WD 40 CO Q1 FY2025 earnings call

• Sales results: Net sales for first quarter of 2025 were $153.5 million, up 9% y-o-y. Maintenance products net sales $145.5 million, up 10% y-o-y. Gross margin 54.8%, an improvement of 100 basis points compared to first quarter last year. - Must-win battles:
  • Lead geographic expansion: Global sales of WD-40 Multi-Use Product were $119 million, up 10% y-o-y. Identified global benchmark sales opportunity for WD-40 Multi-Use Product at ~$1.6 billion. Focus on key growth markets like Mexico, Brazil, China, Indonesia, India.
  • Accelerate premiumization: Sales of WD-40 Smart Straw and EZ-REACH combined were up 17% y-o-y. Targeting CAGR >10% for premiumized products.
  • Drive WD-40 Specialist growth: Sales of WD-40 Specialist products were $19 million, up 14% y-o-y. Identified global benchmark sales opportunity for WD-40 Specialist at ~$605 million. Targeting CAGR >15% in reported currency.
  • Turbocharge digital commerce: E-commerce sales up 22% y-o-y, primarily due to strong growth in EIMEA. - Strategic enablers: Published 2024 ESG report. Pledged to achieve 50% absolute reduction in Scope 1 and Scope 2 emissions, and 10%-20% absolute reduction in Scope 3 emissions by 2030. - Divestiture progress: Met criteria to classify assets for sale as held for sale. Investment bank engaged continues to discuss with potential suitors. Expect to complete divestiture over upcoming months. - New mantra: "Few things, many places, bigger impact" driving operational efficiencies. Streamlining systems and processes, fostering global collaboration. Working towards bringing more locations onto new ERP system. Establishing global centers of excellence in IT.

In the first quarter, net sales were $153.5 million, up 9% from the same period last year. Maintenance products, the core strategic focus, had net sales of $145.5 million, up 10% from the prior year, marking the third consecutive quarter of double-digit growth. Americas segment: Sales increased 8% to $69.4 million, with maintenance products up 9% to $65.4 million. EIMEA segment: Net sales increased 18% to $57.5 million, with maintenance products up 19%. Asia Pacific segment: Sales decreased 4% to $26.6 million. Americas segment made up 45% of global business, EIMEA 38%, and Asia Pacific 17%.

• Full year 2025 guidance unchanged. Net sales projected to be between $600 million and $630 million after adjusting for translation impacts of foreign currency, representing growth of between 6% and 11% from pro forma 2024 results. - Gross margin expected to be between 54% and 55%. - Operating income expected to be between $95 million and $100 million, representing growth of between 6% to 12% over pro forma 2024 results. - Diluted earnings per share expected to be between $5.20 and $5.45, representing growth of between 9% and 14% over pro forma 2024 results. - If unsuccessful in divesting assets held for sale, guidance would be positively impacted by approximately $23 million in net sales, $6 million in operating income, and $0.33 in diluted EPS on a full year basis.

• Foreign currency exchange rate fluctuations can impact sales and margins. - Timing of customer orders in certain regions can affect sales volumes. - Uncertainty regarding the divestiture of homecare and cleaning business, including uncertainty in identifying a buyer.

Q: Daniel Rizzo asked about the 11% year-over-year decrease in operating income in the Americas and what it's attributed to.

A: Sara Hyzer said it's due to timing of A&P spend, a customer bankruptcy ($800,000 impact in Americas), and a higher accrual rate of the growth reward program in Q1 compared to prior year.

Q: Linda Bolton-Weiser inquired about the 14% year-over-year increase in SG&A expense and if it's a run rate to expect for the whole year.

A: Sara Hyzer explained it includes a one-time customer bankruptcy impact of ~$800,000 in Q1 and higher growth reward program accrual, but it's built into the year's guidance.

Q: Linda Bolton-Weiser asked about the base case for gross margin reaching 55% by 2026 and giveback due to higher logistical costs.

A: Sara Hyzer said margin can fluctuate quarter-to-quarter, there are higher freight and logistics costs in the U.S. but cautiously optimistic to hold margin through the rest of the year and potentially reach 55% before end of 2026.

Q: Linda Bolton-Weiser asked about the thought on the easier comparison in the second quarter related to ERP implementation.

A: Steve Brass and Sara Hyzer mentioned the prior year second quarter had an ERP implementation disruption with a ~$2.5 million impact, and discussed factors like Asia distributor markets, Europe's strong start, and Brazil's growth impact on quarter-to-quarter comparisons.