Iconic lubricant maker WD-40 (NASDAQ: WDFC)
stock has plummeted by more than (-40%) off its all-time highs, but it looks ready to finally coil. Inflation
pressures and supply chain
disruption have continued to deteriorate gross margins leading to a (-2%) drop in estimated net income for the year. However, the Company saw 14% growth kicking off 2022. Maintenance product sales have been the driver in its second-quarter up 26% with a commitment to restore gross margins of 55% long-term. However, inflationary pressures
were evident as its margins fell to 50% for its costs of goods sold. The Company strives to incorporate ESG initiatives
into the heart of its strategic planning process to enhance the sustainability of its business. The Company is focused on recruiting and engaging “outstanding” tribe members, aka talent
to its organization. It continues to diversify its portfolio including WD-40 Multi-Use Product, Specialist, 3-IN-ONE, GT85, and homecare and cleaning products. With a new CEO at the helm starting Sept. 1, 2022, the Company plans to reach $650 million to $700 million in net sales by 2025. Prudent investors seeking exposure can look for opportunistic pullback levels.
Q2 Fiscal 2022 Earnings Release
On Apr. 7, 2022, WD-40 released fiscal Q2 2022 results for the quarter ending in February 2022. The Company reported earnings per share (EPS) of $1.41 excluding non-recurring items, beating consensus analyst estimates of $1.03, by $0.39. Revenues grew 16.2% year-over-year (YoY) to $130 million, beating analyst estimates for $126.8 million. Gross margins was 50.4% in Q2 compared to 55.4% in Q1 prior year. WD-40 CEO Garry Ridge commented, "Like other companies, we are in a challenging inflationary environment, which has continued to deteriorate our gross margin. We are focused and committed to managing our business so that we can restore gross margin to or above our target of 55 percent over the longer term. We will restore our gross margin over the near term by implementing price increases to offset the higher input costs we are experiencing. Over the longer-term, our margin accretive Must-Win Battles will further enhance gross margin."
WD-40 issued in-line guidance for fiscal full-year 2022 with EPS estimates between $5.14 to $5.27 versus consensus analyst estimates of $5.26 on revenues between $522 million to $547 million versus $533.30 million consensus analyst estimates. Gross margins are expected between 50% and 51%.
Conference Call Takeaways
CEO Ridge noted that starting Sept. 1, 2022, Steve Brass would be taking over as the new CEO of WD-40. He emphasized the Company continues to face inflationary pressures as evidenced by Q2 2022 gross margins only coming in at 50%, representing a significant increase in its cost of goods and products sold. The goal is to get the margins back to 55%. He described the Company’s strategic initiatives which include reaching $650 million to $700 million in net sales by 2025 with the 55/30/25 business model. The Company strives in fully integrate ESG into the strategic planning process and will provide its next ESG report in early fiscal 2023. The second strategic initiative is to continue to recruit outstanding talent, aka tribe members to the organization. An internal survey shows that 98% of its tribe members answered they love to tell others they work at WD-40 and 94% are excited about the Company’s direction. The Company also strives for operational excellence utilizing the 55/30/25 business model. WD-40 desires to grow its product into a Multi-Use Product sales to nearly $525 million by 2025. They will also be launching a new WD-40 Specialist product as a sustainable product that reduces it carbon footprint reducing single-use plastic waste. He concluded, “Our homecare and cleaning products were up against very strong comparable period as they benefited from increased demand as a result of the pandemic last year. The desired outcome for this strategic initiative will be sales in the category of approximately $50 million by 2025. We have reached that number. We expect sales growth of brands like 3-IN-ONE, GT85, 1001, and no vac.”
WDFC Opportunistic Pullback Levels
Using the rifle charts on weekly and daily time frames provides a precision view of the landscape for WDFC stock. The weekly rifle chart peaked near the $195.00 Fibonacci (fib) level. Shares collapsed to bottom out at the $33.46 fib level as it staged a rally on its earnings release. The weekly rifle chart has a make or break set-up as the weekly 5-period moving average (MA) flattens at $187.07 and 15-period MA stalls at $196.12 versus the weekly stochastic 20-band cross up. The weekly 200-period MA resistance sits at $225.47 and weekly 50-period MA sits at $225.47. The weekly lower Bollinger Bands (BBs) sit at $148.56. The weekly market structure low (MSL) buy triggers above the $195.30 level breakout. The daily rifle chart is attempting a breakout with a rising 5-period MA at $185.34 through the 15-period MA at $185.01 testing the 50-period MA at $187.79. The daily upper BBs sit at $198.31. The daily stochastic has a mini pup rising to the 50-band. Prudent investors can look for opportunistic pullback levels at the $185.47 fib, $183.05 fib, $179.05, $176.97 fib, $173.44 fib, $170.88 fib, $167.03 fib, $162.20 fib, and the $157.94 fib level. Upside trajectories range from the $202.46 fib up towards the $226.30 fib level.
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