Steve Brass; President, Chief Executive Officer & Board Member; WD-40 Co
Sara Hyzer; Chief Financial Officer, Vice President - Finance, Treasurer; WD-40 Co
Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company first quarter fiscal year 2025 earnings conference call.
Today's call is being recorded. (Operator Instructions)
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.
Wendy Kelley
Thank you. Good afternoon and thanks to everyone 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 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 November 30, 2024. 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 our earnings documents that are 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 our webcast, replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, January 10, 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
Thanks, Wendy and thanks to all of you for joining us this afternoon today. I'll begin by discussing our sales results for the first fiscal quarter of 2025. I will also provide you with an update on our must-win battles and one of our strategic enablers. Following that, Sara will share additional details on our first quarter results, provide updates on the anticipated divestiture of our homecare and cleaning business and our 55/30/25 business model and review our outlook for fiscal year 2025. We'll then take your questions.
I'm happy to share with you that today, we reported net sales of $153.5 million for the first quarter, which was an increase of 9% from the first quarter of last fiscal year. Furthermore, we reported net sales of maintenance products, a core strategic focus of $145.5 million for the first quarter, which was an increase of 10% from the first quarter of last fiscal year, marking the third consecutive quarter of double digit growth in this category.
Gross margin continues to improve and is moving closer to our target of 55%. In the first quarter, we reported gross margin of 54.8% which is an improvement of 70 basis points sequentially from the fourth quarter and 100 basis points compared to the first quarter of last fiscal year. Gross margin excluding the impacts of the assets we currently have held for sale was 55.4%. This improvement of our gross margin is driving increased profitability at the bottom line. Net income for the first quarter was $18.9 million, an increase of 8% over prior year. We are pleased with the strong volume performance the business is currently experiencing. In the first quarter, excluding the impact of currency, nearly 90% of our growth was driven by increased sales volume.
Global sales volumes showed strong progress in two of our larger trading blocs driving 10% sales growth over prior year within the Americas and 13%. Within EIMEA, Asia Pacific is lapping a strong prior year quarter and was down 8% in the first quarter.
Now let's talk about first quarter sales results in dollars by segment starting with the Americas. Sales in the Americas which include the United States, Latin America and Canada increased 8% in the first quarter to $69.4 million compared to the same period last year. Sales of maintenance products increased 9% in the first quarter to $65.4 million compared to the same period last year. The bulk of this growth was driven by higher sales of the 40 multi-use product which increased 9% compared to the prior year quarter. A significant portion of this growth is all different from sales in the US and Latin America which increased $2.4 million and $2.3 million respectively in the United States. The increase is due to high sales volume linked to successful promotional activities.
Sales of the 40 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 $3.1 million in the first quarter. These increases were partially offset by lower sales volumes in Mexico due to the timing of customer orders as well as the unfavorable impacts of foreign currency exchange rates. Higher sales in the US and Latin America were partially offset by lower sales of WD-40 multi-use product in Canada which decreased slightly by $200,000 compared to the prior year quarter.
Due to the timing of customer orders in the Americas, sales of WD-40 Specialist increased by $1.1 million or 16% compared to the prior year period primarily due to new distribution, successful promotional programs in the United States growth and maintenance products is partially offset by a 7% decline in homecare and cleaning products. This drop is due to reduced advertising and promotional efforts for these brands as we shift our focus to boosting maintenance product sales, in line with our Four-by-Four strategic framework.
In total, our Americas segment made up 45% of our global business in the first quarter.
Now let's take a look at our sales in EIMEA which includes Europe, India, the Middle East and Africa. Net sales in EIMEA increased 18% in the first quarter to $57.5 million compared to the same period last year. Sales and maintenance products increased 19% in EIMEA in the first quarter. The strong growth in EIMEA was driven primarily by higher sales of the 40 multi-use product which increased 21% due to higher sales volume across almost all regions compared to the prior year quarter.
Sales increased most significantly in India, France, Benelux and Iberia, which are up $1.9 million, $1 million $900,000 and $900,000 respectively. In addition to the strong performance of our multi-use product, EIMEA also saw strong growth of $1.2 million or 17% for WD-40 Specialist during the quarter primarily due to higher sales volume because of increased distribution and higher levels of demand most significantly in Italy, the UK and Iberia.
The growth in maintenance products is partly offset by a decline of 19% in homecare and cleaning product brands sold in the UK. In total, our EIMEA segment made up 38% of our global business in the first quarter.
Now on to Asia Pacific. Southern Asia Pacific, which includes Australia, China and other countries in the Asia region decreased 4% in the first quarter to $26.6 million compared to the same period last year. Despite a year over year decline in sales, the first quarter of fiscal year 2025 marks the second highest sales quarter in the segment's history.
The year over year decline was driven by lower sales of the 40 multi-use product. In our Asia distributor markets, most sales decreased $2.6 million compared to the prior year quarter. In the first quarter, our Asia distributor markets experienced a decrease in sales volume due to timing of customer orders. You may recall, our Asia distributor markets had a very strong fourth quarter and sales of WD-40 multi-use product in Q4 were up 51%, marketing distributor customers particularly in Indonesia, South Korea and Philippines who placed large orders in the fourth quarter did not repeat those orders in the first quarter. This is timing related and we expect activity will pick up in the second half of the year.
In China, sales of WD-40 multi use product were up 13% or $1 million in the first quarter primarily due to successful promotional programs and marketing activities that led to increased sales volume in Asia Pacific sales of WD-40 Specialist were up 2% in the first quarter. In China. Sales of WD-40 Specialist increased 24% compared to the prior year due primarily to new distribution.
The decline in maintenance products is partly offset by an increase of $400,000 in sales of homecare and cleaning product brands sold in Australia. In Australia, our homecare portfolio hosts a robust brand presence, a solid competitive edge and significant growth opportunities and for sale in total, our Asia Pacific segment made up 17% of our global business in the first quarter.
Now let's talk about our must-win battles. Our must-win battles focus on what we do to increase sales and profitability. Startingly, must-win battle number one lead geographic expansion in the first quarter of 2025 global sales of the 40 multi-use product were approximately $119 million, representing growth of 10% compared to the same period last year.
We experienced 21% growth of our signature brand in EIMEA and 9% growth in the Americas. This growth was partially offset by lower Southern Asia Pacific. It's amazing to me that even after 71 years, the growth opportunity for WD-40 multi-use product remains so significant. Using a proprietary algorithm, we've identified the global benchmark sales opportunity for 40 multi-use product to be approximately $1.6 billion. Therefore, there remains approximately $1.2 billion of land and expand growth opportunity across the globe. This is where my management team and I primarily focus our efforts. Our job is to unlock opportunities that drive substantial value for stockholders. At, WD-40 Company, we'll do that by accelerating our global expansion.
Today. I'd like to spotlight a few of our priority markets beginning with markets that are driving our growth in the Americas segment. In 2020, we took the Mexico market direct and since doing so, we've virtually quadrupled our Mexico business from $6.8 million to nearly $26 million in FY24. And we're not done as we see Mexico as a $30 million to $40 million market over the longer term. Despite short term fluctuations, our long term success in Mexico have us confidence to convert Brazil to a direct market in March of 2024. So far, we're extremely pleased progress we've made in Brazil. In FY24, we grew Brazil by $7 million and expect a further $7 million to $9 million of growth in FY25. We expect Brazil to be a $20 million plus market within three years to five years and ultimately to grow to be as large as Mexico over the coming 10 years or so.
Moving over to Asia Pacific. We've identified several high potential markets in Asia Pacific, including China, Japan and Indonesia. Indonesia is a fast growing market for us with a compound annual growth rate of over 7% over the past five years. Indonesia is now also one of our largest marketing distributor markets in the world. It's also unique because it's one of our first hybrid markets. This means we have both an outstanding local marketing distributor partner but also a small team of WD-40 Company personnel in market, a formula that's proven to be highly effective for us.
Also in Asia Pacific, China has consistently delivered strong growth in recent years. We've been direct in China since 2006 and have a highly capable team of approximately 60 employees there. We use a simple but effective strategy in China. We expand distribution, targeting double-digit growth in points of distribution while sampling 20,000 plus factories each and every year. This strategy continues to deliver strong results for us.
And finally, in EIMEA, we've identified several high potential markets in the region including India. India is one of if not the most attractive growth markets in the world right now. Since entering our strategic partnership with our local partner six or so years ago, we've more than doubled our sales in India, making it our second largest market in terms of unit sales. And we see huge potential for further growth ahead.
This increased focus on our key growth markets around the world continues to yield success. In fiscal year 2025, we will continue to invest in building our flagship brand with end users around the world.
Next is must-win battle, number two, accelerating premiumization. Our second must-battle is to accelerate sales of premium formats of WD-40 multi-use product for us. Premiumization is a major contributor to our revenue growth as well as gross margin expansion and our premiumized products are loved by end users around the world.
In the first quarter, sales of WD-40 Smart Straw and EZ Reach when combined were up 17% compared to the prior year period with premium formats representing only approximately 40% of global unit sales of WD-40 multi-use product. There is significant upside for growth on a go forward basis. We'll be targeting a compound annual growth rate for net sales of premiumized products of greater than 10%.
I heard some bad is to drive WD-40 Specialist growth in the first quarter. Sales of WD 40 Specialist products were $19 million or 14% compared to the same period last year. We saw growth of WD-40 Specialist products across all three trade blocs with particularly strong growth in the Americas and EIMEA where sales grew 16% and 17% respectively.
We use a similar algorithm for WD-40 Specialist to the one we use for WD-40 multi-use product. We've identified the global benchmark sales opportunity for WD-40 Specialist to be approximately $605 million. Therefore, there remains approximately $530 million of land and expand growth opportunity across the globe. For WD-40 Specialist, on a go forward basis, we'll be targeting a compound annual growth rate to net thousands of WD-40 Specialist of greater than 15% in reported currency.
Our final must-win battle is a turbo-charge digital commerce. We view digital commerce as an accelerator for all our other must-win battles. In the first quarter, e-commerce sales were up 22% primarily due to strong growth in EIMEA. We believe the greatest benefit of this must-win battle is to increase brand awareness and engagement online, which will lead to an improved shopping experience and higher sales across all channels, both in store and online.
And now turning to the second element of our Four-by-Four strategic framework, our strategic enablers which focus on operational excellence and collectively under normal swing battles. I will not review all our strategic enablers today because we just shared a robust update with investors at our year end. However, we just published our 2024 ESG report at the end of November. So I want to provide an update on strategic enabler. Number two, which is to build an enduring business for the future.
The company has long been committed to purpose driven growth. We're committed to operating our business in a manner which ensures a balance between economic growth, environmental impact and social wellbeing which will help create and protect long term stakeholder value.
I'm very proud that we've now gone public with our sustainability targets after a very in depth process, putting together our science based roadmap for achieving carbon reduction in our November ESG report. We pledged to achieve a 50% absolute reduction in Scope 1 and Scope 2 emissions along with a 10% to 20% absolute reduction in Scope 3 emissions by 2030.
We've also disclosed details about the science-based environmental impact roadmap. We used to meet these targets. Many of our employees are passionate about pivoting our organization to a more sustainable future. And I strongly believe that setting external targets will galvanize the organization to make significant progress in future, proofing the organization for that.
I'll now turn the call over to Sara.