Good morning and welcome to Edgewell's First Quarter Fiscal Year 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Chris Gough, Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us this morning for Edgewell's First Quarter Fiscal Year 2022 Earnings Call. With me this morning are Rod Little our President and Chief Executive Officer, and Dan Sullivan our Chief Financial Officer. Rod will kick off the call, then hand it over to Dan to discuss our results and full year 2022 outlook before we transition to Q&A. This call is being recorded and will be available for replay via our website, www.edgewell.com. During the call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising, and promotional spending, product launches, savings and costs related to restructurings, changes to our working capital metrics, currency fluctuations, commodity costs, category value, future plans for return of capital to shareholders, and more. Any such statements are forward-looking statements which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended September 30th, 2021, as may be amended in our quarterly reports on Form 10-Q. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances, except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. With that, I would like to turn the call over to Rod.

Thanks, Chris. Good morning, everyone. And thank you for joining us on our first-quarter earnings call. As you saw in the results we posted earlier today, the improving underlying consumer demand that we witnessed in many of our categories as we exited fiscal 2021 continued in the first quarter. As the category strengthened, so too did our market share results. In the quarter, we grew organic net sales 2.5% with growth coming from all three segments of the business led by Sun Care, Women's Shave, Feminine Care, and Men's Grooming. Importantly, our organic growth was driven by both volume and price gains in the quarter. We also had growth across all geographic regions, and importantly started to see the first signs of recovery in important markets in Asia and Latin America. Our aggregate market shares in North America increased in the quarter, led by Sun Care, Wet Ones, and disposable razors. And in international markets, we were pleased to see continued share gains in Japan and in most Latin American markets. In addition to our strong top-line performance, we also executed well on the bottom line, delivering $0.42 of adjusted earnings per share and $69.7 million of adjusted EBITDA in the quarter despite significant cost headwinds resulting from increased inflationary pressure across many commodities, freight and distribution costs, as well as increases in COVID-19 related impacts on our labor force. These challenges impacted our ability to meet elevated demand in the quarter, particularly in Women's Branded Shave Preps, and Feminine Care. Our organization is working relentlessly to mitigate the impacts of higher costs and supply constraints on the business while remaining focused on executing against our strategic priorities. Dan will take you through more details on the supply chain environment and the impact on our business in a moment. I'm also pleased with how our team designed and now is executing our price increases, balancing a strategy of price leadership with fast followship reflective of category, brand, and market. Furthermore, we will continue to explore further opportunities as inflationary pressures remain at all-time high levels. Let me now pivot to the progress we're making on some of our key strategic priorities, including the investment in our people and brands in support of our goal to deliver sustained top-line growth. Our performance this quarter is again a testament to our team members who have executed with excellence in an increasingly challenging environment. As you've heard me say before, we've built a people-first culture, and we continue to prioritize the safety and well-being of all of our teammates. The protocols we initiated nearly 2 years ago have been refined and augmented as the pandemic has evolved, ensuring a safe and effective work environment across all of our offices, manufacturing, and distribution facilities. We've made the COVID-19 vaccine readily available to all employees through vaccine clinics, some of which have been on-site and offered paid time off for employees to get vaccinated. Conscious of the impact the pandemic has had on our employees, we've implemented several initiatives to date in support of their mental health and well-being. In 2021, we also rewarded our teammates for their dedication and contributions to our success during the pandemic with multiple cash bonuses awarded to our frontline workers and a one-time cash award for all hourly and salaried corporate individuals who previously were not bonus-eligible. At Edgewell, we value our teammates and remain committed to our people-first objective. In addition to the investments in our team members, we also made meaningful investments in our brands and in key markets, which contributed to strong sales and share growth in the quarter in two important areas of the business: the Sun Care segment and the Japan market. In Sun Care, we have already secured meaningful new Club channel distribution and compelling shelf gains in mass, both in-aisle and secondary displays. We are encouraged by the pace of recovery we're seeing in several international markets. These strong distribution gains are a direct outcome of consecutive seasons of share gains in the United States. When combined with our expertise in procurement and formulation, we are well-positioned for the critical Sun season ahead. In Japan, our second-largest country based on sales, the investments we've made in the men's Hydro relaunch drove increased shelf presence and share gains. The Men's Hydro relaunch in Japan is just one example of the innovation we're bringing to consumers this year. In North America, our re-branded Schick portfolio will be on shelf later this month, reinforcing both the authentic, emotional connection between the brand and our consumers, and the unparalleled functional product benefits we provide as part of Men's daily shave regimen. In Sun Care, Banana Boat is targeting the unmet needs in our core sport and kids franchises, with sport and kids’ role on SPF 60, alongside a new 100% mineral sea spray. Hawaiian Tropic is launching a unique mineral powder brush made with 100% mineral actives that modifies while protecting your skin in a convenient brush format. In men's grooming, we're combining the inherent equity and credibility of the Cremo brand with the unmatched blade technology of Edgewell to launch a new premium razor to compete in the more premium end of the category. These are just a few examples of the commitment we have made to increasing our capabilities in the areas of brand-building and consumer-centric innovation. I'm personally excited about the progress we're making. In addition to the organic investments we're making, we completed our acquisition of Billie in the quarter, adding the fast-growing digitally native, leading DTC brand to our strong and differentiated portfolio of women shaving brands, including Intuition, Schick Hydro Silk, and Skintimate. The timing couldn't be better, as Billie has just begun its national retail launch exclusively in Walmart. By the end of February, Billie Shave Essentials, including the starter kit, travel case, blade refills, and a new whipped shave cream, will be in over 4,000 Walmart stores, fully supported by in-aisle and in-cap signage and display. Edgewell is now playing the role of disruptor in the category at retail, combining a uniquely strong brand with expertise in distribution and retail execution. In summary, we're seeing a healthier demand environment across many of our categories, particularly in the United States, and we are encouraged by the recovery beginning in other regions of the world. With improving demand environment, we remain committed to investing in our brands and executing on our strategic priorities. Our teams remain focused and agile even as the operating environment becomes increasingly challenging. We will continue to see heightened cost pressures across many commodity categories, as well as higher wages and transportation costs. Our teams will maintain focus on service while executing our productivity and efficiency efforts to help mitigate some of these cost headwinds while ensuring our product remains available for our customers. We are executing our price increases well while continuing to evaluate further price measures in certain markets. Finally, as evidenced by our dividend and share buyback execution, we remain committed to a balanced and disciplined approach to capital allocation and returning value to shareholders. Now I'd like to ask Dan to take you through our first-quarter results and also provide details on our outlook for fiscal 2022.

Thank you, Rod, and good morning, everyone. As Rod discussed, this was a good start to the year, with our top and bottom line performance in line with expectations, driven by improved demand and good execution by our teams despite increasing supply chain challenges and mounting cost headwinds. Additionally, we continue to make good progress against our strategic initiatives, which helped to drive more predictable top-line growth and enabled disciplined commercial investment. Importantly, we delivered productivity savings in the quarter that were in line with expectations despite the deteriorating macro supply environment. A true testament to the organization's capabilities to both structurally address costs and continue to navigate heightened supply chain challenges. For the quarter, organic net sales increased 2.5%. Adjusted gross margin decreased 140 basis points or 90 basis points organically. A&P spend increased $5 million and 90 basis points in rate of sale. Adjusted SG&A improved 110 basis points in the rate of sales. Adjusted EPS decreased 2%. However, core adjusted EPS grew over 9% in the quarter. We deployed $33 million of capital through dividends and share repurchases. Before reviewing our detailed results, I would like to provide some additional color on our operations and the continuing inflationary environment. Our industry continues to face unprecedented supply chain disruption, increased bottlenecks, and accelerated inflation with little signs of easing in the near term. Tight labor markets remain increasingly challenging, partly made worse by the fast-spreading Omicron variant, and supply and demand imbalances and overall capacity constraints remain broad and sustained across the supply chain. Conditions this quarter could best be described as volatile, particularly in certain commodities such as specialty chemicals, packaging, and metals. Freight and transportation markets also worsened in the quarter, reflective of continued infrastructure challenges and heightened diesel cost inflation. As we discussed last quarter, our organization is working relentlessly to mitigate the impacts of higher costs and supply constraints on the business. We continue to take aggressive steps to stabilize supply and mitigate these cost headwinds. In the face of growing labor constraints, we've increased and diversified our efforts to secure the labor pool needed to support our demand outlook. Rod already shared some of the steps we've taken to further support our employee base. Despite these efforts, we did see sporadic supply shortages in certain categories. Most notably in Fem Care and Shave Preps, and to a lesser degree, Women's Shave. Our teams are taking the right actions to mitigate the potential impact going forward, including broadened sourcing efforts, increased upfront raw material buys, staggered production scheduling, overtime utilization, and alternative transportation strategies in the U.S. and across Europe. We're also tactically building inventory levels through the first half of the year where possible to ensure product availability and improve service levels to our customers. Now I will turn to the detailed results for the quarter. As mentioned, organic net sales increased 2.5%, equally driven by price and volume gains. Most of the realized price increases were attributable to Fem Care and Wet Ones in North America and to a lesser degree, Wet Shave in international. Importantly, the majority of the positive impact that will be realized from pricing occurs as the year evolves. On a two-year stack, total company organic net sales increased just over 1% in the quarter versus the same period last year, with growth in both North America and international markets. Our e-commerce business saw strong results increasing by over 9% in the quarter on top of over 40% growth during Q1 a year ago. In the quarter, our total portfolio gained 30 basis points of market share in the U.S. led by gains in Sun and Wet Ones, while Flat share results in Fem Care. Share results in Wet Shave were consistent with 52-week trends. Looking deeper into our segments, Wet Shave organic net sales increased 2% in the quarter, largely driven by growth in Women's Systems, Disposables, and Private Brands. Our Women's Systems business continues to be the primary catalyst for growth, with organic net sales increasing 9%, driven by Intuition, as well as Private Label, which grew 48% in the quarter despite cycling 51% growth last year in Q1. International Wet Shave grew over 4% as Women's Systems organic net sales grew nearly 12% for the quarter. Disposables' organic net sales increased about 5% and gained share while Men's Systems organic net sales decreased 6%. For the third consecutive quarter, U.S. razors and blades category consumption increased, growing 4.8%. The category growth in the quarter was seen across Men's and Women's Systems and Disposables. For the 13-week period, Market share for the Schick franchise declined 100 basis points, driven mostly by declines in Men's and Women's Branded Shave while disposable share grew 70 basis points, driven by our Men's business, which saw strong performance at Walmart and the benefit from distribution gains at Walgreens and Sam's. Sun and Skin Care organic net sales increased about 2%, driven by strong global Sun Care results and improved Men's Grooming results. Sun Care organic net sales in North America increased 51% while international organic sales increased 27%, led by initial consumption recovery in Latin America. In the U.S., the Sun category increased 44% for the quarter, aided by better weather and increased travel. Hawaiian Tropic and Banana Boat both outperformed the category with over 70% growth and collectively gained 320 basis points of market share. Our strong execution and prominent on-shelf position drove 450 basis points of share gains in the quarter at Walmart. We saw sequentially improved results across both the drug and grocery channels, where we also delivered strong share gains. Men's Grooming organic net sales increased 8% in the quarter, led by Cremo strong growth of nearly 20% on the heels of excellent holiday execution, as the category was up 27%. Wet Ones organic net sales decreased 41% in the quarter compared to an increase of over 110% in Q1 of last year, representing two-year stack growth of nearly 13%. Category consumption declined 71% versus a year ago, lapping COVID-driven sales. Wet Ones consumption declines of 17% were significantly better than the category declines, leading to 55% share of the category. Fem Care Organic net sales increased about 5%. Playtech Sport continued to gain share in the quarter, reflective of new product launches and stronger brand support, offsetting declines in carefree and legacy brands. Fem Care category consumption during the quarter grew about 11% in the U.S. and our portfolio consumption growth was largely in line with the category for the second consecutive quarter. Now, moving down to P&L. Gross margin rate on an adjusted basis decreased 140 basis points compared to the prior year, inclusive of 50 basis points of inorganic headwinds as gross inflationary pressures of about 400 basis points were only partially mitigated by just over a 100 basis points of favorable pricing, promotional efficiency, and mix, and about 200 basis points of productivity savings. A&P expense increased $5 million this quarter and accounted for 10% of net sales, reflecting increases in support of the Hydro relaunch in Japan, Sun execution across the globe, and holiday programs in Grooming. SG&A, including amortization expense was $96.9 million or 20.9% of net sales. Adjusted SG&A declined 110 basis points as a percent of net sales due to lower incentive and fringe benefit costs. Adjusted operating income was $46.7 million compared to $49 million last year as lower gross margin and higher A&P costs were only partially offset by lower adjusted SG&A costs. GAAP diluted net earnings per share were $0.20 compared to $0.32 in the first quarter of fiscal 2021, and adjusted earnings per share were $0.42 compared to $0.43 in the prior-year period, inclusive of a $0.04 negative impact from the Billie acquisition. This $0.04 reflects the impact of deferred profit as a consequence of the timing of profit recognized on sales stability, as well as higher amortization costs. Core EPS grew over 9% in the quarter. Adjusted EBITDA was $69.7 million compared to $72.2 million in the prior year. Net cash used in operating activities for Q1 was $79 million, a $3.5 million improvement over the same quarter last year. The timing of interest payments and seasonal working capital build related to Sun Care results in a Q1 cash outflow. We ended the quarter with $240 million in cash on hand, access to the $221 million undrawn portion of our credit facility, and a net debt leverage ratio of about 3.3 times. This brings me to the topic of capital allocation. We remain disciplined in how we are deploying capital and executing in a thoughtful and balanced manner. Last quarter, we announced our intention to put our healthy excess cash to work and repurchased approximately $300 million in shares over the next three fiscal years. In the quarter, our repurchases totaled $24.5 million. In addition, we continued our quarterly dividend payout and declared another cash dividend of $0.15 for the first quarter. Turning to our outlook for fiscal 2022, we are reiterating our outlook for the core Edgewell business that was the basis for our original outlook, and only updating our estimates to reflect the inclusion of 10 months of the Billie business and the additional negative impact of currency translation. As we look to the remainder of the year, we're encouraged by the improving demand environment we see across many of our categories and geographies and are well-positioned as a result of the distribution gains discussed last quarter, most notably in Sun and Women's Shave. However, we're cognizant that we are operating in a more volatile environment than previously contemplated. Beyond the cost pressures associated with ramping commodity and wage inflation, we're also navigating mounting complexity across the supply chain. In the near-term, we see little signs of easing. Before turning to our detailed outlook, I want to provide a summary of the impact of the Billie acquisition in fiscal 2022. We expect Billie to add approximately 400 basis points of net incremental growth to our reported net sales for the fiscal year. We've referred to incremental sales as the net impact of Billie sales, both DTC and retail, less the intercompany shipments that Edgewell will make that were previously expected to be third-party sales. This change from expected third-party sales to intercompany shipments also creates a timing difference with respect to gross profit recognition versus our original outlook. We estimate this amount to be a headwind of approximately $4.1 million. Incremental amortization costs associated with the intangible assets related to the acquisition will be approximately $9 million this fiscal year. In total, we anticipate that the acquisition will dilute adjusted EPS by approximately $0.19, reflecting $0.13 per share related to the increased amortization costs and $0.06 per share associated with the profit deferral. For the fiscal year, we continue to anticipate low single-digit organic net sales growth with similar growth rates in the first and second halves. As a reminder, Billie third-party sales are excluded from the organic growth calculation. Reported sales are now anticipated to increase by mid-single digits, including 400 basis points net from Billie and partially mitigated by an expected additional 50 basis points headwind from currency. Billie sales are expected to phase somewhat ratably over the remaining three quarters. As we look to gross margin, we now anticipate approximately 200 basis points year-over-year declines, primarily reflective of the heightened inflationary pressures and the overall challenging supply chain environment. Year-over-year gross margin declines will be more pronounced in Q2 before moderating somewhat in the back end of second half, as our productivity programs scale and price realization increases. This outlook largely assumes spot prices across the majority of the commodity basket, as well as in transportation and warehousing. We will continue to invest in support of our brands and key markets and, with the addition of the Billie brand, expect A&P spending to be largely in line with last year as a rate of sale. Adjusted operating profit margin is now expected to contract approximately 130 basis points year-over-year, reflecting the deleveraging effect of including the Billie sales, increased amortization costs, the headwind associated with the profit deferral, and additional negative currency effects. Adjusted EBITDA is now expected to be in the range of $357 million to $377 million. Adjusted EPS is now expected to be in the range of $2.74 to $3.02, reflecting increased amortization expense in addition to the profit deferral and currency impacts. We continue to expect to generate about two-thirds of our full year adjusted EPS in the second half of the fiscal year. With respect to our share repurchase, our outlook only includes the expected share repurchases required to offset dilution. The benefit to EPS from additional share repurchases transacted over the course of the year has not been contemplated in our outlook and will be additive to EPS. Finally, free cash flow conversion is expected to be approximately 100% of GAAP net earnings. For more information related to our fiscal 2022 outlook, I would refer you to the press release that we issued earlier this morning. With that, I'd like to turn the call back over to the Operator to begin the Q&A session.

We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. The first question comes from Chris Carey with Wells Fargo Securities. Please go ahead.

Hi. Good morning.

Good morning, Chris.

Can you just talk about sustainability of the market share gains that you're seeing in the Sun Care business? Obviously, some interesting statistics around share at some of your key retailers. And can you also maybe expand on how you're thinking about how incremental some of these incremental shelf wins are or going to be for the business this year, Walmart, Costco, and potentially how that's factoring into your thinking for the back half? And maybe if I could just sneak in on the Sun business as well, just all in the context of Sun. The supply chain issues, I know you didn't mention it, but just confidence that you're going to have adequate supply going to the peak season.

We are optimistic about our performance in the Sun category. We are pleased with the recent planogram changes and the new distribution in the Club channel. Our distribution quality has improved across various sectors including food, drug, and mass retail. We launched hawaiiantropic.com last year and are actively engaging with both our own sales channels and partners like Amazon. Our distribution network is looking strong. We have exciting new products coming for Banana Boat, targeting kids, families, and sports enthusiasts. Additionally, we are refreshing the packaging for Hawaiian Tropic, which will gradually be introduced this season. Overall, our distribution results are solid and we have a robust innovation pipeline. Importantly, our teams have excelled at sourcing the necessary raw materials, ensuring availability for the entire season. We are prepared for a significant season and have secured our supply chain effectively, managing most operations in-house without relying on third-party manufacturers. It's worth noting that in the first quarter, only 6% of the entire Sun season's transactions occurred, so we believe the best is yet to come.

Okay. Thank you for the perspective. Appreciate it.

Thank you, Chris. Operator, next question, please.

Thank you.

And Chris, did you have another question? I'm sorry.

If I may, I would like to discuss the impact of Billie on our earnings outlook, as well as the effects of currency on our earnings. Considering the volatile operating environment you've mentioned, what strategies do you have in place to maintain earnings after the recent adjustments? Are you looking at cost-saving measures from a pricing perspective? I'm curious about your thoughts on this. I know you aim to be precise with Shave and have made some adjustments in Sun and have implemented pricing strategies for Fem Care. How might these strategies help counter any potential cost increases? Additionally, in terms of share repurchase, while it mainly addresses dilution, you have a significant buyback program in place. Do you have any insights on that as well? Thank you.

Hey, Chris, it's Dan. Thanks for the question. I'll try to take it. There's a lot there. I think, certainly, and you picked up on it from our remarks, we were certainly operating in a more challenging environment than we had initially contemplated. I think that's for sure. We've said now that we anticipate about 500 basis points of macro inflationary pressure on COGS. That's up about 100 basis points from what we said a quarter ago. That will translate likely into about 200 basis points year-over-year decline in margin. The takeaway there is we do have a solid line of sight to some meaningful offsets. As I break those down, first and foremost for us it's in COGS as it always is. Our approach here is twofold. One, we're continuing to look at what we already do really well. We delivered 200 basis points of productivity savings in the quarter. We're looking at the opportunity to accelerate existing cost-savings programs to bring forward initiatives that were perhaps timed for later in the year. But at the same time, we're doing significant work to stabilize the environment and meet demand. We have to continue to balance that. I think we're really good at that and that will continue. On the revenue side of the house, I think you're right there. If you look at how we took price or how we thought about price, there are examples where we have taken broad-brush price increases and we've talked about those around Wet Ones, around Fem Care, and to a lesser degree Wet Shave, in certain international markets. Those prices are now priced in and we've either begun to feel the effects of that in international or have been feeling the effects of that, for example, in Wet Ones. In the rest of the portfolio, we applied more of a surgical approach, where within categories, within brands, within markets, we've thought about it very differently across Shave, Sun, Grooming and PBG and even Preps, for that matter. As we're reassessing, we are certainly considering both scenarios. We're considering situations where we did go up in price at the category level and is there opportunity to implement further price. We're also looking at where we have been more surgical and thinking about areas where perhaps we haven't taken price where we can reconsider, given the environment, given what we've seen so far in elasticities. The last thing I would say is beyond just frontline price, we continue to make great progress in our efforts to really better understand the promotional environment, promotional intensity, return on promotional dollars. That was actually a contributor to what we saw in Q1, and we expect that promo rationalization and just good effective spend will also be a tailwind for us to help offset this environment that we're in. Thank you, Chris.

Thank you. The next question comes from Nik Modi with RBC Capital Markets. Please go ahead.

Thanks and good morning, everyone. I have two questions. Dan, can you quantify the impact that out-of-stocks had on growth this quarter? Also, I have a broader question regarding productivity. Analysts have commented on Church & Dwight's revenue per employee, and also on Edgewell's significant growth, noting that Edgewell's target was set at 303 while Church & Dwight was over 1,000, with the average around 500 to 600. Could you provide some insight on this? You've made impressive strides in productivity over the past few years. How much more potential do you believe remains when considering the larger picture?

Good morning, Nik, thanks for the questions. So on your first one, can we estimate the out-of-stock impact? There were two headwinds in the quarter that I think are worth calling out just to understand magnitude. One is the drag Wet Ones had on organic growth for the period. We produced a 2.5% organic growth rate, and Wet Ones was about a 250 basis point drag in the quarter. Now we talked about the category being down 70%. We know that's a category that is still finding a normal water level, if you will, given what it's cycling and COVID. That's the first item. The second item, more to your point, is tough to truly estimate what demand was out there that we couldn't meet. We know in the two most prevailing areas around Femcare, where we had labor shortages and in our Shave Prep business where we had trouble with commodities and raw material, that there was certainly a line of sight to $4 million to $6 million just there alone in those two small businesses of ours, that likely adds up to somewhere around a 0.5% to 2% in organics. Beyond that, it's tough to understand and really break down sort of what demand was unmet, but we can certainly call out those two pieces. On your second question around productivity. Look, I think what's left in the tank is a common question we get asked on the heels of the Fuel program and the success we saw there. We have said publicly that both in COGS and in our core SG&A environment, we see meaningful savings opportunities left to go. If you go back to our Investor Day, we talked about $125 million of savings over the next two years. In COGS, we delivered 200 basis points of productivity savings in the quarter and you're starting to see that work now shift. You're starting to see gains from automation. You're starting to see gains from the next level of procurement activity along with the continued focus on eliminating waste and really being intolerant to waste across our facility. So I'm quite confident in that team's ability simply based on demonstrated effect that there is certainly more to do there in productivity.

Nik, I would like to add two points. We are seeing G&A leverage in action. Regardless of the statistical measures like revenue per head, it's essential to have leverage in the profit and loss statement. As we continue to grow, which we are confident we will, we need to see that leverage reflected. This quarter, we've observed G&A leverage making an impact. Additionally, about the out-of-stocks in the quarter, we faced a perfect storm with Omicron coinciding with already challenging labor conditions. At the end of December, about five to ten percent of our hourly manufacturing workforce was unavailable due to Omicron, illness, or quarantine from close exposure. This issue compounded the already tight labor situation and led to service outages, as Dan mentioned earlier. We're not alone in this; it's a national issue, and our European facility is experiencing similar challenges. The positive news is that we are now moving past this situation and have returned to what I would consider normal operational levels. We feel optimistic about our service and availability looking ahead.

Great, thanks.

Thank you. The next question comes from Jason English with Goldman Sachs. Please go ahead.

Hey, good morning, folks. Thanks for slotting me in. Quick math question, I guess. You've got Billie in the P&L now. A substantial amount of the COGS for Billie would seem to have already been in your P&L since you were manufacturing the razors for them and selling them to them. As a result, our backfilled mass suggests you should be getting somewhere between 50 to 100 basis points margin mix benefit at gross margin line. Which if right, would imply that your gross margin cut of 100 to 120 basis points today and the underlying basis would be quite a bit higher because obviously that reduction should include the benefit from Billie. Is that conceptually right and mathematically directionally correct?

Hey, Jason, good morning. It's Dan. I would be cautious about assuming that the majority of costs are already reflected in the profit and loss statement. If you consider their business from two perspectives: first, while we were shipping blades, there are additional costs and products involved, including assembly and distribution. So, there are costs within their core business that go beyond our cost of goods sold as a supplier. Second, the shift to retail has a different margin profile. Therefore, I won’t go through your calculations point by point, but I wouldn't assume that there's an increase in margins just because we've been recognizing all of the cost of goods sold. That’s not accurate.

Okay. That is helpful. I'll go back and review those numbers in more detail. You were asked earlier about where the offset to the higher inflation is. I believe you mentioned it lies within COGS. However, your decreasing gross margin seems to align with the increased inflation. Therefore, it appears that in the short term, you will not see the offset in COGS. Where exactly is the offset coming from? Since you're indicating that on an underlying basis, you're maintaining your earnings forecast, it must be within SG&A. What specific areas are you identifying more efficiency or better leverage?

Yeah. I think a couple of things. 1. On the COG side, I think as I mentioned in my comments, we're continuing to look at all aspects of the program we have in place and where we can accelerate that and where we can bring incremental savings into the year. That work is ongoing. As is the revenue work that we're doing that I described. So the teams are literally in the process of that work. On the cost side, I think absolutely we have to evaluate all aspects of both overhead and commercial spend. Now we have to be really careful here, because as we've said many times, we're at a very, very important moment for the business. We have seen the impact of what really good investment behind the brands and really good investment behind organizational capabilities do for us and the role that it has played as a catalyst over the last 18 months in growth. We have no intention here on the spend lines, if you will, to take a step sideways, let alone backwards; that's fact. Having said that, absolutely. We're going to evaluate the spend with A&P. We're going to continue to look at effectiveness and make sure every dollar we put to use delivers returns for us. We'll be thoughtful about both our A&P investment and the timing and phasing and how we think about overheads in this environment. I think that's something we certainly should be doing and we'll do.

Jason, I would add to this. We're not going to go cut anything that we think is important capability to win in the future or part of strategic narrative around brand building repositioning as we build our brands in the equities moving forward. There's an element of this that is also price revenue management-related, and Dan referenced that. That's a big place we want to go. I don't think the pricing narrative is done here. A lot of this inflation has hit in the last 30 to 60 days of the quarter just finished. So it's now opened up the opportunity with that information to go look at pricing again across the portfolio, and so we'll do that. The other thing we'll really focus on is where all the value in this business is over time is in a healthy, accretive top-line performance, whether that be price or volume. We're really focused on driving a better top-line outcome here as part of the equation as well.

Okay. Thanks. I'll pass on.

Thank you, Jason. Operator, next question, please.

The next question comes from Bill Chappell with Truist Securities. Please go ahead.

Thanks. Good morning.

Good morning.

Hi, Bill.

Billie, could you clarify the rollout to Walmart regarding the shelf space? Is it mostly promotional setups or do you have a permanent placement in the Wet Shave section? Additionally, where is this shelf space coming from? Is it from your existing product lineup or from competitors?

We're really excited about Billie overall, Bill. If you look at the profile of the business, we acquired it when it had $90 million trailing 12 months transacted online, so rapid growth. The impact to us incrementally as we call out today is roughly 400 basis points on top of our organic sales in the year we're in now. As part of that, the big building block that comes on top of direct-to-consumer is the Walmart launch. If you look at Walmart, effectively, it's a national rollout, obviously different in a superstore format versus a neighborhood store, but across their entire network, there is permanent in-aisle fixed display. It looks beautiful. It has stopping power when you walk down the aisle. It's the cleanest, most beautiful part of the Women's Shave section now. So it's permanent. In addition, there's InCap that comes on top of that on a secondary display with full signage and InCap coverage there. It's high-quality distribution; it's beautiful and is there throughout the year.

That's great, and I appreciate that. And then separate, differently on Wet Ones, can you give me an idea of what Omicron did to the category over the past three, four months in terms of getting it back to whatever normal looks like for that category? I mean, did it accelerate the path to normal? Did people not really come back to wipes with Omicron like they did for Delta or prior versions? Are we any closer to getting to what normal looks like?

We are approaching what the new normal looks like. This quarter reflects the final period where we saw growth rates of 200% to 300% compared to the previous year, with 300% in this instance. We are now moving past that significant growth driven by the surge last December. With the arrival of Omicron, people either have their supplies or have settled into a routine, making Omicron less impactful than anticipated. Moving forward, we expect to see more typical growth as we transition away from those peaks and into a more normalized environment. Additionally, Wet Ones continues to perform well in the market, showing double-digit growth compared to pre-pandemic levels. We anticipate continued growth in this category, where we hold a 55% market share and are the market leader. The product shelves are returning to their pre-pandemic configuration after the influx of new entries that filled supply gaps.

Great. Thanks for the color.

Thank you.

Thank you. The next question comes from Kevin Grundy with Jefferies. Please go ahead.

Great. Thanks. Good morning, everyone. I have two questions. First for Dan regarding guidance, and then for Rod, I want to expand a bit on the question about Billie. Dan, it's straightforward. To start with guidance, can you clarify where you stood in November when you mentioned that Billie would be slightly positive to cash earnings per share? The current guidance reflects the transaction and some slightly negative effects, but we're seeing EBITDA and free cash flow moving lower. Could you explain the difference between your November comments about Billie being slightly positive and where we currently are?

Yeah, absolutely. Good morning. So look, let's unpack the Billie element first because, as we look at our guidance, when you exclude the technical changes we made related to the Billie transaction and the incremental currency headwinds, our core outlook remains intact. That's unchanged. We talked about the FX piece that we see and additional $0.05 of headwinds here. So then it really comes down to the Billie piece. You've got $0.19 of anticipated full-year impact driven by two things, Kevin. One is the amortization of the intangible. We talked about that last time. We obviously couldn't have predicted what that would be. That's obviously a non-cash charge. That's $0.13 of the $0.19 tied up in Year 1 of Billie, but obviously was not in our initial guide. The second piece is really a timing on a comparison piece, which is the impact of deferred profit. If you think about our initial outlook, we would have contemplated Billie as a customer. We would have had 12 months of gross margin on sales to that customer in our outlook. Now with Billie coming onboard with 10 months of business, not 12, and with an assumed 60-day inventory turn, some of those previously thought of as sales become shipments, and some of that profit on most shipments gets deferred. Surely timing, truly the mechanics of the transaction. So $0.13 related to the amortization charge, $0.06 related to the impact of deferred profit versus what was in our initial guidance.

Okay. Alright. I can take some of that offline. Then Rod, just building on Billie. Just taking a step back, I think the compound annual growth rate over the past few years has been 50%. Maybe you don't want to comment on specific brands in your outlook, but just for our modeling purposes, what is the reasonable growth rate as you think about the Walmart distribution? Perhaps you can put some parameters around ACV or total points of distribution and where you think that can go as you roll out into Walmart? I can pass it on. Thanks.

I'll start Kevin and throw it to Dan if he wants to add some commentary. Look, Billie has got a high CAGR because it's four years old. You go from $0 to $90 million trailing in 12 months in four years. You get a high CAGR all online. Different than some other M&A we've looked at in the past, this is timed nearly perfectly for us because we're just starting the retail rollout last month, January of 2022, with what we think is the premier women's brand in this more value-oriented space just around price point. It's very additive to our portfolio with our Schick Hydro Silk in the Intuition brands. It's a differentiated add to our portfolio where we had a hole. We believe over time this brand has legs to be everywhere and to be a big part of our portfolio going forward. It's also incremental to us around who the consumer demographic is. Excuse younger, excuse more diverse, and so it's a nice add into our portfolio. The final thing I'll say before I throw it to Dan is we have lacked access to good consumer data. They have 3 million customers in their file, right? This is also a breakthrough for us around not only digital capability but also consumer data.

Yeah. And it's just maybe building on the math. We said at the time of the announcement, it was a $90 million TTM business topline growing at about 30%. Of course, that was just a DTC business at the time. If you fast forward to today, recognizing we have 10 months of their business in our P&L, we've said it'll add about 400 basis points in reported sales. You are in the $85 million to $90 million range. There are two elements to that. Billie third-party sales, both retail and DTC, which we are estimating is in the $105 million to $110 million-dollar range. Then you have the headwinds of shipments that were in our initial plan that now become inter-company shipments and that's plus or minus $20 million, $25 million. You put the two together, you land in the $85 million to $90 million range as we think about the business over the 10 months of fiscal '22. The fundamentals for this business are therefore twofold: 1. We are going to continue to invest in DTC growth, customer acquisition, retention, basket growth, etc., for all the reasons Rod described. Then we're going to execute flawlessly at Walmart. You're leveraging the expertise of the Billie team on the first element, and then obviously the retail expertise of Edgewell on the second. The exact cadence, pace, splits, how quickly it scales, that obviously, we will learn our way into in 2022. But it's a super attractive growth profile. Looking at the Walmart end of it compares very favorably to recent launches in the space.

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

Thank you.

Thanks, Kevin.

Thanks, Kevin. Operator, next question, please.

The next question comes from Olivia Tong with Raymond James. Please go ahead.

Great, thank you. My question is on pricing. If you could talk a little bit about what you've done of late, whether you think there needs to be more to offset cost inflation, even when more competition is done and whether there have been any moves or lack thereof by others that make it more challenging for you to put your plans in place. And you've slugged it out quite a bit to improve your positioning. So as inflation continues, how do you think about balancing the desire to offset costs inflation by taking price with the potential implications that may have on market share? Thanks so much.

Good morning, Olivia. Rod here. I'll start and then flip it to Dan. Look, on pricing, I think one of the things I learned earlier in my career with Procter & Gamble is pricing is really important to creating value over time in structural profitability in the business. We will always look to take pricing where it's warranted, where it's either warranted by innovation or our cost that needs to be shared and passed on. We'll look to do that. Where we have leadership with a leading share position, we will lead pricing under that scenario where it's warranted. Where we're not a leader, we'll follow. We play more of a follower role, and we look to fast follow. I think we said that in our prepared comments. That's the strategy, that's the approach, all through a context over time of we want to maintain and build our share and become more competitive over time. Price is obviously a piece of that. So we never want to be disadvantaged. We've got price strategies by brand that we lay out as part of the overall strategy of building that business and growing share over time. But there is an opportunistic piece to the pricing environment we live in today that we need to take advantage of, for sure.

Yeah. The only thing I'd add, Olivia, I think just two comments. First, just a reminder, I know you know this, but price is not the only lever we have here to offset this 500 basis points of inflation. It is a lever; it is not the only lever. I won't go back through the comments on productivity, but we feel really good about our ability to continue to take costs out there. On the price front to Rod's point, we've been super thoughtful. We executed extremely well with real precision, both in how we think about frontline price and also how we think about promotional intensity in effect in this. I think you have to look at those together. Having said that, the world continues to change and the teams are optimistic and recognize there's more to do here. So we're back at it looking category by category, looking brand by brand. Nothing is off the table on price. Obviously we won't get into the specifics here for competitive reasons. But we recognize that there's more to do. In fact, the pricing environment remains fairly productive at this point, and the teams feel pretty good about the opportunities that further price has for us.

Great.

Got it. That's helpful. And just on the future. Now that you've done acquisition, merger, and previous ones, when do you think you have capacity to start looking at tuck-ins you've been known for over the last few years? Your broad being your thoughts on capital allocation, including the share repurchase plans from here?

Yeah. Look, I think for M&A, first of all, we are not out of the game on M&A. We are engaged and looking at things, and obviously the bar is high. We've got to be really disciplined about what we do from here. But being three times levered with the cash profile that we have, a deal like Billie certainly doesn't take us off the M&A landscape. There are a lot of interesting assets out there. My team has spent a lot of time looking at these for similar characteristics that we see with Billie: high growth, opportunity to gain growth in a growing segment, capability, share, etc. From a capital allocation perspective, we really like where we are in the sense that we have a very clear, very disciplined, and broad approach to capital allocation that we have in fact been executing. A year ago, we initiated a dividend with interesting yields around 1.5%, 2% solid returns. We then augmented that with the buyback program that we announced a quarter ago. We've executed that extremely well in the first quarter, just over $25 million on track for what we would have expected. We'll continue to evaluate that, but you pull all that together with a leverage profile of around two to three times with a cash forecast like we have that can generate around $175 million to $180 million a year, we really like our position and performance.

Thanks very much.

Thanks, Olivia. Operator, next question, please.

Currently, we have no further questions. I would like to turn the conference back over to Rod Little for any closing remarks.

Thank you, everyone, for your continued interest and time. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.