WD-40 Company Q3 FY2026 Earnings Call - 24% Sales Surge Fuels Operating Leverage Amid Margin Pressure

Moderator: Good day. Welcome to WD-40 Company’s third quarter fiscal year 2026 earnings conference call. Today’s call is being recorded. All participants are currently in listen-only mode. Following the prepared remarks, we will open the call for questions. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now turn the call over to Wendy Kelley, Vice President, Stakeholder and Investor Engagement. Please go ahead.

Wendy Kelley, Vice President, Stakeholder and Investor Engagement, WD-40 Company: Thank you. Good afternoon. Thank you for joining us today. On our call today are WD-40 Company’s President and Chief Executive Officer, Steve Brass, and Vice President and Chief Financial Officer, Sara Hyzer. In addition to today’s discussion, we encourage investors to review our earnings presentation, press release, and Form 10-Q for the period ending May 31, 2026, available on our investor relations website at investor.wd40company.com. A replay and transcript of today’s call will also be posted shortly. We will discuss certain non-GAAP measures today. Reconciliations to GAAP results are available in our SEC filings and earnings materials. Today’s call also includes forward-looking statements. Actual results may differ materially. Please refer to the risk factors in our SEC filings for more information. Finally, please note that all information presented is current as of July 9th, 2026. We undertake no obligation to update forward-looking statements.

With that, I’ll turn the call over to Steve.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Thanks, Wendy. Thanks to everyone for joining us today. I’ll begin with an overview of our third quarter performance and progress against select areas of our four by four strategic framework. Sarah will review our financial results and outlook. We’ll conclude with your questions. Third quarter consolidated net sales increased 24% year-over-year to $195.1 million. Maintenance products, which represented 97% of total net sales, increased 26% to $189.7 million. Were up 22% on a constant currency basis, exceeding our long-term growth expectations and setting a new record for the company. Sales of maintenance products in our direct markets increased 28% year-over-year, while sales through our marketing distributor markets increased 18%. We’ll discuss the drivers of this performance in a moment. Gross margin increased 40 basis points year-over-year to 56.6%.

We’re encouraged by this momentum and remain focused on the levers within our control. Although we expect gross margin to experience some temporary pressure from external cost factors in the coming months, we are confident that the actions we’ve taken position us well for recovery thereafter. We will vigorously defend our gross margins and may need to take further action in fiscal year 2027 as required. Sara will provide additional perspective on our outlook in a moment. Now let’s review third quarter sales results by trade block. Unless otherwise noted, I’ll discuss net sales on a reported basis compared to the third quarter of last fiscal year. Sales in the Americas increased 29% year-over-year to $101.2 million, driven by a 31% increase in maintenance products to $98.3 million.

This growth was driven primarily by increased sales of WD-40 Multi-Use products in the U.S. and Latin America, where sales increased $17.2 million and $2.6 million respectively. Strong performance of WD-40 Multi-Use Product in the U.S. was driven by several factors, including expanded distribution, robust e-commerce sales, and strong promotional activity, including a high impact promotional campaign featuring a limited edition can collaboration with Disney Entertainment and The Home Depot. In Latin America, sales increased across Brazil and Mexico, supported by higher sales volume in Brazil and a combination of sales growth and favorable foreign currency translation in Mexico. WD-40 Specialist sales increased by 22%, driven by higher U.S. volumes reflecting new distribution gains, strong placement with large retailers, and growth in online sales. Homecare and Cleaning Products sales declined 9%, reflecting our strategic focus on higher margin maintenance products.

Sara will give an update on our U.S. Homecare and Cleaning business later in the call. Looking ahead, we expect low double-digit growth in maintenance products in the Americas for fiscal year 2026. Turning to EMEA, sales increased 17% year-over-year to $66.6 million, reflecting higher sales volume in both direct and distributor markets, as well as favorable foreign currency exchange rates. On a constant currency basis, sales were up 10%. In our EMEA direct markets, sales increased by $6.6 million, driven by double-digit growth in maintenance products across key markets, including Iberia and DACH. In these regions, sales of maintenance products rose by $2.2 million and $1.5 million respectively, supported by strong commercial execution, promotional activity, and merchandising. In our distributor markets, sales increased by $4.4 million, reflecting a strong rebound after several softer quarters and the positive impact of completed strategic distribution changes.

Growth was driven by higher sales volumes across key markets, including Saudi Arabia and the United Arab Emirates, supported by the timing of customer orders and increased inventory build within the region. In India, sales increased $1.6 million, primarily due to favorable order timing and foreign currency impacts. Sales in the EMEA region also benefited from some advance buying as customers proactively managed inventory levels amid uncertainty around product availability following geopolitical developments in the Middle East. We also experienced some advance buying ahead of price increases, which became effective in early Q4. As a result of both of these factors, a portion of fourth quarter demand shifted into the third quarter. WD-40 Specialist sales increased 31%, driven by growth across most of our direct and distributor markets. Growth was led by France and Iberia, where strong marketing programs and new product introductions supported higher sales.

As a reminder, the divestiture of the U.K. Home Care and Cleaning portfolio in fiscal 2025 reduced third quarter sales by $1.1 million. Despite ongoing uncertainty in the Middle East, we expect maintenance product sales in EIMEA to increase by low to mid-single digits in constant currency and high single digits in reported currency in fiscal year 2026. In Asia Pacific, sales increased 24% year-over-year to $27.3 million and were up 18% on a constant currency basis. Growth was broad based across the region, driven primarily by China and Asia distributor markets, which increased $3 million and $1.4 million respectively. In China, growth was driven by higher sales volumes supported by promotional and marketing programs, including online influencers and expanding distribution across online retail and industrial channels.

Sales also benefited from advance buying ahead of planned price increases later in the year, which shifted a portion of expected fourth quarter demand into the third quarter. In our Asia distributor markets, sales increased, driven by promotional programs, particularly in the Philippines, Indonesia, and Malaysia. WD-40 Specialist sales increased $1 million or 32%, driven by growth across the region, with the strongest gains in China, where higher volumes were supported by promotional and marketing programs and expanded distribution. We remain encouraged by regional momentum and expect high single digit to double digit growth in maintenance products in Asia Pacific for fiscal year 2026. Now let’s talk about our Must Win Battles, a core element of our strategy to accelerate revenue growth in maintenance products.

Starting with Must Win Battle number one, lead geographic expansion, year-to-date sales of WD-40 Multi-Use Product increased 13% to $398 million, driven by solid performance across all three trade blocks. We are seeing strong progress across key markets, with year-to-date growth of 20% in the U.S., 21% in China, and 27% in Iberia. We continue to execute from a proven playbook, expanding distribution and sampling programs to build awareness with end users across 176 countries and territories and 62 trade channels. We estimate the attainable market for WD-40 Multi-Use Product to be approximately $1.9 billion. With fiscal year 2025 sales of $478 million, we believe there remains a significant long-term growth opportunity. Next is Must Win Battle number two, accelerating premiumization. Year-to-date sales of WD-40 Smart Straw and WD-40 EZ-REACH, when combined, increased 19% and now represent approximately 50% of WD-40 Multi-Use Product sales.

These premium formats strengthen brand loyalty, support gross margin expansion, and provide meaningful runway for continued growth. We continue to target annual growth of more than 10% in premiumized products. Our third Must Win Battle is driving WD-40 Specialist growth. Year-to-date sales increased 22% to $72.9 million. We estimate the attainable market for WD-40 Specialist at approximately $665 million. With fiscal year 2025 sales of $82 million, we’re still in the very early stages of capturing this significant growth opportunity. Today, 90% of our WD-40 Specialist sales come from just 10 markets, highlighting a significant opportunity to expand through geographic growth and product innovation. In the third quarter, we launched our first bio-based lubricant across several European markets. While it’s still early, we are very encouraged by the initial results and look forward to rolling out the product across additional markets in the coming quarters.

We continue to target annual growth of more than 10% on WD-40 Specialist as we expand our portfolio of purpose-built maintenance solutions. Our fourth Must Win Battle is to turbocharge digital commerce. Year to date, e-commerce sales increased 22%, led by the United States and China. E-commerce pure play remains one of our fastest growing channels. Across digital, we’re strengthening execution on key platforms. Our social media and video channels are driving much of our digital reach, helping us connect with both new and existing end users in more engaging ways. As a result, we’re reaching and engaging more end users than ever before. Digital commerce continues to support each of our Must Win Battles by improving access to our products and increasing brand visibility and relevance. We’ll now move to our strategic enablers, which support operational excellence across the business. Zig Ziglar once said, "You don’t build a business.

You build people, and then the people build the business." That philosophy is core to WD-40 Company and is the foundation of our people first mindset. Our people are remarkably resilient, agile, and innovative. Over the past five years, they have navigated a series of external challenges from the global pandemic to geopolitical uncertainty while strengthening cost discipline, implementing new systems, enhancing how we serve customers, and leveraging our globally decentralized supply chain network, all in the face of significant uncertainty. Last month, we announced a planned leadership transition to build on the strong foundation we have in place. As part of this transition, we introduced new roles to strengthen alignment and accelerate strategy execution, ensuring we have the right structure and leadership in place to support continued growth.

These new roles include Chief Strategy and Innovation Officer and Chief Brand and Marketing Officer and will be filled by experienced WD-40 Company leaders transitioning from within the company. These newly created roles are designed to enhance collaboration, accelerate innovation, and proactively harness AI and digital technologies to drive growth and advance the company’s long-term strategy. We also announced that Sara Hyzer will transition to President of our Americas division, reflecting our commitment to developing leaders from within. Sara will continue to serve in her current role during the transition until a successor is named. These changes are designed to support continued growth and position the business for long-term success. With that, I’ll now turn the call over to Sara.

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Thanks, Steve. I appreciate the opportunity to take on my new role, and am excited about what lies ahead for our Americas business. In the meantime, I remain fully focused on my current responsibilities and on delivering value for our stakeholders. Today, I will review our third quarter performance against our business model, introduce enhancements we are making to further strengthen it, provide an update on the divestiture of our Americas Homecare and Cleaning Products business, and discuss our fiscal year 2026 guidance and key assumptions. We were encouraged by our third quarter performance, with net sales up 24% and operating income growing 47%, reflecting the benefits of scale in our business. The difference between those growth rates highlights the leverage in our business model as higher revenue flowed through to profitability. As expected, results strengthened as the year progressed, with improvement across both the top and bottom line.

Turning to our business model, which expresses gross margin, cost of doing business, and adjusted EBITDA as a percentage of revenue. This quarter, we are seeing the benefits of higher revenue and scale reflected across the model. Starting with gross margin, performance remains strong. Third quarter gross margin was 56.6%, up 40 basis points year-over-year. This increase was driven by 80 basis points from lower aerosol cans and fill fees, as well as 60 basis points from favorable sales mix and other miscellaneous mix, partially offset by 60 basis points of increases in other input costs. Third quarter gross margin performed as expected, despite external cost pressures driven by recent geopolitical developments, reflecting the benefit of higher inventory levels entering the quarter. We expect those costs to move through our production and inventory cycles over the next several months.

In response, we have already implemented pricing and cost-saving initiatives across many regions, positioning the business to realize the benefits of these actions, with most of the impact expected in fiscal year 2027. As these actions take hold and the external environment stabilizes, we anticipate gross margin improvement over the course of fiscal year 2027. While the exact timing and pace of that recovery are difficult to forecast, we believe we are well positioned to navigate the environment, strengthen profitability, and drive continued progress. Turning to cost of doing business, which represents operating expenses adjusted for certain non-cash items. It decreased to 34% of net sales from 38% last year, reflecting operating leverage from higher revenue and scale. Advertising and promotional investment increased to 6.1% of net sales from 5.8% last year, driven primarily by higher promotional activity in the U.S.

We still anticipate being around 6% of net sales for the full year, which is in line with our guidance. Finally, adjusted EBITDA margin increased to 23% from 20% last year, reflecting operating leverage from higher revenue and scale. Now I’d like to provide an update on the Home Care and Cleaning divestiture. Last fiscal year, we announced our intent to sell these brands in the Americas and the U.K. We successfully completed the divestiture of the U.K. Home Care and Cleaning brands in August of 2025. After extensive engagement with potential buyers, it became clear that the current macro environment was not conducive to divesting of these brands as a bundle. As a result, we are no longer actively marketing these brands for the foreseeable future and have reclassified these assets as held for use. We continue to view these Home Care and Cleaning brands as non-core.

We will remain open and opportunistic and are evaluating each brand individually should the right opportunity present itself. For the time being, we will manage these as harvest brands, expecting gradual top line decline while continuing to generate attractive returns. As a reminder, the Americas household brands combined represent $12 million in annual sales, less than 2% of our global revenue. Consistent with accounting guidance, we resumed amortization and recorded $1.3 million in expense during the quarter related to prior periods when these assets were classified as held for sale. Given the one-time nature of this catch-up expense, we are including this as a non-GAAP adjustment to help investors better evaluate the underlying performance of the business. Additionally, this decision will impact our reporting in two other ways.

First, we issued fiscal year 2026 guidance on a pro forma basis, excluding the Homecare and Cleaning Products businesses, to provide clear visibility into the performance of the core business. With the reclassification to held for use, our fiscal year 2026 guidance now includes associated sales and earnings from these assets, which favorably impacts elements of our outlook. I’ll discuss in more detail when I walk through our updated guidance for the year. Second, our decision to retain the Homecare and Cleaning Products business prompted us to reassess and sunset our longstanding 55/30/25 business model. As part of this reassessment, we developed our new enduring business model, which provides a disciplined framework for how we manage the business and create long-term value. It is anchored in four key drivers. Maintenance product sales growth targeted at mid-to-high single digits. Gross margin targeted above 55%.

Adjusted EBITDA growing faster than net sales. An asset-light model that requires minimal capital investment. Together, these drivers support strong outcomes, including returns on invested capital above 25%, strong free cash flow conversion, and a balanced capital allocation approach that prioritizes organic growth, dividends, and share repurchases. The enduring business model was designed to drive leverage and long-term returns for stockholders, better reflecting our strength as a perpetual compounder. We will continue to report under the 55/30/25 model through fiscal year 2026 and transition to the enduring business model in fiscal year 2027 to better align our metrics with our long-term strategy. Turning now to other key measures of financial performance. Let’s review operating income, net income, and earnings per share for the third quarter. Operating income increased 47% to $40.3 million, with foreign currency being a tailwind for us.

On a constant currency basis, operating income increased by 42%, primarily driven by higher sales and improved gross margin, partially offset by increased operating expenses. Excluding amortization expense related to the reclassification of our Homecare and Cleaning Products brands, non-GAAP net income was $31.5 million, up 50% to prior year. On a non-GAAP basis, diluted earnings per common share were $2.33, up from $1.54 in the prior year quarter. Turning from how we measure performance to how we deploy capital. Our balance sheet remains strong and supports a disciplined approach to investing in organic growth and returning value to stockholders. Our capital allocation strategy remains a consistent foundation. On June 15, 2026, our board of directors authorized a new share repurchase program of up to $100 million. The program has no expiration date, and the timing and amount of repurchases will be determined based on market conditions and other factors.

Let’s turn to fiscal year 2026 guidance. As a reminder, our fiscal year 2026 guidance was originally provided on a pro forma basis, excluding the Americas Homecare and Cleaning Products business that was classified as assets held for sale. Following the reclassification of these assets to held for use, the business has been incorporated back into our guidance, and I will walk through the specific impact to our guidance to help bridge those changes. We have also narrowed our guidance ranges based on our year-to-date performance and outlook. In addition, our guidance is provided on a non-GAAP basis and excludes the one-time amortization catch-up expense of $1.3 million recorded in the third quarter.

For fiscal year 2026, we now expect net sales and constant currency to be between $652 million and $667 million, representing growth of 6%-9% compared to pro forma fiscal year 2025 net sales of $614 million. This outlook includes approximately $12 million in net sales from assets recently reclassified as held for use. It also reflects a narrower guidance range, providing a more refined view of our expected performance for the remaining part of the fiscal year. Based on current exchange rates, we expect reported net sales to be between $675 million and $690 million, representing growth of 10%-12% compared to pro forma fiscal 2025 net sales. Gross margin is now expected to be between 54.5% and 55.5%. This revised outlook incorporates a 40-basis-point adjustment due to the reclassification of Homecare and Cleaning brands, along with an additional 60 basis points from higher-than-expected cost increases.

The company has implemented pricing actions and cost-saving initiatives with the majority of the expected benefit anticipated in fiscal year 2027. Advertising and promotion investment remains projected to be approximately 6% of net sales. We now expect non-GAAP operating income to be between $107 million and $113 million, representing growth of 5%-11% compared to pro forma fiscal 2025 results. This outlook includes approximately $2.9 million in operating income related to those assets recently reclassified as held for use. Our provision for income tax is now expected to be around 22.5%. Finally, we expect non-GAAP diluted earnings per share to be between $6.05 and $6.35, based on an estimated 13.5 million weighted average shares outstanding. This outlook includes approximately $0.17 per share related to the assets recently reclassified as held for use, and represents growth of 6%-11% compared to pro forma fiscal 2025 results.

Our guidance reflects a euro to US dollar exchange rate assumption of approximately $1.17 in the fourth quarter. Actual results may vary as conditions evolve. 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, Sara. In summary, what did you hear from us today? You heard that we delivered 24% net sales growth and 47% operating income growth, demonstrating the operating leverage inherent in our business model. You heard that third quarter sales benefited from advanced buying due to market uncertainty, as well as planned price increases later in the year, which shifted a portion of expected fourth quarter demand into the third quarter. You heard that our Must Win Battles continue to perform well, with solid double-digit year-to-date growth in geographic expansion, WD-40 Specialist, premiumized products, and e-commerce. You heard that our people first mindset remains central to how we operate, supported by leadership changes that strengthen alignment and support long-term growth. You heard gross margin was strong at 56.6%, up 40 basis points from last year.

While higher input costs are expected to pressure margins in the near term, pricing and cost optimization actions are underway, and we expect margin recovery as those benefits are realized. We will vigorously defend our gross margins and may need to take further action in FY 2027 as required. You heard that we decided to no longer actively market our Americas Homecare and Cleaning brands and have reclassified these assets as held for use. You heard that we’re introducing our enduring business model framework designed to drive leverage and long-term returns to stockholders, better reflecting our strength as a perpetual compounder. And you heard that we’re updating our guidance to incorporate the Homecare and Cleaning business into our outlook and to narrow our guidance ranges based on our year-to-date performance and outlook. Thank you for joining our call today. We’d now be pleased to answer your questions.

Moderator: We will now open the call for questions. If you would like to ask a question, please press 1 again. Please ensure your mute function is turned off. One moment, please, for the first question. Your first question comes from the line of Aaron Reed from Northcoast Research. One moment. Your line is open. Please go ahead.

Aaron Reed, Analyst, Northcoast Research: Congratulations on that front. I guess my first question really is, I was wondering if you could speak to how sustainable do you think margins being above 55% are? It seems like something that obviously you’re shooting towards that, but I was kind of wanting your two cents on what’s the sustainability or how would you kind of speak to that?

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Hi, Aaron. This is Sara. Thanks for that question. We had indicated at the end of Q2 that we believed our margins were going to hold in the third quarter, and they did hold, but that we did anticipate some cost increases as the result of the disruption in the Middle East. And so those cost increases did happen in the months subsequent to Q2. We had enough inventory on the balance sheet to sustain our margin in the third quarter, but we do anticipate those cost increases to begin to flow through in the fourth quarter. That said, we did also implement price increases, as Steve mentioned. And those price increases will begin to take effect really starting in fiscal year FY 2027.

We’ll start to mitigate some of those cost increases that we anticipate to see, or cost increases impacting our P&L that we anticipate in the fourth quarter. Those actions have already been taken. We’ve also taken some cost reduction actions as well to help mitigate the exposure in the fourth quarter. That said, we’re really pleased with where the full year is going to land. Between 54.5%-55.5%, considering what’s happening around the world, we feel really good about where the year’s landing.

Aaron Reed, Analyst, Northcoast Research: Okay, great. I guess one other question is involved to that. When you rolled out the price increases, and I’m not sure if the price of oil was a component to it, I know it’s a small piece of that, but did oil return to $70 faster than you anticipated? Or when you were modeling that, what did you expect in terms of input cost normalizations?

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: When we look at the rates that the cost increases went up, if we look at the range of the $95-$115, that was indicating about a 40% increase. The reality is we did experience decoupling, the input costs of the specialty chemicals and the base oils that we buy did go up in excess of the 40%. In some cases it was 50%, in some cases it was double. We saw really significant price increases in three months. The good news is, in June, we have started to see some of that pull back. The reality is, while we’ve seen the spot pricing on the commodity pricing kind of come back down within that $70 range, you’re not seeing the pacing of the cost decreases on the actual input cost come down at the same rate.

We are seeing them pull back about 20%-25% in the month of June. We do anticipate it to be a slower step down. It’s just the nature of the environment. The costs go up pretty fast, and then there’s a slower pace for it to step down. That said, assuming things don’t escalate further in the Middle East, we do anticipate that pacing back down to the levels that we saw pre-war.

Aaron Reed, Analyst, Northcoast Research: Okay, great. Thank you very much. I’ll turn it back over.

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Thanks, Aaron.

Moderator: Your next question comes from the line of Michael Baker from D.A. Davidson. Your line is open. Please go ahead.

Michael Baker, Analyst, D.A. Davidson: Thanks. All right. I guess just to follow up on that question, can you just talk about the fourth quarter outlook as sort of implied guidance, if you will? Just the math. If you do the math on the full year guidance plus what you’ve earned year to date, it does seem like the sales are in line with consensus. Earnings a little bit lower. I guess my question to you is your fourth quarter outlook now better, worse, or the same as it was three months ago? My assumption is same in the top line, maybe a little bit worse in the margins because of how the oil is playing out. I guess just how are you looking at the fourth quarter now versus where you thought it three months ago?

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Hi, Mike. It’s Sara again.

Michael Baker, Analyst, D.A. Davidson: Hi.

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: The fourth quarter outlook, it changed a little bit in the sense that there’s some phasing, right, that we saw between Q3 and Q4. There was a little bit more that was pulled into the third quarter than it was in the fourth quarter. When you look at the two quarters combined, we are landing in that mid to higher end of our guidance range. It was really more timing that impacted ultimately the fourth quarter outlook. We feel good about the fourth quarter. It’s going to actually be the second strongest quarter of the year. We knew going into the second half of the year that the majority of the growth this year was going to be in the back half.

The phasing of that, just really the timing of that fell more in the third quarter than it did into the fourth quarter. You did mention in the gross margin, there is a little bit more of a pullback than what we had anticipated coming out of Q2, that was just really hard to anticipate the cost increases. To be able to hold guidance within 50-60 basis points as to where we were a few months ago, considering the environment, I think we feel really good about that. Again, always a reminder that whatever pullback we get on those cost increases, there is an offset to that with our rewards program that helps protect the bottom line.

Really, when we look at the full year, we are increasing our bottom line guidance both in operating income and EPS as a result of being able to reduce some of our discretionary spending in the fourth quarter to help protect the bottom line.

Michael Baker, Analyst, D.A. Davidson: Okay. Just to follow up on that as my second question, just because frankly, there’s a lot of sort of moving parts in question. Tough to do the math, what you’re saying is your guidance is up not just on now including the HCCP Americas business, but you’re increasing your guidance on that, but also some things within the business, i.e. cost savings, as you just mentioned.

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Yeah. I’ll give an example, Michael. If I look at the operating income of where we were in Q2, we guided to $103-$110. If you add in the $2.9, that would have put us at $105.9-$112.9. We’re guiding to $107-$113. We are upping our bottom end by about $1.1 million. We’re pretty tight on the top end. The narrowing that we’ve mentioned is really raising the bottom end of both our top line revenue and our operating income and EPS. In all three scenarios, the bottom end is coming up.

Michael Baker, Analyst, D.A. Davidson: Understood. All right, thank you. Appreciate the call.

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Okay. Thank you.

Moderator: Your next question comes from the line of David Shakno from William Blair & Company. Please go ahead.

David Shakno, Analyst, William Blair & Company: Hey, this is David Shakno on for Jon Andersen. Two quick questions for me. First, you announced about a month ago or so, a promotion, a King of the Hill promotion at a large retailer. Just wanted to understand any early reads there and just how the performance there has been.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Sure. King of the Hill, yeah, the promotion, in partnership with Disney and with The Home Depot is one of the largest promotions we’ve ever run in our history. If you walk into a Home Depot store, you’re going to see some beautiful displays of WD-40 out there. It’s been in the market for about a month. It’s got a few months to go. We’re in the process of ramping up our marketing activity. I believe in the month of July, we’re going to be hitting about 80 million consumers across the U.S. in terms of targeting. Yeah, it’s really driving really strong incremental sales. It’s proving to be, after one month, about 75% incremental, so there’s very little cannibalization from the promotion. Yeah, we’re very pleased. It’s a major promotion for us. One of many promotions, right?

It’s not the only act we’ve got in the U.S. There’s lots of things going on in the U.S. We’ve got a couple with strong distribution gains. We’ve got very strong WD-40 Specialist growth, very strong e-commerce growth. This, and a couple of other meaningful promotions, are really helping drive the results you’ve got in the U.S.

David Shakno, Analyst, William Blair & Company: Got it. Thank you. Just wanted to follow up on, I know you talked about pricing a little bit earlier, just wanted to understand more, if you could help us with the magnitude at all of pricing. I realize most of the impact’s going to be in fiscal 2027, so it’s probably hard to see any kind of elasticities there. I wanted to understand if there’s been any pushback from retailers so far, just what the response has been in general.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Sure. The price increases we’ve executed are across Asia-Pacific and Europe. If you recall, or if you don’t, we actually launched price increases in the first quarter in the U.S. earlier in the fiscal year. We will review the situation in the U.S. next year as well. These price increases have been pretty well implemented across most of Europe and Asia-Pacific, where the bulk of the impact has been felt. Mid to high single digits in terms of the scale of the increases. A little bit more on our bulk products, which have felt a little bit more cost pressure. They were implemented between June and July, some of that stretching perhaps into August. The main impact of the price increases, going in, you’ll see that coming in the back half of Q4 and into Q1, you’ll feel the full benefit.

As well as some disruption, right, we talked about a pull forward. That was probably about a $3 million amount of business that was pulled forward globally between countries like India, which were concerned about security of supply, they just placed larger, more inventory on hand. Places like China, where we had a little bit of advanced buy-in, as well as some of our European countries. About $3 million in magnitude for the whole impact.

David Shakno, Analyst, William Blair & Company: Great. Awesome. I will pass it on. Thank you.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Thank you.

Moderator: Your next question comes from the line of Daniel Rizzo from Jefferies. Please go ahead.

Daniel Rizzo, Analyst, Jefferies: Hi, everyone. Thanks for taking my questions. Just a couple of things. One, I’m sorry, did you say that it’s roughly 20% contribution from home care for the year? The U.S. home care for the year now? Is that how we kind of think about it going forward?

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Yeah, that’s pretty close. If you look at the $12 million on the top line and then the operating income, Daniel, is just shy of $3 million.

Daniel Rizzo, Analyst, Jefferies: Okay. I just wanted to make sure that I had that right. You’re kind of changing the way you’re presenting things. You walked away from some of the things we’ve done in the past. The regional sales kind of goals for the Americas that you’ve talked about in the past, are we not really focusing on that anymore either? It’s kind of more holistic, or is that something that’s still kind of where we guide towards?

Steve Brass, President and Chief Executive Officer, WD-40 Company: No, absolutely. That stays the same. That doesn’t change. The one area that really changes with the enduring business model, Daniel, is really the commitment from the business to drive EBITDA growth ahead of revenue growth. That’s the significant change. It’s a commitment we want to make. The reason we’re making that is, over the past few years, we’ve had to make significant investments in things like IT and sustainability, and innovation. A lot of those big investments are now incremental. We’re in a position, having recovered our gross margins as well, largely to really drive the bottom line faster than the revenue line. That is a commitment from leadership to achieve that going forward.

Daniel Rizzo, Analyst, Jefferies: Okay, excellent. That’s great, too. With the recently announced price hikes, assuming things kind of, and this is a big assumption, things kind of don’t go crazy again, what you’ve already done in price hikes, and then cost cutting too, that will ultimately offset the higher input costs that we’re seeing now with everything being the same. I mean, by the end of next year, you’ll kind of be back to where you were, right? Before the war started, frankly.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Yeah, we’ve guided to a midpoint of 55% gross margin, including the household brands, which brings down the margin by about 40 basis points globally for this fiscal year. I think it would be unwise for us to guide the next fiscal year, given the volatility of the situation at the moment. Our stated goal, and I did talk to it in my script, is to vigorously defend our gross margins. You may have a couple of quarters going where it’s reestablishing the gross margin from here on in. The aim would absolutely be to defend our gross margin subject to the limitations of what’s possible in the external environment.

Daniel Rizzo, Analyst, Jefferies: Okay, thanks. Final question. In the past, you kind of had to hold more inventory, but that was a unique situation with logistics. I was wondering, given the current volatility, if you’re going to keep your inventories a little elevated just to make sure you can meet demand like we’ve seen, and we saw really during the post-COVID issues

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: I think from an inventory balance standpoint, we were carrying higher inventory levels in Q2. That has started to right size. A lot of that inventory shipped during the quarter. We’re back closer. I would not say we’re at our 90 days, but we are closer to the 90 days. We still have a target and believe that even in this environment, getting back to 90 days is a good goal of ours and can still supply the demand at that level.

Daniel Rizzo, Analyst, Jefferies: Right. Thank you very much.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Thank you.

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Thanks, Daniel.

Moderator: Your next question comes from the line of Linda Bolton-Weiser from Water Tower. Please go ahead.

Linda Bolton-Weiser, Analyst, Water Tower: Yes. Hi, how are you? I wanted to ask about the pricing action. You took pricing in the previous cycle a few years ago, when costs spiked quite a bit, and I think the price increases were in the, I don’t know, even 15%-25% range. You did lose, I think, some customers. I think it was mostly in Europe. Do you see things transpiring differently this time around in terms of your ability to keep customers versus lose them versus the last cycle? Is there anything that you can talk to that’s different this time around? Thanks.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Sure. Hey, Linda. It’s good to hear from you this eve. I think this is a very different set of circumstances. The price increases we’re putting through are nothing like the scale of what we had to put through before. Obviously, that can change going forward. We’ve made some initial moves now quickly, and we’ll have to assess the situation and see what we’d need to do, perhaps going into next fiscal year, depending on what happens out there in the world. The scale of the increases and so the resulting kind of pushback, if you like, from partners, has been significantly less and the price increases are being adopted across the world. Because of the more limited scale, quite easily, I think, this time.

Linda Bolton-Weiser, Analyst, Water Tower: Okay. Is there anything going on in your conversations with customers about the fact that the spikes or the volatility in oil we’re seeing are event driven? Does that make it harder in some way to put the price increases through because they could argue that it’s temporary and event driven? Is there anything going on like that type of conversation?

Steve Brass, President and Chief Executive Officer, WD-40 Company: I think we always try. We don’t rush into making these decisions. We try and take a view on what’s likely to happen beyond kind of events and what’s going to happen multi-month and over the period of the next 12 to 18 months. We take that kind of view. The price increases we’ve put through now do not fully represent the scale of the cost increases we’ve seen. We’ve assumed some reduction, right, month by month, as Sara kind of highlighted. That’s why we’ll have to take another look in early 2027 to see whether we need further action as well.

Linda Bolton-Weiser, Analyst, Water Tower: Okay. Just finally on that topic of gross margin. Sara, I think you said something like we should expect an FY 2027 progressive improvement. I guess I sort of read that to mean gross margin down year-over-year, but down less year-over-year as the year progresses. Is that kind of what you meant when you were talking about that?

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: It is hard, Linda, at this point for us to comment too far out into next fiscal year. We do expect there, right, based on what we are sitting on our balance sheet, we know that there will be some impact to our gross margin in the fourth quarter and going into next fiscal year. The length of how long it progressively, or the pace of it progressively coming back up really does depend on how the next few months go from a cost reduction standpoint and if we continue to see the pacing of those costs reducing, which can change daily, frankly, based on what continues to be happening over in the Middle East. Just given the environment, it is hard to comment on that at this point in time.

Linda Bolton-Weiser, Analyst, Water Tower: Okay. My last question just has to do with the revenue line. I think you said earlier, last quarter or something, maybe you mentioned again that you have some new distribution in the U.S. I forgot what you said, maybe dollar store channel or something. That combined with the really successful promotion you have this year, does that create really unusually hard comparisons for next year? Was there some channel fill related to the new customer? Anything like that we should be aware of as we think about next year?

Steve Brass, President and Chief Executive Officer, WD-40 Company: I think the new distribution you’re referring to was a single point of new distribution where we had about 7,000 new outlets. It’s a major new customer for us in our 2.75-ounce product. Driving incremental sales, that will ramp up over a two-year period as we expand distribution into all of those stores. More growth from that particular initiative next year. In terms of promotion, it’s just been one of those years for the U.S. where a lot of things went right. We’ve had promotions across multiple channels, across agriculture, across hardware. The scale of this one, certainly the King of the Hill, is very significant. When you think about it, we can do that because of the iconic nature of our brand.

When you take that formula of brand partnerships between the likes of WD-40 and Disney and The Home Depot, that’s a powerful formula. It’s a repeatable formula going forward. I think we’ve tapped into something which can really leverage the power of the brand going forward, which is absolutely repeatable. Whether it’s one big chunk or multiple smaller chunks going forward, leveraging the brand with these sort of brand partnerships is a powerful formula.

Linda Bolton-Weiser, Analyst, Water Tower: Okay. Thank you so much. Congratulations, Sara, on your new appointment.

Sara Hyzer, Vice President and Chief Financial Officer, WD-40 Company: Oh, thank you, Linda.

Moderator: Your next question comes from the line of Aaron Reed from Northcoast Research. Please go ahead.

Aaron Reed, Analyst, Northcoast Research: I’m back. I got one last question here for you. That is, can you tell us a little bit more about where you’re finding success with the WD-40 Specialist product? I feel like this is something that’s been adopted a little bit faster than I would’ve anticipated. I was wondering if you could go into a little bit more, what segments are you seeing the adoption in, what channels it’s going through? If you can just kind of speak to that a little bit more.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Sure. Absolutely. Aaron Reed, yeah, WD-40 Specialist is growing very strong double digits all across the world. We’re very pleased. One of the things we’ve done with the mantra of kind of learn faster to grow faster is really leverage global teams to exchange best practice and look at what’s working around the world. We very much have a focused concentration on the best-selling items within that range and getting those out into distribution and consistently executing around the biggest-selling items. We have six products that do about some 80% of sales in the WD-40 Specialist range. That kind of disciplined execution and learning is really driving sales. You look at places like China where WD-40 Specialist is growing fantastically well. Even the U.S., we’re in high double digits now, about 18%-19% for the year to date.

Europe continues to grow very well on WD-40 Specialist. You layer over that new product innovations, Europe had a couple of big ones this year, with degreaser products doing very well, for example. The new Bio Lube formulation in Europe is going very well as well. We’re really pleased. In France, which was our initial launch country for the Bio Lube product, which will be launched globally over the coming 18 months or so, the Bio Lube item has gone straight to one of the top-selling items on WD-40 Specialist. A combination of simply expanding distribution, but also a little bit of innovation driving. We did also say that 90% of our WD-40 Specialist sales come from 10 countries only. We’re only just really getting going.

We have a very significant runway for growth on Specialist around the world, we are really starting to pick up the pace.

Aaron Reed, Analyst, Northcoast Research: Great. Thank you very much. Our last follow-up question, I’m done, is, are the distributors fairly receptive to the Specialist products as well too, or are they really much more focused on the Multi-Use Product?

Steve Brass, President and Chief Executive Officer, WD-40 Company: You’ve got to look at it both together, right? WD-40 Specialist and WD-40 Multi-Use Product together really help us have a category approach. We’re helping retailers with their category approach. Really you’ve got to look at both of them acting together. The Specialist range helps protect, gain shelf space for the overall brand. It’s kind of like a virtuous circle of helping protect the core brand, but also leveraging Specialist to take market share on those items which may be newer to us.

Aaron Reed, Analyst, Northcoast Research: Great. That makes sense. Thank you much.

Steve Brass, President and Chief Executive Officer, WD-40 Company: Thank you.

Moderator: At this time, there are no further questions. This concludes today’s call. Thank you all for attending. You may now disconnect