WD-40 Company — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended February 28, 2023. WD-40 markets maintenance and homecare/cleaning products globally through three geographic segments: Americas, EMEA, and Asia-Pacific. Figures below are in U.S. dollars; financial statement amounts are unaudited.
Financial performance and liquidity
| Metric | Three months ended Feb. 28, 2023 | Six months ended Feb. 28, 2023 |
|---|---|---|
| Net sales | $130.2 million, up 0.2% year over year | $255.1 million, down 3.6% |
| Gross profit / gross margin | $66.1 million / 50.8% (prior year: 50.4%) | $130.3 million / 51.1% (prior year: 50.6%) |
| Operating income | $22.2 million, down 10% | $40.8 million, down 16% |
| Net income | $16.5 million, down 15% | $30.5 million, down 20% |
| Diluted EPS | $1.21 (prior year: $1.41) | $2.23 (prior year: $2.75) |
| Operating cash flow | Not stated for the quarter | $20.9 million (prior year: $4.1 million) |
- Quarterly sales were nearly flat, but higher operating expenses—especially employee costs, travel, and professional services—contributed to lower operating income and earnings. For the first half, management estimated price increases added $50.2 million to sales, while lower volume reduced sales by $44.7 million and foreign exchange reduced them by $15.1 million. On a constant-currency basis, first-half sales rose 2% and net income declined 14%.
- First-half gross margin improved year over year as pricing more than offset higher input costs; however, it remained below the company’s long-term 55% target. Management’s non-GAAP cost-of-doing-business ratio was 34% for the first half (31% prior year), and EBITDA margin was 18% (20% prior year).
- Cash and cash equivalents were $38.0 million at February 28, 2023. Total borrowings were $155.8 million, including $87.8 million drawn on the revolving facility and $68.0 million of senior notes. The company reported covenant compliance. The $150 million revolving facility matures September 30, 2025.
- First-half investing cash outflow was $3.3 million; financing cash outflow was $20.3 million, including $22.0 million of dividends and $5.6 million of share repurchases, partly offset by revolving-credit proceeds. Cash increased by $0.1 million over the half-year.
- Current assets were $263.4 million and current liabilities $116.6 million at period-end. Inventory was $108.6 million, up from $104.1 million at fiscal year-end.
Material changes and segment trends
- Americas: First-half sales increased 9% to $120.9 million and operating income rose 14% to $26.5 million, supported by pricing and improved product availability, partly offset by lower volumes and weaker Latin American distributor sales.
- EMEA: First-half sales fell 22% to $87.6 million and operating income fell 40% to $16.7 million. Lower volume, the suspension of sales to Russia and Belarus, and unfavorable currency translation were key factors. EMEA constant-currency sales declined 10%.
- Asia-Pacific: First-half sales increased 10% to $46.6 million and operating income rose 9% to $16.6 million. Second-quarter sales declined 4%, reflecting weaker distributor demand and currency effects.
- Across the first half, maintenance-product sales declined 4%; homecare and cleaning product sales were approximately flat, down 1%.
Outlook, management commentary, and risks
- The filing provides no specific consolidated revenue or earnings guidance. Management expects to implement further price increases in certain regions during the rest of fiscal 2023 and anticipates continued cost pressure while inflationary and supply-chain conditions persist. Long-term targets remain gross margin of at least 55%, cost of doing business of 30% of sales, and EBITDA of at least 25% of sales.
- Management said supply-chain capacity and flexibility improved, particularly in the Americas, but aerosol capacity constraints, longer supplier lead times, elevated inventory, and inflation in specialty chemicals, aerosol cans, freight, and other inputs remain risks. Pricing may weigh on near-term volumes.
- Russia and Belarus sales remain suspended; the conflict in Ukraine and related sanctions create continuing demand, commodity-price, and geopolitical uncertainty. Currency fluctuations, particularly in EMEA, materially affected reported results.
- Interest expense increased substantially year over year, primarily due to higher rates and higher revolving-credit balances. A one-time charitable donation of the former headquarters generated an estimated $0.7 million tax benefit in the first half.
- The annual goodwill review found no impairment; no material litigation loss was considered probable, and management reported no material change in risk factors. Disclosure controls were assessed as effective.
- The board declared a $0.83-per-share dividend on March 21, 2023, payable April 28, 2023. The share-repurchase authorization, which runs through August 31, 2023, had $40.2 million remaining at February 28.
Investor verification priorities
- Assess whether pricing can continue to offset input-cost inflation without further weakening sales volumes, and whether gross margin can progress toward the 55% target.
- Track EMEA recovery, including distributor demand, foreign-exchange effects, and the ongoing absence of Russia and Belarus sales.
- Monitor operating expenses, interest costs, revolving borrowings, and covenant headroom as rates and working-capital needs evolve.
- Evaluate inventory levels and cash conversion, noting that first-half operating cash flow improved substantially while inventory remained above historical levels.
- Review the assumptions underlying constant-currency and other non-GAAP measures, and distinguish those measures from reported GAAP results.