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Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2022 Prestige Consumer Healthcare, Inc. conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require further assistance, please press star zero. I would now like to turn the conference over to your speaker today, Bill Terpiloli, Vice President of Investor Relations. Please go ahead, sir.
Bill Terpiloli
Thanks, operator. And thank you to everyone who has joined today. On the call with me are Ron Lombardi, our Chairman, President, and CEO, and Christine Sacco, our CFO. On today's call, we'll review the results of the first quarter fiscal 22 provide an updated full-year outlook, and then take questions from analysts. We have a slide presentation which accompanies today's call. It can be accessed by visiting PrestigeConsumerHealthcare.com, clicking on the Investors link, and then on today's webcast and presentation. Please remember some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations to the nearest GAAP financial measures are included in today's earnings release and slide presentation. During today's call, management will make forward-looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on page two of the slide presentation accompanying the call. These are important to review and contemplate. As everyone on the call today is well aware, business environment uncertainty remains heightened due to COVID-19 and continues to have numerous potential impacts. This means that results could change at any time, and the forecasted impact of risk considerations is the best estimate based on the information available as of today's date. Additional information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-K. I'll now hand it over to our CEO, Ron Lombardi. Ron?
Ron Lombardi
Ron Lombardi Thanks, Phil. Let's begin on slide five. We are very pleased with our record start to the year. Our proven business strategy emphasizing brand building paid off meaningfully in Q1, and the strong results we'll discuss in detail are a key factor enabling us to raise our fiscal year guidance. The fast start to our fiscal 22 was driven by two primary factors. First, and most importantly, our base business continues to perform well with strong 5% growth across the base portfolio. This result was driven by solid consumption and share gains across the portfolio, a continuation of the trends we have seen for a while now. we experienced a dramatic increase in sales for brands benefiting from travel-related activity as consumers shifted habits with increased vaccination rates. We estimate this accounted for approximately 25 million of the Q1 sales increase over the prior year. I'll discuss the change in consumer habits in greater detail on the next slide. Our time-tested brand-building strategy and the re-acceleration of certain categories and channels resulted in our highest level of sales ever when excluding our divested household cleaning business. Meanwhile, our financial profile has remained solid throughout the change in consumer purchasing patterns, and we generated record EPS of $1.14 and free cash flow of approximately $68 million in Q1. Our stable and strong cash flow profile continues to enable a disciplined capital allocation strategy. Throughout fiscal 21, this meant focusing on debt reduction combined with share repurchases. In Q1, we announced the acquisition of Acorn Consumer Health and its Theratiers brand, which closed on July 1st. We believe this acquisition is a great strategic use of capital, which we'll share more detail on shortly. So in summary, we delivered excellent Q1 results, underpinned by our long-term strategy and further fueled by a rebound in certain COVID-impacted categories and channels. Let's turn to page six and review some of the changing consumer habits resulting from the pandemic. Throughout all of fiscal 21, we noted dramatic ways in which consumer habits changed as a result of the COVID-19 pandemic and the resulting effects on our portfolio. We observed less consumer travel and more focus on hygiene as consumers stayed home and wore masks. This meant a significant headwind for many of our brands, including Dramamine and Motion Sickness, Chloriseptic and Ludens and Cough Cold, Hydrolyte and Rehydration, and Nix and Head Lice. Combined, these brands represent about 20% of our revenues. Back in May, when we provided fiscal 22 guidance, We anticipated this portion of our portfolio would be largely flat as we expected consumers would take time to move away from the habits formed over the previous year. While this is still the case in certain categories, this assumption proved conservative in others. To start, we saw a dramatic rebound in travel-related activity. This drove a meaningful recovery in Dramamine along with a recovery in our Australian hydrolite business. The recovery in travel activity also drove increases in convenience store consumption and the distributor inventory in this channel to support the increased takeaway at shelf. This benefited brands like Dramamine, as well as Clear Eyes with its Pocket Pal on-the-go offering. In addition, drug retailer traffic also increased owing to vaccination visits, leading to a strong consumption trends driven by our broad distribution and market share in this channel. As these changes to consumer habits continue to evolve, our playbook remains the same and our nimble business strategy is a strength. We will invest opportunistically across our portfolio to drive long-term brand building. This strategy paid off again in Q1. On the right, You see Dramamine with Q1 sales compared to prior years. As consumer travel habits began to accelerate, we leaned into our leading market position and marketing playbook. We reactivated time-tested marketing strategies for the brand, resulting in both market share wins and the resumption of sales growth as consumers returned to the categories. While the timing of a full COVID recovery remains difficult to predict, our focus on investing behind our brands leaves us well-positioned for future variability and the eventual return to more normalized trends. Now, let's turn to slide seven to discuss the TheraTiers acquisition in further detail. As highlighted earlier, we closed on the announced ACORN consumer health acquisition on July 1st. As you can see on the left side of the page, the portfolios revenues are concentrated in the TheraTears brand. TheraTears, created in the 90s, has a proven history in the eye care category and will further enhance our efforts in this space. The addition will be complementary to our existing eye care presence by expanding into the growing dry eye segment of eye care. TheraTears is well positioned with the mild and episodic dry eye consumer, with a long track record of steady market share gains and revenue growth above the category. The portfolio complements Prestige's operating model nicely with outsourced manufacturing and is widely distributed across retail channels in the U.S., similar to our existing business. Lastly, the Acorn portfolio has a solid financial profile of sales growth and margins consistent with Prestige's long-term targets. So, in summary, these attributes are a great match against our well-defined M&A criteria that evaluates brand opportunity, the businesses fit with the prestige operating model, and the financial returns that align with hurdle rates that we measure against. Now, let's turn to slide eight. Strategically, TheraTiers fits with our disciplined M&A criteria nicely. But furthermore, as shown on this slide, It is a great fit alongside our ClearEyes brand. The transaction enhances our market-leading scale in eye care. When combined with our existing eye care business, we now have a $100 million-plus franchise that addresses a range of consumer ailments across a billion-dollar category. ClearEyes is time-tested and proven as a leader in redness relief and has a long heritage with consumers. For a consumer, it stands for Redness Solutions. Clear Eyes remains a leader in the category with long-term sales growth and is a brand that remains as relevant as ever to consumers seeking redness relief. TheraTears shares similar attributes but is focused on a different consumer symptom. It's established with consumers as a leader in dry eye solutions, particularly for those episodic users in dry eye relief. For a consumer, it stands for tears and soothing eye relief. As shown on the right, the two brands in totality represent a wide spectrum of consumer solutions in iCare. This broad offering will continue to be supported by our brand building strategy, and with this comprehensive solution in iCare, we are well positioned for continued success. Let's turn to slide nine to review ClearEyes as a proven example of this opportunity. ClearEyes is a great brand success story and one that gives us an advantage to start as experts in the eye care category. A brand we've owned since our IPO over 15 years ago, ClearEyes is an example of how we think about long-term brand building. Its success has incorporated a number of marketing factors over time. First is innovation. When we went public, ClearEyes had about three SKUs with a very narrow focus. Today, we have over 11 different solutions for consumers solving eye redness. The most recent example shown here is Clear Eyes Sensitive, which is specifically formulated for sensitive eyes. Second is investments. These are constantly evolving, and most importantly, we emphasize a bottom-up approach to enable effective tactics at a given point in time. For example, brand messaging evolved during the pandemic to emphasize the concept of at-home usage and use time-tested digital tactics, which help grow share in the year. Third, marketing campaigns. We know from consumer insights that consumers respond to celebrity and influencer marketing and eye care. As a result, we've had many long-term successful initiatives from spokespersons like Ben Stein and Vanessa Williams to more recent social media influencers. The result of these efforts is we have broad distribution across retail channels with partners who recognize the value of ClearEye's brand and the investment efforts we just discussed. We continue to work with all of our retail partners to optimize their eye care assortment and drive long-term category growth. The result is clear. Our playbook continues to work and we continue to win share to date in fiscal 22. We look forward to applying this proven knowledge base to the Theratiers brand and drive continued long-term success across our eye care franchise. With that, I'll turn it to Chris, who will walk through Q1 financials.
Ron Lombardi
Thanks, Ron. Good morning, everyone. Let's turn to slide 11 and review our first quarter fiscal 22 financial results. As a reminder, the information in today's presentation includes certain non-GAAP information that is reconciled to the closest GAAP measure in our earnings release. Q1 revenue of $269.2 million increased 17.3% and 15.6% on an organic basis versus the prior year, the latter excluding the effect of foreign currency. As a reminder, Q1 faced a unique comparison in the year prior, where we experienced lower sales as consumers depleted items previously purchased in March 2020 as a result of COVID-19. By segment, North America revenues were up about 15%. Nearly all product categories grew, with the largest increases in GI and eye and ear care. As Ron discussed earlier, a return towards more normalized travel trends helped drive a significant lift for certain brands versus a year ago. namely Dramamine and GI, and Clear Eyes and Eye and Ear Care. International OTC increased approximately 30% in Q1 after excluding the effects of foreign currency. The increase was attributable to a more favorable comparison in the prior year, as well as an overall uptick of hydrolite sales for more normalized consumer trends around illness and activities in Australia. EBITDA increased in Q1 approximately 13%, while EBITDA margin remained consistent with our long-term expectations in the mid-30s. Diluted EPS for the quarter was a record $1.14 per share, up over 30% versus the prior year, driven by both the higher sales discussed and lower interest expense. Let's turn to slide 12 for more detail around consolidated results. Q1 fiscal 22 revenues increased 17% versus the prior year. Our strong and diverse portfolio experienced approximately 5% baseline growth, driven by the favorable year-ago comparison and our long-term brand building efforts. In addition, we experienced a sharp rebound in certain COVID-impacted categories, adding an estimated $25 million to our Q1 revenue performance. Of this, we believe roughly half of this relates to timing, while the other half resulted from increased consumption in the current quarter. We also continue to experience year-over-year double-digit consumption growth in the e-commerce channel, further building off the sharply higher online purchasing shifts of the prior year. Total company gross margin of 59.1% in the first quarter increased 70 basis points versus last year's gross margin of 58.4%. This strength was driven by higher-than-expected sales performance as well as product mix. we continue to anticipate a gross margin of about 58% for fiscal 22. Advertising and marketing came in at 14.7% for the first fiscal quarter. Following the abnormally low rate of spend in Q1 of last year due to COVID-19 shelter-in-place restrictions, A&M returned to normalized levels of spend of approximately 14 to 16%. For fiscal 22, we still anticipate an approximate 15% A&M rate as a percentage of sales and for Q2, we anticipate A&M of closer to 14%. G&A expenses were just over 8% of sales in Q1. For the full year, fiscal 22, we still anticipate G&A expenses to approximate just over 9% of sales. G&A dollars are likely to be the highest for the year in Q2, owing to the timing of certain expenses. Lastly, record diluted EPS of $1.14 grew 32.5% over the prior year. Higher sales and lower interest expense drove this growth. Looking forward, we now anticipate interest for the full year to approximate $63 million, reflecting the recent financing completed in conjunction with the Theratiers acquisition. Now let's turn to slide 13. In Q1, we generated $67.8 million in free cash flow, down versus the prior year due entirely to the timing of working capital. We continue to maintain industry-leading free cash flow and are raising our outlook for the year. At June 30th, our net debt was approximately $1.4 billion, inclusive of the cash we built ahead of the anticipated acquisition closing on July 1st. Following the acquisition of Acorn, our net debt at July 1st was approximately $1.6 billion, The acquisition was funded from cash on hand, our ABL revolver, and our term loan, which we simultaneously amended and now matures in calendar 2028. Our covenant defined leverage ratio was 4.3 times at the closing of the transaction, and we anticipate leverage of approximately four times by year end fiscal 22. With that, I'll turn it back to Ron.
Ron Lombardi
Thanks, Chris. Let's turn to slide 15 to wrap up and discuss our increased outlook for fiscal 22. Over the last year, we faced an unprecedented and dynamic environment. The many positive attributes of our business and our execution leave us well positioned moving forward. This is evidenced by our strong Q1 results where our long-term brand building efforts paid off in a big way. For the full year fiscal 22, we now anticipate revenues of a billion 45 or more which includes an organic revenue growth expectation of about 6% and the revenue from the acquisition of the ACORN consumer health. For the second quarter, we anticipate revenues of $260 million or more. This revenue outlook assumes a few key factors. One, that the travel impacted portion of our business will continue at the recovered levels for the remainder of the year. We still anticipate flat sales to prior year in the cough and cold and head lice areas of our business. And three, the acquisition of the ACORN portfolio discussed today should contribute approximately $40 million to the fiscal year net sales. We anticipate adjusted EPS of $3.90 or more for fiscal 22. For Q2, adjusted EPS is expected to be $0.95 or more. These attributes translate into strong free cash flow as well, where we anticipate adjusted free cash flow of $245 million or more for the year. With that, I'll open it up for questions. Operator?
Chris
As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Rupesh Parikh of Oppenheimer. Please proceed.
spk09
Good morning. Thanks for taking my question, and congrats on a really nice quarter. So I guess I want to start out first just with your guidance and just commentary on really the travel portion as you guys are looking forward to clearly the Delta variants out there. You know, as you look at, I don't know, recent weeks, like have you guys seen any changes in the channel just given the Delta variant in terms of demand? And also in Australia, I'm just curious if, given some of the restrictions, lockdowns there, are you starting to see any impact on the travel portion of your portfolio?
Ron Lombardi
Good morning, Rupesh. Yeah, so far we haven't seen any change in the trends that were helping to drive the Q1 results that we saw at this point. You know, the other thing I think it's important to point out when you consider our new updated outlook is that You know, the base business continues to do very well, and we've incorporated some of that strong performance in the updated outlook as well. You know, we're really in what's going to be, I think, a three-year period of really tough-to-understand comps, right? Last year, we had the COVID disruption, right, and it created low watermarks for many companies. This year, I think we're going to see very lumpy and oddly-paced recovery in certain categories. like we realized in Q1. And then next year, you know, we're going to be comping against those oddly recovered periods. So I think we're entering a period that's going to be tough to understand. But I think the important thing for our outlook in our business is that our base business continues to do very well with strong growth in consumption gains across the portfolio, not just a recovery in some of the COVID-disrupted categories.
spk09
Okay, great. And I guess just going back to your base business, I mean, you know, very strong growth during the quarter. And I know you guys have talked a lot in recent quarters or even years just about the brand building efforts and the execution in that area. You know, just any more insight in terms of what you think contributed to strong performance in the baseline portfolio? And then drug retail did see benefits related to vaccine. So just curious how you guys think about the sustainability of the momentum within the drug channel.
Ron Lombardi
Yeah, so let me address the question. drug channel, or really sales by channel. Last year, we saw incredible growth in our e-commerce business as consumers changed where they bought the product. They went online. And this year, we're seeing gains in the drug channel. Our strategy is be available wherever consumers choose to buy the product. And that approach has really paid off for us last year and again this year no matter where the consumer shows up. So, you know, who knows how consumer shopping patterns will change over time? For us, it really doesn't matter. We'll be available wherever they go. I think the first part of your question is, you know, the ongoing strength across the portfolio and what the outlook is. You know, long-term brand building investments, launching new products, bringing innovation in, is a playbook we're going to continue to execute. And as we think about growing categories, it's going to drive long-term growth. So we continue to feel good about our long-term outlook.
spk09
Okay, great.
Ron Lombardi
And it's reflected in our increased outlook for the year.
spk09
Okay, great. And then maybe just one final question, maybe for Chris, just on TerraTiers. Can you comment on seasonality of that business and just the margin dynamics of TerraTiers?
Ron Lombardi
Yeah, so the Theratiers business, Rupesh, we've talked about from a financial profile perspective really being in line with our company from a gross margin perspective as well. So very similar to our business in terms of the profile. Seasonality, not seeing a ton of seasonality in the business. So kind of similar to ClearEyes as opposed to, say, an allergy brand for eye drops. So it's limited.
spk09
Okay, great. Thank you.
Ron Lombardi
Thank you.
Chris
Thank you. Our next question comes from John Anderson of William Blair. Please proceed.
John Anderson
Good morning, everybody.
Ron Lombardi
Good morning, John.
John Anderson
Congratulations on a great quarter. I think the contribution that you quantified from the recovery in some of the travel related brands in the quarter. As you look to the balance of the year and the guidance that you've provided, are you assuming kind of a similar contribution in dollar terms from those COVID impacted categories? How are you kind of assessing that? Or is there some kind of diminution as you go forward in that contribution thing?
Ron Lombardi
Yeah, John, hi, it's Chris. So Our full year outlook is expecting continued rebound in the travel-related categories to pre-pandemic levels. You know, still a highly volatile environment, but that's the assumption going in. This is most impactful to the summer travel season in Q2. We've talked about the base business being strong in Q2, similar to Q1, right? With the strong consumer activity, we've seen a bit easier comps and then normalizing trends in the back half versus the first half. So, you know, think of the base business returning to kind of that low single-digit growth in the second half as we exit this unusual period. With the remainder of the COVID-impacted categories, not really expecting any change to the original guide, which was flat the prior year, and that's cough, cold, and head lice primarily. So you kind of have to break COVID into travel-related and non-travel-related, but In terms of that travel-related bump we got, we are expecting the normalized recovery to continue throughout the year.
John Anderson
Okay. And then should we expect some benefit from, let's say, a brand like BC Goodies, which has a strong presence in the C-Store channel, which should also benefit, I would think, from kind of a return-to-work, return-to-travel scenario, and maybe even Something like, you know, NICS with more schools open in person in the fall. How are you thinking about those categories and channels, categories and brands?
Ron Lombardi
So when we talk about a recovery in travel and on the go, like I had in my comments today, it includes a pickup in BC Goodies and Clear Eyes, in particular the Pocket Pal product that sold through C-Store. So that was a component of the $25 million and the increase in the full year outlook, John, because to your point, we absolutely see a pickup in that channel for those brands. In terms of head lice, again, we've been monitoring it closely. You know, we're in the middle of summer camp season, and we still haven't seen any uptick in head lice outbreaks. And we've got a head lice tracker out online if you want to take a look for yourself as well. So we haven't seen, we'll see what happens when we get back into the school season, whether, you know, kids back in the classroom triggers that. And we've got the unknown around cough cold as the weather will have an increase in cough cold incident levels such that it will trigger retailers to rebuy, right? In both of those categories, retailers still have decent levels of inventory. We keep an eye on it for, say, our top, you know, five plus customers. So it's, not only about an increase in incident levels, it's about an increase enough to cause retailers to reorder at some point. So a little bit more complicated than it may sound from the surface.
John Anderson
Understood. And then you may have talked about this in your prepared remarks. I'm sorry, I joined a bit late. The gross margin improvement that you saw year over year, can you talk a little bit about the factors that drove that And then the follow-on to that, are you planning any pricing to address any inflation that you're experiencing in the business?
Ron Lombardi
Sure. Hey, John, maybe I'll take the gross margin, and Ron can take the pricing question. Gross margin was primarily mixed this quarter. You know, you think about a brand like Dramamine as a higher-than-average gross margin. International sales with Hydrolyte, in particular with – strong performance this period, drove the mix for the quarter. And then also just the higher, you know, we get some leverage from higher sales, as we saw back in Q4 of fiscal 20 when sales elevated and we got some leverage there.
Ron Lombardi
In terms of inflation, John, we face inflationary pressures every year. You know, we're seeing many of the same inflationary pressures that you hear others talk about, although to a and low weight profile of our product. So it's something that we're used to dealing with every year, and we've got tactical price increases planned for the year along with cost savings programs to help offset those going forward. So really nothing new for us in terms of dealing with inflationary pressures.
John Anderson
Okay. And the last one for me. On ACORN, obviously the The vast majority of the business is a Theratiers brand, but there are a handful of smaller brands there. Where do those get classified? Do those get classified as non-core? What are your plans for, I guess, the smaller brands in that part of the portfolio?
Ron Lombardi
Sure. So those tail brands that have strong, loyal followings role will be to generate earnings in cash flow that we invest in behind the rest of the business, just like the rest of our non-core and tail brands. So it's really more of the same, which is we acquired a very nice leading brand that we think has wonderful opportunities to grow long-term, and it came along with a small tail that we'll manage for cash over time.
John Anderson
Okay. Thank you very much.
Ron Lombardi
Thank you, John.
Chris
Thank you. Our next question comes from Steph Wissink of Jefferies. Please proceed.
Steph Wissink
Hi. Good morning, everyone. Chris, I think this is probably a question best for you. I just wanted to follow up on your comments on advertising and marketing plans. Sounds like maybe this is a reflection of Ron's mention of variability, but it sounds like you're maintaining a degree of discretion in how you're allocating A&M. Just talk a little bit more about how responsive your A&M plan is. I think you mentioned Q2 is going to be around 14%, but how should we think about, just as a basic framework, the cadence for the year?
Ron Lombardi
Yes, so A&M really rolls up from our brands individually, and we always say the numbers fall where we run our programs, and so I'm expecting A&M for the first half to be about equal to the second half in terms of dollars, so I think If you do the math from Q1, we guided closer to 14% for Q2. Q3 is usually higher for us than Q4. Q4 is usually our lowest quarter in terms of seasonality of A&M spend in particular. So that's how it will probably flow for the rest of this year.
Steph Wissink
Okay, that's really helpful. And then a follow-up to Rupesh's earlier question on any changes in weekly cadence. I'm just curious about thoughts you're hearing from your retailers, How are they planning into inventory? Is it a wait-and-see approach? Are they willing to take some inventory to have some back stock and safety stock? What are you noticing about order patterns, and how does that frame how you think about kind of the back half of the year opportunity and whether a level of conservatism or conviction in your guidance?
Ron Lombardi
Yeah, so I think, for starters, Steph, is that I think in general there's a little bit of a worry around supply chains. out there in retail, right, to paint a broad brush here. So I think that's the first part. So I think retailers are looking to play it more safe and not looking to reduce inventory or keep things short. But for our categories, it seems to be fairly stable at this point. So we're not anticipating any meaningful swings in retailer inventories during this period.
Steph Wissink
Okay, last one for me, and Ron, this is for you, is just on the destocking effect we've been seeing in the drug channel. It seems like drug maybe is picking up a little bit of traffic again with the vaccination cycle. Are we through the bulk of what you expect to be that destocking headwind and now at a new baseline to grow from?
Ron Lombardi
Yeah, and again, the destocking that we saw in the drug channel for a couple of years was driven by their focus to improve the performance of their business. and as their businesses have stabilized, we think that initiative is behind them and behind us at this point.
Steph Wissink
Thank you very much. Very helpful.
Ron Lombardi
Thank you, Seth.
Chris
Thank you. Our next question comes from Linda Bolton-Weiser of D.A. Davidson. Please proceed. Hi. How are you? I was just Hi. A couple of the companies that we follow have reported kind of a channel shift as brick and mortar retailers have reopened. Can you remind us what percentage e-commerce represented for you in FY21? And then did you see any shifting kind of away from e-commerce to brick and mortar in the fiscal first quarter?
Ron Lombardi
So last year, our e-commerce business grew to just over 10% or so of our total business. And for the first quarter, we continued to see strong double-digit consumption growth in e-commerce. And again, that includes not only Amazon, but the dot-com arms of our brick-and-mortar partners, Target.com, Walmart.com, and others. So for us, it continues to be a channel of continued growth.
Chris
Okay. And then just a couple questions on TheraTiers. So you do kind of have this, well, I guess you could call it synergy with ClearEyes. Is that expected to result in any actual cost synergy? So in other words, is there any overlap on outsourced suppliers where you can consolidate or anything of that nature that would result in maybe some special synergies that you wouldn't normally get in your acquisitions?
Ron Lombardi
Yeah, I think over the long term, it will present cost savings for us, but any change in the supply chain, especially in sterile eye care, takes a very, very long period of time. The seller, we entered into a long-term supply agreement with the seller of the brands, with Acorn, which we're delighted to have. So we'll see where it goes over the long term for cost savings opportunity. But it really all starts with having a great partner, which we got as part of this transaction.
Chris
Okay. And then finally on free cash flow, you know, it seemed like you were kind of stuck at that $200 million level for a couple of years, but you've really taken a bump up in terms of your annual free cash flow. How sustainable is that level? I mean, is it the accretion from the deal that's adding to it so that's sustainable, or do you feel like this is an abnormally high level that you're seeing in FY22 that may come down a little bit in the future?
Ron Lombardi
Yeah, so I guess for starters, we saw a string of continued cash flow growth for a long period of time now. We've had a dramatic increase as our EBITDA and EPS has grown, and In particular, our cash interest has dropped from $100 million a year to this year's outlook in the mid-60s, you know, has been a big driver of it. So as we look forward, we would continue to expect ongoing cash flow growth as our powerful cash flow allows us to de-lever and reduce our cash interest as well as continued EBITDA and EPS growth. So we think, Linda, we'll continue to see nice growth in our cash flow.
Chris
Okay, great. Thank you very much.
Ron Lombardi
Thank you, Linda.
Chris
Thank you. Our next question comes from Mitch Pinheiro of Sturgeon. Please proceed.
Mitch Pinheiro
Hey, good morning. Most of my questions have been asked, but I do have a couple on and then ones here. The $25 million... You call out a Q1 sales increase. You mentioned like half this timing. What do you mean by that?
Ron Lombardi
Yeah, hey, Mitch, it's Chris. So for timing, we're talking about things that Ron was discussing, such as C-Store opening back up, right? We saw a recovery in the C-Store of stocking back up, if you will. There were also certain programs, Prime Day comes to mind, that most folks know about that shifted from later in the year to our fiscal Q1. So that's what we meant by about half of that $25 million being timing.
Mitch Pinheiro
Got it. And when it comes to consumption, I mean, so you feel, I guess we feel pretty good about inventory, you know, in the channel. But what I'm trying to understand is, You know, so e-commerce is still growing strong. The C-store is growing strong. Drugstores are up. You know, is there – is it really just pent-up demand? But, you know, being that you're a needs-based, you know, occasion, I'm just having trouble understanding, you know, where all the consumption is coming from, you know, Is it just merely comparative to last year's, you know, disrupted environment? Or, you know, how do you parse out, you know, the various elements of sort of consumption?
Ron Lombardi
Yeah. You know, so first of all, as I started with Rupesh this morning, I talked about really the odd period in comps that we're seeing, right? We're comparing against low watermarks last year, right? This unprecedented disruption. So we start by looking at our business with long-term trends. So we're back looking at our fiscal 20 and fiscal 19 periods and comparing our market share and our consumption levels against an undisrupted period of time. So if you go and you look at the share, the consumption level for our brands compared to fiscal 19 and 20, You know, we're seeing long-term consistent gains in growth over that period of time. So you can go back and look at our biggest brands, ClearEye, Summer's Eve, Monistat, and even a number of our core brands, things like D-Brox, Gaviscon up in Canada, Compound W has been killing it for a number of years now. We have just had steady, consistent growth across our portfolio year in and year out, even last year. Our business was down 2% last year in total. If you pull out the 20% of the sales that was impacted by COVID, our base business grew 5% last year, which is above our long-term outlook and expectations. So our business has been killing it really for a long period of time, and it's one of the messages we're trying to make sure that you folks get today, which is continued solid performance across the portfolio driven by our long-term brand building approach. Okay.
Mitch Pinheiro
And then as it comes to, Chris, you mentioned on the A&M spending, if I heard that right, it was 14% of sales for the year, or is it 14% for the Q2? It's about 14% for Q2 and about 15% for the year. Sorry, I got it.
John Anderson
Okay.
Ron Lombardi
That's all I have. Thank you.
Chris
And as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. One moment for our next question. And our next question comes from Anthony Labavinsky of Sidoti and Company. Please proceed.
Anthony Labavinsky
Good morning, and thank you for taking the questions. So as far as the gross margin, I know you guys talked about that benefiting in the quarter from a favorable mixed shift. You're guiding to a slightly lower gross margin for the full year. Again, is that just simply because you expect the mixed shift to change, or are you seeing any other cost pressures already in this quarter, or how should we think about the cadence of gross margins for the rest of the year?
Ron Lombardi
Hey, Anthony. It's Chris. You know, there continues to be a lot of uncertainty about how COVID will impact the consumer and the supplier environment. We're one quarter into fiscal 22, and while we did benefit from some favorable mix during the quarter, at this point, we think holding our initial guide for the year is prudent.
Anthony Labavinsky
Got it. Okay. And then, you know, in terms of acquisitions going forward, obviously, you you guys just closed on the third two years acquisition, but just wanted to get a sense as to what your appetite is for additional acquisitions. It seems like by the end of the year, you'll be closer to the lower end of your target leverage ratio at four times. So just wanted to get a sense from you. How are you guys thinking about the growing the business potentially, you know, through additional M&A activity?
Ron Lombardi
Yeah. So let me answer this, I guess, uh, in the context of our, our, um, capital allocation strategy, which remains unchanged, which is continuing to look to delever, lower our debt over time, and then we'll address M&A opportunistically as things come up. You know, the first order of business is to integrate Therateers, right? We're 35 days post-close, so we're busy getting that integrated into the business. And once that's behind us, we'll be ready to think about future opportunities. So, you know, historically, I think we've been disciplined in our approach to M&A and focused on things that make long-term strengths sense around brand building opportunities and growth. And that'll be the way we continue to think about things.
Anthony Labavinsky
Got it. All right. Thank you and best of luck.
Ron Lombardi
Thank you, Anthony.
Chris
Thank you. I would now like to turn it back to Ron Lombardi for closing remarks.
Ron Lombardi
Thank you, Operator, and thanks to everyone for joining us today, and we'll talk next quarter. Have a great day.
Chris
This concludes today's conference call. Thank you for participating, and you may now disconnect.
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