Steve Brass: So I think the — I mean, Sara, you can add to this, but from my point of view, it’s all about, you know, we are laser-focused on these Must-Win Battles like never before and I think, you know, we put out our historic rates in terms of what we’ve achieved, we put out our forward rates by each of the battles in terms of what we want to achieve with the big ones being geographic expansion, premiumization of WD 40 Specialist. And so it’s really about accelerating revenue growth to gain scale, you know, having a higher sales base to leverage the cost base over. So if you take things like our ESG investments, that’s a team of three people, you know, in five years’ time that team will still be a team of three people, but we had to put it in place for various reasons. So, you know, I think going forward, it’s about, you know, driving faster revenue growth via laser-focused execution on those battles and just accelerating the pace at which we execute our strategy.
Linda Bolton Weiser: Okay, sounds good. Thank you very much.
Sara Hyzer: Thanks, Linda.
Steve Brass: Thank you.
Operator: Our next question comes from Rosemarie Morbelli with Gabelli Funds. Please proceed with your question.
Rosemarie Morbelli: Thank you. Good afternoon, everyone.
Steve Brass: Hey, Rosemarie.
Rosemarie Morbelli: Hi. I think that you and Sara, Steve kind of talked about what you are expecting for 2024, but I was wondering if you could give us a little more details, you are expecting topline growth of 6% to 12%, you are expecting a higher gross margin, advertising and sales seems to be similar to what you have been experiencing on a percentage of sales. So but we are looking at the low end and potentially lower EPS year-over-year. So I understand that you are spending more on that operating — cost of operation, but what should — will go wrong for you to have actually a down year, that is a part that I’m struggling with, why $4.78, why not a flat year? What — what is the main factors that would create that?
Sara Hyzer: So there are a couple of things happening below the operating line. So, we’ve talked already about the increase in SG&A costs. So, yes, there is less leverage being dropped to the bottom line this year versus prior year but below the operations line, when we do go live in our new ERP system, we are going to have additional non-cash amortization expenses hitting. So that is going to be increasing and then in addition, our tax rate is going up, so it is going up 200 basis points as a result of increased statutory rates in the UK. So, essentially increased foreign taxes, year-over-year with statutory rate increases along with increased interest rates on our uncertain tax positions in the US. So, the impact on our tax line is not inconsequential. And obviously, that’s having a pretty decent impact on our EPS number.
Steve Brass: And if I can just add in terms of the kind of the drivers of the business in terms of revenue, so this volume recovery, particularly in Europe, right? So, for the fiscal year, $37 million of volume loss this year. You know, the big question is, how much of that can we recover? We think we’re likely to recover somewhere between 50% and 80% for the year of that, but that’s dependent largely upon Europe and Latin America recovering. And then on the gross margin as Europe becomes a bigger part of our business, there is — there are mixed benefits, right, our — our gross margin in many of our continental European businesses in particular, which suffered last year is very, very strong. And so, as we do more business in Europe and Asia-Pacific that country mix on gross margin is positive and then also just simply, you know, from a gross margin point of view, selling more products, more of our highest gross margin product.
So, Smart Straw, EZ-Reach, premium formats, WD-40 Specialist and selling less of our lowest gross margin products, household products, is a big driver of our gross margin going forward as well.
Rosemarie Morbelli: So, there is — I am still confused about one thing. Wouldn’t the cost of the ERP system that will now be expensed instead of capitalized, wouldn’t that be part of the SG&A? Why is it below the line, I am confused about that?
Sara Hyzer: So I look at – so when I say below the line, I meant below our EBITDA margin, but yes, amortization is sitting up in SG&A, so apologies for that comment.
Rosemarie Morbelli: No, it’s okay. Listen, I should use all of the different lines. Okay. Then you are working on supply chains — supply chain changes, what do you think you need to improve there? I mean, everyone was hit with an increasing, you know, inventory level after the pandemic and difficulties in getting raw materials. Then it was de-stocking. So what do you think needs to be changed for you to do better should these circumstances, which I hope is not the case but, come back?
Sara Hyzer: So we’ve spent tremendous amount of time, the last year and a half stabilizing our supply chain particularly in the US and we are actually pretty much done at this point with expanding our filler network in the US. We’ve also expanded our filler network in Europe. We also have expanded our suppliers. So we have multiple suppliers now for our cans and have continued to expand our supplier base as well. So we’re feeling very good about where we’re at from a supply chain standpoint. So from here, it’s really about optimizing and volume solves a lot of those problems, right? As we start to have volume continues to come back, we’re able to push more volume across the broader filler base and when we can push more volume into our filler network, we get better unit pricing, we’re able to turn inventory quicker, so there’s a lot of things that we’re looking at from an optimization standpoint.
But at this point, we don’t see any full-scale changes to our supplier network. We’re always looking at kind of what’s the next, you know, longer-term change for us, but in the near term, we feel very good about where we’re at with our — with our overall network on the supply chain side. Steve anything to add?
Steve Brass: No, I think that’s it’s. I think it’s about optimizing the next stage, particularly within the Americas, right. So when you look at our gross margin by trading block, you know, you can see that. So the Americas having re-established their supply chain, there are optimization opportunities there. You look at our gross margin within the Asia-Pacific region, we’re already back up at 55, Europe is heading that way in terms of 52, 53, it’s really the Americas where we need to extract those optimizations now.
Rosemarie Morbelli: Isn’t the reason for the lower margin — the lower gross margin in the Americas well, no, I guess I am wrong, I was going to ask if it is because you have your headquarters here, but I guess that would affect the SG&A, it should not affect the gross margin, correct?
Steve Brass: No, our US gross margins are pretty healthy. It’s really been about Latin America gross margins and getting those back on track.
Rosemarie Morbelli: Okay. And if I — Thank you. And if I may ask one last question, any potential acquisitions you are looking at of new product line which would fit with your existing product lines?
