and pass it onto Linda.

You've seen that largely promotional fairly rational and we're not seeing significantly elevated levels and aggregate. There are a couple of pockets, where we're seeing more competitive activity, particularly and our trash business as well as cat litter, where we're continuing to see some pretty high promotional levels.

As we think about this and our approach what we've really thought about for fiscal year 'twenty six is continuing to Paul all levels levers of superiority in our plan and we believe that's the right way.

To drive categories, we want to make sure that we continue to drive profitable growth. So of course merchandising will be an important part of our plan to remind people that we have new innovation.

And some very deep discounting.

Yeah, but you know that is pretty consistent with what we've seen over the last several months and we do expect that to continue for fiscal year 'twenty six largely a rational promotional environment with a couple of pockets.

Ensure that we capture them during periods like back to school and cold and flu.

But we really want to make sure that we're leveraging on our claims and advertising and will continue to spend strongly next year.

Cat litter and trash that we would expect to continue to be more competitive as.

Focusing on innovation and communicating value ensuring that we have the right promotional activity going on in the categories on Etsy.

Etc. So thats, what youre going to see from US is that continued focus on ensuring that we have superiority across our brands and across all of the elements that we control.

To drive categories, we want to make sure that we continue to drive profitable growth. So of course merchandising will be an important part of our plan to remind people that we have new innovation.

And you will deal with those categories, where it's a bit more promotional but we want to make sure that we are continuing to preserve good profitable category growth.

Ensure that we capture them during periods like back to school and cold and flu.

Great. Thank you and maybe a quick follow up on the tariff front what are your expectation in terms of coming to the floor.

But we really want to make sure that we're leveraging our claims and advertising and will continue to spend strongly next year.

In fiscal 'twenty two.

Yes, we expect higher costs from tariffs to be around $40 million. Now. This is based on tariff announced as of today and of course assumed and also assume USA Usmc exemption for some of the imports that we have from Canada and Mexico.

Focusing on innovation and communicating value ensuring that we have the right promotional activity going on in the categories.

Etc. So thats, what youre going to see from US is that continued focus on ensuring that we have superiority across.

Our brands and across all of the elements that we control.

Now, we expect to offset the impact too.

And you will deal with those categories, where it's a bit more promotional but we want to make sure that we are continuing to preserve good profitable category growth.

A broad range of mitigating actions would that includes sourcing change sometimes re formulations productivity improvements, but it will also include some level of strategic pricing, although I would say, it's fairly targets, even surgical and generally very modest.

Great. Thank you and maybe a quick follow up.

On the tariff front what are your expectation in terms of having same thoughts.

Please go ahead.

Yes, we expect higher costs from tariffs to be around $40 million. Now. This is based on tariff announced as of today and of course assumed and also I assume you guys Usmc exemption for some of the imports that we have from Canada and Mexico.

In magnitude.

Now.

As you know the situation.

To be very fluid and dynamic and so the explorer the exposure could change and we're staying very close to it.

Alright, Thanks, guys I'll pass it on.

We'll move next to Ana <unk> with Bank of America.

Now, we expect to offset the impact through.

A broad range of mitigating actions would that includes sourcing change, sometimes we formulations productivity improvements, but that will also include some level of strategic pricing, although I would say, it's fairly targets, even surgical and generally very modest.

Hi, good afternoon, everyone and thank you for the question.

I would ask if you could qualify.

Right Hi, Linda.

Was wondering if you could clarify on your expectations for an improvement in the back half of the year I was wondering if this is based on your expectation for improving underlying consumption given innovation or also an assumption and an improving consumer environment.

In magnitude.

Now.

As you know the situation.

Continues to be very fluid and dynamic and so the exposure exposure could change and we're staying very close to it.

And then I wanted to follow up on the promotion question talk to better understand the dynamics around trade promotion you did mention in your prepared remarks unfavorable timing, but given the consumer environment. I was wondering if it makes sense to be continuing with promotion. If you are seeing unfavorable mix.

Great. Thanks, guys I'll pass it on.

We'll move next to Ana <unk> with Bank of America.

Hi, good afternoon, everyone and thank you for the question.

I Wonder if you could.

Basically where do you expect.

Right Hi, Linda.

Promotional dollars are best allocated in your portfolio.

I was wondering if you could clarify on your expectations for an improvement in the back half of the year I was wondering if this is based on your expectation for improving underlying consumption given innovation or also an assumption and an improving consumer environment.

But can you put down on promotion.

The doctor, but not meaningfully lifting a more challenging consumer landscape. Thank you.

Yeah. It was on the back half.

We really do expect what we can control to be the main driver of what we will experience from the back half improving.

And then I wanted to follow up on the promotion question talk to better understand the dynamics around trade promotion you did mention in your prepared remarks unfavorable timing, but given the consumer environment was wondering if it makes sense to be continuing with promotion. If you are seeing unfavorable mix.

That includes things like innovation that we talked about and we again are launching some new platforms and continuing to explant expand on our existing platforms. We have in the company and very excited about the innovation plans for the back half and it had good spending behind them as well as Luke mentioned from a net revenue management perspective, we start to see in many of the benefits flowing through in the back.

Basically where do you expect the promotional dollars are best allocated in your portfolio.

Half of the year and so we expect the fundamentals are execution and of course, the things that drive value in our categories over time like innovation and and good net revenue management to take hold mostly in the back half and that's why we see the improvement at this point, we are not predicting a significant change to the consumer environment.

But can you put down on promotion.

The doctor, but not meaningfully lifting a more challenging consumer landscape. Thank you.

Yeah. It was on the.

The back half.

We really do expect what we can control to be the main driver of what we will experience from the back half improving that includes things like innovation that we talked about and we again are launching some new platforms and continuing to explant expand on our existing platforms. We have in the company very excited about the innovation plans for the back half and they have good spending behind them.

We expect our categories to be about flat to one ish sluggish but.

But that's very difficult to predict quarter to quarter of moment to moment, and we're really focused on rare and de rigueur reinvigorating our categories through.

As well as Luke mentioned from a net revenue management perspective, we start to see in many of the benefits flowing through in the back half of the year and so we expect the fundamentals of our execution and of course, the things that drive value in our categories over time like innovation and and good net revenue management to take hold mostly in the back half.

Good advertising spend pulling all the levels of superiority, including innovation.

And then that leads to your point on promotion and you know we've always felt that promotion is a very strategic activity.

And in a way that we view it it is a great way to remind consumers and at times when they have a life event going on for example, I'm getting ready to send one of my kids to college and I'm thinking about all those things that they need and consumers have the same attitude and we help them during that back to school period to maybe see products they haven't seen before.

And that's why we see the improvement at this point, we are not predicting a significant change to the consumer environment, we expect our categories to be about flat to one ish sluggish but.

But that's very difficult to predict quarter to quarter of moment to moment, and we're really focused on rare and de rigueur reinvigorating our categories through.

Mine them that their kids are going to need access to fresh water and a brighter picture.

Helping them to stay well when theyre staying up all night to through Crocs disinfecting wipes those types of things that promotion is very strategic.

Good advertising spend pulling all the levels of superiority, including innovation.

And then that leads to your point on promotion and you know we've always felt that promotion is a very strategic activity.

<unk> bring in new consumers and remind current consumers to stock up when they need you for those events and also allows us to introduce innovation. So in the back half you would expect us to use promotion to introduce the new innovations that we have to the consumer and put it in a place where they can easily find it in the store, particularly because many of our categories people are not going to spend.

And in the way that we view it it is a great way to remind consumers and at times when they have a life event going on for example, I'm getting ready to send one of my kids to college and I'm thinking about all those things that they need and consumers have the same attitude and we help them during that back to school period to maybe see products they haven't seen before.

10 minutes in front of the shelf shopping and Thats why promotion is so effective to get them to see new items quicker.

Find them that their kids are going to need access to fresh water and a brighter picture.

Quickly in the store.

That being said because the consumer is so dynamic we are absolutely being dynamic with our promotional spend and I'll highlight that as one of the things we didn't execute as well as we could have in Q4 as consumers are being are buying smaller sizes, we need to adjust our promotions to ensure that we are giving them the right options and promotion. So those are the things and you'll see us do throughout the year.

Helping them to stay well when theyre staying up all night to through Crocs disinfecting wipes those types of things that promotion is failing strategic.

It's bringing new consumers and remind current consumers to stock up when they need you for those events and also allows us to introduce innovation. So in the back half you would expect us to use promotion to introduce the new innovations that we have to the consumer and put it in a place where they can easily find it in the store, particularly because many of our categories people are not going to spend.

Is ensuring that we have the right promotions at the right place on the right items to ensure that we communicate value and superiority to our consumers when I don't anticipate though as using promotion as a way to differentially reinvigorate the category, we don't want to put spending in there that.

10 minutes in front of the shelf shopping and Thats why promotion is so effective to get them to see new items.

Quickly in the store.

That isn't good and efficient we want to use it strategically and we see that mainly in our categories again, it's fairly rational that's what we're seeing from competitors and.

And we think that's the right way to go our categories given most of the volume for our businesses is done off shelf and not on promotion and we want to continue to use it that way that being said it is very dynamic right now and if that changes we'll adjust our plans.

<unk> is ensuring that we have the right promotions at the right place on the right items to ensure that we communicate value and superiority to our consumers when I don't anticipate though as using promotion as a way to differentially reinvigorate the category, we don't want to put spending in there that.

But it is an important tool for us and we feel like we have the right mix of debt and for fiscal year 'twenty six and have a good line of sight to what we expect to happen in the categories and how we can drive that.

Great. Thanks, so much very helpful and just one follow up on on private label. I know you mentioned you haven't seen a significant change overall, but we are seeing some uptick in certain categories. Like wipes. For example are you seeing them starting on your end or is it.

That isn't good and efficient we want to use it strategically and we see that mainly in our categories again, it's fairly rational that's what we're seeing from competitors and.

Maybe they're in household incomes here or retail channels that where you're seeing just a greater penetration of private label starting to uptick here. Thanks.

Yeah in aggregate, we're not seeing any material shift to private label I Wouldnt want exceptionally good callout with glass and that mainly has to do with retailer assortment as consumers are moving into channels like Bob et cetera, that's having more of an impact on our glad business, but in aggregate, we're not seeing it there are some new.

<unk>, if you look quarter to quarter Youre right on wipes, we've seen a little more private label in life, but if you look at our life business, we grew very strongly including our new <unk> wipes.

Maybe or in household incomes here or retail channels that where you're seeing just a greater penetration of private label starting to uptick here. Thanks.

That were four times the rate of our growth and so.

We at this point again are not worried about private label expansion based on what we've seen but we're watching it very closely we're adjusting our plans to make sure we have the right sizes.

Yeah in aggregate, we're not seeing any material shift to private label I Wouldnt want exceptionally good callout with glass and that mainly has to do with retailer assortments as consumers are moving into channels like Bob et cetera, that's having more of an impact on our glad business, but in aggregate, we're not seeing it there are some new.

Are forced to make a trade into a private label item because they have a lot of pocket. We're doing all of that work to make sure that we can capture the consumer along the entire value cycle.

But for now we feel confident in our brands and the fact that consumers continue to remain in our portfolio.

<unk>, if you look quarter to quarter Youre right on wipes, we've seen a little more private label and wife's but if you look at our life business, we grew very strongly including our new <unk> wipes.

And then we give them the options to do that through sizing and and price pack architecture.

Great. Thanks, so much very helpful.

That were four times the rate of our growth and so we.

Yeah.

Our next question will come from Bonnie Herzog with Goldman Sachs.

We at this point again are not worried about private label expansion based on what we've seen but we're watching it very closely we're adjusting our plans to make sure we have the right sizes.

Alright, Thank you hi, everyone I am.

I just had a quick follow up question on the ERP transition was there a greater you know bill.

When people are forced to make a trade into a private label item because they have a lot of pocket. We're doing all of that work to make sure that we can capture the consumer along the entire value cycle.

Build in certain businesses or segments versus others, and then I did want to ask about Kingsford you know Linda you mentioned you know the pressure on the business or at least it was called out in the prepared remarks in your quarter, but it sounds like trends improved in July and you're optimistic for the rest of the summer. So could you maybe talk about how kingsford is.

But for now we feel confident in our brands and the fact that consumers continue to remain in our portfolio.

And then we give them the options to do that through sizing and and price pack architecture.

<unk> to win and maybe touch on some of your innovation and activation plans and essentially how youre also thinking about the price gaps within our with the rest of the charcoal category. Thank you.

Great. Thanks, so much very helpful.

Thank you.

Our next question will come from Bonnie Herzog with Goldman Sachs.

Alright, Thank you hi, everyone.

I just had a quick follow up question on the ERP transition was there a greater bill.

Yes, starting with the ERP Bonnie no material difference between businesses that I would call out the only thing you might have noticed in the press release would be that we do have some export business. So there was a lower impact for international simply because the size of the export business is it.

Build in certain businesses or segments versus others, and then I did want to ask about Kingsford you know Linda you mentioned the pressure on the business or at least it was called out in the prepared remarks in your quarter, but it sounds like trends improved in July and you're optimistic for the rest of the summer. So could you maybe talk about how kingsford is.

Corresponding to the size of what we would ship, but all the rest of the businesses, there's nothing material to call out in terms of the differences in the segments et cetera.

Particularly for Kingsford, we did call out that was a business where the execution just didn't meet our expectations for the quarter and there was a lot going on I think you. All know there was some pretty terrible weather in Q4 for memorial day, but frankly, it came down to us not executing to the degree we know we can and we must execute on kingsford.

Vision to win and maybe touch on some of your innovation and activation plans and essentially how you're also thinking about the price gaps within our with the rest of the charcoal category. Thank you.

In the end the key holidays.

And that's what happened in Memorial day, we had slightly less merchandising and not necessarily on the right sizes as we shifted our plan and so the good news is we adjusted our plan for July 4th and we saw improvement in the plan and we're seeing the trend on share moved in the right direction.

Corresponding to the size of what we would ship, but all the rest of the businesses, there's nothing material to call out in terms of the differences in the segments et cetera.

I don't think this is an issue of our price gap versus private label or value versus private label.

Particularly for Kingsford, we did call out that was a business where the execution just didn't meet our expectations for the quarter and there was a lot going on I think you all know there was some pretty terrible weather.

All that remains what it was before this was really just execution and we are adjusting our plan to ensure that we do that an example would be as we can see consumers walk from smaller sizes for those who.

In Q4 for Memorial day, but frankly, it came down to us not executing to the degree we know we can and we must execute on kingsford in the and the key holidays.

Just want to have one or two grilling occasions, we are doing that to ensure that they have a smaller size and are able to do that and we're not just offering them a very large size for them to stock up on when they don't have that out of pocket. Those are the types of adjustments that we're making for.

And that's what happened in Memorial day, we had slightly less merchandising.

Not necessarily on the right sizes as we shifted our plan and so the good news is we adjusted our plan for July 4th and we saw improvement in the plan and we're seeing the trend on share moved in the right direction on the I don't think this is an issue of our price gap versus private label or value versus private label.

Before labor day coming up here in a month, but don't feel like this has anything to do with our value equation between us and private label it really just about execution.

Okay. Thank you I'll pass it on.

Thank you.

All that remains where it was before this was really just execution and we're adjusting our plans to ensure that we do that an example would be as we can see consumers walk from smaller sizes for those who.

Our next question will come from Chris Carey with Wells Fargo.

Okay.

Hi, everyone.

Hi, Chris Hi, Chris.

Just want to have one or two drilling occasions, we are doing that to ensure that they have a smaller size and are able to do that and we're not just offering them a very large size for them to stock up on when they don't have that out of pocket. Those are the types of adjustments that we're making for labor day coming up here in a month, but don't feel like that says anything to do with our value equation.

I think when.

We on this side are confronted with these sorts of situations, where there's swings in.

From one year to the next.

There's a lot of volatility in the numbers and it was really just a search for I suppose the true north.

Between us and private label it really just about the execution.

And I guess in that context right Luke.

Okay. Thank you I'll pass it on.

You.

Dave.

You know some figures for how he sees the Oh, you all see the underlying business.

Our next question will come from Chris Carey with Wells Fargo.

Yeah.

Hi, everyone.

Fiscal 'twenty, six, but certainly I think.

Hi, Chris Hey, Chris.

As early as it is we'll all be I suppose looking over the horizon that fiscal 'twenty seven for when we can assess the business, perhaps a bit more clearly at least from a.

I think when.

We on this side are confronted with.

These sorts of situations, where there's swings in.

High level perspective, right, so with that kind of as a foundation.

Sales from one year to the next.

There's a lot of volatility in the numbers and it was really just a search for I suppose the true north.

How are you thinking about you know what this.

Business should be delivering over a medium term horizon from a topline perspective, the 3% to 5%.

And I guess in that context right Luke.

<unk>.

Long debated target many of your peers.

You know.

Figures for how he sees.

Category growth plus.

Oh, you all see the underlying business.

Ambitions give some flexibility for category.

Fiscal 'twenty, six, but certainly I think.

Do you continue to see room in your gross margin given the ERP and some of the mix shift.

As early as it is we'll all be I suppose looking over the horizon that fiscal 'twenty seven for when we can assess the business, perhaps a bit more clearly at least from a.

You'll see yesterday savings as longer term objectives I know, it's a big question, but I think.

High level perspective, right, so with that kind of as a foundation.

For us personally here it would be helpful to kind of understand how you see more.

How are you thinking about.

The medium term and weather.

This.

Some of these debates markets.

<unk> should be delivering over a medium term horizon from a top line perspective, the 3% to 5%.

Uh-huh evolved your own thinking thanks, so much.

Long debated target many of your peers.

Thanks, Chris.

First of all I just wanted to acknowledge.

Category growth plus.

It's never easy to go through these types of transitions and we want to provide.

Ambitions give some flexibility for category.

Real clarity on on the shifts because we know that it's difficult to do that but I also want to emphasize how absolutely necessary. Unfortunately this noise is.

Do you continue to see room in your gross margin given ERP and some of the mix shift.

You'll see yesterday savings as longer term objectives I know, it's a big question, but I think.

To do exactly what you talked about Chris which is get back to a place where we're delivering that accelerated profitable growth.

For us personally here it would be helpful to kind of understand how you see more of the.

<unk> as a stronger company moving forward and so I just appreciate everyone's patience as we go through this.

Medium term and weather.

And we're frankly excited about what's ahead of us because of this transformation and what it does unlock is our ability to accelerate revenue.

Some of these debates markets.

Uh-huh evolved your own thinking thanks, so much.

Thanks, Chris.

First of all I just wanted to acknowledge.

Having the access to data and insights that we've never had before being able to move the fastest consumers do seeing and to and to ensure that we're able to remove waste and new ways that we haven't done before.

It's never easy to go through these types of transitions and we want to provide real clarity on on the shifts because we know that it's difficult to do that but I also want to emphasize how absolutely necessary. Unfortunately this noise is.

All of the reasons, we're going through this pain now to get to the other side and build a stronger company that does this more consistently and I know its hard and the noise to get all that but I want you to hear how excited we are and I am as a company to do that.

To do exactly what you talked about Chris which is get back to a place where we're delivering that accelerated profitable growth.

<unk> as a stronger company moving forward and so I just appreciate everyone's patience as we go through this.

That being said.

And we're frankly excited about what's ahead of us because of this transformation and what it does unlock is our ability to accelerate revenue.

It is a.

A year, where we have volatility and also as we've acknowledged and I think everybody's acknowledging right now it's a tough consumer environment. So unfortunately, our categories are lower growth of course, it's incumbent upon us to reinvigorate that category growth and we intend to do that through innovation and through good spending, which we have in our plan and of course, we want to win share over that.

Having the access to data and insights that we've never had before being able to move as fast as consumers do seeing end to end to ensure that we're able to remove waste and new ways that we haven't done before.

At a time and very very importantly, we have built a capability in our flywheel by hand or margin improvement to fund that type of activity and we feel very confident in our ability to do that going forward and that's reflected in the plan in fiscal year 'twenty six as we've talked about it if you exclude that variability that the ERP is in driving.

All of the reasons, we're going through this pain now to get to the other side and build a stronger company that does this more consistently and I I know its hard and the noise to get all of that but I want you to hear how excited we are and I am as a company to do that.

That being said.

It is a.

A year, where we have volatility and it's also as we've acknowledged and I think everybody's acknowledging right now it's a tough consumer environment. So unfortunately, our categories are lower growth of course, it's incumbent upon us to reinvigorate that category growth and we intend to do that through innovation and target spending, which we have in our plan and of course, we want to win share over that.

So maybe fast forward ahead of cost, we're not providing fiscal year 'twenty seven guidance or beyond that and I know you won't know that but you know just if I take a step back how do we get back to that three to five you know obviously, we need categories to come back to what we thought they would be and yeah that was in the two two and a half range. We also continue to see good perf.

Formats and better than company average from our international and professional business and we would expect both of those over time to add a point.

In addition, we would expect some share growth.

And you'll see that through the innovation capabilities that really start to take off in the back half of the year through net revenue management, which is really just ramping up and I want to acknowledge we've been talking about these capabilities for a while it takes a while to build them, but if I remind you we talked about this with margin transformation back when we had a significant.

So maybe fast forward ahead of course, we're not providing fiscal year 'twenty seven guidance or beyond that and I know you won't know that but you know just if I take a step back how do we get back to that three to five you know obviously, we need categories to come back to what we thought they would be and you know that was in the two two and a half range. We also continue to see good pro.

Harry cycle on our business and we showed that with these capabilities can do and we've been able to restore that margin and continue to show expansion.

Formats and better than company average from our international and professional business and we would expect both of those over time to add a point.

So we have the same confidence and at the other capabilities we built.

Given the cyber attack, there a little bit delayed and the value creation that could really start to see them come through in the fiscal year 2016 plan and we would expect to continue in 'twenty seven and beyond.

In addition, we would expect some share growth.

So that's what we're looking forward to we remain confident in our ability to deliver our financial algorithm, we're going to have to get those categories back to what they were and then we feel confident in the capabilities. We're building we have to execute them and we intend to do that and we know this year is a year of a lot of noise and we just appreciate everyone's patience as we go through it and will continue throughout fiscal <unk>.

And Harry cycle on our business and we showed that with these capabilities can do and we've been able to restore that margin and continue to show expansion.

26 to show you those signs that we're seeing all the things that we are building and how theyre taking hold.

So we have the same confidence and these other capabilities we built.

And that of course, you know when we get closer to 27, we'll talk about what that looks like.

Given the cyber attack, there a little bit delayed and the value creation, but you really start to see them come through in the fiscal year 2016 plan and we would expect to continue in 'twenty seven and beyond.

Okay. Thanks, Linda that was a long question I ask another one thank you for your insights. Thanks.

Thanks, Chris.

Our next question will come from Cuomo Gargle, a wallet with Jefferies.

Yeah.

A millionaire.

Yeah.

26 to show you those signs that we're seeing of the things that we are building and how they are taking hold.

Hi, I'm here, sorry about that.

I wanted to talk a little bit about the dig in a little bit more on the consumer.

And that of course, you know when we get closer to 27, we'll talk about what that looks like.

We are hearing from yourselves and other household goods companies.

Okay. Thanks, Linda that was a long question or not ask another one thank you for the insights. Thanks.

Consumer, but we're also hearing the opposite from you know a lot of other industries and retailers and banks and things like that so have you been able to dig into what it might be that's specific to.

Thanks, Chris.

Our next question will come from Cuomo Gargle, a wallet with Jefferies.

Household goods or personal care of that.

Sure.

Consumer seems to be a lot more.

I guess the value seeking more sensitive more pressured than perhaps they are in some other sectors.

Yeah.

A millionaire.

Yeah, I think it's helpful to start and take a step back on the consumer in aggregate and we've talked about this a bit over the last couple of quarters, and what's really unique and going on.

Yeah.

Hi, I'm here, sorry about that.

I wanted to talk a little bit about the dig in a little bit more on the consumer and that we.

If you take a step back and look at consumers overall, if you look at.

Hearing from yourselves and other household goods companies.

A weak consumer but we're also hearing the opposite.

Job. If you look at income inflation, if you look at the broader fundamentals yeah, Yeah, you see some strength in the consumer.

A lot of other industries and retailers and banks and things like that so have you been able to dig into what it might be that's specific to <unk>.

And that was I think what made people very optimistic heading into this period that we would start to see improvements in places where it was a bit weaker.

Household goods or personal care of that.

Consumer seems to be a lot more.

But the dynamic that's going on and I would highlight one word it's uncertainty.

I guess value seeking are sensitive pressured than perhaps they are in some other sectors.

And maybe I'd add volatility to that is that there's so many things uncertain right now for consumers.

Yeah, I think it's helpful to start and take a step back on the consumer in aggregate and we've talked about this a bit over the last couple of quarters, and what's really unique and going on.

As they see macroeconomic policy a trade other things coming to light that they are making trade offs based on the information that they have at the moment and that information to be fair has changed pretty rapidly over the last number of months.

If you take a step back and look at consumers overall, if you look at.

<unk> if you look at income inflation, if you look at the broader fundamentals yeah, you see some strength in the consumer.

And we talked about a little bit less in the last quarter you know at the beginning or the end of February through March we saw people, making purchases of goods. They thought were coming from Mexico and Canada. For example to get ahead of tariffs.

And that was I think what made people very optimistic heading into this period that we would start to see improvements in places where it was a bit weaker.

But the dynamic that's going on and I would highlight one word it's uncertainty.

We saw it.

The influx of spending into edibles versus non at people were really trying to be sharp on their spending.

And maybe I'd add volatility to that is that there's so many things uncertain right now for consumers.

And these stores in order to make sure that they could kind of deal with the uncertainty that they had in their wallet because consumers have one wallet at the end of the day.

As they see macroeconomic policy a trade other things coming into light that they are making trade offs based on the information that they have at the moment and that information to be fair has changed pretty rapidly over the last number of months.

At the same time that you see this value seeking and you see this uncertainty behavior from consumers. Interestingly you also see that's really unique maybe accentuated trend right now on convenience and experiences consumers are still buying things and experiences they like youre still seeing them do things outside there.

And we talked about a little bit of this in the last quarter you know at the beginning or the end of February through March we saw people, making purchases of goods. They thought were coming from Mexico and Canada. For example to get ahead of tariffs.

Home go out to eat et cetera, which might not be rational at this moment, but you can see how consumers are starting to shape. Those experiences we're seeing that in our categories. We're seeing significant move to convenience. So our wipes business, which might be counterintuitive is growing very strong right now.

We saw an influx of spending into edibles versus non at people were really trying to be sharp on their spending.

And these stores in order to make sure that they could kind of dealing with the uncertainty that they had in their wallet because consumers have one wallet at the end of the day.

Trade up to our business <unk>, which is a highly experiential fragrance cleaning line, we saw 40% growth in 17 of this year. So we're seeing all these dynamics of consumers having to manage this uncertainty which is meaning they're moving their walked out.

At the same time that you see this value seeking and Youll see this uncertainty behavior from consumers. Interestingly you also see this really unique maybe accentuated trend right now on convenience and experiences consumers are still buying things and experiences they like you're still seeing them do things outside there.

Dollars in their wallet across different places and they're doing it very very dynamically in aggregate, they're pretty healthy and that's why we have confidence over the long term. This is going to work out because we are an essential goods at some point they will run out of pantry inventory you know, we don't see at home behaviors changing that much.

Home go out to eat et cetera, which might not be rational at this moment, but you can see how consumers are starting to shape. The differences, we're seeing that in our categories. We're seeing significant move to convenience. So our wipes business, which might be counterintuitive is growing very strong right now the trade up to our business <unk>, which is a highly experiential fragrance cleaning line.

In terms of the amount for cleaning when the times are changing or better box, but theyre definitely dealing with a lot of uncertainty right now and that's why we're so focused on ensuring superiority and I'll tell you in times that are top security matters more than ever and every element has to come together to ensure that we're.

We saw 40% growth in Santee, but this year. So we're seeing all these dynamics of consumers having to manage this uncertainty which is meaning they're moving their walls.

Ah conveying superiority to that consumer and that's what we are laser focused on right now with our categories with our brands to ensure we're doing that that's what our innovation is focused on.

And their wallet across different places and they're doing it very very dynamically in aggregate, they're pretty healthy and that's why we have confidence over the long term. This is going to work out because we are an essential goods at some point they will run out of pantry inventory, we don't see at home behaviors changing that much.

But I think coming out that's the difference youre seeing and where there are some places where you're seeing a more healthy consumer and I would I would say, they're not unhealthy inter categories Thunder stress is the way I would describe it and again thats due to that uncertainty, but given the strength of our brands the strength of our plans.

In terms of the amount for cleaning or they might that times are changing or better box, but theyre definitely dealing with a lot of uncertainty right now and that's why we're so focused on ensuring superiority and I'll tell you in times that are top security matters more than ever and every element has to come together to ensure that we're.

I'm confident that we'll control what we can this year to deal with that and hope to reinvigorate category growth. So we see stronger numbers in our categories moving forward.

Okay.

Okay got it thats useful thank you.

Conveying superiority to that consumer and that's what we are laser focused on right now with our categories with our brands to ensure we're doing that that's what our innovation is focused on.

Our next question will come from Olivia Tong with Raymond James.

Great. Thanks, good afternoon.

I wanted to ask you about the efforts that you're making and for school and then in the next fiscal year or to improve your value superiority talk about innovation in the second half talking about more promotion and potentially.

But I think coming out that's the difference youre seeing and where there are some places where you're seeing a more healthy consumer and I would I would say, they're not unhealthy in our categories Thunder stress is the way I would describe it and again thats due to that uncertainty, but given the strength of our brands the strength of our plans.

If you could talk about also the flexibility you have either on promotion and other brand support if necessary to really sort of drive home that message and then.

I'm confident that we'll control what we can this year to deal with that and hope to reinvigorate category growth. So we see stronger numbers in our categories moving forward.

Maybe you could step back and just talk about some of the major drivers of the weakness beyond obviously, the consumer environment because some of this is pretty down but perhaps.

Okay.

Okay got it thats useful thank you.

Our next question will come from Olivia Tong with Raymond James.

How much of an impact in there.

The product lineup need some improvement you're channeling category exposure and where you are over indexed versus under indexed and just the mix of your categories that would be helpful. Thank you.

Great. Thanks, good afternoon.

I wanted to ask you about the efforts that you're making in fiscal <unk> and then.

And the next fiscal year or to improve your value superiority talk about innovation in the second half talking about more promotion potentially.

Charlotte.

So.

Security is fundamental to how we went into our categories over the long term and as you noted it's incredibly important that our 26 plans and prove that superiority and there are places that we're starting from a very strong place and if you look at our categories overall, our consumer value metric, where 60% superior which is higher than it was.

If you could talk about also the flexibility you have either on promotion and other brand support if necessary to really sort of drive home that message and then.

I think it's a step back and just talk about.

Some of the major drivers of the weakness beyond obviously, the consumer environment because some of this is pretty down, but perhaps you know how much of an impact.

Even pre pandemic and we've continued to maintain at even through the tough times over the last few years.

The product lineup need some improvement you're channeling category exposure and where you are over indexed versus under index and just the mix of your categories that would be helpful. Thank you.

And so what we wanted to live in those categories, where we already have fairly good superior we want to continue to raise the bar and we will do that through new innovations through continued good claims work through making packages work better for consumers not just what's in the package to ensure their shopping experience is as simple as it possibly can be and being assorted wherever they are.

Charlotte.

So security is fundamental to how we went into a category over the long term and as you noticed incredibly important that our 26 plans.

And we have a pretty.

And prove that superiority and there are places that we're starting from a very strong place.

Good assortment now, but those are things that we want to make sure. We're really tight on all of the right locations at the right sizes that things are available on E Commerce as we see e-commerce accelerate.

If you look at our categories overall, our consumer value metric, where 60% superior.

This is higher than it was even pre pandemic and we've continued to maintain that even through the tough times over the last few years.

And those are the things the sharpening that we do every single day on that businesses on our businesses in the places that are starting from a place of superiority, we want to be driving the narrative and changing what superior means we want to set the bar and then there are some places where we don't have the superiority and I think cat litter is very fair to say, that's a place where we need to improve our superiority.

You've seen us.

I have to go through what we did on fiber or we lost some of our consumers. We got that distribution back we've got a lot of consumers back.

And we have a pretty good.

But we fell behind in that period, and we've talked about that that's why it's taking some time to get it back.

And that's a place where we're laser focused on getting back to a placement superiority. We felt good about the good news is we have those plans to do that this year and as we move through the year, we'll see that and prove really culminating in the back half.

And those are the things the sharpening that we do every single day on that businesses on our businesses in the places that are starting from a place of superiority, we want to be driving the narrative and changing what superior means we want to set the bar and then there are some places where we don't have a superiority in I think cat litter is very fair to say, that's a place where we need to improve our superiority.

But those are the places that we're focused on maintaining our superiority in setting the bar in categories, where we're already leading and then getting back to a place where we are superior in places that were not and I think cat litters is the best example of that and then on your flexibility question and this is about the flywheel that I spoke about a little bit in my earlier answer we built a flywheel.

You've seen us.

I have to go through what we did on fiber or we lost some of our consumers. We got that distribution back we've got a lot of consumers back.

We're generating good savings that we can reinvest back in our business.

But we saw the highest in that period and we've talked about but that's why it's taking some time to get it back.

And we feel really good about our ability to do that and so we do have the financial flexibility if we need to adjust our plan to put more spending and to adjust our spending and of course with our ERP implementation and our full digital transformation, we have more visibility into the data to be able to make those changes more real time.

And that's a place where we're laser focused on getting back to a place of superiority. We felt good about the good news is we have those plans to do that this year and as we move through the year, we'll see that improve really you know, culminating in the back half.

But those are the places that we're focused on maintaining our superiority in setting the bar in categories, where we're already leading and then getting back to a place where we are superior in places that were not and I think cat litter is the best example of that and then on your flexibility question and this is about the flywheel that I spoke about a little bit in my earlier answer you know we built a flywheel.

Those things will go hand in hand, but we feel we have the right investment level for next year and again, we'll adjust that if we need to and certainly have built that flywheel to have the flexibility to do that next year or in the future.

Got it that's helpful. And then just following up on gross margin for fiscal 'twenty six are still looking for something in the flat to plus 50 ex ERP. Despite the top line challenges. So can you talk about your level of confidence here and potentially driving continued expansion and just the key drivers. There because you are already back to peak levels now and you don't have.

We're generating good savings that we can reinvest back in our business and.

Ton, but you do have some exposure to tariffs. So it sounds like there can be more promotion next year. So I'm just trying to think about that that the tailwind that gets you to the point. The 51, when we know the headwinds that that could be appearing.

Those things will go hand in hand, but we feel we have the right investment level for next year and again, we'll adjust that if we need to and certainly have.

Yes, sure. Thank you I'll take that one.

Adult that flywheel to have the flexibility to do that next year or in the future.

You'll notice that we provided a fairly wide range.

Got it that's helpful. And then just following up on gross margin for fiscal 'twenty six you're still looking for something in the flat to plus 50 ex ERP. Despite the top line challenges. So can you talk about your level of confidence here and potentially driving continued expansion and just the key drivers there because you are already back to peak levels now and.

Excluding the impact of the out.

It's basically being flat to 50 basis point and that's acknowledging there's a lot of uncertainty in the cost environment in the first place.

But I mentioned the current assumption spot tariff will have to see how that evolves, but in terms of general supply chain inflation would probably expect between $80 million to $90 million up headwind.

You don't have a ton, but you do have some exposure to tariffs. So it sounds like there can be more promotion next year. So I'm just trying to think about that.

So you're right.

With a doctor. If this is different this is slightly higher than what we normally experience.

The tailwind is that gets you to the point the 50, when when we know the headwinds that that could be appearing.

Experience.

Having said that we just talked about it we've been ramping up for the past two or three years.

Yes, sure. Thank you I'll take that.

You will notice that we provided a fairly wide range.

Margin transformation and holistic margin management.

Excluding the impact of the <unk>.

I should say and we really still have a pretty strong pipeline.

Basically being flat to 50 basis point and that technology, there's a lot of uncertainty in the cost environment in the first place.

And so I think we feel generally good about offsetting the current cost assumptions, we will have to stay close to it especially with tariffs.

I mentioned the <unk>.

Our current assumptions for theory, if we'll have to see how that evolves, but in terms of general supply chain inflation would probably expect between $80 million to $90 million of big wins.

And the good news is while again the ERP creates a lot of a fault complexity and noise from a reporting standpoint once we're stabilized.

So you're right.

This will provide another source of.

With a doctor. If this is different this is slightly higher than what we'd normally experience.

Productivity for years to come so, but in general I think right now that would be.

Having said that we just talked about it.

It's you know staying close to what's happened from a tariff standpoint, we generally feel good about our ability to deliver our guidance.

Ramping up for the past two to three years.

Margin transformation and holistic margin management.

Understood. Thank you.

What I should say and we really still have a pretty strong pipeline.

We'll move next to Kevin Grundy with BNP Paribas.

And so I think we feel generally good about offsetting the current cost assumptions will have to stay close to it especially with tariffs.

Great. Thanks, good afternoon, everyone.

Hum.

Also wanted to maybe pull out a little bit away from the quarter and at the longer term question, you've got a little more long lines of prepared questions, but further down the P&L. So Luca maybe for you.

And the good news is while again the ERP creates a lot of a fault complexity and noise from a reporting standpoint once we're stabilized.

This will provide another source of productivity for years to come so but in general I think right now, albeit staying close to wake up and from a tariff standpoint, we generally feel good about our ability to deliver our guidance.

Linda as well.

The way I understand it you know some of the ERP benefits here. The idea is to get to a run at 18% operating margin. There was some noise. Obviously this year there'll be noise again in 'twenty six.

Understood. Thank you.

I think the expectation is you're probably around 16% or so operating margin.

Well move next to Kevin Grundy with BNP Paribas.

This year, all in including the noise from the ERP and the deleverage associated with it.

Great. Thanks, good afternoon, everyone.

No.

Hum.

But I think the target is to get to 18% with some of the benefits of the ERP is going to afford you Joe.

Also wanted to maybe pull out a little bit away from the quarter and that's a longer term question, you've got a little more along the lines of a procured question, but further down the P&L. So maybe for you what Linda as well.

We appreciate everyone on the call Doug the amount of volatility over the next three months, let alone. The next three years, but I'm really curious when you guys are putting together the plan.

I think the way I understand it you know some of the ERP benefits here. The idea is to get to a run at 18% operating margin. There was some news obviously this year there'll be noise began in 2006 I think the expectation is you're probably around 16% or so operating margin.

Quickly do you think you can get to that.

Percent before.

Before you kind of get back to sort of like the normal 25 to 50 basis points sort of cadence and I'm also curious to Linda for you.

Gives you any pause with what you thought was potentially going to flow through now it just seems like there's more necessity for investment you know up and down the P&L, where this is artificial intelligence supply chain. The market share is not what you want it to be et cetera. So what you thought was potentially going to flow through we can all agree getting the topline going what's going to drive the most value for <unk>.

This year, all in including the noise from the ERP and the deleverage associated with it.

The question is that I think the target is to get to 18% with some of the benefits of the ERP is going to afford you Joe I fully appreciate everyone on the call Doug the amount of volatility over the next three months, let alone. The next three years, but I'm really curious when you guys are putting together the plan. How quickly you think you can get to.

Shareholders, So how youre thinking about that I'm, sorry, I know that was the boats and a bit rambling, but I hope you get the gist and I'd Love your thoughts. Thank you very much.

8%.

Yes.

Before you kind of get back to sort of like the normal 25 to 50 basis points sort of cadence and I'm also curious to Linda for you.

Maybe I can take a first pass as we look at the P&L I mean, youre right theres so much volatility.

And you have.

So there's that.

Higher than they should have been.

<unk> lower than it should have been but I would say.

Pretty much close to that target of 18% that has been mainly driven by the fact that we are now.

Fully rebuild all gross margin beyond to where they were actually as you know when we had 18%.

Shareholders, So how you're thinking about that and I'm sorry, I know that was were both a bit rambling, but I hope you get the juice and I'd love your thoughts. Thank you very much.

EBIT margin now the goal is going to be.

Once the noise settles down pretty confidence that we'd be essentially there by next year and then the goal would be to continue improving 25 to 50 basis points and and of course.

Yes.

<unk>.

Can take a first pass as we look at the P&L I mean youre right. There is so much volatility.

That can come from different places from the P&L.

Thank you.

So there's that.

Got it.

We continue to be extremely focused on driving the gross margin because thats really creep the fuel for the strategic investments both from a brand and get that empty standpoint, as you mentioned.

Higher than they should have been.

In the base year lower than it should have been but I would say pretty much close to that target of 18% that has been mainly driven by the fact that we are now.

Then.

We have got an alleged that all current setting and that is higher than we'd expected.

Fully rebuild all gross margin beyond to where they were actually as you know when we had 18%.

This year again, it's it's dropped by the onetime.

EBIT margin now the goal is going to be.

The last Gerald onetime investment associated with ERP transitions, but we it doesn't include any of the productivity that we expect from the ERP. So that would be another source going forward.

Once the noise settle down pretty confidence that we'd be essentially thereby by next June and then the goal would be to continue improving 25 to peak to be sports and and of course.

As we think about the P&L over the next year or two.

That can come from different places from the P&L.

But essentially what.

What we where we want to be from an EBIT margin. Once you know once the noise settle down and we feel like we have between the gross margin in between the work. We're doing on this journey, we feel like we have the fuel to continue expand EBIT margin going forward as well as reinvest in the business.

Got it.

Community continue being extremely focused on driving the gross margin because thats really creep the fuel for the strategic investments both from a brand and capability standpoint, as you mentioned and then you know.

Sure.

We have got an alleged that all current setting and I mean is higher than we had expected.

And I'll just emphasize that point that was just made Kevin to the question that you're asking me yeah. That's exactly why we've made these investments.

This year again, it's it's dropped by the onetime.

The last Gerald onetime investment associated with ERP transitions, but we it doesn't include any of the productivity that we expect from the ERP. So that would be another source going forward. So.

We made investments in solidifying our supply chain coming out of Covid and ensuring that we had.

More protection as we saw dynamic events happening and that has served us really really well.

As we think about the P&L over the next year or two.

We invested significantly in this transformation for both are our digital transformation and new processes and tools for our team and that includes AI. So we've already put investments in AI on this plan we are using it today both.

Essentially what.

Are we where we want to be from an EBIT margin. Once once they know you settle down and we feel like we have between the gross margin in between the work. We're doing on this journey, we feel like we have the fuel to continue expand EBIT margin going forward as well as reinvest in the business.

Generative AI and AI across how we plan et cetera.

And I'll just emphasize that point that was just made Kevin to the question that you asked me Yeah. That's exactly why we've made these investments.

And you know, we'll continue to invest in our business over time, but that's more of a normal rate like we normally would over overtime youll see the capital investments that we're making the company after year to ensure we're improving our supply chain.

We made investments in solidifying our supply chain coming out of Covid and ensuring that we had.

And of course, we make those same investments in technology. This was just a big reset given we haven't had a technology upgrade and in so many years 25 years or ERP was in place.

You know more protection as we saw dynamic events happening and that has served us really really well we.

We invested significantly in this transformation for both are our digital transformation and new processes and tools for our team I mean that includes AI. So we've already put investments in AI on this plan we are using it today both.

So that being said I felt like I feel confident in our ability to.

To get the value from these investments and that is what our team is laser focused on.

Just like we were in getting those margins back from a gross margin perspective, and you saw that we've done that and exceeded that target. We're doing the same to make sure. We realize that benefit EBIT margin and then the same to extract the revenue and the productivity benefits moving forward.

Generative AI and AI across how we plan et cetera.

And we will continue to invest in our business over time, but that's more of a normal rate like we normally would over overtime youll see the capital investments that we're making the company after year to ensure we're improving our supply chain.

And we see that again as a virtuous cycle and we feel confident in our ability to do that so I believe we ended the right investments you know it was about 11% of our advertising and sales promotion next year, we'd healthy promotional levels are we had healthy investments and our different businesses, we're getting better and better at using those and we have industry leading.

And of course, we make those same investments in technology. This was just a big reset given we haven't had a technology upgrade and in so many years 25 years, our ERP with in place so that being said I felt like I feel confident in our ability to.

To get the value from these investments and that is what our team is laser focused on.

And our return on investment from an advertising perspective, and we continue to expect our team to improve that so I feel like we do have the right plan the right level of investment and we've created that flywheel and again to your point, it's a bit noisy right now as we get through that other side, but remain confident in this transformation and its ability to ensure that we deliver profitable accelerated.

Just like we were in getting those margins back from a gross margin perspective, and you saw that we've done that and exceeded that target.

The same to make sure we realize that benefit EBIT margin and then the same to extract the revenue and the productivity benefits moving forward.

Moving forward.

That's great. Thank you both very much I appreciate it good luck.

Thanks, Kevin Thanks, Kevin.

Our next question will come from Javier Escalante with Evercore ISI.

We had healthy investments and our different businesses, we're getting better and better at using Nerf and you know we have industry, leading return on investment from an advertising perspective, and we continue to expect our team to improve that so I feel like we do have the right plan the right level of investment and we've created that flywheel and again to your point, it's a bit noisy right now as we get.

Hi, Good afternoon, everyone I guess a question for Luke.

Could you help us understand why price mix.

Got it so negative I understand that you guys are not promoting.

At this time all patents.

Through that other side I remain confident in this transformation and its ability to ensure that we deliver profitable accelerated growth moving forward.

And then I have a follow up for poorly done.

Yeah.

Yes, Hi, Javier Yeah, you're right. It was abnormally high price mix was about negative four.

That's great. Thank you both very much I appreciate it good luck.

Thanks, Kevin Thanks, Kevin.

All points in the quarter and we did have some onetime items that increased trade spending for the quarter.

Our next question will come from Javier Escalante with Evercore ISI.

We have an amendment process at the end of fourth quarter to really evaluate trade spending accrual and trade and trade promotion that took place throughout the year and we ended adjustment that I was really onetime in nature.

Hi, Good afternoon, everyone I guess a question for Luke.

Could you help us understand why price mix.

If you exclude these price mix would have been about minus 2%.

Got it so negative.

I know you guys are not promoting.

And that's generally about the average that we've seen throughout.

At this time all patents.

Throughout the year.

And as I mentioned going forward, we expect it to be about minus 1%.

And then I have a follow up for poorly done.

Yeah.

Yes.

And particularly in household was down six.

Yes, Hi, Javier Yeah, you're right. It was abnormally high price mix was about negative.

Is that.

Each of the businesses.

All points in the quarter and we did have some onetime items that increased trade spending for the quarter.

Such a negative price mix.

Yes.

We have an amendment process at the end of third quarter to really evaluate trade spending accrual in trade and trade promotion that took place throughout the year and we added adjustment that I was really onetime in nature.

Is this is this is driven by significant merchandising events that we didn't took place in the prior period sort of year over year was impacted by that that's that's an additional two points for the segment.

If you exclude these price mix would have been about minus 2%.

Sure I got it so more kind of like a bigger picture question I understand the promotion amount at the end of the value seeking behavior.

And that's generally about the average that we've seen.

Throughout the year.

And as I mentioned going forward, we expect it to be about minus 1%.

Transient deciding honest, Portugal, but the two category anywhere.

And particularly in household was down six.

Is that.

Problems reoccur or categories.

Each of the businesses.

And there are two one is glad and the others, but theater categories, where you have.

Such a negative price mix.

Yes.

This is this is this is driven by significant merchandising events that we didn't took place in the prior period sort of year over year was impacted by that that's that's an additional two point for the segments.

Value brands and I understand that.

The input is behind.

Innovation, but have you can see there.

This will allow you mean, so you are probably lies.

Sure I got it so more kind of like a bigger picture question I understand the promotional at the end of August seeking behavior I'm sorry.

Market share and if not why not thank you.

Javier you are right that we have we have spent a lot of time over the last year talking about cat litter and glad those are two very competitive categories and different dynamics going on just so everybody is on the same page primarily compete in very premium segments in both of those categories are fresh that brand as a premium in cat litter.

Transient deciding on pro tool, but the two categories where.

Problems, where you are.

Uh huh.

There are two one is glad and the others, but theater categories, where you have.

<unk> as well as glad we play in and the premium tier and we've leveraged innovation for.

New brands and I understand that.

The input is behind.

For number of years to choose to grow in both of those categories.

Innovation, but.

Have you can see either a price we allow you mean, so you are probably lies.

I would just call out just frankly on cat litter are superiority is not where it needs to be so this is not about price in my opinion. This is about ensuring that we have better innovation that we execute that better end market that we get our price pack architecture, right et cetera, and we absolutely have plans to do that and of course, you know I will acknowledge that was one of the businesses.

Sure and if not why not thank you.

Javier you are right that we have we spent a lot of time over the last year talking about cat litter and glad those are two very competitive categories and different dynamics going on just so everybody is on the same page primarily compete in very premium segments and both of those categories. Our fresh step brand as a premium in cat litter.

Most.

Hit by the cyber attack because of the behaviors that are unique to cat litter owners.

But I felt confident or ability to do that over time confident in our ability to command a premium over time, but you'll see our plans and in this year start to take hold and realized that and then I'm glad you know the way that we have created value in a category where consumers are generating more trash is getting more value out of every single trash bag and that's why.

As well as glad we play in and the premium tier and we've leveraged innovation.

For a number of years to choose to grow in both of those categories.

What I would just call out just frankly on cat litter are superiority is not where it needs to be so this is not about price in my opinion. This is about ensuring that we have better innovation that we execute that better end market that we get our price pack architecture, right et cetera, and we absolutely have plans to do that and of course, you know I will acknowledge that was one of the businesses.

<unk> them, a better experience and trashes it can be a pretty terrible experience if it smells and your house or if you take it out in the <unk> and we have launched innovation after innovation platform to strengthen the bag to make it a better experience to add some visual to light and we know that's worked for consumers. For example, we launched and we talked about this in the last few quarters.

Most.

Hit by the cyber attack because of the behaviors that are unique to cat litter owners.

Our Bahama Bliss line, that's done very well, we've been expanding that and we continue to see opportunities to do that we need to make sure now given how competitive. This category is that those elements work, even harder javier than they have in the past when you're faced with competition that is doing deep discounting.

And we want to make sure that we continue to drive profitable category growth through innovation that helps consumers.

<unk> them, a better experience and trashes it can be a pretty terrible experience if it smells and your house or if you take it out in the bag reps and we have launched innovation after innovation platform to strengthen the bag to make it a better experience to add some visual to light and we know that's worked for consumers. For example, we launched and we talked about this in the last few quarters.

Having better experiences in categories like these and that remains true today anyway. As I noted, we're seeing consumers continue to value that they're willing to pay a premium they're willing to trade up if you offer them that and that's where you'll continue to see us sharpen on both glad and cat litter and frankly across the rest of our portfolio our superiority to ensure that we can continue to win in.

<unk> Bahama Bliss line, that's done very well, we've been expanding that and we continue to see opportunities to do that we need to make sure now given how competitive. This category is that those elements work, even harder javier than they have in the past when you're faced with competition that is doing deep discounting.

Very competitive categories.

Okay.

Yes.

And we'll move toward next question. This will come from Robert Moskow with D D tailwind.

We want to make sure that we continue to drive profitable category growth through innovation that helps consumers.

Hi, Thank you.

Loops and Linda.

Have better experiences in categories like these and that remains true today anyway. As I noted, we're seeing consumers continue to value that they're willing to pay a premium they're willing to trade up if you offer them that and that's where you'll continue to see us sharpen on both glad and cat litter and frankly across the rest of our portfolio our security to ensure that we can continue to win in <unk>.

To ask about the.

The 35 spending.

Spending on digital capabilities that you excluded from your adjusted earnings this year 68 cents and in fiscal 'twenty five.

I assume that this will eventually get down to zero I think in fiscal 2007, when you're done with your projects.

Very competitive categories.

I think you might agree that the digitization and things like AI are a moving target and you're probably going to have to keep investing your kitchen your capabilities and adjusting to an ever changing world just to keep up so what makes this spend so unique that.

Okay.

And we'll move to next question this will come from Robert Moskow with TD tailwind.

Hi, Thank you.

Luke and Linda I wanted to ask about the.

There's an endpoint to it and it doesn't if we don't end up having to think about another investment.

The 35.

Spending on digital capabilities.

Year or two from now thank you.

Excluded from your adjusted earnings this year 68 cents in fiscal 'twenty five.

Yeah Robert.

Youre absolutely correct that.

Every business, including ours will need to invest over time to ensure that they have modern capabilities modern technologies.

I assume that this will eventually get down to zero I think in fiscal 2007, when you're done with your projects.

And we definitely intend to do that moving forward, but I would consider that to be normal course of business and we have spending that we have in our plan every year behind our capital spending as well as operating expense dollars that are to invest back in our business and all sorts of technologies that might be improving technologies in our manufacturing plants that can be.

I think you might agree that the digitization and things like AI are a moving target and you're probably going to have to keep investing your kicked in your capabilities and adjusting to an ever changing world just to keep up so what makes this spend so unique that.

That there is an endpoint to it and it doesn't we don't end up having to think about another investments a year or two from now thank you.

Implementing different AI technologies, etcetera, and we do view that as more normal course of business and and accounted for and how we think about the overall algorithm for the company.

Yeah Robert.

Youre absolutely correct that.

What's so unique about what you just spoke about and the fact that we think excluding this is this is kind of a once in a.

Every business, including ours, we will need to invest over time to ensure that they have modern capabilities modern technologies.

Generation.

Reset of our technology platform.

We hadn't.

<unk> upgraded our ERP in 25 years.

And the corresponding set of technologies that go around that needed to be upgraded as well, we're talking things like just having a warehouse management system. You know some basic things that are in the industry and so what we chose to do is to do a big project to do that all at once and to maximize the value and of course, the resources that we have to put that could be doing other things that are comes.

Implementing different AI technologies, etcetera, and we do view that as more normal course of business Sun and accounted for and how we think about the overall algorithm for the company. What's so unique about what you just spoke about and the fact that we think excluding this is this is kind of a once in a <unk>.

<unk> are having to do this implementation and that's why it's onetime in nature because it really is less about just upgrading the normal course of things that we'll do from here on out and it's about I'll call. It a once in a generation reset.

Generation.

A reset of our technology platform.

We hadn't.

And moving forward again, you would expect to see that in our normal capital funding our normal opex dollars.

<unk> upgraded our ERP in 25 years.

And if there was ever anything that we needed to could you. One time of course, we've raised the visibility to that but we believe we have the right spending in place to be able to deal with that technology transformation over time.

Okay. Thank you.

Thank you.

Our next question comes from Lauren Lieberman with Barclays.

Any or having to do this implementation and that's why it's onetime in nature because it really is less about just upgrading the normal course of things that we'll do from here on out and it's about I'll call. It a once in a generation reset.

Hey, thanks, so much.

Two quick questions.

The first is that the advertising spend this quarter was down dramatically in the lowest level of spend since the fourth quarter of 2019.

So just curious if you could comment on that that was a big swing factor in the quarter and I know you're talking about going back up as a percentage of sales next year, but just overall surprises to the advertising that low.

And moving forward again, you would expect to see that in our normal capital spending our normal opex dollars.

And if there was ever anything that we needed to you could you one time of course, we've raised the visibility to that but we believe we have the right spending in place to be able to deal with that technology transformation over time.

The other thing was earlier the question on drivers of gross margin next year I'm sure I guess Miss here now.

Okay. Thank you.

I think the glass JV was coming to an end. So I was just in the in January I believe so just curious what.

Thank you.

Our next question comes from Lauren Lieberman with Barclays.

What kind of benefit that should look like the gross margin. Thanks.

Hey, thanks, so much.

Two quick questions.

Yeah sure on the advertising spend in Q4, maybe you know just put this in context, we obviously don't provide guidance at a quarterly level on advertising. We are lapping a very large spend of advertising from last Q4, which of course was about returning share growth of our business post cyber. So we knew we had that lap, but if you kind of take us.

The first is that the advertising spend this quarter was down dramatically in the lowest level of spend since the fourth quarter of 2019.

So just curious if you could comment on that that was a big swing factor in the quarter and I know youre talking about going back up as a percentage of sales next year, but just overall surprises to the advertising that low.

Step back and look we said we'd spend about 11% for the air who spent a 11% in the front half we spent 11% in the back half and we expect to spend about 11% next year. So it's really just noise between quarters, Lauren and not something that's an indication of our investment in the business.

The other thing was earlier the question on drivers of gross margin next year I guess, that's here now.

The glass JV was coming to an end. So I was just in the in January I believe so just curious.

What kind of benefit that should look like the gross margins. Thanks.

Yes.

Talk about maybe just on the advertising there is a little bit of uptick Sue because your revenue is essentially 13 or 14% higher and of course the shipments.

Not.

So really if you just adjust for that and I think you are about 10%.

Within the normal variability between quarters.

So on glad yes, I mean as.

To step back and look we said we'd spend about 11% for the Eric I spent 11% in the front half we spent 11% in the back half and we expect to spend about 11% next year. So it's really just noise between quarters, Lauren and not something that's an indication of our investment in the business.

As we talked we are going to be exceeding our contractual agreements that we have with P&G. This coming January alright, and so essentially we will repurchase 20% of that.

P&G currently own and probably finance that through a mix of cash and.

And borrowing so there's probably two impacts that are worth mentioning the first one is the impact on the P&L.

Yes.

Talking about maybe just on the advertising there is a little bit of optics too because your revenue is essentially 13 or 14% higher. So if you are in.

That you alluded to Lauren under the current agreement with P&G.

Of course the shipments.

About 20% of our cash flow every quarter and that's totally charged to the cost of goods sold so of course, when we buy back their interests, we will no longer be that 20%.

No.

So really if you just adjust for that and I think you are about 10%.

Within the normal variability between quarters.

And for perspective that would represent about 50 basis points of gross margin annually now given that we will exceed the agreement at the end of January the impact for 2000 seats is probably around 20 to 25 basis points.

So on glad yes.

As we talked we're gonna be exceeding our contractual agreements that we have with P&G is coming generate alright, and so essentially we repurchased 20% of that.

P&G currently own and probably finance that through a mix of cash and borrowing so there's probably two impacts that are worth mentioning the first one is the impact on the P&L.

Another one time there is another impact that.

We'll keep an eye on this potential one time EPS impact.

The acquisitions, because right now, we're making a very simple.

That you alluded to Lauren.

<unk> that the acquisition price will be in line with our current estimated value on the balance sheet. So if the purchase price was to be different higher or lower that would create a onetime impact on EPS.

The current agreement.

P&G.

About 20% of our cash flow every quarter and that's totally charged to the cost of goods sold so of course, when we buy back their interests, we will no longer be that 20%.

And for perspective that represent about 50 basis points of gross margin annually now given that we will exceed the agreement at the end of January the impact for 2000 seats is probably around 20 to 25 basis points.

Okay, great. Thanks, so much thanks.

Thanks, Brian.

And your next question comes from Steve Powers with Deutsche Bank.

Okay. Thanks.

I guess two quick ones from me too.

And there's another one time there is another impact that.

Obviously, a long way to go before we get to the end of the year, but just in that everything that we've been talking about so far.

We'll keep an eye on as potential onetime EPS impact.

All of the acquisitions, because right now, we're making a very simple.

And can you just confirm your base case thinking I guess is there anyway.

That's the acquisition price will be in line with our current estimated value on the balance sheet. So if the purchase price was to be <unk>.

Any reason why.

From where we sit today that we shouldn't be thinking about kind of the midpoint of your normalized earnings exiting the year at around $7 or maybe slightly higher if I just take the the.

Higher or lower that would create a onetime impact on EPS.

The midpoint of this year's headline EPS guidance range of add back.

Okay, great. Thanks, so much.

Thanks, Brian.

That'd be sensor so for the ERP shift does that is there any reason why that's not the right way to kind of think through the noise and and.

And your next question comes from Steve Powers with Deutsche Bank.

Okay. Thanks.

I've got two quick ones from me too.

Come up with a kind of a normalized basis.

That's exactly right Steve.

Obviously, a long way to go before we get to the end of the year, but just isn't that everything that we've been talking about so far.

That's the simplest thing to do.

Of course, there is a range because they acknowledge all the noise that is related to the ERP and of course on the uncertainty in the environment, but.

And can you just confirm your base case thinking I guess is there anyway.

Any reason why.

Right now all of this thinking has to be.

From where we sit today that we shouldn't be thinking about kind of the midpoint of your normalized earnings exiting the year at around $7 or maybe slightly higher if I just take the midpoint of this year's headline EPS guidance range and add back.

Alright, perfect perfect and then.

On the on the ERP transition.

Clearly a number of benefits that I know you're excited about given that you're effectively we bring forward the RT capabilities of the company by a couple of decades. So that's that's exciting but I guess is there any potential.

That'd be sensor so for the ERP shift does that is there any reason why that's not the right way to kind of think through the noise.

The risk of transition.

And and come up with a kind of a normalized basis.

From an offsetting standpoint, just I'm thinking I guess, some kind of structural.

That's exactly right Steve.

That's the simplest thing to do.

Structural period of essentially what would translate its like a destocking headwind.

Of course, there is a range because acknowledge all of the noise that is it.

Related to the ERP and of course on the uncertainty in the environment, but.

You know on your topline as retailers take advantage of your.

Right now this thinking has to be.

You're radically better capabilities, better agility, better service levels, and essentially run clorox, a leaner level of trade inventory, which as we transition would would be a headwind on your revenue is that is there any consideration that we should be thinking about there as we think through the transition.

Alright, perfect perfect and then.

On the ERP transition.

Clearly a number of benefits that I know you're excited about given that you're effectively we bring forward the capabilities of the company by a couple of decades. So that's exciting but I guess is there any.

Interesting question Steve.

Potential.

I mean, the way I would look at this is no and the reason why is this doesn't fundamentally change any retailer processes. This is not about that are putting their doing that work all the time to ensure that they are like we are managing our inventories now on our end it absolutely gives us the ability to better manage inventories have better.

You know risk of transition.

From an offsetting standpoint, just I'm thinking I guess, some kind of structural.

Structural period of essentially what would translate into like a destocking headwind.

You know on your topline as retailers take advantage of your.

Fear radically better capabilities, better agility, better service levels, and essentially run clorox, a leaner level of trade inventory, which as we transition would would be a headwind on your revenue is that is there any consideration that we should be thinking about there as we think through the transition.

Your line of sight to where things are in our network and move them most cost efficiently, but there is no structural reason why our ERP should translate into a different posture from retailers on their inventories with us.

We already have to do that stuff manually on our side. So it's really just a cost that we get to remove overtime. They still they don't because we are on an old version of ERP in the past they didn't give us more inventory in their system in order to account for that.

Interesting question Steve.

I mean, the way I would look at this is no.

And the reason why is this doesn't fundamentally change any retailer processes. This is not about that I'm, putting theyre doing that work all the time to ensure that they are like we are managing our inventories now on our end it absolutely gives us the ability to better manage inventories have better line of sight to where things are in our network and move them.

It's just that we had to work harder and cost us more on the backend to ensure that we could meet their expectations. So I don't see that as a structural risk moving forward what I am excited about though is what you highlighted which is our ability to do things like manage inventory over time and better manage trade trade spend in advertising and have better line of sight to end to end cost in places that we can drive.

Cost efficiently, but there is no structural reason why our ERP should translate into a different posture from retailers on their inventories with us.

Savings.

And those are the structural things that we are excited about.

We already have to do that stuff manually on our side. So it's really just a cost that we get to remove overtime. They still they don't because we're on an old version of ERP in the past they didn't give us more inventory in their system in order to account for that.

Okay. Thank you very much appreciate it.

Thanks, Steve.

And this concludes the question and answer session Ms rental I would now like to turn the program back to you.

Thanks, John.

We close out today's call I'd like to note that this is a big moment for our transformation as we lay the foundation for a stronger future and unlock new value streams.

While I recognize the timing noise from our ERP implementation in the U S is not ideal in the short term, it's absolutely necessary for our long term growth aspirations.

The costs are winding down and the benefits are just ramping up as this new digital foundation and operating model will help us continue to re imagine work scale, our digital tools and move faster as an organization for years to come.

We can drive savings.

And those are the structural things that we are excited about yep yep. Okay. Thank you very much appreciate it.

Thanks, Steve.

And this concludes the question and answer session Ms rental I would now like to turn the program back to you.

I'm excited for the future and I'm confident we're taking all the right steps as we advance our ignite strategy our fiscal year 'twenty six plan lays a strong foundation for new scalable innovation platforms as we work to reinvigorate category growth and deliver solid margin and earnings growth.

Thanks, John.

We close out today's call I'd like to note that this is a big moment for our transformation as we lay the foundation for a stronger future and unlock new value streams.

We're at all we're transforming crocs into a stronger company poised to deliver more consistent profitable growth and enhance long term shareholder value. Thank you for your time and questions. We look forward to updating you on our continued progress.

While I recognize the timing noise from our ERP implementation in the U S is not ideal in the short term, it's absolutely necessary for our long term growth aspirations.

And this concludes today's conference call. Thank you for attending.

We're at all we're transforming crocs into a stronger company poised to deliver a more consistent profitable growth and enhance long term shareholder value. Thank you for your time and questions. We look forward to updating you on our continued progress.

And this concludes today's conference call. Thank you for attending.

The host has ended this call goodbye.

Q4 2025 The Clorox Co Earnings Call

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