Clorox Q2 2024 Earnings Call Transcript

Participants

Corporate Executives

• Lisah Burhan, Vice President, Investor Relations
• Linda Rendle, Chairman and Chief Executive Officer
• Kevin Jacobsen, Executive Vice President and Chief Financial Officer

Analysts

• Andrea Teixeira, JP Morgan Chase
• Peter Grom, UBS Group AG
• Anna Lizzul, Bank of America Co.
• Dara Mohsenian, Morgan Stanley
• Filippo Falorni, Smith Barney Citigroup
• Chris Carey, Wells Fargo & Company
• Kaumil Gajrawala, Jefferies Financial Group Inc.
• Steve Powers, Deutsche Bank Aktiengesellschaft
• Javier Escalante, Evercore ISI
• Callum Elliott, Bernstein Research
• Lauren Lieberman, Barclays Capital
• Olivia Tong, Raymond James

Presentation

[Operator]

Good day ladies and gentlemen, and welcome to The Clorox Company Second Quarter Fiscal Year 2024 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. [Operator Instructions] I would now like to introduce your host for today's conference call Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company.

Ms. Burhan. You may begin your conference.

[Lisah Burhan, Vice President, Investor Relations at Clorox]

Thank you, Jen. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO and Kevin Jacobsen, our CFO. I hope everyone has had a chance to review our earnings release and prepared remarks, both of which are available on our website.

In just a moment, Linda will share a few opening comments and then we'll take your questions. During this call we may make forward-looking statements including about our fiscal 2024 outlook. These statements are based on management's current expectation but may differ from actual results or outcomes. 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 of our earnings release and the supplemental financial schedules in the Investor Relations section of our website or reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures.

Now I will turn it over to Linda.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Hello, everyone, and thank you for joining us today. We delivered financial results above our expectations in the second quarter, thanks to very strong progress on a recovery from the August cyberattack, continued advancement of our strategies to drive top line growth and rebuild margin, as well as the swift and effective management of currency headwinds in Argentina. We are rebuilding retailer inventories ahead of schedule, enabling us to return to merchandising and restore distribution. As a result, we made great strides rebuilding market shares.

Importantly, throughout our out-of-stock period and recovery, we've maintained our strong brand superiority results as measured by our consumer value metric. This speaks to the power of our advantaged portfolio, the superior value of our brands and their role in consumers' daily lives. While there is still more work to do, we're on the right path to return our business to the trajectory it was on before the cyberattack.

Looking ahead, we expect the operating environment to remain challenging, as consumers remain under pressure and their value-seeking behaviors continue. Nevertheless, we remain committed to growing the top line and rebuilding margins and expect volume to play a stronger role in our top line performance as we lap pricing.

We're well-positioned to make further progress in rebuilding distribution and market shares, as well as drive volume and household penetration growth over time through strong demand creation plans. Given the progress we've made in the second quarter, we are also updating our full year 2024 outlook. We have a strong diverse portfolio of trusted brands, we play in essential categories and we're making the right investments guided by our IGNITE strategy to create long-term value for stakeholders.

I'm confident that we're taking the appropriate actions to build a stronger, more resilient Company that is positioned to win in the marketplace, and deliver consistent, profitable growth over time.

With that, Kevin and I will take your questions.

Questions and Answers

[Operator]

Thank you, Ms. Rendle. [Operator Instructions] And our first question today will come from Andrea Teixeira with JP Morgan Chase.

[Andrea Teixeira, Analyst at JP Morgan Chase]

Thank you. Good afternoon there. Linda and Kevin I just wanted to go back. Obviously, an amazing performance you caught up with I think with the second quarter fiscal you caught up with kind of the -- according to my math I'm minus 2%, pretty much first half against first half of the prior year. And then what are you implying given the Argentine peso depreciation is underlying beta as you're putting in prepared remarks and your commented it just now but then you have a greater FX headwind.

But when you go and flow through everything and according to the new guidance the plus 200 basis points improvement in gross margin. It implies that your gross margin in the back end declines vis-a-vis what you had in the back end of last year. And so, I was just trying to reconcile, because your numbers kind of imply profitability going down, the way I understand it translate the transactional FX. But it seems a bit high. If you can kind of walk us through why would that happen given the beats the magnitude of the beat?

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Yeah, Andrea. And maybe let me take a stab at answering some of those questions, and let me know if we missed anything. But as it relates, maybe I'll just start with Argentina might be a good place to start. Because that you've heard from many of our peers that's an incredibly difficult environment right now.

I think if you just step back and think about our business in Argentina, we've been in there for a very long time, we have very capable leaders managing very strong brands. While there are some negative impact in Argentina flowing through our outlook we provided today, both on the top line in terms of higher FX as well as higher inflation and FX exposure and margin.

What you should know is, based on the actions we've taken in Argentina, including incremental pricing, we think we fully cover the negative impacts of Argentina within this outlook with the one exception of the remeasurement loss and I'm happy to talk about that, but setting that remeasurement loss aside, we think we fully contain the Argentina impact in this P&L.

As it relates to the back half, you were asking about gross margin, and as you saw, we delivered about 41.5% gross margin in the front half. And if you look at the back half, based on the outlook, you suggest will be fairly similar 41.5% as well. And so we're looking at sequentially fairly consistent trends. If I think about what's changing from the front half to the back half, there's a few items I'd point out. In terms of increased headwinds, we continue to expect higher trade spending in the back half of the year as we get to a more normalized environment. We also now have lapped all our U.S. pricing. We lapped the last round of pricing in December. So you'll see less benefit from pricing in the U.S.

And then we're expecting more inflation and more FX headwinds coming out of Argentina. We are offsetting that with incremental pricing, we're executing in Argentina, so you'll see international price mix benefits in the back half of the year to a greater degree than the front half of the year, as well as we're projecting improving volumes trend. And so collectively that's offsetting those headwinds, and we're getting to a margin fairly consistent front half versus back out and that puts us in a position to improve margins by 200 basis points on a full year basis.

Now, I think maybe the last question you talked about versus prior year, I think you have to be a little careful looking at the comps. If you look at our gross margins in the back half of last year, I think they're up almost 600 basis points. And so we're relatively flat, but on a very strong performance in the prior year. Well, let me stop there. Andrea, let me know if that answered your question.

[Andrea Teixeira, Analyst at JP Morgan Chase]

Yeah, that did Kevin. Thank you. And I think one of the kind of like a fine point on that commentary. When you say, in the prepared remarks, I think Linda had mentioned you're confident to regain shelf space and you're looking obviously regained service levels. It sounds to and even in our meeting recently in New York, you kind of alluded to initially that guidance and I think we all in this call appreciated there was a lot of moving pieces and you're conservative. It seems like you're embedding some potential risk at that point of not being able to recover the service levels, now you did recover. So I'm more in the side of like thinking of the strength of what you achieved in six months. I'm thinking more, why not expecting that momentum to continue now, that you potentially could recover some of the shelf-space losses that you had, especially now coming up on the spring reset.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Sure, I'll take that and maybe I'll just start with your first important point, which was our expectations in Q2, and what drove the significant over delivery. If you recall, you got it exactly right. At the point where we provided an outlook for Q2, we are at a point where we had just turned back to automated order processing and we knew there'd be a transition time going from manual to automated and that that would take us a bit of time to ramp up.

We're also heading into key holiday time for retailers, which is a challenging time to ensure that we get the ability to have appointments and ensure that we could deliver what we needed to, in order to deliver what we ended up doing for the quarter, which was every single day shipping significantly above an average day that we would normally ship. And we I think were appropriately cautious given all of those potential headwinds on what we could accomplish. And again, the goal was to restore inventories by the end, the majority by the end of Q2, knowing some of that would flow into Q3 and Q4.

So what happened in Q2, we were able to get all of that ramp up and we really leaned into our operating model. We designated a General Manager, who is in-charge of solely getting inventories rebuilt and retailers. And she had a multi-functional team around her to do that. And we were able to quickly ramp up from manual to automated and ship nearly every single day significantly above an average shipping day pre-cyber event, and our retailers were extraordinary. So we were able to get in, we were able to get appointments and the result of that, if you look at distribution, we were down over 30% of our TDP. If you look at average weekly TDPs down over 30% at the height of our out-of-stocks. We've gotten back to mid single-digits, some business is slightly better than that, some slightly worse and I can cover that. Market shares at the height of this, we were down over 5 points. If you look at the four, five weeks ending December, we were down a point. Look at the latest four, five weeks ending January 21st down 0.7, so all that flowed in the right direction, which gives us confidence.

But that speaks to with the work we have remaining and we talked about this last quarter. We spoke about the fact that a lot of this was under our control and we were going to maximize that I felt good about what we did in Q2. But we're also dealing with the fact that in order to fully restore distribution, we need to have retailer resets, and those happen mainly in the spring and they vary through the back half of our year. And we intend to finish the job, then. And in addition to that we have to fully restore merchandising. So as we get our business up to the service levels we expect, and to be clear, our service levels are still depressed. They are significantly better. But we need to fully restore those. We'll return to merchandising in the back half and full as well.

And with that, we feel good about our plans, we feel like we have the right investment levels. Our brands have maintained their superior value as I said in my opening comments, so feel good about it. But I just want to be clear, we didn't -- the job not done in Q2, tremendous progress, but we have more work to do in the back half.

[Andrea Teixeira, Analyst at JP Morgan Chase]

Thank you. I'll pass it on.

[Operator]

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

[Peter Grom, Analyst at UBS Group]

Thanks, operator, and good afternoon, everyone. So I wanted to ask on the organic revenue growth trajectory. Can you maybe just help us understand how you are thinking about volume versus price in the back half of the year. Linda you mentioned you expect volume to be a stronger contributor to the performance, does that assume a return to growth or just kind of less of a drag versus what we've seen prior to the disruption.

And then just on the pricing as well, particularly you now lapped the U.S. pricing but are taking incremental pricing related to Argentina. Thanks.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Sure. Hi, Peter. As it relates to organic sales growth and transitioning from the front half to the back as we think about what the changes are as it relates to volume, we expect to see improving volume trends in the back half of the year. That's a combination of both continue to recover from a cyber event as well as now that we've lapped pricing, we'd expect to see improving volume.

If you look at the front half, our volume was down high single-digits and so we would certainly expect to see those improving volume trends as we go forward. And then in addition to price mix we've now as I said lapped our U..S pricing in December, the last of the four rounds we took. And so U.S. will be contributing much less, in fact very little impact in favorable price mix. But we have now leaned into Argentina in November and December we took double digit price increases both months. And so you will still continue to see positive price mix in the back half of the year in-spite of increased trade spending.

So I'd say overall improving volume trends from the front half of the year. Price-mix being a little lower than the front half because we lapped U.S. pricing, but still fairly strong for us, and that's how we get to an expectation that we'll be growing for the full year low-single digits, and that means the back half would be a bit stronger than where we land in the front half in terms of organic sales growth.

[Peter Grom, Analyst at UBS Group]

Got it. And that's really helpful. And then I guess just, Kevin on the 42% exit rate, I think I may be reading too much into this, but are you simply just trying to provide some color on the second half phasing, or are you trying to signal how we should be thinking about the gross margin recapture opportunity looking out to fiscal '25.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Yes, it's more about phasing in the back half. Just want to make sure we're highlighting folks for that all that pricing in Argentina to take effect probably in the fourth quarter but forcefully end markets. So I'd I expect my fourth quarter gross margin to be a bit stronger than third quarter. But having said that, as you know, Peter, Linda and I remain committed to rebuilding gross margins back to you. The level we had before though what I describe as you know the super cycle of inflation. A good progress last year, we intend to make more progress this year, but the work is not done. And I fully expect going into '25 we'll continue to expand margins. But importantly we'll do that while we continue to invest to grow the top line and continue to advance our strategic initiatives. So we continue to focus on all three. But as it relates to margin I expect to make solid progress this year and I expect that to continue as we go into '25.

[Peter Grom, Analyst at UBS Group]

Thanks so much. I'll pass it on.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Thanks, Peter.

[Operator]

And we'll move next to Anna Lizzul with Bank of America.

[Anna Lizzul, Analyst at Bank of America]

Hi, good afternoon. Thanks very much for the question. I wanted to ask on the outlook in the prepared remarks, you mentioned expecting a modest slowdown in category growth rates in the back half of the fiscal year. Are there any particular categories where you expect an outsized impact versus categories that you think are more resilient.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Sure. This assumption on a modest slowdown in categories is one consistent with what we provided as an original outlook to fiscal year '24, as we saw the consumer come under more pressure, and we originally had the assumption of a mild recession which we are no longer assuming but still assuming that consumer is going to be under more pressure given all the factors in the macroeconomy. And so that's consistent with that.

And if you look at our categories, given they're all mostly household essential categories, we would expect no large difference in those categories. We might see little nuances here and there, but on average, we expect all of them to be slightly slower. And that's consistent with what we've seen in the past in times like this. But I wouldn't call out anything in particular that, that would be a wide variance to that assumption.

[Anna Lizzul, Analyst at Bank of America]

Thanks for that. And just a follow-up on the organic sales question earlier on the Lifestyle segment in fiscal Q2, we saw a negative price mix. Can you just tell us what is driving that and should we expect to see negative price mix in the back half of the year on this? Thanks.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Sure. As it relates to Lifestyle that was in our Burt's Bees business, we do quite a bit of holiday gift packing and merchandising in the second quarter on that business, and so you have increased promotional activity. And so that was specific to the second-quarter. And you may see that occasionally based on merchandising plans as we go forward.

[Anna Lizzul, Analyst at Bank of America]

Great. Thank you.

[Operator]

And our next question will come from Dara Mohsenian with Morgan Stanley.

[Dara Mohsenian, Analyst at Morgan Stanley]

Hey guys. Just maybe looking beyond fiscal '24, I think the tailing question today is probably the earnings outlook as we look out to fiscal '25. I know obviously you won't comment on that directly, but maybe just looking at a couple line items. First, Linda from a top line standpoint, obviously, a lot of moving parts. Are you pretty comfortable now that longer term retailer relationships have not been impacted from a systems issue? Do you have a line of sight to eventually regaining full distribution to Andrea's question understanding the job's not done, but do you think you have that line of sight?

And also maybe just an update on the competitive environment near term, are there any pricing or promotional concerns that have cropped up from competitors recently, given some of the volatility that might linger as we look out over the next year or two? And how you think about that?

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Sure, thanks for the questions. Dara. So obviously as you said, we won't provide any perspective on fiscal year '25, but the thing is that you've outlined are important as we think about closing out this year. And then, of course, the future of our continued commitment to grow top line while rebuilding margins.

And what we see from a top line perspective is very strong brands. And I think I'd highlight again what I called out around brand superiority. Even in the out-of-stock issue that we experienced and cyber, we maintained our brand superiority ratings, which is significantly higher than it was pre-pandemic. So our brands continue to remain strong and we feel great about the investments we have in the back half, both increasing our advertising and sales promotion levels and we're going to spend about 11% this year. We continue to expect that. And we do expect trade promotion to increase as Kevin highlighted earlier.

And innovation plans. We've also spoken about the fact that during the cyber incident we've all those resources off and so our innovation plans remain on track and we expect innovation across every major brand at Clorox. And we'll continue to invest in those plans. So I feel great about the brand's health going into this.

From a category perspective, as we said, we expect to see some moderation in category growth. We tend to fare well in times when the consumers stretched because we offer value superiority. And in fact we're seeing in many cases, people still trading into premium segments of our business, we're seeing that in wipes, we're seeing that in premium litter, we're seeing that in our food business and across many others. So feel really good about where we stand with the consumer, even as they are more challenged and we're not seeing excessive trading to private-label. We did see some during our out-of-stock period, but we're seeing that rebound as we get back on shelf.

And then retailers. I'll just take another moment to thank them and I can't thank them enough. They've been tremendous partners. And I say with confidence our relationships are stronger coming out of this. Unfortunate incident than they were heading in and they were strong heading in super grateful for their partnership and what they've done and we're back focused on category growth and focused on finishing the job on distribution. And I have full confidence given the plans that we have that we will restore distribution. It will just be how fast we can do it and on what timing. And again, some of those things are out of our control. But we have the right plans, we have the right relationships and strong brands to get it done.

[Dara Mohsenian, Analyst at Morgan Stanley]

Okay. And can you just comment on the promotional environment. And if I can slip in one more Kevin, on the margin front. You talked about leaving the year at 42%, but still well below peak levels of 45% to 46%, if you go back historically. You mentioned in response to Peter's question that there'll be progress in fiscal '25, just help us understand potentially the slope of that gross margin recovery over time, the key drivers and how you think about long-term potential relative to that peak historical level. Thanks.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Sure. On the merchandising and competitive front, we continue to see merchandising levels below what we saw pre-pandemic. And we expect in the back half for those to continue to ramp up. But what I'd say is, some of that was depressed given the fact that we were out-of-stock and not had as much merchandising.

But we're not seeing anything in any material way, where we're seeing deep discount price merchandising, where we're seeing a fundamental change. But we would expect that that level to rise, consistent with a more pressured consumer. And I would say there are little pockets here and there in categories, we're seeing some competition in litter, whether a bit more aggressive merchandising and price promoting going on, but nothing outside of what we have assumed in our outlook from our categories and competition.

And again, we continue to expect merchandising to increase both ours and competition in the back half, but we don't expect that to go to levels beyond what we thought pre-pandemic. And we'll see how that plays out.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

And then, Dara, on gross margin. Yeah, as I said, i.e. getting to about 42 as our exit in Q4, I expect we'll make more progress in fiscal year '25, and I'm sure you can appreciate all -- I'll refrain from being too specific. We haven't finished our planning yet for '25, but here's what I expect, we will continue to drive cost savings. And as you know, we target 175 basis-points of EBIT margin expansion each year. Last couple of years, we've been doing north of 200, so we'll continue to drive cost savings. If you assume we're going to move into a more normalized cost environment potentially, even some cost deflation, you can see how that 200 basis points can quickly start advancing our gross margins. It's not being absorbed by cost inflation. So that would be what we expect going-forward. Love to see where the cost environment is when we get there.

Pricing will play a smaller role as we've now lapped U.S. pricing, we're still doing some pricing international but that'll will a smaller role. As we mentioned, we continue expect improving volume trends, which will certainly contribute to margin expansion as well. So as I said, we're going to make progress. It's hard to call when we think we'll get back to that initial margin, we talked about 44%. It's hard to call exactly when we'll get there because it's not fully in our control. Some of that's going to be driven on how the cost environment plays out. If we see deflation, it could move more quickly, and if it's still continues to inflate, it may take a little bit longer.

And then, I think once we get back into a more normalized environment, typically, our cost savings is more than enough to offset a normal level of cost inflation and we can take a little bit to the bottom line. And that's how you get that 25 bps to 50 bps of EBIT margin expansion each year ongoing. So I think, job one is to get back to that 44%, we remain committed doing that. I think over-time you get back to a more modest improvement year after year in a more normalized cost environment.

[Dara Mohsenian, Analyst at Morgan Stanley]

Thank you.

[Operator]

And our next question will come from Filippo Falorni with Citi.

[Filippo Falorni, Analyst at Smith Barney Citigroup]

Hey, good afternoon guys. So, Linda, I wanted to go back to your comment of, there is still some jobs to be done in terms of recovering shelf space. Maybe moving in a few categories if I look at the track channel data, there's three big categories where your total distribution points are still below pre-cyberattack levels particularly trash bags, bleach, cat litter. Maybe you could give us a color like, what are your plans are to get the shelf-space back.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Sure, Filippo. Just in aggregate, so that we're completely clear, we are still -- have fewer distribution points than we did pre-cyber. But we are close to restoring at an aggregate enterprise level. So as I mentioned earlier, we were down well over 30% in average weekly distribution points at the low point of our auto-of-stocks and now we're mid single digits on average.

But you're right to call out that in particular, trash and cat litter, we're actually more on track to what we originally expected in Q2 and we were able to in the rest of the categories accelerate the distribution point recovery. But trash and cat litter were more on the schedule that we had expected them to be in Q2 and there's really two things driving it. The first on cat litter is, the ongoing catch up that we're playing as the category has grown so fast to catch up from a supply perspective to demand. We continue to expect to make progress on that this year, but that's part of the reason why cat litter is slightly behind.

And then trash. That's a complex category and we prioritized a certain set of items to ensure that those were on-shelf fast. And with that, we have to bring back the full distribution, particularly, I'll call it, large sizes is one that we have not fully restored yet. We have plans to do that in these upcoming resets. Those are important items in the category and retailers realize that. And we feel we have the right plans in place to get them back, but those are two categories that will look more like we had thought at the beginning of Q2.

But just like the rest of the categories. We believe we have the right plans. We will make progress in Q3 and Q4. And we're not seeing anything abnormal from a consumer perspective that gives us any concern of our ability to do that.

[Filippo Falorni, Analyst at Smith Barney Citigroup]

Great. That's super helpful. And then Kevin, two quick follow-ups on the gross margin. First on the commodity line, it was neutral this quarter. You talked about maybe a more favorable environment. Are you expecting some deflation in the second half, meaning a benefit? And then on the manufacturing and logistics, maybe you can walk us through the drivers on that line as well.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Sure, Filippo. As it relates to maybe I'll start with all three and just talk about inflation. As you know, we came into the year expecting about $200 million worth of cost inflation. Some of that in commodities, but more of that in manufacturing and logistics, primarily driven by wage inflation. What I would tell you is we're seeing a little bit of improvement in commodities, it's a little bit better than we anticipated. And keep in mind, we forecast, not based on spot rates, but based on forward curves. And so I'd say we're still generally in that $200 million range, but a little bit better news we're seeing on commodities. Now having said that, that's before we factor in, Argentina and sort of the new reality in Argentina.

But if I exclude that for a moment, I'd say generally playing out as we expected about $200 million of inflation, mostly in manufacturing and logistics. You don't see it as much when you look at our web attachments in the front half of the year. We had a number of charges last year that were lapping should add more favorability in manufacturing, logistics, but that was offset by inflation in the front half and you get to a pretty neutral outcome is what you're seeing for the front half.

And now when you add in Argentina, we're forecasting now almost 300% inflation in that economy. So we are seeing more cost inflation broadly across the supply chain, including commodities. And so I expect to have unfavorable commodity inflation in the back half of the year, a little bit of the U.S., but more so being driven from Argentina. But what's important to note, and I mentioned this earlier in Argentina, if you step back from all the noise and where it shows up in the P&L, we believe we have a plan to fully cover the negative impact to our P&L through the increased pricing we're taking.

[Filippo Falorni, Analyst at Smith Barney Citigroup]

Got it. Super helpful guys. I'll pass it on.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Thank you.

[Operator]

And we'll move next to Chris Carey with Wells Fargo.

[Chris Carey, Analyst at Wells Fargo & Company]

Hi, everybody. So just a couple question then kind of a broader question. Number one, are you or did you experience any negative impact from a delayed cold flu season that we should anticipate some benefit going into the March quarter.

And then to just follow-up there on Argentina, we've seen some companies capped the level of pricing so it's not to I guess take all of the inflationary pricing that we just need different methodology. Is it fair to assume that you would strive to offset all the inflation in Argentina as it gets worse, just so we know how to kind of try to track this going forward. And I have a follow-up.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Sure. Yeah, Chris, I'll start with the cold and flu. And just so we're all level set. Cold and flu is actually this year, very similar to previous cold and flu seasons that we saw before. So definitely different than last year. So started later than last year, but more like an average cold and flu season which we typically see in January and February, so I would say normalized is the assumption that we have. So too early to say what the impacts will be obviously talk -- when we talk Q3. But we're looking at an average cold and flu season. And to your point, that means as we lap it the lap looks different because we experienced cold and flu earlier last year. And we'll be experiencing a more normalized, so mostly a Q3 impact for cold and flu that's been contemplated in our outlook. And we have like we normally do normalized assumptions around cold and flu and we'll see how that plays out. But to-date it looks like a very normal cold and flu season.

From an Argentina perspective that would certainly be our perspective and as Kevin highlighted we intend right now with the plans that we have and what we're seeing in Argentina to fully offset the impacts through pricing. We'll see what happens as we move forward. That would continue to be our posture.

And the reasons and proof points, we believe we can do it our market shares continue to be very strong. Our brands are very strong, we'll watch that closely but based on what we're seeing today, we expect to fully offset the currency headwinds with pricing.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Yeah, Chris. The one item I'd add as it relates Argentina is on remeasurement. It's worth noting how things you're modeling. In Argentina, you have to remeasure the monetary assets every quarter, and the more devaluation you have the larger charge you take to your P&L. In Q2 we took a $0.10 charge to the P&L. We have in our outlook, the assumption we're going to take about a $0.20 charge in total, we took $0.04 in Q1. So most of the charge we're taking, which is roughly $30 million, we've taken in the front half. But we do expect there'll be some more remeasurement impacts to the P&L in the back half of the year, but it's fairly modest given what we've already taken to-date.

[Chris Carey, Analyst at Wells Fargo & Company]

Okay. And then just one additional clarification on some prior questioning. So just to be clear, so you're mostly caught up on inventory levels, but not entirely caught up. And so we're still seeing negative trends on a year-over-year basis from a sales standpoint in the Nielsen data, for example. You should continue to outpace your consumption data for maybe at least another quarter. Is that that is a fair analysis? And then you would expect some acceleration in consumption going into your fiscal Q4, just any way you could project that for us would be helpful. Thanks.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

What I would say is you've got it right and that you are hearing us correctly that we've restored the vast majority of inventory. We still have work to do to close all the way back to the distribution points that we were at pre-cyber. And so, as I said, we're still down about low-single digits, up from down over 30 points. And then, market share is the same thing I highlighted, we have work left to do, as we do two things, restore those distribution points and return to merchandising and fall on those two things will have an impact and I'll put on share. And then let's see the underlying thing behind this all is to we have to do that work on the fundamentals and we will. We also have to ensure consumers bought other items during this time when we were out-of-stock. And so, we're also doing that disciplined work by brand to ensure that we get them back to the Clorox brands, they know and love, through our marketing efforts, through the efforts that we're talking with shoppers, at the point of decide, and all that's going on-track but that's the work that we also have to do not only just restoring distribution and merchandising, but also ensuring that we're getting that next purchase from people who may have tried something different during our out-of-stock period.

[Chris Carey, Analyst at Wells Fargo & Company]

Okay. Thanks so much.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thanks, Chris.

[Operator]

And our next question will come from Kaumil Gajrawala with Jefferies.

[Kaumil Gajrawala, Analyst at Jefferies Financial Group]

Hey everybody. [Indecipherable] it is a good segue from Chris' question on winning back some of the consumers actually lost you. I guess you're holding advertising flat as a percentage of sales, but your outlook for revenues are higher. From a dollar perspective I suppose that's an increase. Is there an increase or is it about where internally you had expected to spend over the course of the year?

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Hey Kaumil, we're expecting increased spending. So as you know, we typically spend about 10% of sales, this year we're targeting 11%, and in fact in the back half it will be closer to 20%, so we're leaning in investing to continue to drive value superiority at an elevated rate. So year-over-year, it will be higher based on the elevated rate of spending we intend to spend.

[Kaumil Gajrawala, Analyst at Jefferies Financial Group]

Got it. That's useful. Thanks. And then maybe a little more information on something you alluded to a few times on consumer pressure. Is it something you're already seeing or something you're planning for the back half and maybe if you could sort of marry that comments with some of what you guys have talked about as it relates to promo activity.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

The consumer has been fairly resilient and we've continued to say that, we saw that in the front half of the year. It is a little difficult in our categories to get a completely clean read just to be fair given that we were out-of-stock and so there's a lot of dynamics going on. But as we come back in stock we're seeing largely what we expected from the consumer in their front half which is a lot of resiliency. We continue to see value seeking behavior so we're seeing trading up to larger sizes, we're seeing trading into opening price points. Not seeing what we would expect anything different on trading into private label than we would have expected. Again, certainly more people tried private label when we were out-of-stock but we're seeing that reverse as we get back on-shelf.

We continue to see a squeeze of other brands. So the leading brands and private-label tend to be the two that are doing well in categories that have multiple brands. So all of those behaviors continued in the front-half. What we expect in the back half is the consumer to continue to be under more pressure. That being said, our categories are fairly resilient, because we're household essential. So we're expecting a moderation, but this is not a reversal of the trends we've seen and we're seeing the shift from price mix being the driver of growth to volume, and that is certainly playing out. If you look at sequential volume improvement trends over the course of time, and if you kind of backup the effects of being out-of-stock from cyber, you're seeing consistently volume improving. At the end of December volumes were down very low-single digits for example, from a consumption perspective, if you look at the MULO universe. And we would expect to see that continue in the back half.

So what we just see is consumer under more pressure, value seeking behaviors continue, a slight moderation in our categories, we we've assumed all of that in our outlook. We'll continue to moderate. But to-date, the consumer has been resilient. And we think those things will play in through the the other assumptions we have, like more merchandising in the back half. And you know competitors focused on ensuring that they are offering a great value to consumers as their wallets are stretched. But it's very, very consistent with what we had expected at the beginning of this year. We don't see any change in behavior from consumer outside of those assumptions we had six months ago.

[Kaumil Gajrawala, Analyst at Jefferies Financial Group]

Okay, great. Thank you. Well done.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thanks.

[Operator]

And we'll move next to Steve Powers with Deutsche Bank.

[Steve Powers, Analyst at Deutsche Bank Aktiengesellschaft]

Hey, thanks and congrats from me, really to you and to the whole Company on pretty remarkable recovery these past several months. One quick follow-up and then a question. The follow-up, just on the categories that Filippo had mentioned, you talked about, there's still some work to do to fully catch up and recover. Is the expectation that as you exit fiscal '24 that you have fully recovered there or is there more work that you expect we should expect carries over into the back half of calendar '24 and fiscal '25?

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Hi Steve, thank you for your nice comments. We really appreciate them. On those categories and I would say just in general, we intend to make as much progress as we possibly can in Q3 and Q4. Will there be some lingering effects that could be outside of our control, if there's a retailer reset or change, perhaps. But we are focused on getting as much of that back in Q3 and Q4 as we can. What I wouldn't say is, I wouldn't commit to any number at this point right now, except, we expect to make continued progress over the course of the next six months.

I think for trash and litter, litter has been a challenge for a while, given that we've caught up to supply, so that is the one that we're laser-focused on, and has more to do with bringing new plant up to speed than it has to do with recovering from a cyber incident itself. So, that'll be one that we'll be watching closely and try to make as much progress on. But we are going to make as much progress as possible and we expect significantly more in Q3 and Q4.

[Steve Powers, Analyst at Deutsche Bank Aktiengesellschaft]

Okay, very good. And the question I had, if we step back from the last quarter, since August, when we go back to before the summer, we were talking about a lot of things, one of those topics was sort of the ongoing digital transformation of the Company, the operating model change that you guys have been working on sort of long-term strategic arc of business transformation. Has anything over this period since August set you back on that trajectory or have you been able to keep pace so that the progress that was anticipated at the start of the summer is still sort of broadly on track. Thanks, Steve. And just as a preview of spend a lot more time at CAGNY and have a chance to talk about our overall transformation and in particular, the operating model and digital transformation. So I look forward to talking you all about that then. But right now, what I can say is, we are absolutely deeply committed to the strategic priorities, including those two areas of transformation for the Company. They are critically important for our success, they're about investing in the long term health of our business and being ready to take on the challenges of the future, and so the commitment is absolutely there. What I'd say is, on the operating model, we were able to proceed even through the cyber event, and executing that we remain on track to that plan. And as you can imagine from a technology side during a cyber event, we've had some delays on our ERP. We'll talk to you more about the timeline of that when we finalize it. But we're still committed to the transformation and all of the elements of that. But of course, our team was focused on getting safe and secure and ensuring that we moved from manual to automated processes, as the number one priority and we are now returning to that digital transformation and we'll have more of an update in coming months. Okay, excellent. I'll see in a couple of weeks.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thanks, Steve.

[Operator]

And we'll move next to Javier Escalante with Evercore ISI.

[Javier Escalante, Analyst at Evercore ISI]

Hi. Good evening, everyone. I have -- I'm going to kick a bearish horse here, but I do have a problem with adding up into the second half forecast, particularly for the gross margin. So if you can help us with two items specifically, one is forex. How big. Argentina can possibly be? Two, if you can help us understand and you mentioned that impact first on sales and gross margin as to basically be flat in the second half. So that's point number one. The other has to do with the job to be done and the two categories that you're investing or you are still about to invest trash bags and cat. They are very competitive, do you have competitors that have a value stand?

So to what extent it's not an issue of distribution, but an issue of retailers changing the assortment or value and then you needed to basically buy up space features and things like that that is going to create a negative offset to gross margin. Thank you.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Hey, Javier, let me start with your question on FX and how it's impacting sales and gross margin. And when we entered this year, we were anticipating about two points of FX headwinds on the top line, mostly coming out of Argentina. The Argentina economy has declined more than we had anticipated. And as you may have seen in our prepared remarks, we're now anticipating about 5 points of FX headwinds on the top line that is solely a function of revising our expectations for Argentina. We now have in our outlook an expectation that the currency devalue about 75%, and that's going to be back half loaded. If you look at the front half we had about 3 points of FX headwinds, and that puts you into the mid to-high single-digit FX headwinds in the back half and again a function of Argentina. And then that also plays through in gross margins. We expect a greater negative hit to gross margins, as it relates to the FX impacts. So if you look at last year, FX was about less than 100 basis point hit, this year will be well north of that closer to 150 basis-points or so. And again, it will be more pronounced in the back half of the year.

Important to note that, maybe just to finish that up and have Linda address the other question was, as I mentioned earlier, in-spite of those negative impacts based on the actions we have already taken and will take primarily as it relates to pricing, we believe, we can offset both the top line FX impact as well as the FX impact to gross margin. And as a result, you can see we're raising our sales expectation, expect to grow margins in-spite of a pretty difficult environment, we're dealing with there.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Javier on the piece that you mentioned on those two particular categories trash and litter that we spoke about. It's exactly what we said it is from a supply perspective, those are two businesses that are a bit more challenged. We feel very confident in the health of our brands there. And as I spoke about from a superiority perspective, consumers just find value not as the lowest price, but of course, what is the overall best offering from them, which price is an element of. We feel great about the superior value of both of those brands when they offer. We continue to see our innovation do very well in both of those categories and we highlighted both of those in CAGNY some of the innovations we have, Glad with Clorox and other launches that we have in Glad that are similar and of course our outstretched cat litter which has done very well and it's held up even through out-of-stocks. We continue to see people trade in to premium cat litters.

So we feel confident about our plans. Again, we have the right investment levels. And we're focused on providing exactly what you said, which is the right value to consumers and retailers see that, and we play an important role in their category growth. And I have confidence that we will retain or regain distribution, get back to the proper level of merchandising in these categories. And that will get our ourselves back to where they need to be just in these two categories, it's a little bit extended versus some of our other categories. But I have every confidence in these two that we'll get back, just like we are on the other ones.

[Javier Escalante, Analyst at Evercore ISI]

Thank you very much.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thanks, Javier.

[Operator]

And we'll hear next from Callum Elliott with Bernstein Research.

[Callum Elliott, Analyst at Bernstein Research]

Great, thanks for the question. I just wanted to build on Steve's question and hopefully not to preempt your CAGNY presentation too much. But alongside the digital transformation, you guys had other long-term initiatives before the hack that we're also targeting the top line. I think it sounds like quite a long time ago now that you raised the long term top line target to 3% to 5% driven by this push into international and professional. But hoping you can update or update us on those strategic initiatives and where we stand, now that we're hopefully starting to put back in the rearview mirror. Thank you.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thank you. And we certainly want to get back to where we ended fiscal year '23. We were very proud of the performance and what we had done. And of course we remain deeply committed to what we talked about which is expanding top line over the long term 3% to 5% and expanding EBIT margins 25 to 50 basis points and we want to get back to that. Exactly as you said and our transformation as a critical component of that and ensuring that we have the right capabilities and processes, and that people at Clorox are more consumer obsessed and we're working faster in a leaner fashion to get there and we'll talk about that.

As we spoke about actually at CAGNY, I think it's two years ago now, what we expected from a growth perspective continues to remain, we continue to see opportunities in international, we continue to expect to see returning to growth in our professional business as that more normalizes. But we spoke about all the other things that we had seen trend-wise. We saw more cat adoptions and so in natural category tailwinds for litter. We saw people having increased interest in disinfecting which still remains and we still see that or seeing as we look at the data today. People still have a heightened need to have their spaces cleaned and disinfected. People generally are taking care of their health and wellness more so, things like Brita have natural tailwinds. And water consumption.

Our Vitamins, Minerals and Supplements business is the same thing, continues to have natural tailwinds. So we'll speak about all of that at CAGNY but we remain committed to that 3% to 5% top line over the long term and to do that in a more profitable and consistent way. And we have all the right levers and are pulling all at the right transformation buckets in order to do that, and I feel we're on the right path to get back to where we were coming out of fiscal year '23.

[Callum Elliott, Analyst at Bernstein Research]

Thanks, Linda.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thank you.

[Operator]

And we'll move next to Lauren Lieberman with Barclays Capital.

[Lauren Lieberman, Analyst at Barclays Capital]

Great, thanks, everybody. So I was just looking back and I remember that last quarter when you were talking about the outlook and the recovery plan and expectations. That you said you expected customer inventory levels to be rebuilt by the end of fiscal 2Q. But tying to that was the conversation of mid-single-digit sales growth, right? So now retail inventories are in fact rebuilt, the main thing does it leave? But it was with sales growth that was way higher than mid single-digit.

So can you just tie those two things together for me because, I think the just the visibility in the forecasting I think is an open question. And if you go back even pre-cyber the pattern of exceeding your own outlook was incredible. But you do have to also ask the question of like what happens if it goes the other way, if this is a question of visibility.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Hi, Lauren. Let me try to paint a picture for what happened in Q2. So we're all on exactly the same page. You are right to say that we expect it to build the vast majority of inventories by the end of Q2. What happened is, we did that faster so what you get less of a consumption loss impact in the quarter.

So instead of doing that, call-it, the last two weeks of December we did that earlier and earlier by categories. So you have less out-of-stocks which significantly increased our top line, and that's really the difference that you see in the quarter. And of course that had positive impacts in terms of the merchandising, we can do and all of the fundamentals from a retailer perspective that we want to return to and gave us great confidence in the back-half. Not only do we take our outlook up because we overdelivered in Q2, but we see a stronger back half as a result of that. So that's really the difference is, we have less lost consumption because inventories returned faster in the quarter than we had expected.

[Lauren Lieberman, Analyst at Barclays Capital]

Okay. That's fantastic. And then just also on Burt's, I feel like when we all saw you in December, at the time you were talking about the challenge of Burt's and restoring that business just because of the natural complexity of SKUs and the lineup in that business and that holiday merchandising might actually be -- that might be a spot where you'd fall short. When I look at the trends in Lifestyle, right, clearly, Burt's had a great quarter. So there too kind of same story or I'm -- just I'm a little confused on that one, because it felt like that was a business, that was going to be tough to be able to get that merchandising in and holiday is pretty -- It's a important seasonal time for that brand is my understanding.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Yeah, Lauren. You remember correctly from December, we highlighted one of the places that we were focused on actually two places. We talked about cold and flu, if you recall and our push to get as much of that distribution restored to ensure that we could protect cold and flu, which we feel we did. And then second exactly right is Burt's Bees and the importance of the holiday period. We were able to do most of that. I would say for holiday, we didn't get all of it out, but we got the vast majority of holiday out which was good. And that certainly did support a stronger performance on Burt's than we had anticipated.

But that was a big challenge, but I would say, unfortunately we didn't get it all out, and that certainly has an impact, but the good news, it was more positive than we even expected back in December for it to be.

[Lauren Lieberman, Analyst at Barclays Capital]

Okay, perfect. And then the final thing, sorry in this vein, but I'm just trying to put the pieces back together, if you will. Logistics that was one area, Kevin, where you had talked also last quarter about that logistics cost would be elevated this quarter because as you mentioned, Linda you're shipping well above normal everyday, right and that you're going to end up using a lot more carriers and freight and so on, beyond what you'd normally be contracted for, and that there'll be elevated cost with that. Again, like. I know there's many pieces like gross margin build, but logistics is one that really jumped out for us, it's being pretty different.

So I'm just not -- that's another area of question of kind of what played out differently there, was a retailer fine. I think you mentioned that in the prepared remarks, but that seemed like a pretty significant difference versus something that should have carried elevated cost within the quarter itself.

[Kevin Jacobsen, Executive Vice President and Chief Financial Officer at Clorox]

Yeah, Lauren, you remembered exactly correct, when you think about the gross margin for the second quarter came in higher than we expected, both the combination of stronger top line. But exactly what you just highlighted, we did not incur the up charges we anticipated. If you remember, when we were talking last quarter, we said our priority, job one is to get product back on shelf as quick as we can. And we were fully prepared to incur additional logistics manufacturing up charge to get that done. And that will take the form of running the plants more over time, less than full truckloads out around shipments. We said that was all available and we expect to do some of that to get product there quickly. A credit to our team and as Linda mentioned, and a credit to our retail partners here, as we move more quickly getting productive retailers, we did that in a very efficient manner. We did not have to incur the up charges, we were mostly using our carriers, we're mostly being able to do that in full trucks. And because we got that done even faster than we expected, it didn't bleed onto to the full quarter. And so it's really about us executing more effectively than we anticipated going into the quarter. But we went in expecting we would have to spend more and we prepared to do that as we are prioritizing getting product on shelf, it just resulted in the fact we didn't have to.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Yeah. I'll just maybe make another comment on our operating model. Lauren and there were some good questions on our transformation and are we continuing it. And I think one of the things really proud of is one we learned a lot in COVID that we applied to the situation. Unfortunately, we were hoping we'd never have to play it again, but we were ready to go.

The second thing is, this is an output of our operating model, getting laser-focused on what matters, putting a business leader in-charge who sees end-to-end who is able to make the calls and trade-offs, and she and her team were able to do just that, to be able to restore inventories and do all those things. Kevin spoke about, not requiring a lot of overtime. Our decision to take our inventories up in Q1 was an important one, and we knew that we would work those down but we made that choice early to ensure that we could do as much as we could in Q2. But I would just plug our operating well, that's a real output of what we've been driving and that changed to be bought more business unit focus, more focused on the consumer and customer and fast.

[Lauren Lieberman, Analyst at Barclays Capital]

Okay. All right, great, thanks. I really appreciate it.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thanks, Lauren.

[Operator]

And our next question comes from Olivia Tong with Raymond James.

[Olivia Tong, Analyst at Raymond James]

Hey thanks. Linda, great work on the improvements. In terms of the macro backdrop you talked about how -- for second half you're now no longer expecting the recession that you had before, but could you just talk about what your expectation target for the current environment to stay the way the second half to be similar to what we saw in the first half or that there is still a step-down just not as not as much as you had before.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Hey, Olivia. On the macroeconomic and consumer front that's exactly right, we are no longer expecting a mild recession. Of course when we released our outlook six months ago, we said that's an assumption. And if it changes, then we'll adjust. But really what we meant by mild recession and the impact it would have for us is a more stretched consumer, and we continue to see this in environment that leads us to believe that consumers will be more stressed. And if you start to look at categories around us that certainly has been playing out, we feel the impact will be moderate to our categories, given the fact that we play in household essentials. But we are seeing consumers more use of credit. We're seeing them shift their behaviors and showing things that they value and don't value discretionary goods have been down for a while. And we see the cumulative impact of that, as they've gotten down to a place now where their savings were down to pre-pandemic levels they no longer have that extra disposable cash even though employment remains high.

We think that all adds up to a more pressured consumer. And we think the impact of that will be a moderate impact on our categories, as consumers are more conscious about how they spend their dollars. That's really the assumption. Again, the consumer has been resilient to-date, we continue to see that, but we are seeing them in our categories, they are value-seeking. And as I mentioned earlier, they are trading up to larger sizes, they're using opening price points, they are stretching their dollar they might be trading into an item they feel like is more multipurpose. And at the same time we're seeing them given the superior value of our products, they are trading at a premium, because they are not willing to trade-off efficacy, they are not willing to trade off convenience.

So we're seeing all of those things play out. But we just think the consumer will continue to be under more pressure, not in the form of we believe a mild recession anymore, but just all of the other macroeconomic factors that are out there.

[Olivia Tong, Analyst at Raymond James]

Got it. That's very helpful. And then now it is your expectations going into the year, obviously, putting aside the cyberattack. Do you think you'll end the year in line with the your, start of your target on promotion and merchandising levels? Because I'm trying to understand obviously, there's a lot of puts and takes of where your expectations they're now versus in August before the cyberattack happened. But you had said in the past that perhaps we'd have to do a little bit more promotion, little bit more merchandising just to make sure that given what's happened. Just wondering, today what you're thinking in terms of the level of promotion merchandising relative to where you started the year.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Yeah, on that assumption, certainly we saw a dip in Q2 given the out-of-stock situation. And we had to prioritize, ensuring that we got supply up before we could merchandise. But now that we're returning distribution and market shares, we would expect promotion to pick up and we expect for the back half the same assumption that we had at the beginning of the year, which is higher than it had been, and returning closer to pre-pandemic levels. We don't think that merchandising will exceed pre-pandemic levels, but begin to return to that level. As people are focused on a more stressed consumer and continuing to offer the right value. And of course, doing things like releasing innovation, ensuring we introduce consumers to new items and great innovation.

So that's what our expectation continues to be, we'll see merchandising increase than what it was last year, getting closer to pre-pandemic levels and we expect that to happen over the course of Q3 and Q4.

[Olivia Tong, Analyst at Raymond James]

Okay. Thank you so much.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thanks, Olivia.

[Operator]

This concludes the question-and-answer session. Ms. Rendle I'd now like to turn the program back to you.

[Linda Rendle, Chairman and Chief Executive Officer at Clorox]

Thank you, everyone. As we covered today we've made strong progress on our priorities in the second-quarter. While there is still more work to do to fully recover in the market from the cyber incident, we're focused on executing with excellence and delivering on our strategies to drive top line growth and rebuild margins.

Got it by our IGNITE strategy, we're confident we have the right plans in place to deliver long term shareholder value creation. And as I mentioned earlier in the call, we look forward to sharing more with you in our upcoming presentation at the CAGNY conference in February. Until then please stay well everyone.

[Operator]

[Operator Closing Remarks]