Christopher Michael Carey

Christopher Michael Carey asked about the company's ability to sustain stable SG&A dollars over the next few years while increasing consumer-facing investments, and the opportunities for tax rate improvement over the next three to five years.

Answer

President and CEO Stéphane de La Faverie explained that the company is improving gross margin through accretive innovation and disciplined inventory management, while the PRGP is creating leverage by reducing non-consumer facing SG&A. He emphasized that expenses are prioritized for consumer-facing investments to accelerate top-line growth and drive operating margin leverage. Executive Vice President and CFO Akhil Shrivastava added that the high tax rate, driven by geographical mix and stock compensation, is a top priority, with plans to explore tax planning opportunities through PRGP restructuring to move towards the 36% guidance for the current year and further improve in the future.

Christopher Michael Carey asked about the company's path to solid double-digit margins over the next few years, specifically inquiring about the ability to sustain stable SG&A dollars even while leaning into consumer-facing investments. He also sought clarity on how tax planning would factor into earnings leverage over the next three to five years and the opportunities involved.

Answer

President and CEO Stéphane de La Faverie explained that the company is pursuing 'all of the above' strategies: improving gross margin (built to be accretive, disciplined inventory management), and leveraging PRGP to reduce SG&A penetration. He noted a 3% decrease in SG&A in Q1, with expenses prioritized for consumer-facing investments to accelerate top-line growth, leading to more units, leverage, and improved operating margin. EVP and CFO Akhil Shrivastava added that there are multiple paths to solid double-digit margins, including significant upside in gross margin (ended last year at 74%), continued significant cost reduction in non-consumer facing SG&A, and improved ROI on consumer-facing investments. Regarding tax, he stated the 36% guidance for this year is lower than last, driven by geographical mix and stock compensation. He confirmed that tax planning through PRGP restructuring is a top priority to drive favorability, with more clarity expected in coming calls.