WD-40 Company — Q1 FY2024 Form 10-Q
Reporting period: Three months ended November 30, 2023; unaudited results compared with the three months ended November 30, 2022. WD-40 Company sells maintenance products globally and homecare and cleaning products primarily in North America, the U.K. and Australia. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $140.4 | $124.9 | +12% |
| Gross profit / gross margin | $75.6 / 53.8% | $64.3 / 51.4% | +$11.3 / +240 bps |
| Operating income | $24.2 | $18.7 | +29% |
| Net income | $17.5 | $14.0 | +25% |
| Diluted EPS | $1.28 | $1.02 | +25% |
| Operating cash flow | $26.9 | $10.4 | +$16.5 |
Sales growth reflected estimated increases of $7.6 million from volume and $4.1 million from average selling prices, plus a favorable $3.8 million currency impact. On a constant-currency basis, sales rose 9% and net income rose 21%. Maintenance products increased 14%; homecare and cleaning products declined 4%.
Sales by segment: Americas $64.1 million (+10%), EIMEA $48.8 million (+20%; +11% constant currency), and Asia-Pacific $27.6 million (+6%). The EIMEA reported increase included a $3.6 million favorable currency impact. Gross-margin improvement reflected lower warehousing, distribution and freight costs, favorable mix, pricing and lower specialty-chemical costs, partly offset by higher aerosol-can costs, miscellaneous inputs and filling fees.
Operating expenses increased 13% to $51.4 million. SG&A rose 10% to $44.1 million, including higher employee, travel, professional-services and currency costs. Advertising and sales-promotion expense rose 31% to $7.0 million; including promotional costs recorded as reductions to sales, total investment was $14.8 million, or 10.5% of sales, versus $11.8 million, or 9.5%.
Cash, debt and liquidity
Cash and cash equivalents were $50.3 million at November 30, 2023, versus $48.1 million at August 31, 2023. Operating cash flow was $26.9 million; investing cash outflow was $0.7 million and financing cash outflow was $24.5 million. The year-over-year operating-cash-flow improvement was largely driven by inventory movements: inventory declined in the current quarter, while the prior-year quarter included a substantial inventory build.
Total borrowings were $110.6 million, down from $120.5 million at fiscal year-end, comprising $43.4 million drawn on the revolving facility and $67.2 million in senior notes. Current and long-term borrowings were $24.5 million and $86.2 million, respectively. The company reported $150 million of revolving capacity and compliance with debt covenants. Management said liquidity was strong and expected operating cash and facility access to support operations, capital spending, dividends and repurchases.
Changes, outlook and notable items
- Management’s long-term 55/30/25 model targets gross margin of 55%, cost of doing business of 30% of sales and Adjusted EBITDA of 25% of sales. Q1 results were 54% gross margin, 36% cost of doing business and 19% Adjusted EBITDA as a percentage of sales. These are long-term targets, not near-term guidance; the filing provides no specific full-year financial forecast.
- The board approved a 6% increase in the regular quarterly dividend, from $0.83 to $0.88 per share, payable January 31, 2024.
- The company repurchased 11,500 shares for $2.4 million during the quarter under its $50 million plan; $47.6 million remained available at November 30, 2023.
- The effective tax rate increased to 24.2% from 20.9%, primarily reflecting a nonrecurring charitable donation in the prior-year quarter, higher foreign tax rates, and lower tax benefits from stock-award settlements in the current quarter.
- Inventory write-offs were $0.8 million, compared with $0.1 million in the prior-year quarter. A $3.9 million prepaid deposit converted to a finance-lease right-of-use asset; the lease was fully prepaid and had no related liability at quarter-end.
- Management cited uncertainty from global economic conditions, financial-market volatility, inflation, supply-chain constraints, interest rates, foreign exchange, commodity prices and political conditions. It reported no material change in risk factors from the latest Form 10-K. No pending or unasserted claims were identified as likely to cause a probable loss; reasonably possible claims were not expected to have a material adverse impact.
Important facts for investors to verify
- How much of future sales and earnings growth comes from underlying volume and pricing versus foreign-exchange movements and customer-order timing.
- Whether gross-margin gains persist as input, freight, aerosol-can and contract-manufacturer costs change; assess progress toward the company’s long-term targets.
- Whether working-capital trends, especially inventory, sustain operating cash flow and support dividends, buybacks and debt reduction.
- Debt levels, refinancing needs, covenant compliance and the effect of variable-rate and foreign-currency borrowings.
- The trajectory of advertising and promotional investment, tax rate and operating expenses, which may affect earnings conversion.