Clorox Q3 2025 Earnings Report

Clorox EPS Results

• Actual EPS: $1.45
• Consensus EPS: $1.57
• Beat/Miss: Missed by -$0.12
• One Year Ago EPS: $1.71

Clorox Revenue Results

• Actual Revenue: $1.67 billion
• Expected Revenue: $1.74 billion
• Beat/Miss: Missed by -$71.75 million
• YoY Revenue Growth: -8.00%

Clorox Announcement Details

• Quarter: Q3 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Monday, May 5, 2025
• Conference Call Time: 5:00PM ET

Clorox (NYSE:CLX) manufactures and markets consumer and professional products worldwide. It operates through four segments: Health and Wellness, Household, Lifestyle, and International. The Health and Wellness segment offers cleaning products, such as laundry additives and home care products primarily under the Clorox, Clorox2, Scentiva, Pine-Sol, Liquid-Plumr, Tilex, and Formula 409 brands; professional cleaning and disinfecting products under the CloroxPro and Clorox Healthcare brands; professional food service products under the Hidden Valley brand; and vitamins, minerals and supplement products under the RenewLife, Natural Vitality, NeoCell, and Rainbow Light brands in the United States. The Household segment provides cat litter products under the Fresh Step and Scoop Away brands; bags and wraps under the Glad brand; and grilling products under the Kingsford brand in the United States. The Lifestyle segment offers dressings, dips, seasonings, and sauces primarily under the Hidden Valley brand; natural personal care products under the Burt's Bees brand; and water-filtration products under the Brita brand in the United States. The International segment provides laundry additives; home care products; water-filtration systems; digestive health products; grilling products; cat litter products; food products; bags and wraps; natural personal care products; and professional cleaning and disinfecting products internationally primarily under the Clorox, Ayudin, Clorinda, Poett, Pine-Sol, Glad, Brita, RenewLife, Ever Clean and Burt's Bees brands. It sells its products primarily through mass retailers; grocery outlets; warehouse clubs; dollar stores; home hardware centers; drug, pet, and military stores; third-party and owned e-commerce channels; and distributors, as well as a direct sales force The Clorox Company was founded in 1913 and is headquartered in Oakland, California.

Clorox Q3 2025 Earnings Call Transcript

Key Takeaways

• Despite weakened U.S. consumer sentiment in late Q3 and April, Clorox’s essential categories held firm, with only low‐single‐digit volume declines amid volatile shopping behaviors.
• Clorox achieved its tenth consecutive quarter of gross margin expansion, providing the fuel to reinvest in brands, innovation and operational transformation.
• The company reiterated its FY25 outlook for modest organic sales growth and strong earnings growth, factoring in an expected low‐single‐digit downturn in Q4 category volumes.
• Clorox expects a net tariff burden of about $100 million over 12 months (with $10 million–$20 million in Q4) and plans to offset it through sourcing changes, reformulations, productivity improvements and targeted price measures.
• A fiscal 2026 ERP rollout will drive roughly 1.5 weeks of retailer inventory build in Q4, with the majority of that revenue impact reversing in the first quarter of the new system.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to The Clorox Company Third Quarter Fiscal Year twenty twenty five Earnings Release Conference Call. At this time, all participants are in a listen only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Ms. Lisa Byrne, Vice President of Investor Relations for The Clarks Company. Ms. Byrne, you may begin your conference.

[Lisah Burhan, VP of IR at The Clorox Company]

Thank you, Paul. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO and Luc Bele, our CFO. I hope everyone has had a chance to read our earnings release and prepared remarks, both of which are on our website. In just a moment, Linda will share a few opening comments and then we'll take your questions.

[Lisah Burhan, VP of IR at The Clorox Company]

During this call, we may make forward looking statements, including about our fiscal year twenty twenty five outlook. These statements are based on management's current expectation, but may differ from actual results or outcome. 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 the supplemental financial schedules in the Investor Relations section of our website for reconciliation of non GAAP financial measures to the most directly comparable GAAP measures. Now I'll turn it over to Linda.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thank you for joining us today. I'd like to welcome Luke to his first call as CFO. Looking back to the start of the fiscal year, we expected a tougher consumer environment with increased competition and slower category growth. For the first half of the year and the first half of the third quarter, we saw just that. During the second half of the third quarter, however, U.

[Linda Rendle, CEO & Chairman at The Clorox Company]

S. Consumer sentiment weakened substantially, and macroeconomic and geopolitical uncertainties drove changes in shopping behaviors, resulting in temporary category impact and lower than expected sales. Despite these headwinds, our fundamentals remain strong. We held overall market shares and delivered our tenth consecutive quarter of gross margin expansion, which enables us to keep reinvesting in our brands, our innovation pipeline and in the transformation of our business. As we look ahead, we anticipate consumers and retailers will remain under pressure, which is reflected in our updated outlook.

[Linda Rendle, CEO & Chairman at The Clorox Company]

That said, we are confident in our portfolio of trusted brands and the essential role they play in consumers' daily lives. Our proven resilience and execution equip us to navigate the uncertainties ahead. For this year, that means we continue expect to deliver organic sales growth and another year of strong earnings growth while continuing to progress our long term strategy. With that, Luke and I will take your questions.

[Operator]

Thank you, Ms. Rendle. And our first question comes from Dara Mohsenian of Morgan Stanley.

[Dara Mohsenian, Managing Director - US Beverage/Household Products Sectors at Morgan Stanley]

Just take a step love to hear your perspective on what's driving the category weakness we're seeing. Traditionally, your categories have been pretty defensive and resilient. Obviously, you mentioned the weakness in the back half of the quarter with the macro uncertainty, but the reality is the broader market concerns ramped up more in April than the weakest we've seen in the household products categories beginning in February. So just a bit of additional perspective would be helpful on the category weakness we're seeing, how long you think this sustains and maybe difference versus what we've seen in past cycles?

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure, Dara. I'll get us started. Thanks for the question. And maybe just I'll start with a step back. And I think, Dara, to your point, we've been around for a long time, 112, and we've seen a lot of different economic scenarios.

[Linda Rendle, CEO & Chairman at The Clorox Company]

We've seen inflation, we've seen recession, certainly in the recent years with COVID, etcetera. And absolutely the case that our categories are fairly resilient during times like this. We play in household essentials, so we tend to see our categories at the high point in the low single digits positive. And at the lowest points, see them low single digits in the decline. And what we saw in this period is on average low single digit decline.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And there is some nuance in that, I think would be helpful to break apart. Maybe I'll just start with Q3. I'll talk about what we're beginning to see in Q4 and April, and maybe just how we're thinking about it moving forward. But if you look at Q3 through mid February, generally in line with what we had expected. And to be clear, for fiscal year twenty twenty five, we expected a more strained consumer.

[Linda Rendle, CEO & Chairman at The Clorox Company]

So categories going from about 2%, two point five % down to about plus one And that's what we saw through the first half of the year and the first half of the quarter. And then with a lot of the uncertainties coming with different macroeconomic policies, what you were seeing with tariffs, we begin to see that change in mid February. At the beginning of that that change, what we really saw was changing baskets within the retail locations people shop for our brands. So we saw people prioritizing food a bit more. We saw that market basket shifting within the store.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Then as tariffs came out, we saw consumers actually changing their wallet much more broadly, well beyond the market basket that includes our goods. So we saw things saw things like people buying more automobile, people buying iPhones. The wallet was changing pretty dramatically, and what we saw was conserving behavior in many of our categories. That resulted in excuse me. That result in our categories being down flat to I'm gonna take a sip of water.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sorry. Hold on for a second. Alright. That's better. Our category is being flat to, again, download, so it could just and pretty volatile in that period between mid February and the end of the quarter.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And I think what we're seeing is consumers react. You know, the new cycle every other day is changing, and so consumers are thinking about how they meet all of their needs across the broad range of market basket and ensure that they have their essentials at home. What kind of, you know, buoys our confidence is what we're not seeing is consumers change their at home behavior in our categories. So we're not seeing people, for example, trade down to private label in any meaningful way in our categories. We're not seeing people decide to not participate in our categories.

[Linda Rendle, CEO & Chairman at The Clorox Company]

What we're seeing is people buying smaller sizes or larger sizes in our portfolio. We're seeing they're using every less bit of what they have at home. And what they're trying to do is prioritize the purchases they need to prioritize given the environment that's going on, externally. So that gives us confidence that our categories will continue to be resilient because we're not seeing that behavior change in any substantial way. And again, we play in those essentials.

[Linda Rendle, CEO & Chairman at The Clorox Company]

So what does that mean for what we're seeing maybe in Q4 and just how we think about the timeframe on this? For Q4, April was a very similar look to what we saw in the back half of Q3. We saw a range from category being flat one week to down 2.5 and pretty volatile, up and down. But I would say, you know, what we expect for the quarter, the categories to be down low single digits based on on what we're seeing, and that's what we've contemplated in the outlook. The big question for all of us is how long will this last?

[Linda Rendle, CEO & Chairman at The Clorox Company]

And at this point, it's very difficult to say because it's difficult to say exactly what will happen as it relates to tariffs, the geopolitical environment, which continues to be pretty volatile and uncertain. But the thing we're certain of is our categories generally are pretty resilient. I still think they're pretty resilient given what's going on right now. Consumer behavior in our categories remains largely unchanged. People are pinching pennies right now to try to make it work.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And what we're just looking at really closely is does that behavior start to change and do we start to see behaviors? Again, nothing yet, but we're watching closely private label, we're watching trade down really closely, we're watching channel shift. And then at what point do consumers feel more confident in their ability to navigate whatever is coming and we see our category growth return to that low single digits that we would expect. That timing is uncertain, but we just feel confident in our ability to navigate it until we get to that point.

[Dara Mohsenian, Managing Director - US Beverage/Household Products Sectors at Morgan Stanley]

Great. Thanks.

[Operator]

Our next question comes from Filippo Folorni of Citi.

[Filippo Falorni, Director - Equity Research at Citi]

Hey, good afternoon everyone. I wanted to just expand on Dara's question a little bit longer term, Linda. Obviously, you have a 3% to 5% long term algorithm on organic sales, which assumes a healthier level of category growth. So assuming the categories remain relatively softer, how should we think about like your underlying opportunity from an organic sales standpoint as we think about exiting fiscal twenty twenty five and into 2026? Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thanks, Filip. Obviously, we're not setting guidance for fiscal year twenty twenty six or beyond now, but I'll just make some kind of overall comments. The first would be you're absolutely right that our 3% to 5% growth algorithm is predicated on having category growth back to what we would normally expect it to be around two percent, two point five percent. And we don't have visibility to that category growth at this moment. But again, would expect based on the consumer fundamentals over time that will come back.

[Linda Rendle, CEO & Chairman at The Clorox Company]

In the meantime, we would expect our category growth to be suppressed given the fact that our categories are down. So our growth will be reflecting in that. When we talk about fiscal year twenty twenty six, we'll talk about what we expect again, not setting that right now. But certainly for Q4, you're seeing muted growth and you see that in the remainder of our outlook for Q4 given what we're seeing in the categories.

[Filippo Falorni, Director - Equity Research at Citi]

Great. That's helpful. And maybe one for Luke. In your guidance, you mentioned the impact of tariff on gross margin on a net basis. But can you give us a sense of like what the gross impact from tariffs that you're expecting and your plan to mitigate that impact? Thank you.

[Luc Bellet, EVP & CFO at The Clorox Company]

Yes. Thanks, Filippo. Maybe just as a piece of context, we talked about it in the past, but our exposure to tariff is relatively limited. When you look at our portfolio, we tend to manufacture closely to where we sell our products. Having said that, given maturity of the tariff rate, the impact unmitigated impact that we expect is a twelve month run rate of about $100,000,000 Now you'll see less than a fair share in Q4.

[Luc Bellet, EVP & CFO at The Clorox Company]

We expect about 10,000,000 to $20,000,000 in the outlook. That's because we currently have inventory and it's going to take time to for the tariffs to work through that inventory and hit our P and L. Now I would say this is so this is fairly material, but all in all, we think it's manageable and we expect that we'll be able to offset that over time. Now obviously, we already started working on mitigations and working at a broad set of levers. We're looking at changing sourcing or make other change to supply chains.

[Luc Bellet, EVP & CFO at The Clorox Company]

We're looking at potential reformulations, of course, productivity improvements as well as some levels of strategic pricing. Now we don't expect to see some broad based price increase, but we're certainly looking at targeted price increase that would be more modest in magnitude than what we've seen in the past few years.

[Filippo Falorni, Director - Equity Research at Citi]

Great. Thank you so much, guys.

[Operator]

Our next question comes from Peter Grom of UBS.

[Peter Grom, Equity Research Analyst at UBS Group]

Thanks, operator, and welcome, Luke. I wanted to ask a little bit on gross margin guidance just in the context of the fourth quarter, just the year to date performance implies a really kind of tough exit rate. And look, I know the guidance always included that assumption, but I'm curious if the drivers have changed. And I guess what I'm trying to get at, is there anything that we need to kind of take away from the implied 4Q pressure that we kind of need to take into account as we think about fiscal twenty six? I know we just touched on tariffs in your response to Filipa's question. You aren't giving guidance on '26 right now. Totally get that. But is there anything else that's really changed as we think about kind of the puts and takes for gross margin in the fourth quarter?

[Luc Bellet, EVP & CFO at The Clorox Company]

Thanks, Peter. Yes, I would say, if you look at our gross margin for the fourth quarter, it's let's say, it's about 44%. So it's fairly close to the average for the full year, which is going to be about 44.5%. The other thing I mentioned is a lot of our assumptions remain consistent with our prior outlook. There's a few changes and let me walk you through them.

[Luc Bellet, EVP & CFO at The Clorox Company]

First, we had some timing that was favorable in Q3 and unfavorable in Q4. And this has to do with some manufacturing expenses that were shifted from one quarter to the other. So that's about half a point that's favorable on Q3 and half a point that's unfavorable in Q4. The second thing I would say is generally, both Q3 and Q4, our cost savings are coming a little stronger as well as some other expenses coming slightly more favorable. So that adds up a little bit.

[Luc Bellet, EVP & CFO at The Clorox Company]

And then of course, there's the impact of tariffs in Q4. I just mentioned it, it's going to be about $10,000,000 to $20,000,000 So a few puts and takes, but all in all, we expect gross margin in Q4 to be about 44 basis points, very much aligned with what we're seeing for the year. And that gives you a good sense of what kind of what is our exit gross margin coming into next year.

[Peter Grom, Equity Research Analyst at UBS Group]

That's super helpful, Luke. Then I guess just I wanted to ask, I think in the prepared remarks, touched on some retail destocking that happened at the end of the quarter. Is there any way you can put some guardrail around how much of the impact that had? And has that kind of continued at all? Or is that contemplated at all in kind of the fourth quarter sales guidance?

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure. Q3, that happened very late in the quarter. And what we're seeing from retailers generally is not broad inventory retail destocking. This was limited to our household business and came late in the quarter based on some things that they were doing to adjust to the ever changing environment. We do expect some impact in Q4.

[Linda Rendle, CEO & Chairman at The Clorox Company]

I'll have Luke walk through the impacts for both quarters. As we look at this and as we understand retailers' plans, I think it's just helpful perspective. We don't view this as a strategic issue. We're not seeing any consumer out of stocks at shelf that's putting any of our category at risk. This really is retailers doing everything possible to manage their complex supply chains given the changing environment.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And I'll pass it over to Luke to talk about just how it impacted Q3 and how we're thinking about Q4.

[Luc Bellet, EVP & CFO at The Clorox Company]

Yes, certainly. So as you look in Q3, this was fairly modest. It was big when you look at the household segment. And when you look at total company, it was less than a point. And we expect most of the impact to actually come in Q4.

[Luc Bellet, EVP & CFO at The Clorox Company]

So it's hard to just put a specific numbers because there's a lot of volatility in Q4, but that's embedded in our outlook range.

[Peter Grom, Equity Research Analyst at UBS Group]

Great. Thanks so much. I'll pass it on.

[Operator]

Our next question comes from Anna Lazul of Bank of America.

[Anna Lizzul, Vice President - Equity Research at Bank of America Merrill Lynch]

Hi, good afternoon. Thank you so much for the question. I wanted to ask on the promotional activity that you mentioned in the prepared remarks as being largely normalized at this point, but it does appear you still have some promo activity in certain categories, like Glad maybe where promo activity might not be as productive at this point. So I was wondering if you could talk a bit about promotional activity by category. And then secondly, on the introduction of innovation, just wondering how you're squaring the introduction of more premium products with a weaker consumer sentiment and a greater need for product investment here. Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure. So on promotion, we are seeing, at the aggregate level, promotion normalized and about what our expectation was. And so that's going back to levels that we saw pre COVID and that continues to be true. But we absolutely are seeing by category nuances and differences, some categories promotion is slightly lower than that, Some categories promotion is higher. You called out Glad, and that is one of the categories where we're seeing higher promotion.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And we're seeing from competition some fairly deep discounting going on, on different sizes at some large retailers. And we've seen that behavior since our second quarter, and we're seeing that persist through the third quarter, and into the fourth quarter. So definitely competition looking for share of wallet in that category. We've responded, but we're also trying to be very rational. We don't grow these categories by doing deep discounting and promotion.

[Linda Rendle, CEO & Chairman at The Clorox Company]

We use that strategically to remind consumers to buy, to grow market baskets, to be in promotional activities with retailers at times that are important to them. So we're trying to be disciplined on this, but we're watching it really closely and ensuring that we have the right value at shelf. And that leads to your next question on innovation. And what we're seeing is consumers are absolutely willing to pay a premium for innovation that delivers them superior value and a better experience. We're seeing many of our innovations.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Centiva is a great example. That's a premium. That's doing very well as well as the recent launches in Toilet Wand, that's a premium. We're seeing our premium cat litter executions doing very well in market. Our premium Burt's Bees, Hidden Valley launches all doing well.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And at the same time, we're seeing consumers that are also looking for value in different ways, whether that be pack sizes, and we offer pack sizes that address all of those needs, whether they be low out of pocket opening price points or very large sizes to get the very best value per use or per ounce. And we're seeing consumers go there, and we feel good about the mix that we have across the retailers. And of course, you know, we're broadly assorted in all the retailers where consumers shop. So we feel good about the our ability to continue to innovate, innovate in premium segments, and it will also be very important for us to continue and ensure that we have the right promotions in place, again, at the levels that we expect that are normalized. We don't see that environment changing in any meaningful way at the moment outside of the small category examples that I called out.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And then continuing to ensure that we have the right price value as we do that limited strategic pricing that Luke talked about in response to tariffs. But overall, I would say, our value continues to be strong with consumers. If you look at the consumer value measure that we have, we're still significantly up than we were at the beginning of the strategy period and pre COVID. Actually, household penetration is up for us last fifty two weeks. Clorox is a brand that's up significantly over two points of household penetration in the last fifty two weeks.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And as you know, our Clorox portfolio is very premium in the category. So feeling good about our ability to deliver on that core value equation that we have, which is more premium products and premium experiences and consumers continue to be willing to pay for them.

[Anna Lizzul, Vice President - Equity Research at Bank of America Merrill Lynch]

Okay. That's super helpful. Thanks so much.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thanks, Anna.

[Operator]

Our next question comes from Bonnie Herzog of Goldman Sachs.

[Bonnie Herzog, Managing Director at Goldman Sachs]

All right. Thank you. Hi. I was hoping you could provide an update on your upcoming ERP transition. And how does the current demand backdrop impact your shipments and then the inventory build out?

[Bonnie Herzog, Managing Director at Goldman Sachs]

I guess I'm trying to understand why you're now expecting a greater lift on organic sales from the transition in Q4 than you previously thought? How much visibility do you have on this? Also curious if you expect the unwind to be evenly split in Q1 and Q2 next year, possibly a greater impact in Q1?

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure, Bonnie. I'll start and then I'll pass it over to Luc to talk about the impacts and how we're thinking about that playing out over the couple of quarters. First, from an ERP perspective, we remain on track to our execution to make this transition coming up here at the beginning of next fiscal year. We are working really closely with retailers right now on the plans, and our team feels prepared and ready to go. And as you know, we had a successful transition on our ERP in Canada last year as well as a successful transition in our financial planning tools.

[Linda Rendle, CEO & Chairman at The Clorox Company]

So I feel good about coming up on this transition and anxious to get the capabilities that this will unlock for the company. As it relates to the demand, this was something we gave a outlook to last quarter, but knew that this would be refined as we worked with retailers on their specific plans. And that's what you're seeing in the new outlook is that refinement as retailers have come back and given us a better idea of what they will take from an inventory perspective. Before I pass it to Luke, I'll just say one more thing, which is to the degree that the environment is volatile is just how we're thinking about this and how retailers are putting this in perspective. They have given us very clear idea of what they're going to take, but I would say we have a wide range in our outlook and these results could vary a bit given the fact that they are adjusting their inventories real time.

[Linda Rendle, CEO & Chairman at The Clorox Company]

This is what they want to have in stock to ensure that our categories remain in stock. They have a lot of history of doing these. But as you can imagine, this is an interesting time to be doing this given what's going on. But we feel pretty good about these estimates given retailers, have worked at a very detailed level with us on exactly what they need by category. With that, I'll hand it over to Luke.

[Luc Bellet, EVP & CFO at The Clorox Company]

Yeah. No. Thanks, Linda. Yeah. So I think at that point, we have the plan is going as expected.

[Luc Bellet, EVP & CFO at The Clorox Company]

We we have the final confirmations from most of our retailers now. As Linda mentioned, there would be some you know, there's a little bit of variability around the numbers. But net in aggregate, we expect retailers to build about one point five weeks of inventory. And again, they're building their inventory ahead of us going live in the new system to make sure that they can mitigate any potential risk of out of stocks. Now as you look at the range, just for perspective, one or two days of inventories could equate to one or two points of growth in the quarter.

[Luc Bellet, EVP & CFO at The Clorox Company]

And so that's why you see a fairly wide range in our outlook. Now as far as the reversal, all of it, not only the impact on the P and L, but there will be also some impact on the balance sheets, reverse in the front half of next year with the vast majority reversing in the first quarter.

[Bonnie Herzog, Managing Director at Goldman Sachs]

Okay. Thanks for that. I guess, Linda, you were mentioning earlier, I guess that's why I'm a little surprised given the slowing demand backdrop that now wants to buy more. And then maybe just a quick follow on question related to this. What should we expect in terms of short and long term margin impact as a result of your ERP transition?

[Bonnie Herzog, Managing Director at Goldman Sachs]

I can't recall if you ever quantified that for us, but I know it's a positive. Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure. Yes. This is for retailers, this is a very important transition for them because they want to make sure that we meet our mutual goal, which is ensuring no impact to their shopper and to our consumer. And so it's very important to them during a time like this to ensure that they have that backup inventory, just like we have backup inventory planned in our own system to accommodate that. And they wouldn't want to put this at risk regardless of what's going on in the environment.

[Linda Rendle, CEO & Chairman at The Clorox Company]

I think the volatility that we're referring to is the fact that they're managing this and just base inventory at the same time and that's why there's such a wide range around it. But they feel very strongly as do we that we hold excess inventory across the supply chain to ensure if there are any little bumps that we can cover them. So they remain committed to that as do we. Maybe just framing the margin piece, obviously, we have built a toolbox with our holistic margin management program to return margins to what they were pre COVID, and we've done that from a gross margin perspective. From a long term perspective, this continues to buoy our confidence in being able to deliver our EBIT margin goal, which is 25 to 50 basis points annually.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And this set of tools, the ERP, all of the technologies we're putting in place to not only help us grow, but also help us be more efficient are part of our confidence in continuing our margin expansion program even in an environment that's pretty uncertain and volatile.

[Bonnie Herzog, Managing Director at Goldman Sachs]

All right. Thank you so much.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thanks, Bonnie.

[Operator]

And our next question comes from Robert Moskow of TD Cowen.

[Robert Moskow, Managing Director at TD Cowen]

I actually had two questions. One was I was wondering if you could give us a little more like broad perspective on when you do give us a tariff impact, what do you think will be included in there? Will it be finished goods, packaging? Will it be exports to Canada that are that you will include in that estimate? And then a quick follow-up.

[Luc Bellet, EVP & CFO at The Clorox Company]

Yes, Rob. Most of it is packaging and raw supply, very little finished goods. And then we did mention there is some import coming from Canada and Mexico and The U. S, it's relatively small. I think we what we shared is about single digits of our total cost.

[Luc Bellet, EVP & CFO at The Clorox Company]

And we do have some exports to Canada as well, but again, it's a fairly small amount of the total product supplied in the country. So that's the extent, you know, that's the extent of our exposure.

[Robert Moskow, Managing Director at TD Cowen]

Okay. And then and then the follow-up, I I think you're the first CPG company I've heard who's talked about the pull forward of spending on electronics, automobiles. I I totally get it. But do you have, like, any evidence that that impacts grocery basket, like purchases at Staples? Do do you think there's, like, money that comes out of one and goes into the other?

[Linda Rendle, CEO & Chairman at The Clorox Company]

You know, I think it's safe to assume that consumers have one wallet, at the end of the day, and they're making distributive choices on that wallet. And what we're watching carefully is that wallet and what's happening. And certainly, the evidence would point to the fact that they are spending more in certain categories given what we're seeing broadly across industries well beyond ours. And then correspondingly, at the same time, we're seeing what we're seeing in in our categories. I think the piece that cements it for us is the fact that we're not seeing at home consumer behaviors change yet.

[Linda Rendle, CEO & Chairman at The Clorox Company]

So that really points to the fact that they're changing the shape of their wallet and spending versus changing their behaviors and deprioritizing different categories. But at the end of the day, they have a limited amount of money and they have to distribute that based on their choices. And I think certainly they're reacting to an environment where they're not exactly sure what things are going to cost coming up in the future and they're thinking about those big purchases and they're trimming in others. And anecdotally, we talked to consumers and they have said just that. That's exactly what they're trying to do is manage their overall wallet.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Can we provide a one to one causal relationship? No. It would be too early to do that and and difficult. But certainly, all of the evidence points to the fact that consumers are adjusting their spending, and that's the reason why our categories are being impacted.

[Robert Moskow, Managing Director at TD Cowen]

I got it. Makes sense.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thanks, Robert.

[Operator]

Our next question comes from Kamil Gajrawala of Jefferies.

[Kaumil Gajrawala, Managing Director at Jefferies Financial Group]

Hey, everybody. I guess still digging into this this consumer, slowdown, which obviously you guys are not alone. But when I look between divisions and I see that, you know, how much more it seemed to impact household than some of the other divisions, which at least to me, would have guessed is a division that that, would be a little bit more resilient, particularly, so many sort of at home categories in there. So a couple of follow ups on that, which is, do you feel like maybe there's excess inventory within the consumers' pantry? Obviously, talked about retail.

[Kaumil Gajrawala, Managing Director at Jefferies Financial Group]

And then second, what is it about those particular brands or category that were that led to them being impacted a lot more?

[Linda Rendle, CEO & Chairman at The Clorox Company]

Yes, Komal, this one, I think, requires us to get into retail sales versus our sales. And that's where you're going to see a lot of the difference in what went on with household. So if you look at retail sales, those categories generally looked like the categories did for the rest of our portfolio. And frankly, looked well beyond what you'd see in scanner. So we certainly saw that in international, we saw that in professional, all of our categories impacted given what is going on.

[Linda Rendle, CEO & Chairman at The Clorox Company]

For household as it relates to why sales was down, there's a few things going on. One, we talked about the inventory that Luke called out that the adjustments happened all in household for us. And that is impacting our sales, but not necessarily consumer takeaway or retail sales, because certainly we were in stock in those moments. We saw some timing and weather issues Easter is later. We had weather issues impacting Kingsford even though we grow share there.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And then litter, we had a promotion last year that we didn't lap this year and so there was a timing issue. But what I would say is generally those categories don't look any different than our other categories do. It's just a number of factors impacted our sales in Household this quarter. And then Luke talked about the fact there will be some impact in Q4 as that inventory correction continues to happen. But we would largely expect those things to normalize once you kind of take a step back and just don't look at the quarterly to quarterly impact, but over time.

[Linda Rendle, CEO & Chairman at The Clorox Company]

The one place that we would say is being hit harder right now is Glad given the promotional environment. That was less about consumers adjusting their behavior given what's going on in the atmosphere and more around competitive activity. But that's no different than what we've seen in Glad over time. And so, you know, we feel decent that there's not a category that is, having a wildly different impact than another. On the positive, what I would call out is a good example of cleaning.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And that's a place where we grew share significantly. The category was down, but not as much as some of the other categories were. And you can see the performance on our sales were very strong as well as all the other line items from a margin and EBIT perspective. So again, the impacts varied. All of our categories were impacted to some degree, but the difference in what you're seeing in our sales number and retail sales would say that some of this, again, is timing and just impacts of lapping versus anything structurally different in our businesses.

[Kaumil Gajrawala, Managing Director at Jefferies Financial Group]

Okay. Got it. Thank you.

[Operator]

And our next question comes from Javier Escalante of Evercore ISI.

[Javier Escalante, Analyst at Evercore]

I would like to go back into your guidance for fiscal twenty twenty five. Organic sales is 2% if you exclude the ERP transition. Sensitivity just point that Q4 organic sales, you are guiding to minus four around. Is that correct? And why is it that such a low growth given the easy comp from year ago?

[Luc Bellet, EVP & CFO at The Clorox Company]

Yes, I'll take that Javier. Thanks for the question. So maybe let me just there's a few moving pieces as we think about Q4. So let me unpack this a little bit. First, our organic growth is 4% to 5%.

[Luc Bellet, EVP & CFO at The Clorox Company]

And so with one quarter remaining, that means Q4 organic growth of 4% to 8%. Now we talked about the impact of the ERP transitions. This is 2% to 3% for the full year. So that equates to about 7% to 11% for Q4 because our Q4 is generally a little higher sales than the remaining of the other quarters. So if you back that out, you kind of get to Q4 organic sales growth, excluding the impact of AARP, of about negative 3%, so not far from what is the number you shared.

[Luc Bellet, EVP & CFO at The Clorox Company]

Now of course, there's a range around that and we talked about it. And then essentially, if I impact on minus 3%, there's really two parts to it. There is the we're assuming that recent consumption slowdown persist in Q4 and we talked about it. And there's also some headwinds from retailer inventory reductions that we start seeing in household in Q3 and will continue in Q4.

[Javier Escalante, Analyst at Evercore]

Thank you, Luke. And a follow-up to Linda. And it's kind of like digging a little bit into the household sector that was weak. And I appreciate the keen for piece. You also, I believe, advanced a little bit of shipments in the second quarter.

[Javier Escalante, Analyst at Evercore]

But the other two big businesses there are Glad and Tech Leader. And what they have in common is that you have very strong value players. So if you could talk about the traction from your innovation in these two categories, retailer reception and consumer reception? And to what extent what give you confidence that you do not have a pricing issue, a structural pricing issue beyond promotions given that you have value players with very strong business propositions in these categories? Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure. I'll take them in turn, Javier, because GLAAD and Litter are two different sets of circumstances. Although, as you know, good tough competition in both of those categories. So Glad is, as we've noted, we're seeing increased competitive activity from the other branded player in the category, reducing pricing starting back in Q2, which looked like temporary price decreases, although those have not rolled off yet. And they're focusing those on some of the larger value sizes.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And in some cases, that's putting them below private label pricing, which we view as not sustainable over the long term. We're watching it really closely. But if you look at that category, even with that, it held up pretty well. That was one that was down a little bit less than some of our other categories were. And so we see actually fairly resilient given what's going on with the consumer.

[Linda Rendle, CEO & Chairman at The Clorox Company]

They're not generating less trash. It's a solution to have to get rid of trash. So we're looking at that as one that will, over time, you know, more normalized. We've seen that in Glad for many, many years. Our innovation is doing very well in that category.

[Linda Rendle, CEO & Chairman at The Clorox Company]

At CAGNY, might recall, Javier, we spoke about our Bahama Bliss launch in our ForceFlex business, which is doing very well. We're expanding Bahama Bliss right now in different retailers. And we continue to see people willing to pay that premium for a better trash bag experience, whether that be, you know, a delightful color, a great scent. And we're making sure that, of course, we have the right value equation across that more premium line as well as our more base trash bag line as well. But we view this as just higher competitive activity in Glad, given what's going on in the category and with consumers.

[Linda Rendle, CEO & Chairman at The Clorox Company]

But nothing that makes us worried that our proposition around a premium trash bag won't continue to be successful in the future. And we're going to continue to spend advertising and sales promotion, innovation dollars, and continuing to ensure that we have the right mix across retailers, etcetera. The one thing that we are very concentrated on is this is a place where we're seeing channel shift happen quite a bit, and people are moving to club and online, etcetera. We have distribution wherever consumers shop, but that's something that we're making sure that we even sharpen that that value proposition by retailer to ensure that we are capturing that channel shift, now and into the future. And then for litter, you know, there's a number of brands in the cat litter category, and we play into, we play in the premium segment and then we have a smaller business in Scoop Away that plays in more of a mid tier proposition.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And we feel good about our ability to compete here. This is a place where innovation across our competitive set and our innovation does very well. There's a number of unmet needs in the cat litter category, whether that be odor control, lack of tracking around the house when the cat litter gets stuck on cat's paws, clumping, etcetera. And we've launched recently a litter that has the strongest odor control claim on the market with thirty days. That's doing very well.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And we're seeing consumers react to those enhanced benefits. But this is a category that is competitive. And we talked about the fact that we were making it a bit more competitive for a while there because we were using promotion to ensure that we got consumers back after we lost them due to the cyber attack. And we've made really great progress there. We have more to go, but continue to feel good that our investment in innovation, investment in advertising and sales promotion is heading in the right direction.

[Linda Rendle, CEO & Chairman at The Clorox Company]

But we have more progress to make, Javier, over the coming quarters.

[Javier Escalante, Analyst at Evercore]

Thank you very much.

[Operator]

Our next question comes from Andrea Teixeira of JPMorgan.

[Andrea Teixeira, Analyst at JPMorgan Chase]

Thank you, operator, and good afternoon, everyone. Linda, you talked about, the bifurcated consumer, and understandably, you have, a portfolio that accommodates that, the low end and the high end. But I was hoping to see if you can share some examples you did share, Sensiva on the high end, but perhaps, you know, give us some comfort on being able to pivot where the consumer is and meets the the needs of on a pricing, on a value perspective. And also in terms of the channels you regain, you know, this high growth including including clubs as as you pivot away and some of the drugstore exposure that you you may have that may be cooperating with this deceleration, if you can explain to us that. Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure. Andrea, why don't I take the second part of your question first, and then I'll get into the portfolio question. So in channels, we are broadly distributed everywhere and happen to be very strong in the channels where consumers are moving. So as we see them move into mass and club, these tend to be channels where we have placed early bets and have very strong share positions in. So feel good as consumers are moving into those those channels in aggregate that we are there for them and that we have the right value proposition.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And drug stores, just as you noted, we are not a very strong player in drug. That's a place given we don't have a big portfolio in more of the health and beauty areas that we are not overly distributed in, we're fairly distributed in. And again, we tend to be stronger in the channels where consumers are choosing to shop today. So feel good about our ability to deal with that changing environment. It can have an impact on, as you saw in this quarter, mix.

[Linda Rendle, CEO & Chairman at The Clorox Company]

It can have those types of impacts, but feel good about our ability to ensure consumers have what they need from Clorox. On the bifurcated side, this is a really interesting story. And maybe I'll tell you in cleaning how this is playing out because it's an area that worked really well for us over the last few years, but particularly if you look at this quarter, it's a great example. So we have the most premium cleaning products. We have things like a disinfecting wipe, which is one of the highest prices per use, but they're very convenient and consumers love them.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And we also have diluted forms that are very, very good value on a price per ounce, like Clorox bleach, like Pine Sol dilutable cleaners. And so what we've seen is consumers who are time starved continue to move into forms like disinfecting wipes. They're very convenient as you're dealing with things like cold and flu. So those segments continue to do well, as well as consumers who might be more stretched trading into things like dilutables and bleach. So for example, the bleach category was down, our share was up significantly.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And then you saw the dilutables category both strong and our share position within it strong. So that consumers are navigating their cleaning tasks at home. We have a portfolio that serves all of their needs, whether they're looking for something quick and convenient and they're willing to pay the premium, like a disinfecting wipe or a toilet wand, as well as when they're looking to get the very, very best cost per use, and they're turning to our Pine Sol brand or bleach. And that's a great example where we grow share significantly this quarter. That business delivered strong financial performance this quarter, and we feel really well covered.

[Linda Rendle, CEO & Chairman at The Clorox Company]

If you look at some of our other categories, that's less of a dynamic because it's often private label, and we feel very good about our ability to compete. Kingsford is a great example where we grew share this quarter even though that category had some puts and takes given weather and timing, but we grew share in the grilling category, so feel very good about that. But generally, portfolio, we are well insulated in places where consumers may trade between different occasions in value and price point. And then in certain categories where we have a limited competitive set, consumers continue to look for that premium we're well suited as well. The other thing I would note is in categories like Glad, you know, we have more premium trash bags and we have more core base trash bags.

[Linda Rendle, CEO & Chairman at The Clorox Company]

So if consumers don't want all the bells and whistles, they can certainly choose to have a trash bag with less of that at a lower cost per use. But that's something we'll continue to watch as we move forward. We'll use our innovation, price pack architecture, all of those tools to ensure that we have the right lineup, but feel very good about what we have today.

[Andrea Teixeira, Analyst at JPMorgan Chase]

So is it fair that's super helpful. Is it fair to say that other than Glad the Glad trash bags, you gained share in most categories?

[Linda Rendle, CEO & Chairman at The Clorox Company]

In aggregate, Andrea, we held share for the quarter. And, you know, to be fair, that was less than our expectations, but actually feel very good about it given what what went on in, the quarter from a category perspective. But we had puts and takes on that. So we declined in share and litter, for example, which we knew was going to happen because we were lapping an event, grew in grilling, grew in food, grew in cleaning. So it was mixed, but in aggregate, we held share for the quarter.

[Andrea Teixeira, Analyst at JPMorgan Chase]

That's super helpful. Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thank you.

[Operator]

And our next question comes from Kevin Grundy of BNP Paribas.

[Kevin Grundy, Managing Director at BNP Paribas]

Great. Thanks. Good afternoon, everyone. I wanted to ask just sort of given pulling the conversation together here and then ask about capital deployment, A lot of discussion on slowing in categories, hardly unique to your portfolio. Growth rates well below long term targets.

[Kevin Grundy, Managing Director at BNP Paribas]

It looks like this may sustain and kind of be an obstacle as you think about guiding for next year. It sort of potentially presents you and the Board with the decision to leverage the balance sheet potentially and look to move into growthier categories, not just even near term, but even longer term, I would say, structurally. The flip side to that, the company has had some success, some maybe some shortfalls, if you will, from an M and A perspective. So that's all kind of a big wind up, Linda. How are you?

[Kevin Grundy, Managing Director at BNP Paribas]

How is the Board kind of thinking about M and A? Does this environment does it change it? Does it potentially elevate importance or the opportunity of M and A? So I'd love to get your thoughts there. Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure. You know, Kevin, I think the headline will be, and as it has been for a number of years, we're gonna control what we can. And I feel very good about our ability to control what we can. And, you know, as we look to what's important for us, we want to continue to deliver strong earnings performance in an environment that is very uncertain and very volatile. And we feel very good about our ability to do that.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And that's, of course, behind the capabilities that we've invested in, whether it be technology, holistic margin management, innovation, give us a wide range of things to ensure we can continue to expand margin and deliver earnings performance. Obviously, would like that to come with more top line growth. But given what's going on in the environment, we're planning to ensure that we can protect that earnings growth while we want to be competitive in the marketplace, and that's what we're focused on. Let's do both of those things and do them very well. And that will be the theme.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And around M and A, it's the same, we've done exactly that. So we made two important divestitures in the last eighteen months that strengthen the financial profile of our company, both supporting better top line growth, better margin expansion and an earnings profile. And we're always looking for ways to improve our portfolio over time. But job number one is ensuring that our core is healthy. And I feel very good about all of the investments we've made, the capabilities we've built to be able to control what we can.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And if there are opportunities, we certainly have a strong balance sheet, good cash flow, and we would be ready if it was at the right value, and we felt confident about our ability to navigate that moving forward. But again, job one, two and three is ensuring that we can control what we can and deliver strong learning performance as we get through this period.

[Kevin Grundy, Managing Director at BNP Paribas]

Very good. Thank you. I'll pass it on.

[Operator]

Our next question comes from Olivia Tong of Raymond James.

[Olivia Tong, Managing Director at Raymond James Financial]

Great. Thank you. First question is just why you think the destocking was more substantial in household and cleaning. And does it make you more or less concerned that there's some picking and choosing by the retailers even within everyday use categories and what categories to work down more than others. And then a lot of your peers caveated the recent performance with a view that consumers and retailers will eventually have to replenish.

[Olivia Tong, Managing Director at Raymond James Financial]

But I'm not sure I heard that same sentiment shared by you beyond the ERP related challenges. Obviously, one logically expects the consumer to replenish in the vast majority of these categories eventually, but do you think it takes longer for your categories? Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Yes. On Household, you know, as you said, Olivia, we didn't have broad destocking or inventory adjustments across our portfolio. They were they're fairly limited to household. And if you look at what's in that that set of goods, they're pretty heavy goods that take up a lot of space. You know, we've got Kingsford.

[Linda Rendle, CEO & Chairman at The Clorox Company]

We've got Litter. And so I think that's the mental we're in. They're managing limited space. They're trying to think about how they deal with those goods. And, again, importantly, they're really not focused on doing this at the detriment of the consumer.

[Linda Rendle, CEO & Chairman at The Clorox Company]

They're focused on ensuring consumer in stocks at the shelf and the virtual shelf are available. They're just using more sophisticated technologies in some cases to ensure that they can manage that inventory more closely. And that's why it ended up in household, think, is given just it's their heavy goods and they're figuring out ways to ensure that they can maximize, the space. Again, I think this environment is dynamic. Could it happen in other places as they're adjusting it could?

[Linda Rendle, CEO & Chairman at The Clorox Company]

Right now, we have more inventory adjustments planned for Q4 in household for the most part, but working with retailers every day to ensure that they have the right level and we don't put consumers out of stock. And then to your point on replenishment, I think it's a really interesting question and it's something we're looking very carefully at is, you know, is there a bounce back for consumers as they potentially empty their pantries or using what inventory they have at home. I would just say it's very difficult to tell. Our purchase cycle is 90. We haven't even been through a full purchase cycle when the the downturn started in the February.

[Linda Rendle, CEO & Chairman at The Clorox Company]

We're seeing some consumers buy smaller sizes. Does that mean they're going to stretch that smaller size to last that entire purchase cycle? Or will we see them come back sooner? It's just really too early to tell. Think that will be something we'll contemplate as we think about fiscal year twenty twenty six guidance.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Certainly in Q4 that we're seeing though is the back half of that purchase cycle, we continue to expect categories to be softer, and it is definitely a question mark how much inventory will be left in in the households for a consumer perspective and then what will that mean. But I think it would be logical to believe at some point, consumers will go back to more normalized inventory levels, etcetera. It's just the question mark of when, Olivia.

[Olivia Tong, Managing Director at Raymond James Financial]

Great. Thank you. And

[Operator]

our next question comes from Chris Carey of Wells Fargo.

[Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo]

Hi, everyone. I want to ask about productivity. So you know, you're gonna have tariffs, which are gonna be, you know, impacting you next year. You're also going to have a bigger impact from ERP. The question this evening is obviously going to be, does that mean you won't be able to grow earnings next year potentially?

[Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo]

I suppose we'll see what you have to say in a few months. But can you just talk about, number one, what you plan to do around tariff mitigation? And secondly, does that involve accelerating productivity programs to cover that? And does that leave less to cover other headwinds like ERP or to drive incremental demand building activities? And related to that, Linda, you had a target around S and A as a percentage of sales around 13%.

[Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo]

You're going to be thinking about a point and a half higher than that this year. Does fiscal twenty six give you some sort of impetus to accelerate that agenda such that earnings be what they will next year, you're exiting into fiscal twenty seven with a cleaner base, much more resilient not resilient, but with the targets that you have wanted to achieve several years back? Any context on the productivity and also the S and A would be helpful. Thanks.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Sure, Chris. Maybe, again, this would be helpful one to step back on and really just talk about the capabilities that we've built and how we think they apply generally and then who are thinking about applying them in fiscal year twenty twenty six. We set out to build a stronger, more resilient company, and that included investing a significant amount of money in our technology transformation, investing in capabilities, a new operating model. And those were all designed to ensure that we could expand margin year after year. And of course, first, job one was return margins to gross margins to the levels that they were pre pandemic, which we've done, but then continue margin expansion that will allow us to invest in our business and of course give returns to shareholders.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And we feel very good about the capabilities that we've built. They have delivered outsized results over the last couple of years. You look at what we were able to deliver and some of those are just getting started. And we talked about that at CAGNY CAGNY as you look at the tools that we have around price pack architecture, etcetera. Those are things that we're just starting to implement and get value from.

[Linda Rendle, CEO & Chairman at The Clorox Company]

So when you step back, I feel very confident in our ability to manage this over time. But yes, next year will be more of a challenge with more pressure given what Luke outlined on tariffs. We're looking at about a year run rate of about $100,000,000 worth of impact. Again, our exposure is relatively low, but when you look at the number the amount of tariffs coming in these areas, it just it ends up in that number. And we feel good about our ability to manage that $100,000,000 do that over time.

[Linda Rendle, CEO & Chairman at The Clorox Company]

So yes, we've expected more productivity from our company already over the last couple of years, and we'll continue to put pressure on productivity as we look to fiscal year twenty twenty six and beyond with all of those tools that we built and we spoke about. Obviously, we're not committing to what that looks like at this point, but those are the discussions we're having. We talked about, for example, our advertising spending is getting some of the best returns we've ever gotten. So what does that mean in this environment? How do we think about advertising spending?

[Linda Rendle, CEO & Chairman at The Clorox Company]

It's incredibly important. We're going to continue to invest strongly in our brands, but at what level makes the most amount of sense given the returns that we're getting. So those are things that we'll talk about when we talk about fiscal year 2026. But we feel good about our ability to manage this over the mid to long term and have all the right capabilities in the company. And yes, we will get to S and A over time and we've said that that wouldn't happen right away.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Right now, as you can imagine, we're spending more as we implement that ERP. But once we have that implemented, you'll start to see that S and A over time come down corresponding to that and we're using all of the tools to drive that productivity once we get through that transition.

[Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo]

Thanks, Linda.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thanks, Chris.

[Operator]

Our next question comes from Steve Powers of Deutsche Bank.

[Stephen Powers, Analyst at Deutsche Bank]

Great. Thanks. Good evening. So I guess, going to the question of trade down, for all the value seeking behavior we've seen over the past several months and quarters, as you as you noted in your, your opening remarks, that we really haven't seen trade down in the traditional sense. We've seen channel shifting.

[Stephen Powers, Analyst at Deutsche Bank]

We've seen pack size shifting, but, you know, pretty much everything but traditional trade down. So I guess a couple questions in there. You know, number one, why do you think that is? Because it's not just, you who did observe this as you know, we've seen it on the outside and other companies have come to it as well. And as you look forward and you think about consumers, potentially, you know, resuming more normal normal purchase patterns, the the the replenishment that you talked about earlier, you know, do do you see an increased risk that as as consumers do come back and buy, you know, volume on a more kind of normalized cadence that they're trading down as they do that?

[Stephen Powers, Analyst at Deutsche Bank]

Or is that not something that you see on the horizon? Thank you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

You know, it's particularly in The US and many of the markets that we're in, really, consumers value getting what they pay for. They want a product to work. And I think fundamentally in our categories, we are essential categories, and you see that in essential categories well beyond our portfolio. Consumers outlay $4 or $5 for something, ten, fifteen, depending on the category, and they want to make sure it works. And we've spent all of our history building that trust, continuing to improve our products, ensuring that whatever a consumer buys, it does what we say it's going to, and consumers know that.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And they've tried other things before. You know, we have consumers who tried alternatives, and they come back to us because they recognize that it is a difference. So I think broadly, Essentials hold up because companies have done the right thing. They've invested to ensure those products continue to be a superior value to consumers and always. And that superior value, Steve, is much more important than just whatever the juice or the stuff in the container is.

[Linda Rendle, CEO & Chairman at The Clorox Company]

It's how the container works. It's how it fits in their pantry. It's all of those design elements, the scent that they experience, the feel. And we've worked really hard on that, and we'll continue to prioritize it. It's why we talk about it all the time.

[Linda Rendle, CEO & Chairman at The Clorox Company]

That's what matters to the consumer. So I think that's what we're seeing right now is consumers know that, and they're doing everything. Despite all the changes they're having to make to their external wallet, they're doing everything they can to continue to have that experience even if that means buying a smaller size or changing channels, because they know what they're getting for their money. They're very, very savvy. As we look ahead, you know, I I would expect those value seeking behaviors to continue.

[Linda Rendle, CEO & Chairman at The Clorox Company]

I think people will continue to channel shift. I think they'll continue to think about what sizes they buy. I think they're going to be very savvy about how they think about inventory at home. And I think they've been taught that over the last five years. Consumers going through COVID and inflation have had to be very, very savvy.

[Linda Rendle, CEO & Chairman at The Clorox Company]

And I think you're seeing what they learned in those last few years coming to fruition right now as they're dealing with what's going on. I think the question mark for us is and for everybody is to what degree does this volatility continue? Does it get worse for consumers and they have to make additional trade offs and choices? Does that mean they have to take a smaller size and extend keep the purchase cycle the same and just use it less frequently? Does that put additional pressure to see them do what you would call traditional trade down, trade to private label?

[Linda Rendle, CEO & Chairman at The Clorox Company]

Again, we see none of those signs right now, but it's something we're watching very, very closely because it's just so uncertain and volatile out there. And you can imagine a scenario where consumers are having to make much greater trade offs than they are today, and what would that mean? But for us, again, controlling what we can, it's continuing to invest in our brands, continuing to ensure that we have the right messaging, we have the right promotion, that we continue to improve our products, we continue to talk to consumers about the improvements that we're making in our products, ensuring that we're at all retailers, and that we offer them a great value wherever they shop and we feel very confident in our abilities our brand's abilities to navigate this. I think it's just gonna be what that shape looks like as consumers respond. And, you know, unfortunately, this is one where I don't have a crystal ball.

[Linda Rendle, CEO & Chairman at The Clorox Company]

I can't tell you what's gonna happen next in the macroeconomic, but I do feel very confident in our ability to navigate it and that our categories will hold up better than others given that we plan Essentials.

[Stephen Powers, Analyst at Deutsche Bank]

Thank you very much. Appreciate it.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thanks, Steve.

[Operator]

This concludes the question and answer session. Ms. Rendle, I would now like to turn the program back to you.

[Linda Rendle, CEO & Chairman at The Clorox Company]

Thank you, Paul. As we close today's call, I'd like to step back and reflect on the number of macroeconomic environments we've weathered as a company over our one hundred and twelve years. From inflationary to recessionary environments, we have navigated them well with strong execution and our portfolio of trusted brands. For sure, we are seeing temporary category impacts given the very dynamic environment today. But history tells us that our essential categories are stable and resilient over the long run.

[Linda Rendle, CEO & Chairman at The Clorox Company]

While it's challenging to predict just how long this period will be, we're confident in our ability to navigate this environment given our track record coupled with our enduring strategy. We have fundamentally strengthened our value creation model, including how we create the fuel necessary to drive growth. We're focused on delivering superior value through brands consumers love. We're creating a consumer obsessed, faster and leaner organization by reimagining how we work in advancing our digital capabilities. We have taken steps to evolve our portfolio to reduce volatility and drive more profitable long term growth.

[Linda Rendle, CEO & Chairman at The Clorox Company]

This strategy has served us well as we transform Clorox into a stronger company poised to deliver more consistent profitable growth and enhance long term shareholder value. Very importantly, we remain laser focused on delivering in both the short and long term. Thank you, everyone. We look forward to updating you on our continued progress on our next call. Take care.

[Operator]

This concludes today's conference call. Thank you for attending.

Participants

Executives

• Lisah Burhan, VP of IR
• Linda Rendle, CEO & Chairman
• Luc Bellet, EVP & CFO

Analysts

• Dara Mohsenian, Managing Director - US Beverage/Household Products Sectors at Morgan Stanley
• Filippo Falorni, Director - Equity Research at Citi
• Peter Grom, Equity Research Analyst at UBS Group
• Anna Lizzul, Vice President - Equity Research at Bank of America Merrill Lynch
• Bonnie Herzog, Managing Director at Goldman Sachs
• Robert Moskow, Managing Director at TD Cowen
• Kaumil Gajrawala, Managing Director at Jefferies Financial Group
• Javier Escalante, Analyst at Evercore
• Andrea Teixeira, Analyst at JPMorgan Chase
• Kevin Grundy, Managing Director at BNP Paribas
• Olivia Tong, Managing Director at Raymond James Financial
• Christopher Carey, Equity Analyst - Head of Consumer Staples Research at Wells Fargo
• Stephen Powers, Analyst at Deutsche Bank