Q1 2024 Earnings Summary
- Kenvue expects to achieve gross margins slightly above their previous target of 59% in 2024, driven by value realization and supply chain productivity, which will enhance profitability and enable continued investment in brand activation. ,
- The company is implementing cost optimization initiatives through their "Our Vue Forward" program, aiming to realize annualized benefits of approximately $350 million per annum beginning in 2026, supporting continued incremental investment behind their brands while delivering earnings growth ahead of sales growth. ,
- Kenvue is increasing investment in their brands, particularly in Skin Health and Beauty, with new leadership and focused strategies to stabilize and grow the segment, expecting improvement in volumes as the year progresses and growth from 2025 onwards. ,
- Continued volume declines and underperformance in the Skin Health and Beauty segment, with organic sales declining 4.5% and volume down 6.9% in Q1. The company acknowledges that stabilizing this business is a key priority, and recovery will take several quarters, with full potential not realized until 2025.
- Anticipated low single-digit negative growth in the Self Care segment in Q2, due to factors such as strong prior-year comparisons, retailer trade inventory reductions in the U.S., a shorter cold, cough, and flu season in Europe, and a slow start to the allergy season.
- Macroeconomic challenges including hyperinflation in Argentina and Turkey contributed approximately 90 basis points to Q1, and ongoing labor and energy cost headwinds may impact profitability despite moderating inflation in agrochemicals.
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Gross Margin Outlook
Q: Can you explain gross margin drivers and outlook for the year?
A: Gross margin is a strong point for Kenvue, with pricing (value realization) and continuous operational efficiencies enhancing margins. The impact of inflation is moderating, with agrochemicals becoming a tailwind, though offset by some headwinds in labor and energy. We are confident in reaching our stated goal of a 59% gross margin this year, slightly better than originally anticipated, which will fuel further investments in our brands. -
Self Care Segment Expectations
Q: What are your expectations for the Self Care segment in Q2?
A: In Q2, we expect the Self Care segment to face challenges due to difficult comparisons from last year's double-digit growth, a lack of the same seasonal strength in China, continued impact of trade inventory reductions by some U.S. customers, and a slow start to the allergy season. However, these are non-operational elements, and we remain confident about the underlying performance and have reaffirmed our guidance for 2024. -
Skin Health & Beauty Outlook
Q: How should we think about the outlook for Skin Health & Beauty?
A: The recovery in Skin Health & Beauty will not happen overnight and will not be linear. We have a thoughtful plan to stabilize the brands in 2024 with improving volumes as the year progresses and aim for growth from 2025 onwards. We are encouraged by early signs of progress when we activate our brands properly. Additionally, we are relocating the segment leader position to the U.S. and are seeking a new leader with experience in the dynamic skin care category and in growing global megabrands like Neutrogena and Aveeno. -
China Business Performance
Q: Can you discuss your business performance and outlook in China?
A: Our business in China continues to perform well, with double-digit growth in Q1. China represents approximately 7% of our business, with the majority in the Self Care segment, where we have a strong leadership position. We launched more innovation in China last year than in the past 11 years combined in Self Care. While we saw deceleration in the small portion of our business that includes Dr.Ci:Labo, we are not assuming any recovery there in our plans. We remain committed to the long-term prospects in China and expect it to be a positive contributor to growth in 2024. -
Cost Savings and Reinvestment
Q: What steps are you taking with the Our Vue Forward program, and how will savings be reinvested?
A: Our Vue Forward program is aimed at reinventing our ways of working to make Kenvue more competitive and focused on profitable growth. We are investing $275 million over '24 and '25 to streamline operations, simplify processes, and eliminate redundancies, with costs primarily related to severance and footprint. We are also upgrading our IT infrastructure to allow for faster and more informed decision-making. These investments position us to be more agile at a lower cost, and have all been contemplated in our guidance. -
Promotional Intensity and Margins
Q: What are you seeing regarding promotional intensity, and how does it impact your margins?
A: While some peers see increased promotional intensity, our categories remain resilient and strong, with no significant rise in private label penetration, which is actually down in the U.S.. Our brands offer strong value propositions, and we focus on maximizing ROI in all activations and investments. We have achieved 290 basis points of gross margin expansion through both value realization and supply chain efficiencies, and we expect this positive trend to continue through the year. -
Q1 Outperformance Drivers
Q: What drove your outperformance in Q1?
A: Our outperformance in Q1 was driven by pricing, with some contribution from volume. Europe performed very well, slightly ahead of expectations, and our Essential Health segment performed strongly in EMEA and Latin America. While we had pockets of strength across the portfolio, unique dynamics in Q2 will absorb some of this outperformance, and we expect the first half to be in line with expectations. -
Hyperinflation Impact
Q: How did hyperinflation impact your results, and what do you expect for the year?
A: Hyperinflation in Argentina and Turkey contributed about 90 basis points to our top-line growth in Q1, with no impact to earnings due to appropriate pricing actions. For the full year, we expect hyperinflation to contribute about 50 basis points to the top line.