The Clorox Company

Good day, ladies and gentlemen, and welcome to the Clorox Company second quarter fiscal year 2026 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. If you would like to ask a question, you may press star 1 on your touchtone pad at any time. If anyone should require assistance during the conference, please press star 0 on your touchtone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Ms. Lisa Burhan, Vice President of Investor Relations for the Clorox Company. Ms. Burhan, you may begin your conference.

Thanks, Jen. Joining me today are Chair and CEO Linda Rendell and CFO Luke Bellay. The following remarks include forward-looking statements that are based on management's current expectations but may differ from actual results or outcomes. In addition, these remarks refer to certain non-GAAP financial measures. Please refer to today's earnings release which identifies various factors that could affect forward-looking statements and provides information that reconciles non-GAAP financial measures to the most directly comparable GAAP measures. The risk factors section of the company's Form 10-K also includes further discussion of forward-looking statements. With that, I'll turn it over to Linda.

Good afternoon, everyone, and thanks for joining us. Before we get into your questions, I want to take a moment to frame where we are in our transformation and how we're navigating a highly dynamic environment. We entered the year knowing the first half would be challenging given the volatile macroeconomic environment and the temporary impacts of our ERP implementation. While external pressures added complexity, we delivered results largely in line with our expectations. We're strengthening our foundation by advancing our digital transformation, enhancing execution, driving value from our newly modernized ERP foundation, and accelerating innovation that delivers superior value to consumers. And with our planned acquisition of Gojo Industries, we're taking a decisive step to expand our leadership in health and hygiene and unlock long-term growth opportunities. There's more work to do, but we're optimistic about our future. With that, Luke and I are happy to take your questions.

Thank you, Ms. Rendell. Ladies and gentlemen, if you have a question, please press star 1 on your touchtone telephone. And our first question will come from Andrea Teixeira.

Thank you. Good afternoon, everyone. I was hoping to see if you can talk about the exit of the quarter and how you're seeing, I mean, obviously you did reaffirm your guidance, how we should be thinking of the competitive environment now and the promotional environment. Thank you.

Andrea.

We saw, as we expected, sequential improvement in the quarter, which was good and consistent with what we are expecting in the back half of the year, where we expect both the category and our performance to be stronger than they were in the first half. If you look at the category numbers, it was about in line with where Q1 was. If you exclude our beauty business, Q1 was flat from a category perspective. Q2 was down a tenth of a point, so about in line. Our share performance was what it was supposed to be, what we expected it to be, not what we want it to be, but we were down in share. But again, we saw sequential improvement as we move through the quarter. The competitive environment was largely what we expected it to be. Competitive activity, again, is back to what we'd say pre-COVID levels are. There are pockets where it continues to be a bit more competitively intense. We've talked about Litter and Glad. We saw some pockets in home care. but nothing outside of what we are used to and able to handle, and we feel like we have the right plans to address that. And then as we head into the back half of the year, we continue to expect category growth to be in the 0% to 1% range. We expect to have stronger share performance based on our plans. We have excellent innovation plans in the back half, strong demand plans, and we're beginning to see the fruits of that. If you look at consumption in January, there was certainly a pickup. Some of it do in the last half of January. to weather, but we are a growing share in the last week. And so we're seeing the investments that we're putting in place working. I think as you maybe take a step back on the consumer, the only other thing I would note, consumer is largely what we expected it to be. We're seeing consumers continue to focus on value. We're seeing them trade up to larger sizes, down to smaller sizes. We've seen trips increase in the broad market basket. In our categories, we're seeing more stock up behavior, which is pretty normal in our categories. And then, of course, we see consumers moving to more value-oriented channels. But I would say the consumer was largely steady, as we had expected, and in line with category growth.

And if you can comment on some of your peers, Linda, that's helpful, but some of your peers had said that, you know, they've seen the exit rate improving a bit. You might not be seeing that specifically because of the puts and takes on the ERP transition, but I understand that you're mostly done in January from your prepared remarks. Just to think about how this trajectory, to think about the third quarter fiscal.

I want to make sure, Andrea, that I'm getting your points. I'll return to the point I made at the beginning on Q2. We did see sequential improvement in Q2. So the extra rate was stronger coming out of the quarter than it was going in. We've seen that continue into January. And again, some of that in the end of the month, I think, is due to weather. But we saw our share results pick up in that as well. So feel good about our plans to address that. But I would say our expectation on the category based on that is still what it was before. It remains between zero and one. We don't see anything to indicate a trajectory change. We think it's well within that band. And again, Q1 and Q2 were about the same category growth rate, about flat. And we expect to see zero to one in the back half.

Great. Appreciate that. Thank you very much.

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

Great. Thanks, everyone. I hope you're doing well. So maybe one housekeeping and one real question. So you alluded to some shipment favorability in the quarter that I think is expected to come out of the third quarter. So you can maybe help frame the magnitude of the upside or maybe what we should be expecting to reverse. And then, Linda, as we think about the back half of the year, and you kind of just spoke to this, Andrea's question, and I get it's only a week, but you talked about share gains in the most recent weeks. So can you just talk about your confidence that can continue? And then specifically, can you speak to when we should start to see the benefits from all the innovation that you outlined in the prepare mark start to show through?

Thanks. Hi, Peter. This is Luke. I can take your first question. Yeah, we ended up having about a point of favorability due to higher that expected shipments ahead of consumption on a few different businesses. And we'll expect that it will reverse in the third quarter. Now, there are a few drivers, but I would say the main one was some higher shipments related to the final phase of our ERP implementations. And just for context, if you remember, we went live with the new ERP in July. And that was for most of operations, including order to cash, demand fulfillment, and logistics. But for manufacturing, given the large numbers of facilities that we had, we took a phase approach. And so we essentially transitioned manufacturing facilities into three phases. The first one was in July. The second one was in October. And the last one was in January. And so we had a little bit higher retailer inventory pre-build as a result of that last phase. To be clear, we had expected some level of pre-build. It just ended up being higher than expected. So the good news is at least the last phase went very smoothly. And it's great to have this behind us. So that's really just quarterly noise and has no implication on the .

I'll take your second part of your question, Peter. For our back half, it is heavily weighted towards launching innovation across all of our major brands. And we're pretty excited about the innovation we have slated. And as we talked about, I think, last year at Cagney and have spoken about on our call since, We're excited about this back half because it introduces some new platforms, as well as builds on existing and very successful platforms we've had in the company. So a good mix of both, like the spending that we have addresses what we need to to ensure we're driving trial and to continue to expand on the platforms we have. How they'll build throughout the quarter, I think it's important to note. We've begun shipping many of these innovations already, but Most shelf resets won't occur until the back half of Q3 or early Q4, so that's when we would expect to see a significant ramp up from innovation, and certainly that will impact share at that time. But maybe I'll talk about a few of the innovations, how we're thinking about the investments, and then I'll talk about some of the early indications we've had on success and what we're looking for. I think many of you have seen we've launched a new platform in our cleaning business, which deals with one of the most troubling things that consumers have, which is allergies. And they fight these things constantly through different avenues. They take medication, they clean more, et cetera. But this is a proprietary technology that actually destroys the allergen. And we saw great consumer results when we did testing. That began shipping. It's very, very early, but so far we have good consumer reviews. And most importantly, we have very strong plans with retailers. They're very excited about a new platform and a new launch in this space. And again, we would expect that to ramp up over the back half of Q3 and early in Q4. And then from an investment perspective, we have double our typical launch size investment plan behind marketing, behind demand creation, etc. So feeling very excited about that. And this is one that we're launching, of course, not just to have you know, a launch in our back half of the year, but to be a platform that we can build on for many years to come. And in fact, we're already selling the second and third wave of this platform out with retailers. Ticking through a few of the others, we're expanding on our GLAAD Forcelex program and adding a new technology with leak guard in the bag. So a frustration for consumers is if a tear happens in the bag, they end up having liquids leak out. And the bottom of our bag now has an absorbent layer that absorbs that liquid and prevents leaks. And this will be in our premium line of trash bags. We're excited about continuing to offer consumers additional value in the trash segment. And particularly, again, focused on ensuring that we are innovating and giving people better experiences. And this is a way that hopefully we can temper a little bit of the promotional activity that we've seen out there. Litter, we are fully relaunching our litter business beginning in the back half of this fiscal year. And we actually have a multiple year plan in place. But this first This first portion of our letter relaunch will include new packaging, new graphics and claims, some updated items, and we're feeling good on what we've seen in early results. Some customers have started that implementation and early results are encouraging. That category continues to be competitive, but we feel like we have the right plan for the next six months and the next couple of years to begin to win some of that share back that we've lost as a result of both cyber and then our ERP implementation. And then other businesses, I would call out Hinn Valley as another where price pack architecture will play a big role in the back half of the year. We've seen consumers trading up to larger and smaller sizes. So we're addressing that in the back half, as well as a new avocado ranch, which addresses people who are looking for non-seed oil dressings and food items. The list goes on and on, but Peter, I think the main takeaway here is the plans are very strong. They ramp up throughout the year. We would expect that this is a major lever for us to improve our share results and, of course, our sales results. We have investment buying all of them. We're ready to lean in if any of them start to take off, and we have the ability to do that given our strong gross margin position and the fact that we rebuilt that fully. But feeling terrific and excited, and we'll speak more to you about the specific items when we talk to you later at Cagney this month.

Great. Thank you so much. I'll leave it there.

And we'll move next to Filippo Florini with Citi.

Hi. Good afternoon, everyone. I have a follow-up on the question on pricing and promotional environment. In Q2, your pricing was flat for the total company, but you had negative pricing in household. I think, Linda, you mentioned that you're expecting still a competitive environment. So how should we think about pricing in the second half of the year? Can we still see a flat for the total company, or could there be some more price intervention? And then on gross margin, Can you help us understand the puts and takes in the back half of the year? I think in this quarter you called out higher than anticipated supply chain costs. Do we expect those to stay elevated in the back half? And what are the puts and takes in terms of cost saving, pricing, and commodities? Thank you.

Sure. What I can do, hi, Filippo, this is Luke. Let me just answer your question on gross margin and then just talk a little bit of how do we think about price mix within the context of the outlook, and then I'll just pass it on for Linda to provide a little more perspective on how we see this externally. So on the gross, you know, if you step back, or after excluding the impact, the temporary impact of the ARP, look, assume that gross margin will be expanding in the back-alf, and it's been contracting in the front-alf. And so there's a few differences when you compare the back-alf to the front-alf. Inflation is actually fairly consistent across quarters, so that's not really where we see some differences. But there's about three that are worth calling out. First, generally, our projected cost savings run rate is a little higher in the back house than in the front house. Second, as you alluded to, we incurred incremental expenses in the front house as we stabilized and optimized service level following the ERP transition. And as you can imagine, we had a lot of different types of expenses, especially on logistics that came up with that. But this will start coming down in the back half and then will fully go away by the fourth quarter. And then finally, we also expect the benefit of a step up of the GLAD-JV termination, as we talked to you in the past, that creates about a 50 basis points of benefit in the back half that is not in the front half. So those are the main differences. Phasing standpoint in back-alf, we expect the third quarter to be about flat, and we expect solid expansion in the fourth quarter. The main thing here to consider is that there's some timing of manufacturing expenses and cost savings between the two quarters, which is bringing Q3 down and Q4 up. And we also still have some of those few incremental expenses that we just talked about in the third quarter, and they kind of go away in the fourth quarter. So that's from a phasing standpoint. So a little bit of noise by quarter, but overall feel confident in our back half and full year outlook on gross margin. Now, regarding maybe just a comment on price mix, as you look at our full year outlook, our assumption is the same as the prior outlook, which is we expect price mix to be a little bit of headwind, call it about a percent or so for the full year. So volume would grow slightly ahead of organic sales growth. Now, this might vary a bit by quarter, right? This, you know, in the second quarter, we were about flat and, you know, some other quarter might be a little worse than that. But I think about a point is we still feel that this is the right number for the full year. There's a few drivers here. The main one is really the continued headwind from consumer value-seeking behaviors and continued channel shifting. And that's partially offset by the net revenue management initiatives that we put in place.

Philippe, I'll just talk a bit about what we're continuing to see from competition and then your particular question on household and what we're seeing out there is largely consistent with us. We've seen elevated promotion levels this year versus last year as we expected, but those are in line with historical category rates. And we've called out, and this particularly impacts household, that the cat litter and the trash bag categories are two where we're seeing higher promotional levels. And we're seeing that both in our GLAD, Fresh Step, and Scoop Away business. I would say Kingsford is a minimal impact given this is a small quarter for Kingsford, and so we're seeing little impact there. The other thing I would call out is that we continue to see consumers trade to larger sizes in our trash bag business, and that certainly impacted GLAD. this quarter as people change channels, but are also just looking to stock up and get a better price per unit. But overall, I would say both of those were generally in line with what we expected for the quarter. And we're watching them very closely. And we're being disciplined about how we react when we see promotion. We're trying to do promotion that is strategic and focused. And we're seeing the benefits of that play out in GLAD as you saw sequential improvement in that business throughout the quarter.

Great. That's helpful. Thank you.

And our next question will come from Javier Escalante with Evercore ISI.

Hello, good morning. Good afternoon, everyone. I have a clarification and a question, actually a double click. The clarification is with the ERP already done, so why are we still going to see investment in digital capabilities? or this is going to wrap up this quarter. And if they are going to continue, if you can explain us what is it that you are spending on that is not related to the ERP, but it still needs to be separated out from results. So that's the clarification. And number two is double-clicking on the household piece. So it is rare in Staples when you have negative volume and negative pricing at the same time. So is this because a scoop away is driving most of the growth and this is what solves for negative pricing or you are taking prices down, say, or promoting GLAAD and the other brands and the volume is still negative. So if you can explain that, that would be great. Thank you.

Yes. Hi, Javier. Good afternoon.

Good afternoon. Yes, sorry.

Let me take your question on ERP. Yes, we're wrapping up the fundamental investment around the digital transformation, which is really about fundamentally upgrading the digital infrastructure of the company, which included the ERP and the cost suite of technologies. I think there's about $0.08 of adjustment in the third quarter and will be done on the adjustment associated with the five-year digital investment roadmap. Now, keep in mind, we've been steadily increasing our investment in technology over the past few years, and that's in the P&L, right? And just as we take advantage of more technology and actually as we take advantage of the new digital infrastructure that we put in place, we expect that this will continue. This is generally tend to be offset by a lot of productivity savings from automations as well as some effectiveness gain. But as far as the one-time investment, Q3 would be the last quarter we see an adjustment. And then on the household, I think just at a high level, there's two things going on. One, there was some loss in consumption and market share that was really volume driven. And there was also some shift to larger size, especially in back-end wraps. as well as some channel shifting that are creating a headwind on the price mix. As I mentioned, you know, we especially, it depends by business, the timing, but, you know, every business has pretty robust net revenue management plan to try to offset this. And I think when you look at the total portfolio for the full year, I think we're able to do this fairly effectively.

And in the promotional spending, particularly in CAD leader, what Sue Canada shows, and I don't know whether this is, Javier Ramirez- reflective of reality or not, but what's the kind of data suggests is that it's you that is promoting is not competitors is that the case that is reflective of what is the negative price mix that you have in the p&l Thank you.

Javier Ramirez- Javier what we see is the. overall category merchandising is certainly higher. We see that for competitors and it is true that we have higher promotional levels as well and we did that intentionally as we're building back some share. You're also seeing a significant amount of promotion for ScoopAway from Costco, which can create noise because that's a large promotion and can significantly impact the results. And those events, given a lot of people are moving to Costco, have become much more sizable over the last 12 months. So I think that's the combination of the two things that you're seeing. ScoopAway having a disproportionate impact on the amount of merchandising that you see from us in Turkana. but we are seeing overall competitors raising their level of promotion as well, which is just making an overall competitive category. Nothing different than what we had expected, but those are the two main factors that we see playing in the category.

Thank you very much.

Thanks, Javier. Thanks, Javier. And our next question comes from Bonnie Herzog with Goldman Sachs.

All right, thank you. Hi, everyone. I actually wanted to stick on household, if I may, and I just maybe asked a little differently. Organic sales, you know, remain quite pressured, you know, despite your stepped up promotions behind trash and litter, as you, you know, you highlighted. But, you know, if I look at it that way, then I see the pressures are also, I assume, negatively impacting your margins in the quarter, in addition to the higher manufacturing logistic costs you called out. Bonnie Wolfe- You know, when you look at the margins in the quarter, they were even margins, this is you know they were only 5.3% so. Bonnie Wolfe- I guess, could you talk about your strategy behind trash and letter, and you know how much further you're willing to promote to try and improve share, I guess, essentially, how are you balancing return to growth with profitability thanks.

Bonnie Wolfe- Bonnie. Yeah, we've been talking about the trash bag and litter category for a little bit of time now and certainly both of those were impacted as we talked about coming out of cyber and then certainly a change in competitive activity that we've seen, particularly in the trash bag segment. And we have returned to what we believe the best way to return a category to growth is, which is doubling down on our innovation plans. And we worked hard over the last 18 months to refresh our innovation plans on both GLAD and Litter. And you're going to see those come to fruition in the back half of this year. As I mentioned, we have a full relaunch of our Litter business that includes price pack architecture work, some upgrades and formulas, packaging, et cetera. And then we feel like we have a grid robust innovation plan for the remaining two to three years coming after that, which really gets back to growing the category the way that we like to do and want to do, which is investing in better consumer experiences that deliver superior value. And Trash, much the same. We have great innovation in the back half. We have been doing some price promotion, and we've been disciplined about trying to do that because we want to make sure that we're doing it in a way That doesn't destroy value in the category. We know people don't use more trash bags just because they are a lower price per bag. They want benefits in a trash bag that helps make their life easier at home. They don't want it to leak. They don't want it to smell. They don't want it to tear as we continue to invest in that. And that's exactly the balance on you spoke about. We want to make sure that we are balancing. market share and consumption data and profitability with growing the category in a way that we think is sustainable. And what we're happy to see is our back half plan really leans into that. But we haven't been afraid to increase the price promotion in the short term to deal with the headwinds that we've been experiencing. I think over the long term, we remain confident that we can grow these categories through good innovation work, strong demands, spending and building, continuing to drive efficiencies in that spend, and, of course, making sure that we are doing all the great margin work that we've done for the last few years in the company and for, frankly, decades before that to continue to fund that. And we have strong programs in both our GLAD and our cat litter businesses internally. So overall, you know, I don't think anything's changed strategically. These categories are competitive, but we do well in competitive categories. I can't say that we would say our last 12 months have been our best performance in these categories, but we feel like we have the right plans moving forward to address that and have taken the right short-term steps to ensure that we get that balance right.

All right. Thank you for that, Culler. I'll pass it on.

Thanks, Bonnie.

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

Hi, good afternoon. Thank you so much for the question. Linda, I was wondering if you could comment on where you are now post the quarter versus the category growth rate in light of the improvement that you're seeing in consumption trends. And then where do you think category growth would have to be to get back to meet your longer-term algorithm with your Ignite strategy of 3% to 5% net sales growth? Thanks.

Hi, Anna. Yeah, so if you... We'll walk through Q1 and Q2 again, and then just what we expect in the back half, and then bridge to what we expect over the longer term. So in Q1 and Q2, we saw categories about flat. So in line with what we had expected, we recall we had expected about flat to up one. January, I would just advise, if you look at any, actually any time period beyond January, There's a lot of noise in the data, so I would not look at a one week or even four or five week category number and project from that. For example, January has significant weather-related events, and that will have many impacts. One, consumers stocked up. But two, you can have challenges dealing with weather in retailer inventory, et cetera, and none of that has played out yet. So we'll see what those impacts are. And then, of course, we'd assume consumers will use that household inventory and might extend their purchase cycle depending on how much they did stock up in advance of that. So I would warn not to look at the last two weeks as a significant change in the category trajectory, but simply I think some shifting in timing given what's going on with weather. That being said, we still expect the consumer to remain under pressure, and that means we expect categories to be flat to up one in the back half of the year. We certainly hope we could get to the top end of that range given the plans that we have. But we'll see how that plays out and what the consumer decides to do. We just feel like we have the right plans to both support category growth and share growth within those categories, whether that be innovation, the base distribution that we're working on with retailers, our demand spending and plans, which is very strong. So we feel like we're doing everything we can to continue to support getting back to category growth that is in line with what we've experienced in the past. And that leads me to our Ignite strategy algorithm. We assume for us to get to that 3% to 5% range, that categories have to return to what they were historically. And that's typically been about 2% to 2.5%. And then we're able to add a point of incremental growth from our pro and international business. And that gets you well within our Ignite range. And of course, we talked about the acquisition that we made of Gojo. And we believe that will be accretive to growth as well. in support of us getting to the growth algorithm that Ignite contemplated in the 3% to 5% range. We don't see that yet, obviously, this year in our categories, but we're hoping now as we continue to invest and others continue to invest in the consumer and in innovation that we'll start to see that build over time.

Great. Very helpful. Thanks so much. Thanks, Anna. And we'll move next to Kevin Grundy with BNP Paribas.

Hey, good afternoon, everyone. I'd like to ask you both a question on price investment. It's topical today with the PepsiCo news, and obviously you don't compete in the categories, but what is relevant is the consumer under pressure, the K-shaped economy, et cetera, et cetera. So Pepsi's making substantial price investments, embarking on a lot of productivity to do it. Your categories have been weak for a while. You're not alone, Linda and Luke, of course. But, you know, we've been talking about this for a while. Would you be willing to take price investments off the table for your categories, particularly where volumes have been weak for a while, whether this is bags or whether this is bleach, et cetera? Because you talked about innovation, Linda. We would all collectively agree that's exactly how you want to win. But maybe it's not an either or. Maybe it's a both and, like we're seeing at PepsiCo. given the unprecedented level of innovation, excuse me, of inflation that we haven't seen in four decades and the consumer that's still under pressure. Would you take that off the table?

Thanks for the question, Kevin. Maybe just start with what we're seeing from the consumer, which I think is largely consistent with what you just outlined and what we've seen from some competitors as they've spoken out or people who aren't even competing in our categories. We're definitely continuing to see bifurcation of consumers. We continue to see all consumer groups under pressure, but I would note that we have seen from low-income consumers some additional pressure, and making sure that we have the right value for those consumers is absolutely top of mind. And that is what we're doing in the capability that we've built on RGM to ensure that we have the right price pack architecture, so getting them supported with smaller sizes for consumers who only have a little bit of cash to outlay larger sizes, etc., And the purpose of that program is to deal with just that. And it's more important than ever that we have that capability and we're beginning to ramp that up. And we've had some success in a number of businesses, but we need to frankly expand it faster across our portfolio. That being said, on price investment, we have made some, and I think that's what you've seen in some of the promotional activity that we've done. We have made selective price investments in places where we're seeing the consumer be under more pressure. Certainly trash bags is one of them. We've seen a bit more in home care and we continue to do that in a disciplined manner. But our team's looking at this all the time, and we're committed to making sure that our price gaps are where they need to be. And we do not want to get in a place where we're losing significant household penetration with consumers or share. because our price is out of whack. So you can hear my commitment to if we need to make a price reduction, that a strategic will do it. And the good news is we've built a holistic margin management capability to be able to fund that if we need to do it. And again, we have made some of those investments over the last 12 months, as we've noticed, were out of whack on a certain size or a certain price point. It'll be something that we'll watch very closely. The other thing I would note is in our categories, we have not seen significant trade down to private label. The last quarter, private label was up a tenth of a share point, and we didn't see any material change. Consumers still want brands, and we just need to figure out the right way to make sure we're giving them the right price, the right pack, at the right moment, at the right retailer. And I feel like our back half plans better contemplate that. But again, Kevin, I'm not taking it off the table, but we'll do it in a disciplined way. And now with our RGM capabilities, we have even more ability to do that at scale.

Okay. Thank you very much. I'll pass it on.

And we'll move next to Olivia Tong with Raymond James.

Great. Thanks. The promotional environment has obviously been heightened for some time and doesn't seem to be abating. And as more sales go to club and e-comm and larger pack sizes, can you talk about what initiatives you have or are putting in place sort of longer term to help offset what could, I assume, be multi-year headwinds? And then Can you also talk about what inventory levels look like at retail outside of club and e-comm post-CRP? Is there any risk that as activity continues to shift outside of these channels that you run the risk of having to deal with destocking in the next 12 months more so than your peers? Thank you.

I'll take both of those, Olivia. So on the large sizes, this has been a trend on our business for quite a while. We've seen consumers move to value channels including club, But they've also been moving to dollar, and that has the opposite effect, where they tend to buy smaller sizes. And we've been able to manage this for many years and would expect we'd be able to do that moving forward. And it's a little bit about the question that Kevin had. The RGM capabilities that we are building are going to enable us to do this faster and at scale and with more data. We did a lot of work in our ERP implementation to harmonize our data across the company, and that's giving us more real-time insights that allow us to design exactly the right pack for the consumer, for the right retailer, and also at the same time remove costs where we can. So we feel like we have a capability for a long time, but adding RGM gives us additional capability to address this. And I think the good news is we want to be wherever a consumer is. If they're in club, we want to be there. If they're in .com, we want to be there. If they're buying at a small grocery store, we want to ensure that we're there with the right price and pack. And we've been able to do that for many years and been able to absorb and frankly fund it through our margin work. I think the one thing you should note, though, and I think that is important for our portfolio is the point I made on dollar and smaller sizes. There is a corresponding downward pressure on sizing as well, and that will offset some of the trade-up that we're seeing to larger sizes. And that is why you're seeing, I think, the price mix that you're seeing right now for the company, that some of those things are offsetting each other. And I would expect that to continue given the strength of the dollar channel and consumers having a lot of pocket expenditures. And I think that will keep that in a reasonable range for the next couple of years. And we're well positioned as consumers continue to move to different retailers to address that as well. And then on inventory levels and de-stocking, largely if you look across our enterprise inventory levels or where we would expect them to be in retail, there's always puts or takes here and there, but we wouldn't call out anything material that we see at this moment that would impact our potential de-stocking for us versus anyone else.

Great. Thank you. Thanks, Olivia. And we'll move next to Pabllo Gajwarwala with Jefferies.

Hey, everyone. On ERP, it looks like the last of the big phases is complete. Can you maybe just talk about what you should be able to do now, what you see, maybe some cadence of benefits that flow through, whether they're things that are driving top line or things that are driving savings? And maybe, I think Luke, you mentioned some of it will be automation and such. And so should there be a different goal or a new goal on where gross margins can go now that a lot of that hard work is behind you?

Hi, Kamal. Yes, thank you. So, you're right. Like, you know, as I just mentioned, we'll be finishing the implementation and at the end of our, you know, large digital transformation investment at the end of Q3. And by the way, I think we have about $0.04 BPS. I think I mentioned about $0.08 of adjustment in Q3. But, you know, really right now, the remainder of the year on the ARP is really going to be about stabilizing. You heard us. We've been spending the last quarter or two just stabilizing and optimizing service level. We expect incremental cost of doing so to just go away by the fourth quarter. And once we're done optimizing, then we can start the optimization phase. And really what happened now that we have a new both data and technology infrastructure, you essentially have to rehab redesign the process as well as change the talents and the different type of work that is being done around those processes. And sometimes that can happen, a redesign can actually just happen fairly in a matter of months, and sometimes it can take a little longer. Now, a lot of the benefits of optimizations will be on the supply chain, whether it's on the manufacturing or the logistics, both in the P&L and on the balance sheet. And of course, we will also start seeing some benefit of automations in our admin, right? So we'll see some benefit in both close margin as well as in big margin. And on admin, I think we mentioned that in the past, now that we have a global data infrastructure, we're able to actually accelerate our adoption of global business services, which will create further efficiencies on the admin side. Now, we do see all of those as just more, you know, inputs and initiatives to feed our pipeline of cost savings over the next few years and then just, you know, contributing to our goal of expanding 25 to 50 basis points. Our goal has always been to, you know, expand EBIT margin, but of course we would want to expand gross margin generally in line with that because gross margin is really what creates the fuel for us to reinvest in our business.

Got it. Thank you.

And our next question will come from Lauren Lieberman with Barclays.

Great. Thanks. Hi, everyone. So in the reiterated guidance, you guys mentioned advertising still targeted at 11% of sales for the year. First half came in at 11 and a half. So I think the implication is second half dollars are going to be down maybe like mid singles. So just given how much innovation you have coming, I was just curious about the timing of that. math basically is right, but also if it is, why it would make sense to have your spending down year over year in the back half. Thanks.

Yes, Lauren. Yeah, there's a little bit of rounding, so I'll just make sure not to, you know, drive too much conclusion on the back half level. Having said that, you know, keep in mind that advertising investments are generally not something that's planned top down, but really plan at the SBU level, the business unit level, and they're really integrating the administration plan, balancing the investment across advertising and trade promotions. So with a clear objective of, you know, supporting both the innovation and reinforced superiority. So met, I think there's a little bit of, you know, shift, but when we look at the level of investment behind the innovations, we feel, you know, we feel that they're adequate and quite strong.

Okay, so does that mean that more is, I guess, in trade promotion to drive trial on some of this innovation?

Yeah, I think it's both.

Okay, okay. And I did one follow-up question on litter. Just in the discussion of the relaunch, what you mentioned in the, I can't recall, the release of the prepared remarks, the discussion about is innovation, there's packaging, but also some mentions on value and competitiveness, which did suggest potentially some price changes and I just, in keeping with Kevin's question, just curious in Litter specifically if there's, you know, sort of a reset on price pack architecture and pricing with this relaunch. Thanks.

Yes, you read that right, Lauren. We are including price pack architecture work in the relaunch. We looked at our sizing lineup for Litter and we are making some adjustments to address changes in consumer trends, etc., So you will see that play through, and that will support also the innovation that we have in making sure that consumers understand the tiering that we have in our litter business, what value Fresh Step offers versus ScoopAway, et cetera, and, of course, versus competitors. So you will absolutely see a price pack architecture component of the back half litter plan in addition to the other things listed. Okay, great. Thank you so much.

Thanks, Lauren. Our next question comes from Edward Lewis with Rothschild.

Yes, thanks very much. Hi, Linda. Interesting to hear you talk about the price investments, and I just wondered if you could look at the other side of the coin when you consider the innovation plans. Specifically, are you able to pitch these new products at the kind of historic premium we would expect, or does the current environment give you pause when you consider potential pricing levels?

Hi, Ed. We do a lot of work when we are testing innovation to say what the right value mix is. So what are the benefits that we're offering that are incremental to what's offered today in any given category? How differentiated are those? How strong does the brand play there? And then what price makes sense given that benefit-brand mix for the consumer? And what we're finding is that that continues to be price premium and that consumers are willing to do that for a superior product and a superior experience. So you're seeing many of our innovations launch with a price premium. And we're seeing many of our price premium categories doing very well. So I'll give you a few examples. If you look at our home care business, where we play in the full spectrum, so we understand this really well, we play in the most value-oriented segments. with things like chlorox liquid bleach or a dilutable business with Pine Sol all the way up to much more expensive price per use like a wipe or even a chlorox toilet wand, which is a significant premium versus other things. And those are growing well. Wipes and our toilet business are tending to lead the category growth. Consumers are willing to pay for that time and ease convenience. That is a good trade-off for them to make. And we see the same with Pure allergen, for example, allergy sufferers don't have great solutions today and they're willing to pay that premium versus what they do today in order to get that set of benefits. I think, though, correspondingly, Ed, and I think it's to the questions that Kevin and Anna and others had. We are seeing consumers who really need to get the lowest price per use that they can, but they still want the branded player. So we also need to appeal to them. And we're doing everything we can to make sure we remove anything from our products that's not offering that value, invest those back in the brands, get the price and sizing right, and that matters to those consumers deeply. So I think the answer is no, we just can't lean on price premium innovation. It's an important component and we see it working across all income groups. We also must get the value equation right on our core business. We're laser focused on that and have better tools than we ever have to do it. And I think both of those are the answer to growing categories and growing share.

Thank you.

Thanks, Ed. And we do have one further question. Yes, our next question will come from Robert Moscow with TD Kellen.

Oh, thanks for the question. I was wondering, Linda, I don't know if anyone asked this on the call about Purell, but you have a lot of categories that you're trying to juggle all at once, and several of them are having some pretty significant weaknesses. And now you're adding the hand sanitizer category on top of it. What's the risk of getting distracted as you're trying to execute on you know, on the core business, to what extent will the Purell business kind of run itself, so to speak, for a few months before it's fully integrated? Thanks.

Hi, Robert. Really, when we step back and think about Purell, this is leaning into a place where we've had very strong performance in the company for many years. If you look at our health and wellness segment at International, where a lot of our health and hygiene business resides, are pro-business. Those businesses have continued to perform year after year, and we feel we're adding just another business with very strong tailwinds from a category perspective and lots of upside in both B2B and retail. And really, that combination will make the current plans that we have that we feel are very strong and performing well even better. So we have strong confidence in our ability to do that, and I would also call out You know, they have a very strong management team, a very talented team, advanced operations. And so we feel like that was another way we could have confidence in integration that we would be able to do this seamlessly. And of course, we were integrating in a very disciplined way to make sure that we're focused on the places where we can add value and, you know, not integrating in places where it does not add value. So feel very good about that. That being said, too, we are laser focused on improving the performance in the categories that are softer right now or where we've had less strong share performance. And we feel like we have made a turning point in our plans. We feel you'll see that reflected in the back half plans through innovation and improved share results and that we have our arms around those. And as you know, we've been a company of managing many categories and brands for a number of years. and the way that our operating model is built is built to do just that. We have dedicated teams that run our businesses, so nobody who's going to be working on the Purell integration has anything to do with GLAAD. The GLAAD team will be laser focused on continuing to improve performance, as will all the other businesses and their individual business unit teams. So I would just reiterate, I think this is such a strong strategic fit, financial fit for the company, adds to a very strong set of businesses that have been performing for many years. We've had a 4% 10-year CAGR of growth, if you look at our health and wellness business. And I have every confidence that we can integrate successfully and continue to double down in a place where we've delivered year after year.

Thank you.

Thanks, Robert.

And our next question will come from Chris Carey with Wells Fargo.

Hey, everyone. Thank you so much for the question. I wanted to ask more logistically about the components of fiscal 27. Is it still correct to think about taking the impact from the ERP shift this year and then adding that back effectively in fiscal 27 and then assuming some underlying growth? So that's number one. And then secondly, I asked this in the context of if market shares are perhaps a bit softer than expected for longer, I realize you got some innovation coming in the second half, comps get easier, and these sorts of things. How would you think about using some of this incremental ERP get back and investing some of that back if these objectives that you have for the back half maybe don't come to fruition. So really just asking about the logistics of the model and how much flexibility you think you may have to lean in if you so desire.

Hey, Chris. Yes, on the RP, you're absolutely correct. As you remember, we essentially shifted some sales that should have been in fiscal year 26 to fiscal year 25. And so essentially the current shipment and sales in fiscal year 26 are understated relative to the underlying consumption at the retailers, right? And so next year, when you have, you know, normalized, you know, shipment and sales, you would have a pickup of, you know, about three and a half point on sales and a pickup about 90 cents in NPS. Now I would say that's going to happen no matter what. And, you know, we're not seeing this as, you know, something that, We make any investment decisions on the spend level on our brand based on strategy and return on investment. And that is totally independent of the financial impact of the ERP next year.

Chris, I'll just add to that, maybe just taking a step back. And I think it's getting to the point that many people are asking today just on investment levels and how we're feeling, et cetera. and just how we think about this philosophically. We are certainly in a time, and we've seen this before in different contexts, in recessions, et cetera, where the consumer is under more strain. That being said, they've been fairly resilient. Our categories, we'd love to see them in the 2% to 2.5% growth range that we're accustomed to. They've been below that, about flat the last two quarters, but we think between zero and one. So actually fairly resilient given what's happening. Certainly very noisy and volatile. So lots of puts and takes across weather and government shutdowns and SNAP benefits. And looking at that noise, we want to make sure that we're not reacting to noise, but we're reacting to what's really going on with the consumer and what's going on in our categories. We believe the right and the best way to grow categories for long-term value is to give people the very best experiences that we can with our brands. that those are superior to other experiences they can get in the category or for alternative options. We do that by innovating. We do that by ensuring that we have the right fundamentals in place so that we get our claims right, our packaging right, all of the components that give consumers the way to live their life at home with our products just a little bit better and easier. Save them time. Save them hard work. make a meal taste better, bring people around the table. We fundamentally believe that's the right way to grow. And we're excited about our back half because they're very consistent with that. That being said, I don't know exactly what the consumer environment is going to look like coming up here. You know, we've made a set of assumptions. We've largely been in line for the last 12 to 18 months. But if that were to change or innovation plans were not to be, you know, do not come to fruition, we absolutely will make the right investments to grow our brands, grow our categories, protect our shares. We always want to get that balance right back to Bonnie's question on that and profitability, but we feel we have all the right tools in place to do that through the digital investment we've made and the additional capabilities we've built, as well as the pure firepower given our margin transformation and holistic margin management efforts. But if we need to invest more in our brands, then we absolutely can. But we feel like we're in the right place right now. We feel like we have a good plan. We're happy to see early, very early show results in January. We expect it'll be up and down depending on the month and the plan. But we think we'll end this fiscal year in a different trajectory with some momentum and we're excited about entering fiscal year 27. As you know, we build our our innovation plans for multiple years. So we already know what we have planned for 27. We're excited about those plans. Retailers are excited about those plans. But I think like we have had to be, and everyone in the industry has had to be, we're going to be nimble. We're going to watch the consumer closely. And then we will adjust if we need to, to ensure that we are growing our categories and growing our brands. I appreciate the question.

Okay, great. Thanks so much. I'll leave it there.

Thanks, Chris. And this concludes the question and answer session. Ms. Rendell, I would now like to turn the program back to you.

Thanks, Jen. As we wrap up today's call, I want to emphasize that we are confident in the solid foundation we've built over the last few years to make Clorox a stronger, more resilient company. We're investing behind our brands, delivering innovation that delivers superior consumer value, and strengthening our portfolio in ways that position Clorox for more consistent, profitable growth. We are encouraged by the momentum we see on our fiscal year 26 back half plans. The addition of Purell and the capabilities of the Gojo team further extend that trajectory. Their leadership and innovation, combined with our scale and margin management expertise, positions us to create significant long-term value. Thank you for joining us today, and we look forward to sharing more with you at Cagney later this month.

And this concludes today's conference call. Thank you for attending.