Stephen Powers: Hey, thanks and congrats from me, really to you and to the whole Company on pretty remarkable recovery these past several months. One quick follow-up and then a question. The follow-up, just on the categories that Filippo had mentioned, you talked about, there’s still some work to do to fully catch up and recover. Is the expectation that as you exit fiscal ’24 that you have fully recovered there or is there more work that you expect we should expect carries over into the back half of calendar ’24 and fiscal ’25?
Linda Rendle: Hi, Steve, thank you for your nice comments. We really appreciate them. On those categories and I would say just in general, we intend to make as much progress as we possibly can in Q3 and Q4. Will there be some lingering effects that could be outside of our control, if there’s a retailer reset or change, perhaps. But we are focused on getting as much of that back in Q3 and Q4 as we can. What I wouldn’t say is, I wouldn’t commit to any number at this point right now, except, we expect to make continued progress over the course of the next six months. I think for trash and litter, litter has been a challenge for a while, given that we’ve caught up to supply, so that is the one that we’re laser-focused on, and has more to do with bringing new plant up to speed than it has to do with recovering from a cyber-incident itself.
So, that will be one that we’ll be watching closely and try to make as much progress on. But we are going to make as much progress as possible and we expect significantly more in Q3 and Q4.
Stephen Powers: Okay, very good. And the question I had, if we step back from the last quarter, since August, when we go back to before the summer, we were talking about a lot of things, one of those topics was sort of the ongoing digital transformation of the Company, the operating model change that you guys have been working on sort of long-term strategic arc of business transformation. Has anything over this period since August set you back on that trajectory or have you been able to keep pace so that the progress that was anticipated at the start of the summer is still sort of broadly on track.
Linda Rendle: Thanks, Steve. And just as a preview, we’ll spend a lot more time at CAGNY and have a chance to talk about our overall transformation and in particular, the operating model and digital transformation. So I look forward to talking you all about that then. But right now, what I can say is, we are absolutely deeply committed to the strategic priorities, including those two areas of transformation for the Company. They are critically important for our success, they’re about investing in the long-term health of our business and being ready to take on the challenges of the future, and so the commitment is absolutely there. What I’d say is, on the operating model, we were able to proceed even through the cyber-event, and executing that we remain on track to that plan.
And as you can imagine from a technology side during a cyber-event, we’ve had some delays on our ERP. We’ll talk to you more about the timeline of that when we finalize it. But we’re still committed to the transformation and all of the elements of that. But of course, our team was focused on getting safe and secure and ensuring that we moved from manual to automated processes, as the number one priority and we are now returning to that digital transformation and we’ll have more of an update in the coming months.
Stephen Powers: Okay, excellent. I’ll see in a couple of weeks.
Linda Rendle: Thanks, Steve.
Operator: And we’ll move next to Javier Escalante with Evercore ISI.
Javier Escalante: Hi. Good evening, everyone. I have — I’m going to kick a deadish horse here, but I do have a problem with adding up into the second half forecast, particularly for the gross margin. So if you can help us with two items specifically, one is ForEx. How big Argentina can possibly be? Two, if you can help us understand and you mentioned that impact first on sales and gross margin as to basically be flat in the second half. So that’s point number one. The other has to do with the job to be done and the two categories that you’re investing or you are still about to invest trash bags and cat. They are very competitive, do you have competitors that have a value stand? So to what extent it’s not an issue of distribution, but an issue of retailers changing the assortment or value and then you needed to basically buy up space features and things like that that is going to create a negative offset to gross margin. Thank you.
Kevin Jacobsen: Hey, Javier, let me start with your question on FX and how it’s impacting sales and gross margin. And when we entered this year, we were anticipating about two points of FX headwinds on the top line, mostly coming out of Argentina. The Argentina economy has declined more than we had anticipated. And as you may have seen in our prepared remarks, we’re now anticipating about five points of FX headwinds on the top line that is solely a function of revising our expectations for Argentina. We now have in our outlook an expectation that the currency will devalue about 75%, and that’s going to be back half loaded. If you look at the front half we had about three points of FX headwinds, and that puts you into the mid to high single-digit FX headwinds in the back half and again a function of Argentina.
And then that also plays through in gross margins. We expect a greater negative hit to gross margins, as it relates to the FX impacts. So if you look at last year, FX was about less than 100 basis point hit, this year will be well north of that closer to 150 basis points or so. And again, it will be more pronounced in the back half of the year. Important to note that, maybe just to finish that up and I’ll let Linda addressed the other question was, as I mentioned earlier, in-spite of those negative impacts based on the actions we have already taken and will take primarily as it relates to pricing, we believe, we can offset both the top line FX impact as well as the FX impact to gross margin. And as a result, you can see we’re raising our sales expectation, expect to grow margins in-spite of a pretty difficult environment, we’re dealing with there.
Linda Rendle: Javier on the piece that you mentioned on those two particular categories trash and litter that we spoke about. It’s exactly what we said it is from a supply perspective, those are two businesses that are a bit more challenged. We feel very confident in the health of our brands there. And as I spoke about from a superiority perspective, consumers just find value not as the lowest price, but of course, what is the overall best offering from them, which price is an element of. We feel great about the superior value of both of those brands when they offer. We continue to see our innovation do very well in both of those categories and we highlighted both of those in CAGNY some of the innovations we have, Glad with Clorox and other launches that we have in Glad that are similar and of course our outstretched cat litter which has done very well and it’s held up even through out-of-stocks.
We continue to see people trade in to premium cat litters. So we feel confident about our plans. Again, we have the right investment levels. And we’re focused on providing exactly what you said, which is the right value to consumers and retailers see that, and we play an important role in their category growth. And I have confidence that we will retain or regain distribution, get back to the proper level of merchandising in these categories. And that will get our ourselves back to where they need to be just in these two categories, it’s a little bit extended versus some of our other categories. But I have every confidence in these two that we’ll get back, just like we are on the other ones.
Javier Escalante: Thank you very much.
Linda Rendle: Thanks, Javier.
Operator: And we’ll hear next from Callum Elliott with Bernstein Research.
Callum Elliott: Great. Thanks for the question. I just wanted to build on Steve’s question and hopefully not to pre-empt your CAGNY presentation too much. But alongside the digital transformation, you guys had other long-term initiatives before the hack that we’re also targeting the top line. I think it feels like quite a long time ago now that you raised the long-term top line target to 3% to 5% driven by this push into international and professional. But hoping you can update or update us on those strategic initiatives and where we stand, now that we’re hopefully starting to put the hack in the rear-view mirror. Thank you.
Linda Rendle: Thank you. And we certainly want to get back to where we ended fiscal year ’23. We were very proud of the performance and what we had done. And of course we remain deeply committed to what we talked about which is expanding top line over the long-term 3% to 5% and expanding EBIT margins 25 to 50 basis points and we want to get back to that. Exactly as you said and our transformation as a critical component of that and ensuring that we have the right capabilities and processes, and that people at Clorox are more consumer obsessed and we’re working faster in a leaner fashion to get there and we’ll talk about that. As we spoke about actually at CAGNY, I think, it’s two years ago now, what we expected from a growth perspective continues to remain, we continue to see opportunities in international, we continue to expect to see returning to growth in our professional business as that more normalizes.
But we spoke about all the other things that we had seen trend-wise. We saw more cat adoptions and so natural category tailwinds for litter. We saw people having increased interest in disinfecting which still remains and we still see that or seeing as we look at the data today. People still have a heightened need to have their spaces cleaned and disinfected. People generally are taking care of their health and wellness more so, things like Brita have natural tailwinds. And water consumption. Our Vitamins, Minerals and Supplements business is the same thing, continues to have natural tailwinds. So we’ll speak about all of that at CAGNY, but we remain committed to that 3% to 5% top line over the long-term and to do that in a more profitable and consistent way.
