Edgewell Personal Care Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to the Edgewell Personal Care Q3 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Chris Gough, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good Good morning, everyone, and thank you for joining us this morning for Edgewell's Q3 fiscal year 2023 earnings call. With me this morning are Rod Little, our President and Chief Executive Sir, Dan Sullivan, our Chief Financial Officer. Rod will kick off the call and hand it over to Dan to discuss our results and update to the full year 'twenty three outlook before we transition to Q and A. This call is being recorded and will be available for replay via our website, www.edgewell.com. During the call, we may make statements about our expectations for future plans and performance.

Speaker 1

This might include future sales, earnings, advertising and promotional spending, Product launches, savings and costs related to restructurings, acquisitions and integrations, changes to our working capital metrics, currency fluctuations, Commodity costs, category value, future plans for return of capital to shareholders and more. Any such Statements are forward looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, Which reflect our current views with respect to future events, plans or prospects. These statements are based on assumptions and are subject to various Risks and uncertainties, including those described under the caption Risk Factors in our Annual Report on Form 10 ks for the year ended September 30, 2022, as may be amended in our quarterly reports on Form 10 Q, which is on file with the SEC. These risks may cause our actual results to be materially different from those expressed or implied by our forward looking statements. We do not assume Any obligation to update or revise any of these forward looking statements to reflect new events or circumstances, except as required by law.

Speaker 1

During this call, we will refer to certain non GAAP financial measures. These non GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, Which is available at the Investor Relations section of our website. This non GAAP information is provided as a supplement to, not as a Substitute for or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non GAAP measures Provide investors with valuable information on the underlying trends of our business.

Speaker 1

With that, I'd like to turn the call over to Rod.

Speaker 2

Thank you, Chris. Good morning, everyone, and thanks for joining us on our Q3 earnings call. This was another strong quarter In which we continue to make progress against our strategic priorities. Organic net sales increased 4.5%, largely in line with our expectations And making 9 consecutive quarters of growth. Adjusted earnings per share and adjusted EBITDA increased 14% 12%, respectively, And we expanded gross margin by 80 basis points or 185 basis points at constant currency.

Speaker 2

This strong bottom line performance was delivered despite facing a $0.17 headwind from unfavorable currency and taxes And over 300 basis points of gross inflationary headwinds in cost of goods. Our strong performance this quarter illustrates both the advantages of operating a broad and global brand portfolio as well as the impact of strong commercial execution. Organic net sales growth in the quarter was led by international markets, which contributed nearly 9% organic net sales growth. This growth was broad based across segments and driven by both higher volumes and price. In North America, Organic net sales increased just over 2%, driven by price as category growth slowed sequentially, most notably in sun and fem care.

Speaker 2

Since the initiation of our new growth strategy 2.5 years ago, our business has delivered consistent structural top line growth, Fueled by a stronger portfolio of brands and underpinned by the strides we have made across brand building, product innovation And retail execution. While the growth this quarter once again exceeded our long term algorithm, the composition of our growth was very Driven by both volume and price and our right to play brands were essentially flat in the quarter as higher pricing offset lower volumes. As I've discussed previously, in what continues to be a challenging operating environment, it's critical that we control the controllables. I am proud of the team's strong operational execution that enabled us to deliver better in stock positions, Good on shelf performance, stable market share and strong e commerce performance. We again delivered against our Productivity and efficiency initiatives, which coupled with price execution served to more than offset inflationary headwinds, leading to healthy gross margin And as you saw in our international performance, we are realizing the benefits from our revised go to market approach, Better execution and improved end market capabilities.

Speaker 2

In the quarter, we also released our fiscal 'twenty two sustainability report, Highlighting the good progress we have made against our commitments across all three of our sustainability pillars, Namely our brands, our operations and supply chain, and our people and communities. Our Sustainable Care 2,030 Strategy underpins all that we do and aligns with our values as a modern and responsible, progressively sustainable consumer goods company. I'm proud of our accomplishments to date, including being recognized as one of USA TODAY's climate leaders in the United States, As well as the meaningful gain in rankings up to number 37 overall in Newsweek's annual list of the most responsible companies. With respect to our outlook for the business, we continue to navigate this challenging environment well. And despite persistent inflation and broader macroeconomic headwinds, The consumer remains largely resilient.

Speaker 2

This said, we have seen some impactful changes within the sun care category in North America Our last earnings call in early May. After a solid start to the season, beginning around Memorial Day, consumption has been negatively impacted By unfavorable weather conditions across most of the United States, which has subsequently affected replenishment order flow For most retailers in the current quarter, and although we are still in the midst of the season and recent category consumption trends in July have improved, We now anticipate that our United States sun care sales, while still projected to grow mid single digits for the year, will be lower than previously expected, which is reflected in our revised sales outlook that Dan will take you through shortly. We remain confident in the underlying fundamentals of our business and we expect to deliver organic net sales growth Slightly above the midpoint of our previous outlook range. This puts us on track to deliver our 3rd consecutive year of 4% or more organic net sales growth. And we expect adjusted earnings per share and adjusted EBITDA To be at or above the high end of the previously provided ranges.

Speaker 2

Importantly, we've seen a return to gross margin accretion Through the realization of price actions, the ongoing execution of our productivity initiatives and some moderation in inflation. I'm confident that we are taking the right actions to deliver sustained value creation over the long term. And as I said a quarter ago, As we move beyond this period of significant inflation and foreign exchange headwinds as well as other supply chain challenges, I believe we will realize the full potential of our fundamentally improved business model driven by continued top line growth, gross margin expansion And free cash flow generation. And now I'd like to ask Dan to take you through our Q3 results and also to provide additional details on our outlook for fiscal 2023. Dan?

Speaker 3

Thank you, Rod. Good morning, everyone. As you just heard, we delivered another strong quarter With mid single digit organic net sales growth and notable gains internationally from strong performance in both Wet Shave and Sun Care. Market share performance was solid, highlighted by gains in our women's shave business here in the U. S.

Speaker 3

And in key international markets. On the bottom line, we delivered double digit adjusted EPS growth that was underpinned by meaningful gross margin expansion and good cost control, Giving us increased confidence in our ability to deliver full year profitability at or above the high end of the previously provided range for both EPS And EBITDA, this quarter was the 9th consecutive quarter of organic net sales growth. Growth was delivered both in international and North American markets, Reflecting continued strong demand for our products and was led by further price realization, good performance on shelf and improved product availability. As anticipated, we had significant gross margin expansion during the quarter, as we have successfully delivered the margin inflection originally forecasted. Rod mentioned that the operating environment remains challenging.

Speaker 3

So let me give you some insight into the external dynamics in the quarter. Overall, the supply chain continues to stabilize and our service levels and fill rates further strengthened. Inflation has eased And certain items in the commodity basket have turned deflationary, though labor remains extremely tight. Gross inflation still presented meaningful headwinds in the quarter of Approximately 3 30 basis points. So this did represent sequential easing, and we continue to expect further flattening in the 4th quarter.

Speaker 3

While the consumer remains largely healthy across the start of the summer, we saw some softening in certain category consumption in the U. S. Aggregate category growth in the quarter was just over 3%, down about 6 points from a quarter ago, driven primarily by sun care To a lesser degree, fem care. The sun care category was essentially flat in the most recent 13 weeks, influenced by extreme heat and excessive rain across the U. S.

Speaker 3

This adverse weather across the U. S. Since Memorial Day negatively impacted retailer replenishment orders in July, which I'll talk about in a bit more detail shortly. In the Wet Shave category, we continue to be very pleased with Billy's U. S.

Speaker 3

Retail expansion. The brand has reached About a 9 share of the category and continue to drive overall portfolio share gains for our women's shape business. In contrast to the weather driven challenges in the U. S. Sun category, consumption in our international markets was very strong as travel and leisure activity remained robust And weather has been favorable.

Speaker 3

Across key European markets, as well as Australia and Mexico, we saw over 30% consumption growth, Helping to drive over 20 percent organic sun care growth for our international business. Now let me turn to the detailed results for the quarter. As I mentioned, organic net sales increased 4.5 percent with an 8.7% increase in international and a 2.3% increase in North America. Price drove just over 6% growth in the quarter. Wet Shave organic net sales were essentially flat, With North America declining 6%, while cycling mid single digit growth a year ago and international increasing almost 6%.

Speaker 3

In the U. S. Razors and blades category, consumption was flat for the quarter, while our market share in aggregate declined 20 basis points, As gains in our women's systems portfolio led by Billy were offset by declines in men's systems and disposables. Women's Shave value share results in the quarter continue to be positive despite the heightened competitive environment. And importantly, Our volume share gains of 160 basis points were above recent trend.

Speaker 3

Sun and Skin Care organic net sales increased 13%, Driven by strong growth across the full portfolio of sun, grooming and wet ones. North American sun care growth of just under 11% Was driven by both price and volume gains. This quarter's strong performance comes in spite of the negative impact of sun Over 20%, also driven both by price and volumes. In the U. S, the sun care category was flat for the quarter And occasion based usage was down due to the poor weather conditions.

Speaker 3

As competitive products returned to shelf following last year's recalls, Our sun care brands lost approximately 90 basis points of market share in the quarter, however, a marked improvement from trend. Banana Boat held its number one share position during the quarter. Grooming organic net sales increased almost 13%, Led by Jack Black Growth in North America and Bulldog Growth internationally. WetOne's organic net sales grew just under 13% and our Share approached 80%. As category consumption in the U.

Speaker 3

S. Flattened in the 3rd quarter, up about a point, Our fem care organic net sales were essentially flat, as nearly 7% price gains were offset by similar volume declines. Semcare's 2 year stacked organic growth continues to be healthy, and our dollar share in the quarter and over the last 52 weeks was stable. Importantly, our volume share increased 30 basis points in the quarter. Now moving down the P and L.

Speaker 3

Gross margin on an adjusted basis increased 80 basis points or 185 basis points at constant currency. In the quarter, Gains from price execution fully offset persistent yet easing COGS inflation as approximately 375 basis points of price gains And 205 basis points of productivity savings helped to offset a 330 basis point headwind from inflationary pressures And a 65 basis point impact from negative category and market mix. A and P expense was 12.3% of net sales. Excluding the favorable impact of currency translation, A and P decreased about $1,000,000 compared to the prior year quarter. Adjusted SG and A decreased 20 basis points versus last year as the benefits of leverage and operational efficiency programs more than offset The impact of higher people costs and travel expense.

Speaker 3

Adjusted operating income was $83,500,000 Compared to $70,300,000 last year, an increase of nearly 19% or a 28% constant currency increase. GAAP diluted net earnings per share were $1.01 compared to $0.57 in the Q3 of fiscal 'twenty 2, and adjusted earnings per Share were $0.98 compared to $0.86 in the prior year period, including an estimated $0.17 negative impact from unfavorable currency and taxes and a $0.03 favorable impact from share repurchases. Adjusted EBITDA was $109,100,000 compared to $97,100,000 in the prior year, inclusive of an estimated $5,500,000 unfavorable impact from currency. Cash flow generation was robust in the quarter, And net cash from operating activities for the 9 months ended June 30 more than doubled to $168,300,000 Compared to $72,400,000 in the same period last year. We ended the quarter with $207,000,000 in cash on hand, Access to the $334,000,000 undrawn portion of our credit facility and a net debt leverage ratio of about 3.2 times.

Speaker 3

In the quarter, share repurchases totaled over $15,000,000 In addition, we continued our quarterly dividend payout And declared another cash dividend of $0.15 per share for the 3rd quarter. In total, we returned nearly $23,000,000 Shareholders during the quarter and $69,000,000 over the 1st 9 months of the year. Now turning to our outlook for fiscal 2023. As we've discussed, the commercial and operational fundamentals of our business are strong, and we're confident that we're on track to deliver another year of mid single digit top line growth. The consumer remains largely healthy and international categories continue to strengthen across many core markets.

Speaker 3

However, we're mindful that the challenges of the external operating environment that we've discussed have not fully abated. In addition, a less robust Weather impacted sun season in the U. S. Has impacted our growth outlook for the current quarter, as retailers adjust replenishment ordering and manage down in store inventory Despite this, we anticipate delivering EBITDA and EPS results at or above the high end of our guidance range. As a result, for the fiscal year, we now anticipate organic net sales growth to be slightly above the midpoint Of the 3% to 5% range, reflecting lower projected sun care sales in the 4th quarter.

Speaker 3

As a reminder, This is inclusive of an estimated 50 basis point full year headwind related to our intentional steps to revamp promotional activity with wholesalers in Japan And structurally decrease inventory levels in Q4, which we spoke to last quarter, but was not contemplated in our initial outlook at the beginning of the year. We now expect full year gross margins to be flat with last year, whereas previously we anticipated a small level of rate accretion. There is no material change to our view on price realization, inflationary headwinds or productivity savings for the However, more unfavorable mix and incremental unfavorable transactional FX have impacted 4th quarter expectations. Importantly, gross margin accretion in the 4th quarter is expected to be approximately 200 basis points, inclusive of about 100 basis points We continue to anticipate adjusted operating profit margin accretion on a full year basis. The impact of currency on operating profit is now expected to be a $27,000,000 headwind, a $3,000,000 incremental headwind over our prior Look, adjusted EBITDA is now expected to be slightly above the high end of the $320,000,000 to $335,000,000 range.

Speaker 3

We anticipate that the tax rate will remain at 25%. Adjusted EPS is expected to be at the high end of the 2 $2.50 range, inclusive of approximately $0.38 per share of currency headwinds. This upward revision to our outlook is largely reflective of our better than expected results in Q3. For more information related

Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. Our first question comes from the line of Nik Modi with RBC. Please go ahead.

Speaker 4

Thank you. Good morning, everyone. So just Two questions on the sun care business. Now that we're going through the fall reset process and there's been a lot of Volatility on the shelf given product recalls and products coming back on shelf. Just maybe guys if you could just give us kind of the state of the union on what you see net net In terms of how you think you'll end up as we kind of come to the close of the year?

Speaker 4

And then the broader, bigger picture question is, There's been a lot of changes in your international business as it relates to operating model and management. And just wanted to see if we can get an update on What's going on in that market in Japan and Europe and some other China, I think there were some changes there. If you could just give us an update there as well? Thank you.

Speaker 2

Hi, Nick. Good morning. Two good questions. Sun Care, let's start there. State of the Union, we feel good about our business In sun care, in that we got the distribution we expected to get.

Speaker 2

We had a good innovation program this year that's been well received by the consumer. And I think when we look at what we can control and how we've executed in sun care, I think that the team has done a fantastic job. What we cannot control unfortunately is the weather. And as Dan had referenced, starting about Memorial Day all the way through the July 4 holiday, on both the West and East Coast, particularly in the Northeast, we had poor weather, Lots of rain, cooler than normal, and that impacted consumption. If you recall, Q2, we had a good shipment in Q3.

Speaker 2

Here in the U. S, we grew double digits again. And so with that weather not being good, we're now seeing a catch up On consumption, so good news is consumption turned positive in July, 2nd week of July. So it's going to be a bit of a different phasing. But as we called out in the script, we do expect the sun our sun care business to be down Versus what we had talked about last quarter, still growing nicely for the year.

Speaker 2

And again, you saw not only a good result here in the U. S, but also internationally, Where we were up a little over 20% organic based on strength internationally as well. So again, what we can control, we feel good about. We're not going to get into a situation where there's going to be a messy cleanup at the end with too much inventory out there. We'll be careful with what we ship in here in Q4 and that's contemplated In our revised guide.

Speaker 2

As it relates to international, we have made a lot of change In terms of how we run the business effectively eliminating an international layer, Dan taking on Europe, Latin America as direct reports to him, Me taking on Japan, China is direct reports to me. And then of course, we have Eric O'Toole running North America. What this has done for us is allowed us To go recruit new leadership and talent in some markets who have built out entirely new what I think are more capable teams In some of the markets and we've got momentum in international as you see with the nearly 9% organic increase this quarter. I would expect that to continue as we start to look towards 2024. By the way, sun care, with this bad weather base Should bode well for 2024, if we get to a more typical weather season.

Speaker 2

I think both will be tailwinds for us, not only sun care at the base now, But in international, we're just getting started with some of the work we need to do to transform our capability in some of the markets. But I think The work done in Latin America by our team down there has been fantastic, up 16% in the quarter. They're ahead on the journey. We've got new leadership in Europe, taking a more pan European approach. Chip in Europe taking a more pan European approach, that bodes well for 2024 and beyond.

Speaker 2

And then again, China, Japan, We're further ahead in Japan at this point. I think we'll see those be accretive as we look into 'twenty four and beyond. So we're excited about what's happening Internationally, 2 years ago, the focus was U. S, get the U. S.

Speaker 2

Competitive, build the team and the structure and capability here. We've done that. And so now the focus has moved to international. So not only do we have a better brand portfolio, but geographically, we have just more countries winning Versus losing, which was the past posture.

Speaker 4

Great. Thanks for the perspective.

Speaker 1

Thank you, Nick. Operator, next question please.

Operator

The next question comes from the line of Bill Chappell with Trust Securities. Please go ahead.

Speaker 5

Yes. Good morning.

Speaker 2

Good morning, Bill. I'm

Speaker 5

just trying to understand the kind of slight slowdown. I'm just trying to It seemed that in the spring quarter, you got some more shelf space and we're getting some momentum there and didn't know if it's More just you had good shipments in the last quarter and the volume didn't show up, the consumers didn't show up this quarter or

Speaker 2

Yes, Bill, we're struggling to I think I've got the basis of the question, but you're breaking up. Just the category you're Interested in here is what? Yes. Just can you

Speaker 3

hear me now? Can you hear me now?

Speaker 2

Yes.

Speaker 5

Just a comment on your fem care performance from last quarter to this quarter, it seemed to be a pretty big slowdown and didn't know That's just shelf space gains versus consumer takeaway being a little bit lower than you would have expected or if there's something else going on?

Speaker 2

Yes, it's more of a base period issue, Bill. And I'll let Dan give you a little more perspective on what we're seeing. We are Confident in our fem care business like where we are, share performance, volume, all that good pricing has been received. The biggest issue you're seeing this quarter is what happened in the base period a year ago, where there was some media coverage about a tampon shortage That drove a big consumption increase by consumers effectively pantry loading worried that they wouldn't be able to get tampons. It was not an accurate For trail, I don't believe of what was actually happening, not only with us, but our competitors.

Speaker 2

And so That was in the base is that bubble that we effectively cycled the quarter we just finished.

Speaker 3

Yes, that's right, Bill. So remember last year, Q2 of last year, we were down double digits organics in fem care for the exact reason Rod highlighted. We cycled that last quarter Q2, hence the growth. But I think if you ladder up to the category, you're seeing a much more sort of expected category In terms of growth and performance in the quarter, we're 52 weeks now with flat value share performance. So we feel like We certainly hit that point of stability.

Speaker 3

I think importantly in the Q3, even as the fem care category slowed versus recent trend, We grew volume share about 30 basis points in the quarter. So we like the performance. We recognize that the organics are a bit choppy given what's in the base.

Speaker 5

Got it. And then just kind of a housekeeping on currency. I'm not sure if you said where Thanks, Stan. In terms of top and bottom line, I'd now tailwind for the Q4 and kind of how that would play out as we move into next year. I know you're not giving guidance, but I would think We've now moved to a full tailwind from

Speaker 3

a currency standpoint. Yes. Look, I think I'll take it in 2 parts, Bill. I think For the back half of the year, we see net tailwinds. Now it's important to understand where those came from.

Speaker 3

In operational margin, operating margin, it's a headwind. Transactional FX is still a headwind, And that's largely the effect of the yen. What we saw in the quarter and we expect to see also in the 4th quarter is gains from below the line hedge And balance sheet remeasurement. So net net, slightly better currency environment than we thought a quarter ago. Quite candidly, that flowed That's why you see the uptick in the guide in terms of EPS.

Speaker 3

As far as next year, obviously, you're right, we're not going to comment on that yet. The thing I would hesitate though or put caution around is not only do we need to see how the currency environment shakes out, We have to then understand the transactional impact again and how inventory will play out over the course of next year, similar to how we think about Inflationary pressures and when that relief will come. So I would we certainly are encouraged, but I wouldn't assume that's a day 1 tailwind for our business.

Speaker 5

Got it. Thank you.

Speaker 1

Thank you. Thank you, Bill. Operator, next question please.

Operator

The next question comes from the line of Chris Carey with Wells Fargo Securities. Please go ahead.

Speaker 6

Hey, good morning, everyone. I

Speaker 3

have a couple of

Speaker 6

questions about gross margin. Hi. So just maybe just simply the gross margin, What was the key driver of why gross margin is coming down a bit versus prior expectations?

Speaker 3

Yes. It's very simply, Chris, it's increased headwinds from mix that's largely Selection of the international growth, Rod talked about. And then within the shave category, international markets tend to be more disposable And PPG based, so the mix was a bit more negative than we had anticipated on the margin profile. And then you have a bit higher FX headwinds on transactional FX that I mentioned on previous call. I think really important to call out the structural elements Of margin, right?

Speaker 3

So we go back to price realization, productivity execution and easing inflation. We're literally on the pin where we thought we would be a year ago. Nothing has changed there. But obviously, some of these other items, a bit harder To predict have proven to be a bit of a headwind here as we exit the year, but those are not structural. We think those are unique to this moment.

Speaker 6

Okay. Okay. And then just a second related question. Just on Your view around perhaps medium term gross margins, I guess I'm struck by Street estimates for Basically, 100 basis points of gross margin expansion next year would seem significant relative to what you typically do and clearly that's driving And earnings growth number that you don't typically do either. Perhaps you're thinking about continuing to invest, which Which I would imagine is top of mind.

Speaker 6

And so I guess I'm just relative to gross margins coming out of touch, just How do you think about the medium term trajectory to get back to a gross margin kind of in the Pre pandemic range and perhaps the kind of timeline that you could see that coming together and Whether near to medium term estimates seem reasonable or not, I just don't know if you have any comment on that All that and how that balances together. Thanks.

Speaker 3

Yes. Yes. Thanks, Chris. So look, I think what we've said and we still fundamentally believe With 1, we are absolutely committed to getting this business back to its pre COVID margin profile, right? We've said that, And we're committed to that.

Speaker 3

I think the second piece and certainly 2023 is a good proof point. We're confident In our ability to pull the levers necessary to do that, right? And you've seen that in not just in the pricing work we've done, but in the SRGM work The teams have done our ability to drive cost savings consistently 200, 225 basis points A year. So the levers at our disposal, we feel really good about. There's namely the inflationary pressures, FX that impact the pace at which we can recover the margin.

Speaker 3

And so we're obviously not yet ready to guide on that for next year. We'll give full transparency as we do in November. We like the fact that inflation is easing. We do see structural deflation in certain elements of the commodity basket. Labor is still the long pole in the tent though and is still challenging.

Speaker 3

So there are puts and takes and then I think you hit the right point, which is there's A reinvestment cadence here. So I think what I would say is just the commitment is there. The levers are Clear and available to us. We've demonstrated that. I think the pace at which we recover the margin near term has some factors There's to it that we have to work our way through in the plans and certainly we'll talk about it in November.

Speaker 2

And Chris, it's Rod here. I would just add One thing on to what Dan said, which I think is very comprehensive and hopefully gives you how we're thinking about it. But don't underestimate The impact of foreign exchange, we talked about it at the beginning of the year. We've got $0.38 of headwind year over year In here, in foreign exchange. And as we go forward and again, we're out of our control and we won't predict when it happens.

Speaker 2

But as you get to more normal as defined by the last 20, 30 years, FX ranges among the major G7 currencies, We will pick that up over time as well, right. There's a pretty negative view, maximally negative, I think here in fiscal 2023 That we feel like will recover. And that's well north of 10% EPS right there. So Beyond the work we'll do in running the business better and in driving revenue management, I think we are confident over time we'll get some of that FX back as well.

Speaker 6

Hey, that's helpful. Thank you.

Speaker 1

Thank you. Thanks a lot, Chris. Operator, next question please.

Operator

The next question comes from the line of Susan Anderson with Canaccord Genuity. Please go ahead. Hi, good morning. Thanks for taking my question. I was wondering if you said how much Billy contributed in the quarter and did you see growth in Billy and then also how it's performing in the new retailers you've Got it.

Operator

And 2, are you seeing that add to growth or bringing in new customers to the brand?

Speaker 3

Hey, good morning. It's Dan. Yes, look, Billy did grow in the quarter. We don't disclose sort of the ins and outs with Billy. But I think Your second question, I'll start there, spot on.

Speaker 3

Like we really are excited about the performance we're seeing in retail. You'd recall last year was a super important year for the brand at Walmart, and the performance there was a clear catalyst For 2023 retail expansion, we're seeing that. The brand is up to about a 9 share. In the category, We're super pleased with the results. Retailers are very pleased with the results.

Speaker 3

And even as the shelf has gotten more crowded in that space, particularly at Target, The brand certainly sticks out as a winner amongst the women's category. That is then proving to be a very important catalyst For next year, right? And 2024 is the year that Billy makes its move outside in a much more meaningful way of the shave category and gets into Adjacent category. So we're executing sort of the integration playbook and the growth playbook for the brand exactly as we kind of wrote it 1.5 years ago and so far really, really excited about the performance on shelf.

Operator

Great. That sounds great. Good luck throughout the year.

Speaker 5

Thank you.

Speaker 1

Thanks, Susan. Operator, next question please.

Operator

Your next question comes from the line of Olivia Tong with Raymond James. Please go ahead.

Speaker 7

Great. Thanks. Good morning. I I want to ask you about the mix of promotional spend versus advertising. You're obviously seeing promo spend across the industry come up as As conditions normalize, but and relative to ours and I think the market expectations, Pricing margin came in a little bit less than we expected and the gross margin inflection perhaps while inflecting wasn't as substantial as we expected.

Speaker 7

So we'd love Your commentary in terms of promotional levels this quarter and your expectations going forward and compare and contrast that with advertising. Thank you. Yes.

Speaker 3

Thanks, Olivia. It's Dan. Let me take the A and P question first because I think that's important. We spent in the quarter At over 12% rate of sale. So it was by no means a light quarter.

Speaker 3

We felt good about the quantity of spend. It was probably about $3,000,000 below what we had anticipated when we last spoke to everyone a quarter ago. I think there were two reasons for that, both around sun care. In the international markets, you heard we talked In our prepared remarks, we saw tremendous growth, over 30% category growth in the key markets in which we play with Sun. And so we had the product on the floor.

Speaker 3

The execution was terrific. There was simply no need to overspend, and we drove a 21% Organic growth in the quarter, and we gained share in some pretty important markets like Australia and Mexico. And so for us, The international piece was all about efficiency. There was no need to overspend. Conversely, in the U.

Speaker 3

S, and we talked about what we've seen there in the category And the weather impact, by late May, retailers the shelves had been stacked. Supply was saturated. The unfavorable weather was Certainly weighing in on consumer consumption. And so it didn't make any sense for us to spend more in that space. The consumer wasn't there.

Speaker 3

So in the U. S, It was about effectiveness of spend. And so we made the decision to pull back. Some of that will come back in the quarter. We're in the quarter we're in, we're expecting over a 9% rate of spend in the 4th quarter, which is meaningfully more than a year ago.

Speaker 3

But again, we're focused on spending the right amounts in the right way. And we felt really good about how we executed that in the quarter for A and P. To the broader point, we've said a quarter ago, we expected that things might get a bit more promotional in the back half The year that was already contemplated in our outlook, we haven't seen widespread increased promotions Or let's say any irrational behavior, a bit in women's shave, but we don't think that's a reflection of consumer sentiment. We think that's a direct reflection of Billy's Yes. And so but that sort of incremental promotional activity on our end was already contemplated in and out guide From what we said a quarter ago, so no new news there.

Speaker 7

Got it. That's helpful. And then perhaps can I just follow-up on Your read on consumer sentiment, particularly in shaving, you're one of the Few companies that have both the private brands group and as well as branded? So curious if you could talk about share changes across brand and private label, Specifically, if you're seeing any acceleration at sort of the low end of the category given the macro situation and any incrementality in terms of price sensitivity?

Speaker 2

We're not seeing any meaningful change in consumer sentiment. We talked About a little deceleration in a couple of categories, sun being the biggest one, which is more about weather, not the consumer being there. But beyond that, particularly in shave, If we look at the last 3 month category growth rate versus prior 52, very much in line here domestically in the U. S. So we're not seeing a slowdown.

Speaker 2

Internationally, it's actually picked up and we're seeing some increases. So depending on the market you're looking at, The consumer is healthy. And then within that, we're not seeing any meaningful trade down to private label, For example, in the opening price point, and we're also not seeing any meaningful trade down to disposable, going after a lower absolute price point, Which consumers sometimes do when they get pinched. And so within Shea, we're seeing a stable growing category and no meaningful trade down.

Speaker 7

Great. Thank you.

Speaker 1

Thank you, Olivia. Operator, next question please.

Operator

There are no more questions at this time. This concludes our question and answer session. I I'd now like to turn the conference back over to Rod Little for any closing remarks.

Speaker 2

I'd just like to thank everybody for your time, your continued interest in Edgewell.

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Earnings Conference Call
Edgewell Personal Care Q3 2023
00:00 / 00:00