Earnings call transcript: WD-40 Q2 2025 sees EPS beat, stock rises pre-market

WD-40 Company reported its fiscal Q2 2025 earnings, showcasing a solid performance with a non-GAAP diluted EPS of $1.32, surpassing the forecasted $1.27. The company's revenue reached $146.1 million, slightly below the anticipated $154.41 million. Despite the revenue miss, the stock price rose by 2.13% in pre-market trading, reflecting investor optimism. According to InvestingPro data, WD-40 maintains a "GREAT" overall financial health score of 3.0 out of 5, with particularly strong profitability metrics. The company's strategic initiatives and strong product performance contributed to the positive sentiment, though current analysis suggests the stock is trading above its Fair Value.

Key Takeaways

• WD-40's EPS beat expectations by $0.05, marking a 16% increase year-over-year.
• Revenue fell short of forecasts, but net sales increased by 5% compared to last year.
• The stock price increased by 2.13% in pre-market trading despite revenue miss.
• Strong growth in premium and specialist product sales.
• Positive market reaction driven by strategic initiatives and operational efficiency.

Company Performance

WD-40's performance in Q2 2025 highlights its resilience and ability to adapt to market challenges. The company reported a 5% increase in net sales compared to the same quarter last year, driven by strong demand for its multi-use and specialist products. InvestingPro data reveals impressive financial metrics, including a 53.64% gross profit margin and a robust current ratio of 2.44, indicating strong operational efficiency. The company's focus on supply chain optimization and strategic market expansions, particularly in the EMEA region, contributed to its robust performance. Notable among InvestingPro's 12+ insights is WD-40's 33-year track record of maintaining dividend payments.

Financial Highlights

• Revenue: $146.1 million, up 5% year-over-year.
• Adjusted Net Sales: $150.9 million, up 9% year-over-year.
• Gross Margin: 54.6%, an increase of 2.2 percentage points.
• Adjusted EBITDA: $25.8 million, up 10%.
• Diluted EPS: $2.19, compared to $1.14 last year.
• Non-GAAP Adjusted EPS: $1.32, up 16%.

Earnings vs. Forecast

WD-40's actual EPS of $1.32 exceeded the forecast of $1.27, resulting in a positive surprise of approximately 3.94%. However, the revenue of $146.1 million was below the expected $154.41 million, representing a shortfall of about 5.37%. The EPS beat, despite the revenue miss, indicates effective cost management and operational efficiency.

Market Reaction

Following the earnings announcement, WD-40's stock rose by 2.13% in pre-market trading, reaching $243. This movement reflects investor confidence in the company's strategic direction and its ability to deliver growth amidst challenges. The stock's performance is notable given its recent decline, with a last close value of $237.93, and it remains within its 52-week range of $211.03 to $292.36. InvestingPro analysis shows the company trading at a P/E ratio of 44.4x and an EV/EBITDA multiple of 31.72x, suggesting premium valuations. Get access to the comprehensive Pro Research Report for detailed valuation analysis and 10+ additional exclusive insights.

Outlook & Guidance

WD-40 provided guidance for fiscal year 2025, projecting net sales between $600 million and $630 million, reflecting a growth rate of 6-11%. The company expects a gross margin of 55-56% and operating income between $95 million and $100 million. Non-GAAP EPS is anticipated to range from $5.25 to $5.55. The company continues to focus on expanding its premium and specialist product lines, targeting a CAGR of over 10% and 15%, respectively.

Executive Commentary

CEO Steve Brass emphasized the company's growth, stating, "We experienced double digit volume growth both in the second quarter and year to date." CFO Sarah Heiser reiterated the company's strategic focus, saying, "Our fifty-five-thirty-twenty-five business model continues to be a long-term beacon." These comments underscore WD-40's commitment to sustainable growth and operational excellence.

Risks and Challenges

• Supply Chain Optimization: Ongoing efforts to enhance efficiency may face unforeseen disruptions.
• Tariff Impacts: Although currently minimal, potential changes in international trade policies could affect costs.
• Foreign Currency Fluctuations: The Euro's strength could pose both risks and opportunities.
• Market Saturation: Continued growth in mature markets may present challenges.
• Macro Economic Pressures: Global economic conditions could impact consumer spending and demand.

Q&A

During the earnings call, analysts inquired about the potential impacts of tariffs and supply chain disruptions. Management assured that the localized supply chain minimizes tariff risks and that optimization is a multi-year process. Questions also focused on foreign market performance, with executives highlighting strong growth in the EMEA region and ongoing geographic expansion efforts. With a return on invested capital of 23% and strong cash flows that sufficiently cover interest payments, WD-40 demonstrates solid financial fundamentals. For comprehensive analysis of WD-40's performance metrics, growth potential, and peer comparisons, explore the full suite of tools available on InvestingPro.

Full transcript - WD-40 Company (WDFC) Q2 2025:

Conference Operator: Ladies and gentlemen, thank you for standing by. Good day, and welcome to The WD-forty Company Second Quarter Fiscal Year twenty twenty five Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen only mode. At the end of the prepared remarks, we will conduct a question and answer session.

I would now like to turn the presentation over to the host for today's call, Wendy Kelley, Vice President, Stakeholder and Investor Engagement. Please proceed. Thank you. Good afternoon, and thanks to everyone for joining us today. On our call today are WD-forty Company's President and Chief Executive Officer, Steve Brass and Vice President and Chief Financial Officer, Sarah Heiser.

In addition to the financial information presented on today's call, we encourage investors to review our earnings presentation, earnings press release and Form 10 Q for the period ending 02/28/2025. These documents will be made available on our Investor Relations website at investor.wd40company.com. A replay and transcript of today's call will also be made available shortly after this call. On today's call, we will discuss certain non GAAP measures. The descriptions and reconciliations of these non GAAP measures are available in our SEC filings as well as the earnings documents posted on our Investor Relations website.

As a reminder, today's call includes forward looking statements about our expectations for the company's future performance. Actual results could differ materially. The company's expectations, beliefs and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors detailed in our SEC filings for further discussion. Finally, for anyone listening to a webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, 04/08/2025.

The company disclaims any duty or obligation to update any forward looking information as a result of new information, future events or otherwise. With that, I'd now like to turn the call over to Steve.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Thanks, Wendy, and thank you all for joining us today. Today, I'll start with an overview of our sales results for the second fiscal quarter of twenty twenty five. I'll also provide updates on our must win battles and key strategic enablers. After that, Sarah will go over our second quarter results in more detail, provide a brief update on the anticipated divestiture of our Home Care and Cleaning business, review our fifty fivethirtytwenty five business model and share an updated outlook for fiscal year twenty twenty five. We'll then open the floor for your questions.

Today, we reported net sales of $146,100,000 for the second quarter, which was an increase of 5% from the second quarter of last fiscal year. Changes in foreign currency exchange rates have been a bit of a headwind for us this quarter. Adjusting for estimated translation impact of foreign currency, net sales would have been €150,900,000 reflecting an increase of 9% compared to the prior year fiscal quarter. Our target sales growth for core maintenance products remained in the mid to high single digits. In the second quarter, we achieved £139,300,000 in net sales for these products, a 6% increase despite currency headwinds.

This performance aligns with our long term growth target. Much of this growth was driven by strong volume performance. We experienced double digit volume growth both in the second quarter and year to date with particularly strong volume growth in EMEA. Now let's talk about second quarter sales results in dollars by segment, starting with The Americas. Total sales in The Americas, which includes The United States, Latin America and Canada, increased 3% in the second quarter to $65,500,000 compared to the same period last year.

Adjusting for estimated translation impact of foreign currency, net sales in The Americas would have increased by 5% compared to the prior year fiscal quarter. Sales of maintenance products increased 4% in the second quarter to £62,400,000 compared to the same period last year. The bulk of this growth was driven by higher sales volume of WD-forty Multi Use Product in Latin America, which increased 47% compared to prior year quarter. Sales of WD-forty Multi Use Product in Latin America were favorably impacted by our transition to a direct market model in Brazil. This distribution model shift favorably impacted net sales in Brazil by approximately $3,400,000 in the second quarter.

Our U. S. Direct market is celebrating its one year anniversary this quarter, and it continues to perform fully in line with our expectations. In addition, sales in other Latin American markets increased 1,300,000 due to improved economic conditions in certain regions as well as higher level of brand building activity and expanded distribution. Higher sales in Latin America were partially offset by lower sales of W40 Multi Use Product in The United States, which decreased by $2,700,000 compared to the prior year quarter due to the timing of customer orders.

I'm happy to share that many of those customer orders have already shifted into March, contributing to a strong start we're seeing in The U. S. For our third fiscal quarter. In The Americas, sales of Divity for D Specialist increased 9% compared to the prior year, primarily due to expanding distribution in The United States. Growth in Maintenance Products was partially offset by a 6% decline in Home Care and Cleaning products.

This drop was primarily due to reduced distribution for these brands as we shift our focus to our more profitable maintenance products in line with our 4x4 strategic framework. In total, our Americas segment made up 45 of our global business in the second quarter. Now let's take a look at our sales in NIMAYA, which includes Europe, India, The Middle East and Africa. Total sales in NIMAYA increased 10% in the second quarter to £59,600,000 compared to the same period last year. Adjusting for estimated translation impact to foreign currency, net sales in NIMAYA would have increased by 15% compared to the prior year fiscal quarter.

Sales of maintenance products increased 11% in the second quarter to $58,100,000 compared to the same period last year. The strong growth in Imeo was driven most significantly by higher sales volumes of WD-forty Multi Use Product in our direct market. Sales increased most significantly in Italy, France and the Benelux regions, which were up 28%, thirteen % and twenty seven %, respectively. In EMEA, most regions have seen continued volume growth momentum following a temporary decline in volumes associated with price increases we implemented over two years ago. While much of this volume recovery occurred in fiscal year twenty twenty four, momentum in sales volumes has continued into fiscal year twenty twenty five, leading to higher sales.

Sales of W-forty Specialist increased 12% compared to prior year fiscal quarter, primarily due to higher sales volume due to increased distribution and stronger levels of demand in various direct markets, most significantly in the DACH, Benelux and Iberia regions. Growth in maintenance products was partially offset by a 32% or $715,000 decline in home care and cleaning products. This was primarily due to reduced promotional efforts for these brands as we shift our focus to our more profitable maintenance products in line with our 4x4 strategic framework. In total, our EMEA segment made up 41% of our global business in the second quarter. Now on to Asia Pacific.

Sales in Asia Pacific, which includes Australia, China and other countries in the Asia region, decreased 1% in the second quarter to 21,000,000 compared to the same period last year. Adjusting for estimated translation impact of foreign currency, net sales in Asia Pacific would have increased by 1% compared to prior year fiscal quarter. Sales of maintenance products decreased 1% in the second quarter to $18,900,000 compared to the same period last year. This decline was driven primarily by lower sales of W40 Multi Use Product in our Asia distributor markets, where sales decreased 8% compared to the prior year quarter due to the timing of customer orders. Sales volume in our Asia distributor markets declined due to in market knock on effects associated with changes in foreign currency exchange rates.

Since we sell to these distributors in the U. S. Dollar, a stronger dollar makes our products more expensive to buy in market. As a result, our marketing distributor partners may raise prices in the market, leading to temporary market disruption. In March, we began to see recovery in our Asia Pacific distributor markets and anticipate a strong second half of fiscal year twenty twenty five.

Lower sales in our Asia distributor markets were partially offset by higher sales of W40 Multi Use Product in China, which increased 5% due to increased sales volume from successful brand building and marketing activities as well as expanded distribution. In Australia, sales were down 5% in the second quarter, primarily due to lower sales of home care and cleaning products in the region, which decreased 7% due to the timing of customer promotions. In Asia Pacific, sales of W-forty Specialists were up 10% in the second quarter due to higher sales volume from successful promotions and marketing efforts in our Asia distributor markets along with expanded distribution in China. In total, our Asia Pacific segment made up 14% of our global business in the second quarter. Now let's take a look at our Must Win Battles.

Our Must Win Battles focus on maintenance product revenue growth and improved profitability. Starting with Must Win Battles number one, lead geographic expansion. Year to date, global sales of WD-forty Multi Use Product €232,000,000 representing growth of 8% compared to the same period last year. We experienced 16% growth of our signature brand in EMEA and 7% growth in The Americas. This growth was partially offset by a four percent sales decline in Asia Pacific.

Every day, we continue to uncover new opportunities to build our flagship brand with end users around the world. As geopolitical fragmentation increases, we're exploring new go to market strategies in specific regions. Over the past five years, we've successfully transitioned two markets, Mexico and Brazil, to a direct model, gaining valuable insights and driving strong growth. However, going direct is not the only way to accelerate top line growth. We are also exploring alternative go to market strategies.

To improve efficiency, we've started grouping our EMEA markets into strategic regional hubs with centralized operations and business functions. These hubs manage sales, distribution and marketing for multiple nearby markets, us reduce costs, accelerate rate of execution and better adapt to regional needs. In the Asia Pacific region, we're adopting hybrid models in some markets to accelerate learning and growth. We've identified Indonesia, Vietnam and Japan as tough market opportunities within our Asia distributor network. Experience has shown that having boots on the ground benefits both our company and our distributor partners.

Currently, we have dedicated WD-forty company personnel working alongside our Indonesian and Vietnamese distributors, and we're excited to announce the hiring of our first dedicated personnel in Japan who will work closely with our Japanese distributor. We're confident that the focus and expertise that these personnel will bring to their respective markets will create a significant unlock and contribute further to our success. Next is Must Battle number two, accelerating premiumization. Our second Must Win Battle is to accelerate sales of premium formats of W40 Multi Use Product. For us, premiumization is a major contributor to achieving more profitable growth, and our premiumized products continue to leave our end users with positive lasting memories.

Year to date sales of WD-forty Smart Straw and Easy Reach when combined were up 11% compared to the prior year period. On a go forward basis, we'll be targeting a compound annual growth rate for net sales of premiumized products of greater than 10%. Our third must win battle is to drive WD-forty Specialist growth. Year to date, sales of W-forty Specialist products were £38,000,000 up 12% compared to the same period last year. We continue to see growth of W-forty Specialist product across all three trade blocks with particularly strong growth in EMEA and The Americas and where sales grew fourteen percent and twelve percent, respectively.

As we continue to embrace our new mantra, few things, many places, bigger impact, we will review our portfolio to ensure we focus our resources on the products with the greatest growth potential as well as those new or existing that support our sustainability agenda. On a go forward basis, we'll be targeting a compound annual growth rate to net sales of Wiblikordi specialists of greater than 15% in reported currency. Our final Muslim battle, number four, is to turbocharge digital commerce. We view digital commerce as an accelerator for all our other Muslim battles. E commerce sales were up 9% year to date.

The digital channel is so much more than just a sales platform. It's a powerful tool for building brand awareness and educating end users about our products. One example is our Training the Trades program, which offers technical training and skill development to aspiring technicians worldwide. Over the past seven years, we've expanded from training approximately 6,000 tradespeople in one country to facilitating 200,000 completed trainings each year across more than 20 countries with pro focused educational content reaching millions more. In fiscal year twenty five, we aim to create more than 15,000,000 online impressions and distribute more than a 75,000 product samples for skilled trade professionals, effectively putting many cans in hands around the world.

The digital channel has provided us with a tremendous opportunity to train more future tradespeople globally faster. Now let's move to the second element of our 4x4 strategic framework, our strategic enablers, which emphasize operational excellence. Today, I'll provide an update on strategic enablers one and three. At W-forty Company, we believe our greatest asset cannot be found on a balance sheet, but rather it resides within our talented global team. Therefore, it makes sense that our first strategic initiative is to ensure a people first mindset.

For over twenty years, we've measured employee engagement every two years, not just to track progress, but to drive improvements. However, in today's volatile, uncertain, complex and ambiguous times, we recognize the need to develop more frequent and effective ways to listen to our employees. This allows us to gather real time feedback, enhance our culture and shift from employee engagement to true employee inspiration. Once again, we measured employee engagement, and I'm extremely proud that we've been able to increase our employee engagement index score to 94%. In addition, 94% of our employees agree that they understand the strategy for achieving W.

E. Kool Aid Company's future goals and ambition. This is important because when employees are highly engaged and understand the organization strategy, it creates a more cohesive, motivated, and productive workforce that drive the organization towards its goals. I want to take a moment to say thank you to all of our employees for their dedication, hard work and passion. It's because of you that our company can achieve great things.

Moving on to strategic enabler number three, achieve operational excellence in supply chain. Through this strategic enabler, we're advancing our global supply chain strategy to both drive economic value and support our sustainability agenda. This fiscal year, we've strengthened global partnerships with key suppliers, leading to improved efficiencies, supply chain optimization and tangible cost savings. Based on what we know today, we believe these cost savings will largely offset the financial impact of any potential tariffs for the remainder of this fiscal year. Generally speaking, we expect any potential tariffs from what we know today to have a minimal global impact on our business, thanks to our highly diversified supply chain.

By sourcing raw materials and manufacturing products close to our customers and end users, we gain both economic and environmental advantages while also naturally mitigating most of the impact of tariffs. However, given the dynamic nature of the environment, predicting exact outcomes is challenging, and we do have markets within The Americas, especially Mexico and Canada, representing around 6% of our global business that may be impacted more significantly. As a precaution, we've taken steps to build inventory in certain markets to mitigate potential tariff impacts in the short term. Beyond FY 2025, we do expect to see higher inflation like most businesses, and we will likely need to modestly adjust prices in certain markets to offset that impact. With that, I'll now turn the call over to Sarah.

Sarah Heiser, Vice President and Chief Financial Officer, WD-40 Company: Thanks, Steve. Today, I will share a brief update divestiture of our Home Care and Cleaning business in The Americas and The UK, provide insight into our business model and review some highlights from our second quarter results. I will also share an updated outlook for fiscal year twenty twenty five. Last quarter, we met all the criteria to classify the assets we intend to sell as held for sale on our balance sheet, indicating progress on this journey. While I do not have a detailed update for you today on the anticipated divestiture, I can share with you that the investment bank we have engaged continues to have discussions with multiple potential suitors on our behalf.

While there are no certainties on closing a deal with potential buyers and going to the market, our expectation is that we will likely complete the divestiture of these brands over the coming months. We will provide further updates on the divestiture process as appropriate. Our fifty fivethirtytwenty five business model continues to be a long term beacon that we will move toward and align with over time. In the short to mid term, we continue to think about each critical component of the model in a range. Let's start with a look at our second quarter gross margin performance.

We target a range of 50% to 55% for gross margin, and we have made significant progress improving our gross margin over the last several quarters. In the second quarter, our gross margin was 54.6, up from 52.4% last year. This represents an improvement of two twenty basis points compared to the second quarter of last year. Gross margin benefited 110 basis points from lower cost of our cans and 90 basis points from lower costs associated with specialty chemicals used in the formulation of our products. We are also happy to share with you that gross margin improved in both EMEA and The Americas this quarter compared to the second quarter of last year.

Within EMEA, gross margin improved four forty basis points to 58.1. The Americas improved their gross margin by 70 basis points to 50.1%. In Asia Pacific, gross margins remained steady at 58.4%, which was a slight decline of 10 basis points. As a reminder, gross margin recovery has been a central focus for senior leadership who are incentivized to recover gross margin to 55% and beyond. Year to date, our gross margin was 54.7%, up from 53.1% last year.

Excluding the impact of the home care and cleaning businesses we plan to divest, our gross margin is 55.2%, positioning us to exceed 55% by the end of fiscal year twenty twenty five. In fact, we currently believe we will achieve gross margin of between 5556% in fiscal year twenty twenty five, '1 year earlier than previously projected. There are things that could knock us off course, and we continue to carefully observe the cost landscape, impact of tariffs, timing of execution of our supply chain cost initiatives and our success in divesting of our assets held for sale. However, we are very happy with the significant improvements we have seen to gross margin over the last several quarters, and we believe we will be above our target of 55% for the fiscal year. Now turning to our cost of doing business, which we define as total operating expenses plus adjustments for certain non cash expenses.

Cost of doing business is primarily comprised of three areas investments in our employees, investments in building our brand globally and trade expense to get our products to our customers. Cost of doing business as a percentage of net sales is how we measure how efficient we are at operating our business. We target a range of 30% to 35% as a percentage of net sales for our cost of doing business. This quarter, our cost of doing business as a percentage of net sales was 38% compared to 36% in the same period last year. In dollar terms, our cost of doing business increased $4,700,000 or 9% primarily due to higher employee related expenses, including higher accrued incentive compensation and stock based compensation expense.

In addition, investments made in brand building activities increased period over period. As a percentage of sales, our A and P investment was 5.1% compared to 4.8% in the second quarter of the prior year. Our A and P investment is currently tracking below our full year guidance of 6% due to the timing of promotional programs. However, we have several brand building activities planned for the second half of this fiscal year, which we estimate will bring our A and P investment in line with our projected guidance of approximately 6% of net sales. We expect to see improvements in our cost of doing business metric over time as sales grow, which is the most important factor in managing our cost of doing business towards our long term target of 30% to 35%.

Turning now to adjusted EBITDA. We believe looking at adjusted EBITDA as a percentage of sales is beneficial to measure our profitability and to assess operational efficiency. Our 25% target for adjusted EBITDA margin is a long term aspiration. However, we continue to believe we can move adjusted EBITDA margin back to our mid term target range of 20% to 22%. In the second quarter, our adjusted EBITDA margin improved slightly to 18% compared to 17% in the same period of last year.

We believe looking at adjusted EBITDA in dollar terms can also be useful for assessing absolute performance. In the second quarter, our adjusted EBITDA was $25,800,000 up 10% from prior year. As we've mentioned previously, as we successfully divest the brands that are held for sale, we will need some time to digest the impacts. Although these home care and cleaning brands produce a lower gross margin than our maintenance products, there is a lower level of operating expenses associated with these brands, primarily because no employees or resources are fully dedicated to them. If we successfully divest these brands, we will lose approximately $23,000,000 in annual revenue, but with little associated operating expenses.

As a result, our cost of doing business and adjusted EBITDA metrics will see a temporary setback on a percentage basis. However, selling these brands will position us as a higher growth, higher gross margin company while also freeing up capacity for employees to focus on higher priority projects that align with our strategic framework. Now let's discuss operating income and EPS as well as a non cash tax event that impacted our reported results. Operating income improved to $23,300,000 in the second quarter, an increase of 11% over the prior quarter. Diluted earnings per common share for the quarter were $2.19 compared to $1.14 for the second quarter last year.

This quarter, we recorded a non cash event that materially impacted our net income and EPS. In fiscal year twenty nineteen, we took an uncertain tax position related to the Tax Cuts and Jobs Act, specifically for calculating the onetime toll tax on unrelated foreign earnings. This resulted in a reduction in earnings in 2019. With the recent expiration of the federal statutes in December, the company released the unrecognized tax benefit associated with this mandatory one time toll tax. The release of this tax benefit resulted in a favorable income tax adjustment of $11,900,000 this quarter.

Given the significance of this tax benefit, which resulted in a favorable impact of $0.87 for the quarter, we have backed this non cash event out of EPS as a non GAAP adjustment. Diluted earnings per common share on a non GAAP adjusted basis were $1.32 in the second quarter compared to $1.14 last year, reflecting an increase of 16%. Our diluted EPS reflects 13,600,000.0 weighted average shares outstanding. Now let's look at our capital allocation strategy. Maintaining a disciplined and balanced capital allocation approach remains a priority for us.

For the foreseeable future, we expect maintenance CapEx of between 12% of sales per fiscal year, which is in line with our asset light strategy. We continue to return capital to our stockholders through regular dividends and buybacks. Annual dividends will continue to be our priority and are targeted at greater than 50% of earnings. On March 18, our Board of Directors approved a quarterly cash dividend of $0.94 per share. During the second quarter, we repurchased approximately 12,500 shares of our stock at a total cost of approximately $3,100,000 under our current share repurchase plan.

We will continue to be active in the market and expect to repurchase at least enough shares to offset those issued for equity compensation. Our objective is to return cash to investors in the most accretive manner. So let's turn to FY 2025 guidance, which we have made revisions to reflect our current view of the business. As a reminder, we issued this year's guidance on a pro form a basis excluding the financial impact of the Home Care and Cleaning brands we have classified as assets held for sale. While the exact timing of the transaction remains uncertain, we believe this approach will provide investors with clarity on the direction of the core business and help minimize the noise surrounding the transaction.

In addition, this guidance excludes the release of a non cash one time uncertain tax position that generated a favorable income tax adjustment. I encourage investors to review our second quarter fiscal year twenty twenty five earnings presentation, which includes a pro form a view. Our updated guidance for fiscal year twenty twenty five is as follows. Net sales growth from the pro form a 2024 results continues to be projected to be between 611%, with net sales between 600,000,000 and $630,000,000 after adjusting for translation impacts of foreign currency. Gross margin for the full fiscal year has been increased and is now expected to be between 55% to 56%.

Advertising and promotion investment continues to be projected to be around 6% of net sales. Operating income continues to be projected to be between 95,000,000 and $100,000,000 representing growth of between 6% to 12% over the pro form a 2024 results. While we are raising our guidance for gross margin, our guidance for operating income remains unchanged due to the impacts of foreign currency exchange headwinds. The provision for income tax is now expected to be around 22.5%, which is driving an increase to non GAAP diluted earnings per share, which is now expected to be between $5.25 and 5.55 Non GAAP EPS is based on an estimated 13,500,000.0 weighted average shares outstanding. This range represents growth of between 1117% over the pro form a twenty twenty four results.

This guidance assumes no major changes to the current economic environment. Unanticipated inflationary headwinds, foreign currency exchange fluctuations, changes in trade tariffs and other unforeseen events may further affect the company's financial results. In the event we are unsuccessful in divesting the assets currently held for sale, our guidance would be positively impacted by approximately $23,000,000 in net sales, dollars 6,000,000 in operating income and $0.33 in diluted EPS on a full year basis. That completes the financial overview. Now I would like to turn the call back to Steve.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Thank you, Sarah. In summary, what did you hear from us on this call? You heard that we experienced double digit volume growth both in the second quarter and year to date with particularly strong volume growth in EMEA. You heard that after adjusting for estimated translation impact of foreign currency, net sales would have increased 9% compared to prior year fiscal quarter. You heard that sales of our maintenance products were up 6% in the second quarter despite currency headwinds and that this performance aligns with our long term growth target.

You heard that sales of W40 Multi Use Product were up 8% year to date. You heard that sales of W40 Specialists were up 12% year to date. You heard that we've been able to increase our employee engagement score to 94%. You heard that we've strengthened global partnerships with key suppliers, leading to improved efficiencies, supply chain optimization. And based on what we know today, we believe these cost savings will largely offset the financial impact of any potential tariffs for the remainder of this fiscal year.

You heard that we've made improvements to gross margin over the last several quarters and that we believe will be above our target of 55% by the end of fiscal year twenty twenty five. And you heard that we made an upward revision to our full fiscal year twenty twenty five gross margin and EPS guidance. Thank you for joining our call today. We'd now be pleased to answer your questions.

Conference Operator: Our first question will come from the line of Daniel Rizzo with Jefferies. Please go ahead.

Daniel Rizzo, Analyst, Jefferies: Good morning, everyone. Thank you for taking my questions. If we can start with just with tariffs, I understand you're making some adjustments, but I was wondering how much you ship across borders if you produce or produce and sell locally or how much tariffs will have an impact both the tariffs that's being proposed by The U. S. And I guess the retaliatory tariffs from China?

Just any color you can provide on the ongoing volatile environment.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Sure. Hey, Dan, it's Steve. So we are centralized supply chain. And so the tariff risk is somewhat mitigated by that. Of course, we're not fully immune.

So in The United States, as you perhaps know, you know, we manufacture for The US. Mostly in The US, There are small elements of components that are brought in. But the vast kind of element of the supply chain in The U. S. Is reasonably tariff immune.

Of course, are costs such as, you know, steel tariffs that will work their way through as we go through, but they're being offset also by other costs. And so this decentralized nature of our supply chain helps a lot. We've got a lot of supply chain optimization measures happening this fiscal year. And we currently believe, as of today, what we see today and what we know today, that our supply chain optimization and cost saving measures will largely offset any impact of tariffs for the remainder of this fiscal year. Beyond this fiscal year, we will kind of look at our forward cost base, and we kind of indicated that we will look at small to moderate inflationary plus type increases as we experience potential inflation going forward.

Daniel Rizzo, Analyst, Jefferies: Okay. So China announced retaliatory tariffs. It's very early, but they also announced or alluded to maybe restricting sales within the country and just doing other things that are just to kind of as a retaliation against U. S. I was wondering if that affects you guys at all, that's restricting your product, that's restricting what you can do or if there's any signs of any potential emerging headwinds from that?

Steve Brass, President and Chief Executive Officer, WD-40 Company: So as of today, we see no risk there. So we manufacture in China for China. And as you perhaps know, we export from China to the Asian markets as well as manufacturing in Australia, and we're ramping up manufacturing also in other Asian markets. And so within China at the moment, we are kind of seen as a local brand in many places we operate around the world. And so as of today, we don't see any material risk to our operations in China because of our localized supply chain.

And the fact that we have Chinese nationals and fully operating our Chinese business, we are seeing very much as kind of a local business in many places around the world.

Daniel Rizzo, Analyst, Jefferies: Okay. And thank you for that. And then you mentioned optimizing your supply chain. I was wondering if that means you're going from dual sourcing to sole sourcing or vice versa. If or just a little bit of color on that.

If it means, yes, you're going to more sources to make it less more cost effective maybe, but and a little more stable? Or if you go into OneSource to make it more optimized? Or how we should think about it?

Steve Brass, President and Chief Executive Officer, WD-40 Company: So it's a combination of all those things. So the net result is that we have a better, more diversified geographic footprint to our supply chain, which is serving the major areas of growth in the business, whilst also extracting. So you may be aware that we did invest in a global supply chain leadership position a couple of years ago, and we're starting to bear the fruit in terms of the high quality analysis that's led to global cost savings and leveraging kind of our global partnerships. So it's a combination of lots of things that's leading to a much more kind of derisked localized supply chain, but also driving cost savings for us.

Daniel Rizzo, Analyst, Jefferies: Do does it take a while to to kind of qualify a supplier? I mean, it is it is it a multiyear process? Is it a multi month process? Or how does it work? And how easy is it to shift?

Steve Brass, President and Chief Executive Officer, WD-40 Company: Yes. There's a time lag, right? So bringing on, for example, a new aerosol filler takes more than a year. You're looking at eighteen months to two years to fully see that through. But we're well in the process.

We have multiple moves around the world where that's already happening, and we're diversifying further diversifying our supply chain, whilst also optimizing for the global nature of our business in many areas.

Daniel Rizzo, Analyst, Jefferies: Okay. And just two more questions. One, so your gross margins are going higher expected to be a little bit better than expected, but the operating income is the same. So I assume that's from SG and A or it appears to be from SG and A. And I guess, just want to make sure if that's just coming from higher expected compensation expenses for the rest of the year or for something else that's keeping those SG and A expenses elevated through the end of the year?

Sarah Heiser, Vice President and Chief Financial Officer, WD-40 Company: Hi, Daniel. I can take that one. So the guidance the SG and A costs for the year are substantially as expected when we look out both in the first half and the back half of the year. The reason the operating income is not shifting with the increase in our margin is strictly from the impact of the foreign currency. So when you look at the sorry, the air conditioner just went on in here.

So the impact of foreign currency for the first half of the year has been a headwind. And when we look at that for the full year, depending on which market you're looking at, the impact of that is now masking the gross margin is masking the headwind of the foreign currency. So our operating income is expected to be in line with the initial expectations that we had at the beginning of the year.

Daniel Rizzo, Analyst, Jefferies: But FX has fallen recently though. Could that provide some upside that's not currently being expected?

Sarah Heiser, Vice President and Chief Financial Officer, WD-40 Company: When we look at the couple of them the biggest market that for us is the euro, and I would agree that the euro has trended up in the last month. When we put guidance together, we obviously are looking at more recent rates. And so that could be a tailwind for us if it holds in the back half of the year.

Daniel Rizzo, Analyst, Jefferies: Okay. And then last question just on FX. Is there a rule of thumb you guys have like a zero one dollars move in the euro translates into x in the number of millions of dollars? Or is it not really that easy?

Sarah Heiser, Vice President and Chief Financial Officer, WD-40 Company: It's not really that easy just because of the dynamics of the costs over in Europe. So we necessarily have a rule of thumb that we guide to on that.

Conference Operator: Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for your participation on today's conference call and ask that you please disconnect your lines.

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