Prestige Consumer Healthcare Inc. (NYSE:PBH) Q2 2024 Earnings Call Transcript

Jon Andersen: Okay. That’s helpful. Last one for me. On gross margin, improved, I think, a little bit sequentially. And is that the — I guess the first question on that is, was that seasonal? Or are you seeing early signs of some of your efforts to, I guess, restore gross margins after a couple of years of gross margin erosion, which was largely, I think, are solely due to just kind of the price/cost dynamic? Are you starting to feel like you’ve got some traction such that we could see ongoing gross margin improvement from here? Thanks.

Christine Sacco: Jon, it’s Chris. So really the latter. Gross margin coming in this quarter for Q2 as expected compared to the outlook we gave in May. Q3, we said should approximate Q2, right? And we’re still calling the year to be flat to up slightly. So we are starting to see some relief on certain costs sequentially like logistics costs, freight that you’re hearing from people, but it’s a little bit more marginal for us just given the magnitude of freight as a percent of our sales that we’ve talked about in the mid-single-digit range. So we’re seeing a little bit of recovery there and some of our cost-saving efforts are starting to pay off. No reason to think we can’t continue to march back to more normalized levels.

Jon Andersen: And then maybe I will squeeze one more in on — is the comments on capital — excuse me, on leverage, wanting to operate below 3x long term. Is that fairly new I guess I missed that. I hadn’t heard that before. And then does that kind of maybe limit your willingness to engage in M&A in term as you work to achieve that goal?

Ron Lombardi: Yes. So Jon, I think we announced that back on the May call at the start of the fiscal year that it was our new phase, right? Prior to that, I think we were between 4.5% and 3% or something like that. So it really, I think, is just reemphasizing our focus on operating at lower levels of leverage over time. It really doesn’t — us in terms of optionality. And it’s our job if an M&A opportunity shows up that we think is compelling for the shareholders to figure out how to get it done and we would rise above 3% for a period of time if it made sense. So it’s not meant to put a feeling on things, but rather just emphasize the importance of operating at lower levels of leverage going forward.

Operator: This question comes from the line of Keonhee Kim with Morningstar.

Keonhee Kim: Hey, good morning. And congrats on a solid quarter. You guys have identified product innovation as one of your key priorities and talked about launching Dramamine in the nausea category as an example. And it’s been great to see that win shares in that space over the few quarters. And so I guess, looking at your other portfolio, what other brands or which product category do you kind of view that you can do a similar thing with?

Ron Lombardi: Yes. So thanks for the question. So yes, new product development and innovation is an important marketing element of how we think about long-term brand building. And if you look over time at our brands, you’ve seen that we’ve posted in new products and innovation and refreshments to the product offering really across the broad portfolio. Everything from brands that we don’t talk about like Stye, where we launched a new Stye drop a few years ago, and it quickly rose to one of the better-selling SKUs within the Stye category to Summer’s Eve where we’ve launched spa products over the last couple of years. It’s our largest brand. So it’s an important element across the portfolio and is a big driver of not only share in sales, but growing the categories for our retail partners. So going forward, you’ll continue to see that element of long-term brand building show up across our portfolio.