David Shakno

David Shakno of CJS Securities inquired about the drivers behind the remaining 70-80 basis points of gross margin decline and sought confirmation on the outlook for gross margins returning to the low 30s in the second half of the year.

Answer

Daniel Fachner, an executive, clarified that the majority of the unexplained gross margin decline, about 60 basis points, was due to chocolate cost inflation relative to pricing offsets. He also reaffirmed the company's expectation to achieve gross margins in the low 30s during the second half of the fiscal year.

David Shakno asked about the potential impact of tariffs on the business, particularly the dispenser category, and questioned the performance of the super-premium brands, Saratoga and Mountain Valley, post-merger.

Answer

CFO David Hass explained that tariffs primarily affect the dispenser category, which is only 1% of total sales, and the company has managed the impact without disruption. Both CEO Robbert Rietbroek and CFO David Hass confirmed the premium brands are performing exceptionally well, noting they are the fastest-growing part of the portfolio with premium water sales up 47% year-over-year on a comparable basis.

David Shakno asked about the potential impact of tariffs on the business and requested a performance update on the super-premium brands, Saratoga and Mountain Valley.

Answer

CFO David Hass stated that the primary tariff impact is on the dispenser category, which is only 1% of total net sales, and the company has seen no demand or supply chain disruptions. CEO Robbert Rietbroek noted that Saratoga and Mountain Valley are the fastest-growing parts of the portfolio, with strong momentum from high-profile events and distribution expansion plans. Hass added that on a comparable basis, the premium water category grew about 47% in 2024.

David Shakno asked for more detail on the drivers of the strong international growth, noting it was higher than expected and seeking to understand performance outside of the Hydralyte brand.

Answer

CEO Ron Lombardi confirmed the international performance was broad-based and not solely driven by Hydralyte. He highlighted that almost all of the biggest brands in the Care portfolio, such as Fess, Murine, and Zaditen, experienced strong growth, along with the company's smaller European business and distributor network in South America.