The Clorox Company - Earnings Call - Q1 2026

Executive Summary

• Q1 FY26 results declined sharply due to the expected reversal of Q4 FY25 “incremental ERP shipments,” but CLX still posted small beats vs S&P Global consensus on revenue and adjusted EPS; GAAP EPS fell YoY as gross margin compressed 410 bps to 41.7% on lower volume and higher M&L costs. Versus consensus, revenue was ~$1.429B vs ~$1.398B and adjusted EPS was $0.85 vs ~$0.78 (non-GAAP).*
• Management maintained FY26 guidance (net sales down 6%–10%, GAAP EPS $5.60–$5.95; adjusted EPS $5.95–$6.30), but reiterated performance is tracking toward the lower end given earlier order-fulfillment challenges and share pressure; ERP transition impact is still pegged at about a 7.5-pt sales headwind and ~$0.90 EPS drag in FY26.
• CFO highlighted slightly better input-cost outlook (now +~$70M for FY26 vs +~$90M prior) and a ~$40M tariff headwind; gross margin expansion is expected to be “robust” in 2H (Q3–Q4) as innovation and demand-creation spending ramp, albeit with higher trade spending in the near term.
• Near-term stock catalysts: (1) execution on back-half innovation and demand plans as category growth stays muted (~0–1% U.S. retail); (2) confirmation that fill rates remain normalized and share recovers; (3) visibility on price/mix turning less negative and gross margin inflecting in 2H.

What Went Well and What Went Wrong

• What Went Well

  • Delivered small top- and bottom-line beats vs S&P Global consensus (adjusted EPS and revenue), despite deliberate ERP-related volume headwinds.*
  • Management kept FY26 guidance unchanged and signaled 2H gross margin expansion; input-cost inflation outlook improved to +~$70M with ~$20M favorability vs prior, though tariffs remain a ~$40M headwind.
  • ERP rollout largely complete; fill rates are “more of a normal Clorox,” with inventories rebuilt at retailers and further value from digital tools expected (NVRM, end‑to‑end visibility, efficiency).

• What Went Wrong

  • Net sales fell 19% YoY to $1.429B as retailers drew down Q4 FY25 pre‑ERP inventory; gross margin was 41.7% (-410 bps YoY) on lower volume and higher manufacturing & logistics costs.
  • Adjusted EPS declined 54% YoY to $0.85; GAAP EPS declined 19% YoY to $0.65; free cash flow fell to $57M (4.0% of sales) vs $182M (10.3%) a year ago.
  • Market share was weaker than expected during the ERP ramp; promotions elevated in trash and litter; price/mix remains a headwind (~-1 pt contemplated for FY26), reflecting value-seeking and channel shifting.

Transcript

Speaker 12

Good day, ladies and gentlemen, and welcome to The Clorox Company First Quarter Fiscal Year 2026 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. If you would like to ask a question, you may press Star 1 on your touchstone pad at any time. If anyone should require assistance during the conference, please press Star 0 on your touchstone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Ms. Lisa Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference.

Speaker 10

Thank you, Jen. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO, and Luc Bellet, our CFO. Please note that our earnings release and prepared remarks are available on our website at thecloroxcompany.com. In just a moment, Linda will share a few opening comments and then will take your questions. During this call, we may make forward-looking statements, including about our fiscal year 2026 outlook. These statements are based on management's current expectations but may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statement section, which identifies various factors that could affect such forward-looking statements, which have been filed with the SEC.

In addition, please refer to the non-GAAP financial information section in our earnings release and the supplemental financial schedule in the investor relations section of our website for reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now, I'll turn it over to Linda.

Speaker 2

Thank you for joining us today. In Q1, we reached a major milestone in our transformation journey with the successful launch of our new ERP system in the U.S. This foundational step has strengthened our digital backbone and unlocked new value streams for our company. Launching the ERP was a significant undertaking, and while the transition presented some challenges, our team's resilience and adaptability allowed us to navigate them effectively, and we're already seeing the benefits ramp up across our operations. As we move forward, we've incorporated the realities of the implementation into our latest outlook and made the necessary adjustments to strengthen our plan for the remainder of the year. Importantly, as we move past these temporary challenges, we are fully focused on our demand creation plan to deliver superior value to our consumers and reinvigorate category growth. With that, Luc and I are happy to take your questions.

Speaker 12

Thank you, Ms. Rendle. Ladies and gentlemen, if you have a question, please press Star 1 on your touchstone telephone. Our first question today will come from Peter Grom with UBS.

Speaker 1

Great. Thank you. Good afternoon, everyone. I just wanted to touch on the organic sales cadence, and I get there are a lot of moving pieces, but I was hoping to get some perspective on the second quarter as well as the balance of the year. First, can you just help us understand what you're including or embedding from a category growth perspective? Second, you touched on returning to kind of sales growth or consumption growth in the back half as a result of the strong demand creation plan. Can you maybe just unpack that a bit more and what drives the confidence that trends will inflect versus what we're seeing today?

Speaker 4

Thanks, Peter. This is Luc, and I can take that. I think when we look at the phasing for the full year outlook, it might be easier to just exclude the impact of the ERP in both Q1 and Q4. If you do so, organic sales growth in the front half would be negative, low single digits, and organic sales growth in the back half would be positive, low single digits. The assumptions around the category remain the same. We assume that our U.S. retail category remains muted, kind of on average growing 0-1%, still below historical average. The improvement in the back half is really driven by improvement in consumption, driven by improvement in market share. There are two main levers here. The first one is that we're launching a few major innovations in some key businesses.

In some cases, we're actually launching a new platform, in others, expanding existing platforms. I think we talked about it last quarter. We're excited about innovation plans in the back half, and we have strong demand plans in place. The second thing is we are lapping some pretty negative trends that started in the back half of last fiscal year. That's for U.S. retail and outside U.S. retail. We feel really good about the momentum of both the international and the professional business in the back half. Q2, you asked a question about Q2. Front half would be low single digits, and we expect Q2 to be in the low single digits. Mostly, slightly expect a continuation of the U.S. retail consumption trends that we've seen in the first quarter. That, as well as about a point of headwinds from the timing of early shipments in the first quarter.

Speaker 1

Okay. That's super helpful. Just maybe more specifically on Q2, just on that consumption point, the decline you're expecting, can you maybe just be more specific on what you've seen through October and how you see kind of consumption trending from here? Is it more or less what we've seen through the majority of Q1, or do you see any—or are you embedding any sort of improvement from here?

Speaker 2

Yeah, Peter, there's some dynamics in October that would be helpful to cover. Because there's definitely a difference if you're looking at the data between the first half of October and the second half. The first half is marked by a lap of what we saw last year with some storms, hurricanes, as well as port issues. Although they weren't very material to the quarter last year, they do create a year-over-year comparison issue. You could see we were down fairly significantly in consumption in the first two weeks, which we expected. Now you've seen in the third and fourth week of October, that's rebounded significantly back to what we expected, and you can see consumption down low single digits in Mulo. That would be the dynamic I would expect is that current rate that we've seen over the last two weeks to continue for the remainder of the quarter.

Outside of that, we don't have any material things that you should focus on outside of what we provided in the outlook.

Speaker 1

Great. Thank you so much. I'll pass it on.

Speaker 12

Our next question will come from Andrea Faria Teixeira with JPMorgan Chase & Co.

Speaker 6

Thank you. Good afternoon. I was hoping if you can touch a little bit on the environment for promotions. I mean, I understand you mentioned in the prepared remarks that you continue to see consumers being cautious and value-seeking. Hoping to see how the competitive environment unfolds and unfolded through this back half of October to Peter's question. If you can also comment on the price pack architecture that you're looking to do for this innovation that is coming in the back half of the year, should we see you becoming more, I would say, meeting where the consumer is at in terms of price point? Anything to add there? In general, what's embedded in the price algorithm for the organic sales growth in the second half?

Speaker 2

Hi, Andrea. I'll start with your first one on the environment. We're seeing the environment largely in line with what we had expected when we started the year and a continuation of what we saw in the back half of last year. As you noted, the consumer continues to be under stress, definitely reacting to the level of volatility and uncertainty that's out there, and we're seeing that in their shopping behaviors. While in aggregate, the entire consumer wallet has been fairly stable, the changes within that wallet have been quite significant and varying week to week and quarter to quarter. What that's meant for our categories is we've seen a generally more competitive environment, although I would say it varies business to business, category by category, and what we're seeing in the specific competitive responses.

We have seen increased promotions, for example, in the trash business, in cat litter business. Not different than we would have expected given the dynamics of those two categories. We've seen some price changes, both things that looked like promotional price changes turning permanent as well as some minor price increases. Again, it varies by category, but I would say on average, the competitive environment seems pretty rational right now. If you look at the overall promotional spending, in some categories, it was up, but in aggregate across our categories, not that material. What we are just responding to and continuing to watch very closely is, will there be a change in the consumer environment that makes people become more competitive, put more money in the system, etc.?

We've seen retailers do some additional support on private label, although it hasn't yielded any private label share results as of last quarter. Those are the things we're watching carefully. Again, it still remains a fairly rational environment, but I think people are getting very sharp on value depending on what matters to them and their portfolio and the category that we compete in. There are a couple of places maybe that I would just call out that I think we're watching really carefully, and one of them is food. On average, the food category at large has been challenged. Specifically, when we look at the food category that we're in with salad dressing, that category has been declining low single digits and very variable. We've made adjustments to our plan.

I think you saw in the prepared remarks that large and small sizes in that business are working really well. That is a good example of a place, Andrea, where we will be using price pack architecture fully to ensure that we are capturing the consumer wherever they are and offering them a hidden value offering that is right for if they want to get the very best value per ounce or if they cannot afford to get that large size and they just need something in their pantry that is going to get them through the next few meals. I would also note on the price pack architecture for the new innovation, similar to what you saw in the prepared remarks, that is how we have approached all of these programs.

We have talked about we have some innovation coming in litter that will definitely have components of price pack architecture built into it, thinking about what are the right price points we need to be at, etc., as well as all the innovations that we launch in the back half. Our teams have those tools now embedded in our innovation process, and they are using them to ensure that we capture the full spectrum at launch. We can talk more about those when those innovations launch in the back half.

Speaker 6

That's helpful. If I can squeeze in one for Luc on the gross margin side, I understand that obviously there was a lot of operational deleverage. You also mentioned commodities coming in, I think, slightly better, if I'm not mistaken. Anything to add to that in terms of your flexibility to perhaps get into a better range than guided? I understand some of these ranges will go into the low end, but I was curious to see what has changed from a cost perspective that would inform you to be at the low end.

Speaker 4

Sure, Andrea. Maybe let me just speak first about what we're seeing from inflation in general, both commodity and supply chain, and then talk about the different puts and takes as we look at the gross margin drivers for the full year outlook. If I look at overall inflation, we expect it to continue to remain moderate, I would say, for the year. We did mention it's slightly more favorable than our prior estimate in July. If you remember, at the beginning of the year, we assumed that input costs and inflation would increase a little under $90 million for the full year, with about half coming from commodities and half coming from supply chain, both manufacturing and logistics. Our latest projection assumed that input costs and inflation would increase about $70 million, so about $20 million more favorable.

Again, about half of that is coming from commodities, and half of that is coming from the rest of the supply chain. We also have to contend with tariffs, and right now, our estimates on tariffs remain the same. It's about a headwind of $40 million for the year. Looking at all of it together, this is about $110 million or about $20 million more favorable than what we thought at the beginning of the year. Now, there's a few other puts and takes as we look at the gross margins for the full year. One, we did have to incur additional expenses during the first quarter to deal with the disruptions on the demand fulfillment related to the ERP ramp-up being a little slower than expected. That's incremental expenses that offset some of the benefits.

Second, as the teams are finalizing and optimizing their demand creation plans for the innovation in the back half, we increased a little bit both trade spending and advertising. The trade spending is also putting a little more pressure. At this point, it's a little more towards the lower end of the range. Keep in mind, we expect to have more movement going through a year. What's important is we generally feel good about our ability to meet our gross margin outlook. If I may say, if I look at the back half of the year, you should see pretty robust gross margin expansion in both Q3 and Q4.

Speaker 6

Thank you, Linda. Thank you, Luc. I'll pass it on.

Speaker 12

We will move next to Kaumil Gajrawala with Jefferies.

Speaker 13

Hey, guys. I've been digging in just a little bit on maybe your report card because there's so many moving parts with ERP and shipments and all of that. When you're making adjustments for it, how do you feel about your market shares? Are they trending in a direction that you prefer or the opposite? It's just a little hard to read given everything that's going on. I'm curious where you are. Laird, I guess on top of that, you sort of hinted at a few things on more demand-creating activities. Do you have the all-clear from an infrastructure perspective to go and pursue them? If so, maybe just some more details on what it is and how much you expect it to contribute.

Speaker 4

Yeah. Maybe what I can do, Cuomo, is just unpack a little bit what was the underlying performance of the first quarter because there was so much noise. Let me start there. Then maybe Linda can provide a little more perspective on the performance in the market. If we look at Q1, organic sales, excluding the impact of the ERP, sorry, we declined about 3%. Even within this 3%, there were a few things happening. One, there was one favorable point of timing, which is really just a timing shift between Q2 and Q1 related to some early shipments for merchandising in the second quarter. We also had the impact of the out-of-stock, which impacted both our market share and maybe to a certain extent some categories in some businesses. That was about 3 percentage points of headwinds.

Again, if you unpack the decline of 3% in the first quarter and exclude those two levers, the underlying performance was about negative 1%. That gives you some context. Also, kind of just fairly consistent with what we signaled around the front half being in the negative low single digits.

Speaker 2

Hey, Cuomo, a little bit on the share. Go ahead.

Speaker 13

Yeah, yeah, go ahead. I was just going to ask you to.

Speaker 2

Perfect. On share and just how that translates to the market. Unfortunately, with the ramp-up that we had on our ERP, it did cause us to lose more market share than we had anticipated. You saw that primarily impact August in a material way. We saw September a bit better. Again, October continues that trend. We cannot say we are satisfied with that. We intend to grow market share over the long term. We are laser-focused on that as we head into Q2 in the back half of the year. That is why you are seeing us continue to refine and tune our plans, which we feel good about in the back half, feel great about the innovation that we have, feel good about the spending levels we have.

I think what that also connects to is the other parts of the scorecard that will make up share and give us confidence in our ability to grow share again in the back half. That is household penetration, which remains stable. In fact, if you look at our biggest mega brands, that is up in household penetration, the Clorox brand, and up fairly significantly. Our consumer value metric remains higher, significantly higher than it was pre-COVID. Again, we have all of the right spending and tools and innovation in that plan to drive market share performance. While not satisfied right now, I feel like we have the right plans to get that turned around and the fundamentals of our business remain very strong.

Speaker 13

Got it. Thank you.

Speaker 12

We'll move next to Filippo Falorni with Citigroup.

Speaker 7

Hi, good afternoon, everyone. Maybe following up on Camille's question, just on the second half, Linda, you mentioned a lot of the improvement is based on the innovation plans that you have for the second half of the year. Can you give us a little bit more color on what categories the innovation is going, what's differentiated, kind of what gives you that confidence that innovation will work? Maybe you can give us specific drill down a little bit more on trash bag and cat litter. Those continue to remain two of the most challenged categories. You mentioned increased promotional activity. Maybe just a review on the plans on those two particular categories as well. Thank you.

Speaker 2

Sure, Filippo. In innovation, maybe I'll talk about some of the ones that we just launched that are in market now, and that we have the ability to speak a bit more about. In Glad, we're continuing to build on the very successful scent platform that we have. You've heard us talk about Bahama Bliss, which was the last big scent that we had released. We're following that with a fall scent, which we think will do very well for Glad and continue to attract that consumer that's looking for that extra piece of treat at home given what they're going through. In Brita, we're actively modernizing our pitchers with new colors. We're also ensuring that we're doing price pack architecture there to ensure we're capturing consumers who can't afford to buy a larger pitcher at the moment.

We've launched some smaller sizes for both pitchers and filters, and that gives consumers a reason to not turn away from a Brita pitcher. On Burt's, we've expanded a very successful platform. We launched a boosted balm a while back, and we're increasing the footprint of that and launching that into body. We just launched innovations, including a lotion, a wet butter, and moisturizing melt. They're quite delightful, and I think the consumers are really going to like them. Those just came out, and we're feeling good about those. We will have additional innovations. The way I would think about it, Filippo, is that we will have innovations across all of our major brands this year, and you'll see those coming in the back half.

Some of these innovations are brand new spaces for us in terms of what we are going after from a consumer perspective and what problems we're trying to solve for them. Some of them build again on existing capabilities that we already have. I know you can understand that I can't get into exactly where those are right now, but I think the key takeaway is innovation across all major brands. Feel really good about the innovation that we launched in Q1, very good about the back half. We have the right spending, and I think they are the right mix between continuing to improve the base and bringing new-to-world innovations that are superior value to consumers and that we think we can create years and years of value from.

Speaker 7

Great. Maybe just on trash bags and litter. We've seen continued pressure from a market share standpoint. Maybe can you give us a sense of your assessment of those categories and how sustained this promotional environment can remain in those categories? Thank you.

Speaker 2

Yes. On both of those categories, they're largely what we expected to see, which is very competitive, more promotional activity. Continued innovation. We're seeing about in line with what we expected to see in both of those. Of course, Q1 was impacted by our implementation of the ERP. We saw a bit more share decline than we had expected. Obviously, once we're back in stock, and we, for the most part, are now, we've begun to see those shares rebound. Both of those continue to be marked by higher than normal competitive activity. We see that in pricing. We see that in additional promotional spending. What we're trying to balance in both categories, and particularly in trash, would be the long-term value creation aspects of this.

We do not want to get into a place where we're destroying value in the category because we just don't see people create a lot more trash when a trash bag is more discounted. What we're trying to do is ensure that we preserve the right to grow this category through innovation and better consumer ideas and experiences. We're being very choiceful. There are places where we have increased our investment in Glad. We're being very surgical about that. There are places where we're willing to lose a bit of share in the short term in service of that long-term objective. That's what we think we're getting the balance right on now. We're going to watch it really carefully in Q2 and the back half. We want to execute our innovation with excellence. I would say that category is very much what we expected to see.

Litter, of course, in a place where the category is growing and we're not getting our fair share of that, that's highly disappointing to all of us. We feel good about the plans we have on litter in the back half. We'll talk more about those in our next call. We will go after all of the things that we think aren't working quite right for us in litter right now. We're hopeful that that will show a marked turnaround in the back half once we get that implementation in market.

Speaker 7

Got it. Thank you very much.

Speaker 2

Thanks, Filippo.

Speaker 12

Our next question will come from Christopher Michael Carey with Wells Fargo Securities.

Speaker 5

Hey, everyone. My first question is just around the spending plans for the back half. I'm mostly curious how these have evolved since you started the year. What I'm specifically interested in is, are we talking about you have these great innovations, you'll be leaning in more, and you're basically funding that with the incremental cost savings that you're getting from more favorable commodities, or are you looking at the broader suite of activities and thinking that you can drive greater outcomes beyond even those innovations? Is there a way you're thinking about it between promotional activity and advertising? I have a follow-up.

Speaker 2

I'll start, Chris. Yeah, on the spending plans for the back half, we started the year, we felt very good about them to begin with. We have pretty sophisticated tools that allow us to put money where we know we're going to get a good return. You've heard us a lot talk about the personalization engine that we've built that allows us to target consumers in a way that gets some messaging that's driving very good ROIs. We have one of the leading ROI in the industry from an advertising perspective. We already felt strongly about our plans heading into the back half. What we took an opportunity to do is, as consumers are adjusting their behaviors, we've adjusted our plans to sharpen that spending in the back half. I'll give you some examples. Some of it is innovation.

As we've gotten clearer on what distribution looks like and what retailers plan to do, we've made adjustments in spending on retail media. We've made adjustments in spending in advertising or how we might do a promotional kickoff in a retailer. Those are the things that teams have done. In addition, I'll give you an example in Kingsford. We saw that many consumers are doing exactly what they are in other categories from a value perspective. They're either trading up to larger sizes or they're looking for an opening price point. For really the first time in July 4 and Labor Day, we had much more merchandising on smaller sizes and larger sizes. It actually grew household penetration as a result of that plan.

We adjusted that spending based on the learnings we had from Memorial Day, where we talked about the merchandising plan did not go as we had anticipated, and we didn't execute to the degree we wanted to. We made those adjustments in July 4 and Labor Day and are taking those forward as we look at the back half of the year. It's across a number of things, Chris. We're using the tools that we have, the consumer understanding that we're getting, and making real-time adjustments with retailers to try to capture as much of the change as we possibly can. Because we feel very confident about our ability to deliver strong returns on that advertising, we feel confident about the choices that we've made. Frankly, we'll probably continue to make adjustments as we learn more. Our business units are fully empowered to do that.

They're watching the consumer carefully and will make adjustments if they need to to support innovations or the base.

Speaker 5

Okay. Thank you. One follow-up. We've seen an increase in portfolio actions, I guess we can call them, at a number of companies across consumer staples to respond or maybe adjust to different demand backdrops. I'm conscious you have a fairly diverse portfolio. Very clean balance sheet. You've called out certain categories that have been more volatile than what you wanted. Perhaps there are others where you'd want to play more in. Just in this environment, with the balance sheet you have and the volatility we're seeing, can you give us maybe a sense of how you're thinking about the concept of portfolio and what you're really trying to accomplish with your own and how you think about maybe any future evolution? Thanks so much.

Speaker 2

Sure, Chris. First, I think the most important principle we have is we always take a long-term focus when it comes to our portfolio. There is certainly a lot of things going on right now, some of which is just noise and temporary, and some of which we'll see. Does it turn more permanent? Is there a change in the consumer environment that we need to account for or any company needs to account for? We are staying very disciplined and taking a long-term portfolio focus. That plays itself out in two very important ways. The first and the most important is that we strengthen our core and that we take the brands that we have that are in the vast majority of U.S. households and in households all around the world, and we offer better value to consumers.

We invest in those brands, and we get to the place where we're pretty consistently growing market share, growing household penetration, etc. We've seen moments of that over the last several years. It has certainly been choppy given the external environment and some of the challenges we've had on our own. That is our number one focus. I feel better than I have in a long time around the innovation plans that we have and the ability for those to continue to grow our market share and household penetration over the long term. We have plenty of opportunities in our core business to get better and sharper and deliver profitable growth. Of course, the second component of that is actively with our board all the time looking at our portfolio to ensure that we have the right portfolio moving forward.

You've seen us make a few moves, albeit on the smaller side, but very important. We divested our business in Argentina, which had driven the vast majority of the currency volatility we had experienced, as well as divesting the business for vitamins, minerals, and supplements, which unfortunately did not contribute what we had anticipated it would in a series of the two acquisitions that we made. That is delivering real results every day in the portfolio. We are always looking with our board at all options for our portfolio, whether that be Tuckins continuing to expand on categories that we play in today or looking, of course, at more transformational things, just as you would expect us to with our board. We will remain disciplined. The good news is we do have a strong balance sheet.

If there is something that we think is attractive from a shareholder perspective, we have the ability to act on it. We want to make sure that we are taking a long-term view always and not chasing some short-term temporary disruption. Setting ourselves up for good long-term shareholder returns.

Speaker 5

Okay. Thank you.

Speaker 12

Our next question will come from Anna Jeanne Lizzul with Bank of America.

Speaker 8

Hi. Good afternoon. Thanks so much for the question. Just want to ask, we're hearing from peers in this space that there's some destocking here from certain retailers. I suppose with the ERP transition, you're not as exposed to that right now, but was wondering if you can comment on this inventory trend. As we see a retailer shift to club and online from consumers, I was wondering how you're looking to increase your exposure here. You've mentioned in the past that Glad was a brand that had significant competition from the club channel. Any innovation you can mention with this in mind in terms of your offerings to have these retailers pick up new products and new pack sizes? Thank you.

Speaker 2

Sure. On destocking, you're right to assume that our ERP would, of course, have the opposite effect because we were rebuilding inventories with retailers as we got through that period. Largely, we're not seeing any material destocking behavior impacting results. Largely, what we continue to see from retailers is they're doing the good structural work you would want to reduce inventories across the value chain. That's good for everybody over the long term. We don't see anything in the short term. Again, that could change as retailers' plans change that are impacting our business. We have largely recovered our inventories from the period during the ERP implementation disruption. Again, at this point, we're not seeing anything material that we would call out for this quarter or for the remainder of the year. On the club business, we have a very strong club business across many of our businesses.

We do focus on specific innovation for the club member and shopper, just like we do for the grocery channel and for the dollar channel and for e-commerce. We're looking to combine the moment of truth with what the product offering needs to be. We work very closely with our club customers and others to ensure that we're getting the right member value for them. We've been doing that for many, many years, which means we have very strong positions in club now. You're right that we've called out Glad as being a place where we have less of a position in club. We continue to work on opportunities there to ensure that we're providing the right value and potentially unlock different distribution opportunities. For now, what we're focused on is ensuring consumers who want a large count of trash bags can get them in other places.

Obviously, we have very strong distribution across other channels that also sell large sizes. We're focused on that and focused on the club customers where we have good distribution. I feel very good largely about where we are in club and our ability to specifically target innovation that provides great member value.

Speaker 8

Okay. Just one follow-up on private label. While the overall share is more muted in terms of growth, we're still seeing some increases in categories like wipes. I'm curious for your thoughts here relative to private label share and the increase that we're seeing versus on the branded side.

Speaker 2

Yeah. In aggregate, we have not seen private label make any material inroads in aggregate. There are a couple of categories we call out. I actually would not call out wipes as being one of the categories that we have concern about or are watching carefully. Actually, Brita is one that we are watching carefully right now. We have seen some consumers trade down to private label filters and smaller sizes. We have reacted with ensuring that we have the right lineup of pitchers and filters and making sure that we are having the right value there. That is one place we are watching very carefully. We have seen this behavior in the past when consumers are under stress. They may make a substitution here and there for a lower-priced private label filter. That is a place that we have been watching pretty carefully.

I would say bleach would be the other place that we are watching very carefully. Generally, our cleaning portfolio is doing very, very well, particularly against private label. We are seeing consumers across the whole value spectrum, all the way from dilutables up to wipes, looking for that premium experience. We continue to see good overall share performance in home care. Obviously, it was impacted by the out-of-stocks that we had in Q1. We are seeing that bounce back. Bleach is a place we are watching carefully. We have seen a bit of private label uptick. We feel like we have good bleach plans in the back half. That is a place where we have targeted strengthening the plan in the back half.

Those are two categories that we are watching very carefully and watching particularly lower-income consumers to see what their behaviors are and adjusting our plans to make sure that we have an offering from Clorox that meets their needs.

Speaker 8

Great. Thank you so much.

Speaker 2

Santa.

Speaker 12

Our next question will come from Bonnie Herzog with Goldman Sachs.

Speaker 3

Thank you. Hi, everyone. I wanted to circle back on your guidance, your organic sales growth guidance, the declines that are expected of negative 5.9%. Just hoping for a little bit more color on the puts and takes of that. You highlighted your current expectations are to be at the lower end of the range. Just curious if the high end of this range is achievable. If so, what would the drivers of that be? Then just a quick clarification of the inventory unwind. Was there maybe a greater unwind than you expected in any areas of your business? Thanks.

Speaker 10

Yeah. Thanks, Bonnie. I can take that. First, on your last questions, I think we generally feel good about our inventory positioning at the end of the first quarter. You probably noticed we refined the estimates of the incremental shipment associated with the ERP transitions from a range of 7-8 percentage points of negative sales headwind in fiscal year 2026 to a point estimate of 7.5 percentage points. Just the background there, I think we talked about it last quarter, but we had a pretty robust tracking process in place to track those incremental orders. There is also an element of triangulation. As you probably know, some of our customers have algorithm-based ordering systems, and we really needed to wait for the end of the first quarter to kind of finalize those estimates.

Again, feel good about the current retailer inventory position at the end of Q1, and we feel also good about now having finalized the estimate of the ERP transitions. Having said that, maybe when we look at the outlook for the organic sales growth range, I think a few things are worth mentioning. One, we're still early in the year. Second, it is a pretty wide range given the environment, and the breadth of the range was a deliberate choice because it allows us to really remain agile and realistic as we navigate the market dynamic and external environment during the year. It is a wide range.

When you look at the higher end of the range, having said that, it is fair to say that we would need everything to hit on all assumptions to hit on the high end for us to meet the higher end, and there would be pretty robust sales in the back end. That means category growth would be on the higher end of our estimates, either one percentage point on average for U.S. retail or higher. Second, we would have great execution on innovation and demand creation plan. Third, of course, that assumes no supply or extraneous issues coming up as we continue through the year. Yeah, that's what we need to be true.

Speaker 3

Okay. Thank you. I'll pass it on.

Speaker 12

We'll move next to Olivia Tong with Raymond James.

Speaker 0

Great. Thanks. Good evening. First, you mentioned in your prepared marks that category growth rates have stabilized, even if they're lower than historical. What are you seeing that underlies your confidence in that stabilization? Because many of your peers seem concerned that things could get worse through basically first half of calendar 2026. And I think you mentioned flat to plus 1% category growth at the moment. Are you expecting that to get better as time progresses, or is it more about your innovation, other actions that are driving that share, driving some share opportunity to continue the stabilization? Thanks. Hi, Olivia.

Speaker 2

Hi. On the category growth piece, we've been talking for a while about the stress that the consumers are under and have been calling muted category growth rates for quite a while. Basically, what we have seen, which we've estimated zero to one, it's been in that range for a number of quarters. It's been on the higher end of that range, and then it's been on the lower end. If you look at this quarter, it was on the lower end if you exclude beauty, which we don't have a very big business in. We obviously compete in Burt's Bees, but that's relatively small. Category growth was about flat. To be fair, we were out of stock in some places, and so how much of that is attributed, getting to that lower end of the range, to us? Regardless, it wasn't the situation that we would have hoped for.

We could have expected category to be a little bit better than that and maybe more in line with what we had seen in the previous two quarters. Our confidence that that will continue is we're in essential categories. We fuel people's everyday lives. They need to clean their house. They need to take care of their pets. They need to take out the trash. That's why we feel there's been a floor on the categories that we compete in, keeping them in that range. In addition to that, just as you call out, Olivia, we feel very good about our back half plans. Of course, our number one focus is reinvigorating category growth. Then two, our focus is on growing share in those categories through better ideas and better execution.

That being said, we're watching the consumer carefully because there's a lot of things going on right now, many of which are still playing out and are uncertain. That can mean the consumer would react differently. Again, given the dynamics that we know today, what we see as the most likely scenario and how consumers have been responding over the last number of quarters, we feel pretty good about that category estimate of zero to one.

Speaker 0

Got it. Thanks. And then just on the ERP. Could you just talk about how the organization is adjusting to all these changes? Do you expect any disruption to extend beyond Q2 other than obviously the comp issues in Q4 that you've got to deal with? But just thinking about the organization and what's the next step after this and. Whether you're expecting any big pull forwards, pushbacks, etc., for the remainder of the year. Thanks.

Speaker 2

Perfect. Yes. On the ERP, we're through the hard part, is the way that I would put it. We did the heavy lifting in Q1, and we had one additional implementation that happened later in the quarter that went without a note. We have another smaller implementation happening coming up here. Again, we would expect, based on what we've seen, that that would be of no consequence either. Now the entire company is focused on using that new ERP to drive value and then getting laser-focused on reinvigorating category growth and executing the plans that we have for Q2 and beyond. I think generally, we're all really excited. We've been waiting for this moment for a long time.

This unlocks so many things for us to be able to do when it comes to creating superior value for consumers, faster insights, faster ability to react when consumers have changing behaviors, the ability to see end-to-end in our supply chain, which will just make us better at reacting to what's going on from retailers and consumers. Of course, on the savings side, there's a lot to be had here from an efficiency perspective. That ability to see end-to-end allows us to take costs out. It fuels our ability to do net revenue management and all the tools that we've talked about over the last couple of years. Generally, the organization is very optimistic and laser-focused on now that we've gotten through this period, it is time to put that to work.

Time to ensure that we are reinvigorating categories and giving consumers the very best value we can at a moment they need it more than ever.

Speaker 0

Got it. Thank you.

Speaker 12

Our next question will come from Robert Bain Moskow with TD Cowen.

Speaker 11

I just wanted to confirm. Given the issues related to ERP in first quarter, are your customer fill rates now back to normal? Or are you still a little bit below normal in your second quarter? Secondly, I had a question on price mix. There are three straight quarters now with price mix negative and a lot of commentary on the call about competitive pressures, value-seeking behavior across many categories at once. Is there a path for price mix to inflect positively, or is this going to be kind of like a negative environment, albeit modest, while working through this value-seeking environment?

Speaker 2

Thanks, Robert. I'll take the first, and then I'll pass it over to Luc for price mix. On Q2 order fulfillment, we are back with retailers able to fill the orders that they need, and we have largely rebuilt inventories nearly everywhere. On the margins, there are some small things that we're continuing to work out. Professional is a good example of that, where just given the distribution network, it's taking a little bit longer than the average to fully rebuild inventories. Yes, from a customer perspective, they are experiencing more of a normal Clorox, and we're able to get back to the type of fill rates that they expect from us.

Speaker 10

Yes. On price mix, Robert, you're right. Last year, we actually saw about two points of negative price mix. This was really, a lot of it was really driven by the value-seeking behaviors from consumers and channel shifting as well altogether, along with some incremental promotions as we both normalized promotion and saw increased competitive activity. This year, outlook contemplates still headwind, but lesser, about a point. Really, essentially, it's the continuation of value-seeking behavior and channel shifting. Promotions are fairly stable year over year. We're actually seeing some benefits from some of the net revenue management activities that were taking place, but not fully offsetting the headwinds of the value-seeking behavior and channel shifting. Now, it'd be about a point for the year. It was about a point for the first quarter. It might move quarter by quarter, but I think we're seeing good momentum.

We'll have to see where we're at after next year.

Speaker 11

Thank you.

Speaker 12

Our next question will come from Kevin Grundy with BNP Paribas Exane.

Speaker 9

Great. Thanks. Good evening, everyone. Question probably for Luc, but Linda, I'd like to get your thoughts as well. It is kind of twofold. Number one, on run rate, EPS, how we should still be thinking about that. Then sort of relative to adequacy of investment levels. Luc, I think you said before we should be thinking about adding back the entirety of the ERP transition. EPS now seems like it is going to be the low end of the range, so like a $5.95 number. We just sort of gross that up for the ERP transition as we are thinking about sort of run rate going forward. I want to kind of take your temperature on whether you both still feel comfortable with that thinking. I ask in the context that market share is not where you would like it to be. Promo is ramping.

It seems like the cost of business is moving higher. A lot of categories are slower. Do you still feel comfortable with that sort of thinking? I guess the question really gets to, as you are thinking about the investment factors that may potentially hold back that kind of thinking for investors, and that is that the entirety of the $0.90 should be thought about in sort of base earnings, or is there a potential here that investment levels need to move higher in the current environment? Love to get your thoughts there on that. Thank you very much.

Speaker 2

Sure, Kevin. I'll start. The way that we look at this is the year, outside of the fact that we had a blip in the implementation on order fulfillment, is largely playing out as we expected. We're seeing the consumer largely in line with what we expected, categories largely in line, competitive activity largely in line, our execution largely in line. We are seeing some nuances by category, which is typical in a portfolio like ours where we play in so many different categories. I would say the environment, the competitiveness, the consumer, generally what we thought it would be. Nothing has changed in our confidence and our ability to navigate that environment to deliver the performance that we expect of ourselves.

Of course, as we come out of this, to accelerate all of the things that we know will add value, like innovation, continuing to invest sharply and deeply in our brands, which we are this year. We feel like we have the right investment level given everything, all the factors that we spoke about. Generally, we see the world very much like we saw the world the last time we talked about this. The change is that from a quarter perspective, we trued up our outlook to account for the fact that we had a blip in our implementation. Largely, all the other stuff remains true. What we're watching really carefully, Kevin, is when can we and others reinvigorate category growth? That's what we aim to do in the back half. Can we get our categories growing back to the 2-2.5% range we're used to seeing?

Even if they don't, and this is a prolonged period, we still see the opportunity for our brands to play a leading role in the categories and deliver good value creation and earnings for our shareholders, albeit even if it's at a lower top-line growth number. It's too early to call that yet. We're focused on 2026 and making progress in Q2 in the back half. I would say nothing has changed in our thinking or confidence in our ability to come out of this year and continue to deliver good earnings performance for our shareholders.

Speaker 10

Yeah. Kevin, on the earnings run rate, your understanding is correct. We would see the $0.90 being added to wherever we finish this year as a starting point to next year. Again, as a reminder, we essentially ended up shifting two weeks of sales out of fiscal year 2026 into fiscal year 2025. The absolute sales dollars and EPS dollars in fiscal year 2026 are understated. As you lap that, you will see a step up in fiscal year 2026.

Speaker 9

Okay. Very good. Thank you both. Good luck.

Speaker 2

Thank you.

Speaker 10

Thank you.

Speaker 12

This concludes the question and answer session. Ms. Rendle, I would now like to turn the program back to you.

Speaker 2

Thanks, Jen. As we wrap up today's call, I want to emphasize that our team is actively navigating a rapidly changing consumer environment. We recognize that consumers are facing ongoing challenges, with spending habits shifting quickly across all income levels. While we anticipated many of these changes, new patterns continue to emerge, and we're closely monitoring these developments. By leveraging more real-time insights, we are adapting our strategies with agility and focus to meet evolving consumer needs. Our portfolio of trusted brands with strong consumer value, loyalty, and stable household penetration will help to reinvigorate category growth and enable us to recover market share. Looking ahead to the second half of the year, we have a robust pipeline of innovation supported by significant demand creation investments.

We are laser-focused on continuing to deliver and enhance superior value experiences with our brands for consumers in a time they need it more than ever. Our strong holistic margin management program enables us to reinvest in our brands, balancing immediate actions with a long-term perspective to ensure their ongoing health and success. To support our focus on delivering superior value with speed, our new ERP system gives us real-time visibility, enhances demand planning, and enables faster execution. With the majority of the implementation complete, our focus is on rebuilding growth momentum. The choices we're making today are shaping a stronger, more resilient Clorox, setting the stage for sustained growth and stakeholder value in the years ahead. Thank you for your time and questions. We look forward to sharing our continued progress in the quarters to come.

Speaker 12

This concludes today's conference call. Thank you for attending.