Clorox Company (The)

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.

Thank you, Jen. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendell, our Chair and CEO, and Luc Bele, our CFO. Please note that our earnings release and prepared remarks are available on our website at thecloroxcompany.com. 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 year 2026 outlook. These statements are based on management's current expectations, 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 statement section, which identifies various factors that could affect such forward-looking statements, which has been filed with the SEC. In addition, please refer to the non-GAAP financial information section in our earnings release and the supplemental financial schedule in the investor relations section of our website for reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I'll turn it over to Linda.

Thank you for joining us today. In Q1, we reached a major milestone in our transformation journey with the successful launch of our new ERP system in the US. This foundational step has strengthened our digital backbone and unlocks new value streams for our company. Launching the ERP was a significant undertaking, and while the transition presented some challenges, our team's resilience and adaptability allowed us to navigate them effectively and we're already seeing the benefits ramp up across our operations. As we move forward, we've incorporated the realities of the implementation into our latest outlook and made the necessary adjustments to strengthen our plan for the remainder of the year. Importantly, as we move past these temporary challenges, we are fully focused on our demand creation plan to deliver superior value to our consumers and reinvigorate category growth. 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 today will come from Peter Grom with UBS.

Great. Thank you. Good afternoon, everyone. So I just wanted to touch on the organic sales cadence, and I get there are a lot of moving pieces, but just was hoping to get some perspective on the second quarter as well as the balance of the year. So just first, can you just help us understand what you're including or embedding from a category growth perspective? And then second, you touched on returning to kind of sales growth or consumption growth in the back half as a result of the strong demand creation plan. So can you maybe just unpack that a bit more and just What drives the confidence that trends will inflect versus what we're seeing today?

Thanks, Peter. This is Luke, and I can take that. So I think when we look at the phasing for the full year outlook, it might be easier to just exclude the impact of the ERP in both Q1 and Q4. And if you do so, organic sales growth in the front half would be negative low single digits, and organic sales growth in the back half would be positive low single digits. The assumptions around the category remain the same. We assume that, you know, our U.S. retail category remain, you know, muted, kind of on average growing 0 to 1 percent, still below historical average. And so the improvement in the back out is really driven by improvement in consumption, driven by improvement in market share. And there's two main levers here. The first one is that we're launching a few major innovations in some key businesses. In some cases, we are actually launching new platforms and other expanding existing platforms. I think we talked about it last quarter. We're excited about innovation plans in the back half, and we have strong demand plans in place. And then the second thing is we are lapping some pretty negative trends that started in the back half of last fiscal year. And that's for U.S. retail, and outside U.S. retail, we feel really good about the momentum of both the international and the professional business in the backup. Now, Q2, you asked a question about Q2. So frontal will be low single digits, and we expect Q2 to be in the low single digits. Mostly, it's largely expected continuation of the U.S. retail consumption trends that we've seen in the first quarter. That as well as about a point of headwinds from the timing of early shipments in the first quarter.

Okay, that's super helpful. And just maybe more specifically on 2Q, just on that consumption point, the decline you're expecting, can you maybe just be more specific on what you've seen through October and how you see kind of consumption trending from here? Is it more or less what we've seen through the majority of 1Q, or do you see any, or are you betting any sort of improvement from here?

Yeah, Peter, there's some dynamics in October that would be helpful to cover because there's definitely a difference if you're looking at the data between the first half of October and the second half. The first half is marked by a lap of what we saw last year with some storms, hurricanes, as well as port issues. And although they weren't very material to the quarter last year, they do create a year-over-year comparison issue. So you could see we were down fairly significantly in consumption in the first two weeks, which we expected. Now you've seen in the third and fourth week of October that's rebounded significantly back to what we expected, and you can see consumption down low single digits in MULO. So that would be the dynamic I would expect is that current rate that we've seen over the last two weeks to continue for the remainder of the quarter, but outside of that, you know, we don't have any material things that you should focus on outside of what we provided in the outlook.

Great, thank you so much.

I'll pass it on. And our next question will come from Andrea Teixeira with JPMorgan.

Thank you. Good afternoon. I was hoping if you can touch a little bit on the environment for promotions. I mean, I understand you mentioned in the prepared remarks that you continue to see consumers being cautious and value-seeking. We're hoping to see how the competitive environment unfolds and unfolded through this back half of October to Peter's question. And then if you can also comment on the price-backed architecture that you're looking to do for this innovation that is coming in the back half of the year. Should we see you becoming more, I would say, meeting where the consumer is at in terms of price points? Anything to add there, or in general, what's embedded in your price, in the price algorithm for the organic sales growth in the second half?

Hi, Andrea. I'll start with your first one on the environment. So we're seeing the environment largely in line with what we had expected when we started the year and a continuation of what we saw in the back half of last year. As you noted, the consumer continues to be under stress. definitely reacting to the level of volatility and uncertainty that's out there. And we're seeing that in their shopping behaviors. So while an aggregate, the entire consumer wallet has been fairly stable, the changes within that wallet have been quite significant and varying week to week and quarter to quarter. What that's meant for our categories is we've seen a generally more competitive environment, although I would say it varies business to business, category by category, in what we're seeing in the specific competitive responses. We have seen increased promotions, for example, in the trash business and cat litter business, not different than we would have expected given the dynamics of those two categories. We've seen some price changes, both things that looked like promotional price changes turning permanent, as well as some minor price increases. And so, again, it varies by category, but I would say on average, the competitive environment seems pretty rational right now. If you look at the overall promotional spending, again, in some categories, it was up, but in aggregate across our categories, not that material. And so what we are just responding to and continuing to watch very closely is will there be a change in the consumer environment that makes people become more competitive, put more money in the system, et cetera. We've seen retailers do some additional support on private label, although it hasn't yielded any private label share results as of last quarter. So those are the things we're watching carefully. But again, it still remains a fairly rational environment, but I think people are getting very sharp on value depending on what matters to them and their portfolio and the category that we compete in. There are a couple places maybe that I would just call out that I think are, you know, we're watching really carefully, and one of them is food. On average, the food category at large has been challenged. And specifically, when we look at the food category that we're in with salad dressing, that category has been declining low single digits and very variable. We've made adjustments to our plan. I think you saw in the prepared remarks that large and small sizes in that business are working really well. But that's a good example of a place, Andrea, where we'll be using price pack architecture fully to ensure that we're capturing the consumer wherever they are and offering them a Hidden Valley offering that is right for if they want to get the very best value per ounce or if they can't afford to get that large size and they just need something in their pantry that's going to get them through the next few meals. I'd also note on the price pack architecture for the new innovation, similar to what you saw in the prepared remarks, that's how we've approached all of these programs. So we've talked about we have some innovation coming in later that will definitely have components of price pack architecture built into it, thinking about what are the right price points we need to be at, etc. as will all the innovations that we launch in the back half. Our teams have those tools now embedded in our innovation process, and they're using them to ensure that we capture the full spectrum at launch, and we can talk more about those when those innovations launch in the back half.

That's helpful. And if I can squeeze in one for Luke on the gross margin side, I understand that obviously there was a lot of operations that leveraged But you also mentioned commodities coming in, I think, slightly better, if I'm not mistaken. Anything to add to that in terms of like your flexibility to perhaps, you know, get into a better range than guided? I understand some of these ranges will go into the low end, but I was curious to see what has changed from a cost perspective that would inform you to be at the low end.

Sure, Andrea. Maybe let me just speak first about what we're seeing from an inflation in general, both commodity and supply chain, and then talk about the different puts and takes as we look at the gross margin drivers for the full year outlook. So if I look at overall inflation, we expect it to continue to remain moderate, I would say, for the year. But we did mention it's slightly more favorable than our prior estimate in July. If you remember, at the beginning of the year, we assumed that input costs and inflation would increase a little under $90 million for the full year, with about half coming from commodities and half coming from supply chain, both manufacturing and logistics. Our latest projection assumed that input costs and inflations would increase about $70 million, so about $20 million more favorable. And again, about half of that is coming from commodities and half of that is coming from the rest of the supply chain. We also have to contend with tariff. And right now, our estimates on tariff fees remain the same. It's about a headwind of $40 million for the year. So looking at all of it together, this is about under $10 million, or about $20 million more favorable than what we thought at the beginning of the year. Now, there's a few other puts and takes as we look at the gross margins for the full year. One, we did have to incur additional expenses during the first quarter to deal with the disruptions on the demand fulfillment related to the ERP ramp up being a little slower than expected. So that's incremental expenses that offset some of the benefits. And then second, as the teams are finalizing and optimizing their demand creation plans for the innovation in the back half, we increased a little bit both trade spending and advertising. So the trade spending is also putting a little more pressure. So at this point, it's a little more towards the lower end of the range. But keep in mind, we expect to have more movement going through here. What's important is we generally feel good about our ability to meet our gross margin outlook. And if I may say, if I look at the back half of the year, you should see pretty robust gross margin expansion in both Q3 and Q4.

Thank you, Linda. Thank Luke. I'll pass it on.

And we will move next to Cuomo Gajarrawala with Jefferies.

Hey, guys. I've been digging in just a little bit on maybe your report card because there's so many moving parts with ERP and shipments and all of that. When you're making adjustments for it, how do you feel about your market shares? Are they trending in a direction that you prefer or the opposite? It's just a little hard to read given everything that's going on. I'm curious where you are. And layered, I guess, on top of that, Uh, you sort of hinted at a few things on, you know, more demand creating activities. Do you, do you have the all clear from an infrastructure perspective to go and pursue them? And, uh, and if so, maybe just some more details on what it is and how much you expected to contribute.

Yeah, maybe what I can do come on is just unpack a little bit. What, what was the underlying performance of the first quarter? Because there was so much noise. So let me start there. And then, you know, maybe Linda can provide a little more perspective on the performance in the market. So if we look at Q1 organic sales, excluding the impact of the LRP, the ERP, sorry, we declined about three points. And even within the three points, there was a few things happening. You know, one, there was, you know, one favorite point of timing, which is really just the timing shift between Q2 and Q1 related to some early shipments. for merchandising in the second quarter. But we also had the impact of the out-of-stock, which, you know, impacted, you know, both the market share and maybe to a certain extent some categories in some businesses. And that was about three points of headwinds. So, again, if you unpack that, you know, the negative, the decline of three points in the first quarter and exclude those two levers, like the underlying performance was about negative one, right? So that gives you some context. and also kind of just fairly consistent with what we signaled around the front as being in the, you know, negative low single digits.

Go ahead. Daniel, go ahead. I was just going to ask you to.

Perfect. So on share and just how that translates to the market, you know, unfortunately with the ramp up that we had on our ERP, it did cause us to lose more market share than we had anticipated. And you saw that primarily impact August in a material way. We saw September a bit better. And again, in October continues that trend. But, you know, we can't say we're satisfied with that. You know, we intend to grow market share over the long term. And so we are laser focused on that as we head into Q2 in the back half of the year. And that's why you're seeing us continue to refine and tune our plans, which we feel good about in the back half, feel great about the innovation that we have, feel good about the spending levels we have. And I think what that also connects to is the other parts of the scorecard that will make up SHARE and give us confidence in our ability to grow SHARE again in the back half, and that's household penetration, which remains stable. In fact, if you look at our biggest mega brands, that's up in household penetration, the Clorox brand, and up fairly significantly. Our consumer value metric remains higher, significantly higher than it was pre-COVID. And again, we have all of the right spending and tools and innovation in that plan to drive market share performance. So while not satisfied right now, I feel like we have the right plans to get that turned around and the fundamentals of our business remain very strong.

Thank you.

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

Hi, good afternoon, everyone. So maybe following up on Camille's question, just on the second half, Linda, you mentioned a lot of the improvement is based on the innovation plans that you have for the second half of the year. Can you give us a little bit more color on what categories the innovation is going, what's differentiated, kind of what gives you that confidence that innovation will work? And then maybe you can give a specific, like drill down a little bit more on trash bag and Cal leader. Those continue to remain two of the most challenged categories. And you mentioned increased promotional activity. So maybe just a review on the plans on those two particular categories as well. Thank you.

Sure, Filippo. You know, in innovation, maybe I'll talk about some of the ones that we just launched that are in market now and that we have the ability to speak a bit more about. In GLAD, we're continuing to build on the very successful scent platform that we have. You've heard us talk about Bahama Bliss, which was the last big scent that we had released, and we're following that with a fall scent, which we think will do very well for GLAD and continue to attract that consumer that's looking for that extra piece of treat at home, given what they're going through. In Brita, we're actively modernizing our pitchers with new colors. We're also ensuring that we're doing price pack architecture there to ensure we're capturing consumers who can't afford to buy a larger pitcher at the moment. We've launched some smaller sizes for both pitchers and filters, and that gives consumers a reason to not turn away from a Brita pitcher. On Burt's, we've expanded a very successful platform. We launched a boosted bomb a while back, and we're increasing the footprint of that and launching that into body. And we just launched innovations, including a lotion, a whipped butter, and moisturizing milk. They're quite delightful, and I think the consumers are really going to like them. So those just came out, and we're feeling good about those. We will have additional innovations, and the way I would think about it, Filippo, is that we will have innovations across all of our major brands this year. And so you'll see those coming in the back half. Some of these innovations are brand new spaces for us in terms of what we are going after from a consumer perspective and what problems we're trying to solve for them. And then some of them build, again, on existing capabilities that we already have. And I know you can understand that I can't get into exactly where those are right now. But I think the key takeaway is innovation across all major brands. Feel really good about the innovation that we launched in Q1. Very good about the back half. We have the right spending. And I think they are the right mix between continuing to improve the base and bringing new-to-world innovations that are superior value to consumers and that we think we can create years and years of value from.

Great. And maybe just on flashbacks and later, we've seen continued pressure from a market share standpoint. So maybe can you give us a sense of your assessment of those categories and how sustained this promotional environment can remain in those categories? Thank you.

Yes. On both of those categories, they're largely what we expected to see, which is very competitive, more promotional activity. continued innovation, and we're seeing about in line with what we expected to see in both of those. Of course, Q1 was impacted by our implementation of the ERP, so we saw a bit more share decline than we had expected. But obviously, once we're back in stock, and we for the most part are now, we've begun to see those shares rebound. But both of those continue to be marked by higher than normal competitive activity, and we see that in pricing, we see that in additional promotional spending, and what we're trying to balance in both categories, and particularly in trash, would be the long-term value creation aspects of this. We do not want to get into a place where we're destroying value in the category because we just don't see people create a lot more trash when a trash bag is more discounted, and what we're trying to do is ensure that we preserve the right to grow this category through innovation and better consumer ideas and experiences. And so we're being very choiceful. There are places where we have increased our investment in GLAD. We're being very surgical about that. And there are places where we're willing to lose a bit of share in the short term in service of that long-term objective. So that's what we think we're getting the balance right on now. We're going to watch it really carefully in Q2 and the back half. We want to execute our innovation with excellence. But I would say That category is very much what we expected to see. Litter, of course, in a place where the category is growing and we're not getting our fair share of that, that's highly disappointing to all of us. We feel good about the plans we have on litter in the back half. We'll talk more about those in our next call. But we will go after all of the things that we think aren't working quite right for us in litter right now. we're hopeful that that will show a marked turnaround in the back half once we get that implementation in market.

Got it. Thank you very much.

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

Hey, everyone. My first question is just around the, like, spending plans for the back half. I'm mostly curious how these have evolved since you started the year. And what I'm specifically interested in is, are we talking about you have these great innovations, you'll be leaning in more, and you're basically funding that with the incremental cost savings that you're getting from more favorable commodities? Or are you looking at the broader suite of activities and thinking that you can drive greater outcomes beyond even those innovations? And is there a way of thinking about it between promotional activity and advertising? I have a follow-up.

I'll start, Chris. So yeah, on the spending plans for the back half, we started the year, we felt very good about them to begin with. We have pretty sophisticated tools that allow us to put money where we know we're going to get a good return. You've heard us a lot talk about the personalization engine that we built that allows us to target consumers in a way that gets some messaging that's driving very good ROIs. And we have one of the leading ROI in the industry from an advertising perspective. So we already felt strongly about our plans heading into the back half. What we took an opportunity to do is as consumers are adjusting their behaviors, we've adjusted our plans to sharpen that spending in the back half now I'll give you some examples some of it is innovation as we've gotten clearer on what distribution looks like and what retailers plan to do we've made adjustments and spending on retail media we've made adjustments and spending and advertising or how we might do a promotional kickoff and a retailer those are the things the teams have done in addition I'll give you an example in Kingsford we saw that many consumers are doing exactly what they are in other categories from a value perspective. They're either trading up to larger sizes or they're looking for an opening price point. So for really the first time in July 4 and Labor Day, We had much more merchandising on smaller sizes and larger sizes. It actually grew household penetration as a result of that plan. And we adjusted that spending based on the learnings we had from Memorial Day where we talked about, you know, the merchandising plan did not go as we had anticipated and we didn't execute to the degree we wanted to. We made those adjustments in July 4th, Labor Day, and are taking those forward as we look at the back half of the year. So it's across a number of things, Chris. We're using the tools that we have, the consumer understanding that we're getting, and making real-time adjustments with retailers to try to capture as much of the change as we possibly can. And because we feel very confident about our ability to deliver strong returns on that advertising, we feel confident about the choices that we've made. And frankly, we'll probably continue to make adjustments as we learn more. And our business units are fully empowered to do that. and they're watching the consumer carefully and will make adjustments if they need to to support innovations or the base.

Okay. Thank you. One follow-up. We've seen an increase in portfolio actions, I guess we can call them, at a number of companies across consumer staples to respond or maybe adjust to different demand backdrops. I'm conscious you have a fairly diverse portfolio, a very clean balance sheet. You've called out certain categories that have been more volatile than what you wanted. Perhaps there are others where you'd want to play more in. So just in this environment with the balance sheet you have and the volatility we're seeing, can you give us maybe a sense of how you're thinking about the concept of portfolio And what you're really trying to accomplish with your own and how you think about maybe any future evolution. Thanks so much.

Sure, Chris. First, I think the most important principle we have is we always take a long-term focus when it comes to our portfolio. And so there are certainly a lot of things going on right now, some of which is just noise. and temporary, and some of which we'll see, you know, does it turn more permanent? Is there a change in the consumer environment that we need to account for or any company needs to account for? But we're staying very disciplined in taking a long-term portfolio focus. And that plays itself out in two very important ways. The first and the most important is that we strengthen our core. and that we take the brands that we have that are in the vast majority of US households and in households all around the world, and we offer better value to consumers, we invest in those brands, and we get to the place where we're pretty consistently growing market share, growing household penetration, et cetera. And we've seen moments of that over the last several years, and it's certainly been choppy given the external environment and some of the challenges we've had on our own. That's our number one focus, and I feel better than I have in a long time around the innovation plans that we have and the ability for those to continue to grow our market share and hustle penetration over the long term. We have plenty of opportunities in our core business to get better and sharper and deliver profitable growth. Of course, the second component of that is actively with our board all the time looking at our portfolio to ensure that we have the right portfolio moving forward. And you've seen us make a few moves, albeit on the smaller side, but very important. We divested our business in Argentina, which had driven the vast majority of the currency volatility we had experienced, as well as divesting the business for vitamins, minerals, and supplements, which unfortunately did not contribute what we had anticipated it would in a series of the two acquisitions that we made. And that is delivering real results every day in the portfolio. And we are always looking with our board at all options for our portfolio, whether that be tuck-ins, continuing to expand on categories that we play in today, or looking, of course, at more transformational things, just as you would expect us to with our board. But we will remain disciplined. The good news is we do have a strong balance sheet. So if there is something that we think is attractive from a shareholder perspective, we have the ability to act on it. But we want to make sure that we are taking a long-term view always and not chasing some short-term temporary disruption and setting ourselves up for good long-term shareholder returns.

Okay. Thank you.

Our next question will come from Anna Lazul with Bank of America.

Hi. Good afternoon. Thanks so much for the question. Just want to ask, we're hearing from peers in this space that there's some destocking here from certain retailers. And I suppose with the ERP transition, you're not as exposed to that right now, but was wondering if you can comment on this inventory trend. And as we see a retailer shift to club and online from consumers, I was wondering how you're looking to increase your exposure here. You mentioned in the past that glad was a brand that has significant competition from the club channel. And any innovation you can mention with this in mind in terms of your offerings to have these retailers pick up new products and new pack sizes. Thank you.

Sure. And on destocking, you're right to assume that our ERP would, of course, have the opposite effect because we were rebuilding inventories with retailers as we got through that period. So, largely, we're not seeing any material destocking behavior impacting results. And largely what we continue to see from retailers is they're doing the good structural work you would want to reduce inventories across the value chain. And that's good for everybody over the long term. But we don't see anything in the short term. And again, that could change as retailers' plans change that are impacting our business. And we have largely recovered our inventories from the period during the ERP implementation disruption. But again, at this point, we're not seeing anything material that we would call up for this quarter or for the remainder of the year. On the club business, we have a very strong club business across many of our businesses, and we do focus on specific innovation for the club member and shopper, just like we do for the grocery channel and for the dollar channel and for e-commerce. We're looking to combine the moment of truth with what the product offering needs to be. And so we work very closely with our club customers and others to ensure that we're getting the right member value for them. And we've been doing that for many, many years, which means we have very strong positions in club now. You're right that we've called out GLAAD as being a place where we have less of a position in club. We continue to work on opportunities there to ensure that we're providing the right value and potentially unlock different distribution opportunities. But for now, what we're focused on is ensuring consumers who want a large count of trash bags can get them in other places. So obviously, we have very strong distribution across other channels that also sell large sizes. And so we're focused on that and focused on the club customers where we have good distribution. But I think I feel very good largely about where we are in club and our ability to specifically target innovation that provides great member value.

Okay. And just one follow-up on private label. While the overall share is more muted in terms of growth, we're still seeing some increases in categories like wipes. So I'm curious for your thoughts here relative to private label share and the increase that we're seeing versus on the branded side.

Yeah, so in aggregate, we have not seen private label make any material inroads in aggregate, but there are a couple categories we call it. I actually wouldn't call it wipes as being one of the categories that we have concern about or are watching carefully, but actually Brita is one that we're watching carefully right now. We've seen some consumers trade down to private label filters and smaller sizes, and so we have reacted with ensuring that we have the right lineup of pitchers. And filters and making sure that we're having the right value there, but that's one place. We're watching very carefully We've seen this behavior in the past when consumers are under stress They may make a substitution here and there for a lower price private label filter But that's that's a place that we've been watching pretty carefully And then I would say bleach would be the other place that we're watching very carefully Generally our cleaning portfolio was doing very very well in particularly against private label, and we're seeing consumers across the whole value spectrum, all the way from dilutables up to wipes. Looking for that premium experience, we continue to see good overall share performance in home care. Obviously, it was impacted by the out-of-stocks that we had in Q1, but we're seeing that bounce back. But bleach is a place we're watching carefully. We've seen a bit of private label uptick. We feel like we have good bleach plans in the back half, and that's a place where we have targeted strengthening the plan in the back half. But those are two categories that we're watching very carefully and watching particularly lower-income consumers to see what their behaviors are and adjusting our plans to make sure that we have an offering from Clorox that meets their needs. Great. Thank you so much.

Our next question will come from Bonnie Herzog with Goldman Sachs.

Thank you. Hi, everyone. I wanted to circle back on your guidance, your organic sales growth guidance, you know, of the declines that are expected of negative 5% to 9%. You know, just hoping for a little bit more call on the puts and takes of that. You know, you highlighted your current expectations are for, you know, to be at the lower end of the range, but just curious that the high end of this range is achievable. And if so, what would the drivers of that be? And then just a quick clarification of the inventory unwind. Was there, you know, maybe a greater unwind than you expected in any areas of your business?

Thanks. Yeah, thanks, Bonnie. I can take that. First on your last questions, I think we generally feel good about our inventory positioning at the end of the first quarter. So that you probably noticed we, refine the estimates of the incremental shipment associated with ERP transitions from a range of seven to eight points of negative cell Z wind in fiscal year 26 to a point estimate of seven and a half. And just the background there, I think we talked about it last quarter, but we had a pretty robust tracking process in place to track those incremental orders but you know there's also an element of triangulation as you as you probably know some of our customers have algorithm based ordering systems and so we really needed to wait for the end of the first quarter to kind of finalize this estimate so again feel good about the current retailer inventory position at the end of the q1 and we feel also good about the uh now having finalized the estimate of the erp transitions having said that um you know maybe when we look at looking at the outlook for the organic sales growth range. I think a few things that's worth mentioning. One, we're still early in the year. And second, you know, it's a pretty wide range, you know, in that, you know, given the environment. And that was, you know, the breadth of the range was a deliberate choice because it allows us to really remain agile and realistic as we navigate the market dynamic and external environment during the year. So it is a wide range. So when you look at the higher end of the range, having said that, Um, it's fair to say that we would need, you know, everything to eat on that all assumptions to meet on the high end for us to, to meet the higher end. And it would be a, you know, a pretty robust, uh, sales in the back end. So that means category growth will be on the higher end of our estimates, either one point on average for us, retail or higher. Second, we would have a great execution on innovation and demand creation plan. And then third, of course. you know, that assume no supply or extraneous issues, you know, coming up as we continue through the year. So, yeah, that's what we need to be true.

Okay. Thank you. I'll pass it on. We'll move next to Olivia Tong with Raymond James.

Great. Thanks. Good evening. First, you mentioned in your prepared remarks the category growth rates have stabilized, even if they're lower than historical. What are you seeing that underlies your confidence in that stabilization? Because many of your peers seem concerned that things could get worse through basically first half of calendar 26. And I think you mentioned flat to plus one category growth at the moment. Are you expecting that to get better as time progresses? Or is it more about your innovation, other actions that are driving that share, driving some share opportunity to continue the stabilization? Thanks.

Hi, Olivia. Hi. So in the category growth piece, we've been talking for, a while about the stress that the consumers are under and have been calling muted category growth rates for quite a while. And basically what we have seen, which we've estimated zero to one, it's been in that range for a number of quarters. Now it's been on the higher end of that range, and then it's been on the lower end. And if you look at this quarter, it was on the lower end if you exclude beauty, which we don't have a very big business in. We obviously compete in Burt's, but that's relatively small. category growth was about flat. Now, to be fair, we were out of stock in some places, and so, you know, how much of that is attributed getting to that lower end of the range to us, you know, regardless, it wasn't the situation that we would have hoped for, and we could have expected category to be a little bit better than that and maybe more in line with what we had seen in the previous two quarters. So our confidence that that will continue is we're in essential categories. We fuel people's everyday lives. They need to clean their house. They need to take care of their pets. They need to take out the trash. And so that's why we feel there's been a floor on the categories that we compete in, keeping them in that range. And in addition to that, just as you call out, Olivia, we feel very good about our back half plans. And of course, our number one focus is reinvigorating category growth. And then two, our focus is on growing share. in those categories through better ideas and better execution. So that being said, we're watching the consumer carefully because there's a lot of things going on right now, many of which are still playing out and are uncertain. And that can mean the consumer would react differently. But again, given the dynamics that we know today, what we see is the most likely scenario and how consumers have been responding over the last number of quarters, we feel pretty good about that category estimate of zero to one.

Got it. Thanks. And then just on the ERP, Could you just talk about how the organization is adjusting to all these changes? You know, do you expect any disruption to extend beyond Q2 other than obviously the comp issues in Q4 that you've got to deal with? But just thinking about the organization and what's the next step after this and whether you're expecting any big, you know, pull-forwards, push-backs, et cetera, for the remainder of the year. Thanks.

Perfect. Yes. Stapp, You know, we're through the hard part is the way that I would put it. We did the heavy lifting into one and we had one additional implementation that happened later in the quarter that went without a note. Stapp, We have another smaller implementation happening coming up here. And again, we would expect expect based on what we've seen that that would be of no consequence, either. And so now the entire company is focused on using that new ERP to drive value and then getting laser focused on reinvigorating category growth and executing the plans that we have for Q2 and beyond. I think generally we're all really excited. We've been waiting for this moment for a long time. This unlocks so many things for us to be able to do when it comes to creating superior value for consumers, faster insights, faster ability to react when consumers have changing behaviors, the ability to see end to end in our supply chain, which will just make us better at reacting to what's going on from retailers and consumers. And of course, on the savings side, there's a lot to be had here from an efficiency perspective, that ability to see end to end allows us to remain, take costs out. It fuels our ability to do net revenue management and all the tools that, you know, we've talked about over the, over the last couple of years. So generally the organization's very optimistic. and laser focused on now that we've gotten through this period, it is time to put that to work and time to ensure that we are reinvigorating categories and giving consumers the very best value we can at a moment they need it more than ever.

Got it. Thank you. And our next question will come from Robert Moscow with TD Talent.

I just wanted to just confirm, given the you know, the issues related to ERP in first quarter. Are your customer fill rates now back to normal or are you still like a little bit below normal in your second quarter? And then secondly, I had a question on price mix. You know, there's three straight quarters now with price mix negative and a lot of commentary on the call about competitive pressures, value seeking behavior, across many categories at once. So is there a path for price mix to inflect positively, or is this going to be kind of like a negative environment, albeit modest, while working through this value-seeking environment?

Thanks, Robert. I'll take the first, and then I'll pass it over to Luke for price mix. So on Q2 order fulfillment, we are back with retailers able to fill the orders that they need, and we have largely rebuilt inventories nearly everywhere. On the margins, there's some small things that we're continuing to work out. Professional is a good example of that, where just given the distribution network, it's taking a little bit longer than the average to fully rebuild inventories. But yes, from a customer perspective, they are experiencing more of a normal clock, and we're able to get back to the type of fill rates that they expect from us.

Yes, and on price mix, Robert, you're right. Last year, we actually saw about two points of negative price mix, and a lot of it was really driven by the value-seeking behaviors from consumers and channel shifting as well altogether. along with some incremental promotions as we both normalize promotion and so increase competitive activity. This year outlook contemplate still headwind but lesser, about a point. And really essentially it's the continuation of value seeking behavior and channel shifting. Promotions are fairly stable year over year and then we're actually seeing some benefits from some of the net revenue management activities that were taking place, but not fully offsetting the headwinds of the value-seeking behavior and channel shifting. Now, it'd be about a point for the year. It was about a point for the first quarter. It might, you know, it might move quarter by quarters, but I think, you know, we're seeing good momentum, and then we'll have to see where we're at after next year.

Thank you.

And our next question will come from Kevin Grundy with BNP Paribas.

Great. Thanks. Good evening, everyone. Question probably for Luke, but Linda, I'd like to get your thoughts as well. So it's kind of twofold. Number one, on run rate EPS, how we should still be thinking about that, but then sort of relative to adequacy of investment levels. Luke, I think you said before we should be thinking about adding back the entirety of the ERP transition. EPS now seems like it's going to be the low end of the range, like a 595 number. And then we just sort of gross that up for the ERP transition as we're thinking about sort of run rate going forward. And I want to kind of take your temperature on whether you both still feel comfortable with that thinking. And I ask in the context that market share is not where you'd like it to be. uh promo was ramping it seems like the cost of business is moving higher a lot of categories are are slower so um do you still feel comfortable with that sort of thinking and i guess the question really gets to um as you're thinking about the investment factors that may potentially hold back that kind of thinking for investors. And that is that the entirety of the 90 cents should be thought about in sort of base earnings, or is there a potential here that investment levels need to move higher in the current environment? So love to get your thoughts there on that. Thank you very much.

Sure, Kevin, I'll start. You know, the way that we look at this is the year outside of the fact that we had a blip in the implementation on order fulfillment is largely playing out as we expected. We're seeing the consumer largely in line with what we expected, categories largely in line, competitive activity largely in line, our execution largely in line. We are seeing some nuances by category, which is typical in a portfolio like ours where we play in so many different categories. But I would say the environment, the competitiveness, the consumer generally what we thought it would be. And so nothing has changed in our confidence and our ability to navigate that environment, to deliver the performance that we expect of ourselves, and then, of course, as we come out of this, to accelerate all of the things that we know will add value, like innovation, continuing to invest sharply and deeply in our brands, which we are this year, and we feel like we have the right investment level given everything, all the factors that we spoke about. So generally, we see the world very much like we saw the world the last time we talked about this. And the change is that we, you know, from a quarter perspective, we trued up our outlook to account for the fact that we had a blip in our implementation. But largely, all the other stuff remains true. You know, what we're watching really carefully, Kevin, is when can we and others reinvigorate category growth? And that's what we aim to do in the back half. And can we get our categories growing back to the two, two and a half percent range we're used to seeing? Even if they don't, and this is a prolonged period, we still see the opportunity for our brands to play a leading role in the categories and deliver good value creation and earnings for our shareholders, albeit even if it's at a lower top line growth number. But it's too early to call that yet. We're focused on 26 and making progress in Q2 in the back half. But I would say nothing has changed in our thinking or confidence in our ability to come out of this year and continue to deliver good earnings performance for our shareholders.

And Kevin, on the earnings run rates, your understanding is correct. We would see the 90 cents being added to wherever we finish this year as a starting point to next year. And again, as a reminder, we essentially ended up shifting two weeks of sales out of fiscal year 26 into fiscal year 25. So the absolute sales dollars and EPS dollars in fiscal year 26 are understated. And as you lap that, you will see a step up in fiscal year 20.

Okay. Very good. Thank you both. Good luck.

Thank you.

Thank you.

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 our team is actively navigating a rapidly changing consumer environment. We recognize that consumers are facing ongoing challenges, with spending habits shifting quickly across all income levels. While we anticipated many of these changes, new patterns continue to emerge, and we're closely monitoring these developments. By leveraging more real-time insights, we are adapting our strategies with agility and focus to meet evolving consumer needs. Our portfolio of trusted brands with strong consumer value, loyalty, and stable housing penetration will help to reinvigorate category growth and enable us to recover market share. Looking ahead to the second half of the year, we have a robust pipeline of innovation supported by significant demand creation investments. We are laser focused on continuing to deliver and enhance superior value experiences with our brands for consumers in a time they need it more than ever. Our strong holistic margin management program enables us to reinvest in our brands, balancing immediate actions with a long-term perspective to ensure their ongoing health and success. To support our focus on delivering superior value with speed, our new ERP system gives us real-time visibility, enhances demand planning, and enables faster execution. With the majority of the implementation complete, our focus is on rebuilding growth momentum. The choices we're making today are shaping a stronger, more resilient Clorox, setting the stage for sustained growth and stakeholder value in the years ahead. Thank you for your time and questions. We look forward to sharing our continued progress in the quarters to come.

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

The host has ended this call. Goodbye.