Clorox Company (CLX) — Q1 2026 Earnings Call Transcript

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 we'll 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 statements 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 a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I'll turn it over to Linda.

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 unlocks 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.

So I just wanted to touch on the organic sales cadence, and I get there are a lot of moving pieces. But just was hoping to get some perspective on the second quarter as well as the balance of the year. So just first, can you just help us understand what you're including or embedding from a category growth perspective? And then 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. So can you maybe just unpack that a bit more? And just what drives the confidence that trends will inflect versus what we're seeing today?

Thank you, Peter. This is Luc. I can address that. When considering the full year outlook, it might be simpler to disregard the impact of the ERP in both Q1 and Q4. If we do that, organic sales growth in the first half would be in the low negative single digits, while in the second half, it would be in the low positive single digits. Our assumptions regarding the category remain unchanged. We anticipate that the U.S. retail category will remain subdued, averaging growth of 0% to 1%, still below the historical average. The improvement in the second half will mainly be driven by increased consumption and an improvement in market share. There are two primary factors contributing to this. First, we are launching several significant innovations in key businesses. In some instances, we are introducing a new platform, and in others, we are expanding existing platforms. We discussed this last quarter, and we are enthusiastic about our innovation initiatives for the second half, with robust demand plans in place. The second factor is that we are overcoming some significant negative trends that began in the second half of last fiscal year. Regarding both U.S. retail and international retail, we are optimistic about the momentum in both the international and professional sectors during the second half. As for Q2, you inquired about it. The first half will be in low single digits, and we anticipate Q2 will also be in the low single digits, mainly expecting a continuation of the U.S. retail consumption trends we observed in the first quarter, alongside about one point of headwinds from the timing of early shipments in Q1.

Okay, that's really helpful. Regarding the second quarter, can you be more specific about the decline in consumption you expect? What have you observed through October, and how do you anticipate consumption will trend moving forward? Is it similar to what we've seen throughout most of the first quarter, or do you anticipate any improvements?

Yes, Peter, there are 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. So the first half is marked by a lap of what we saw last year with some storms and hurricanes as well as port issues. And although they weren't very material to the quarter last year, they do create a year-over-year comparison issue. So 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. So 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. But outside of that, we don't have any material findings to focus on outside of what we provided in the outlook.

I would like to know more about the promotion environment. I understand that you mentioned consumers are being cautious and looking for value, but I'm interested in how the competitive landscape develops for the rest of October. Additionally, could you elaborate on the price pack strategy for the upcoming innovation this year? Will you adjust your price points to align better with consumer expectations? Also, could you share what's included in your pricing strategy for organic sales growth in the second half?

Andrea, I'll address your first question regarding the environment. We're observing that the current environment aligns with our expectations at the start of the year and continues the trends we noticed in the latter half of last year. As you pointed out, consumers are under stress and are responding to the volatility and uncertainty in the market, which is reflected in their shopping habits. Overall, consumer spending has remained relatively stable, but there have been significant fluctuations within that spending week-to-week and quarter-to-quarter. This has resulted in a more competitive landscape for our categories, although the level of competition varies among different businesses and categories based on specific competitive actions. For instance, we've noted increased promotions in the trash and cat litter sectors, which aligns with our expectations given the dynamics in those areas. We have also observed some price adjustments, with certain promotional prices becoming permanent and minor price increases occurring. The competitive environment appears to be rational overall. While promotional spending in some categories has increased, the total impact across our categories is not substantial. We’re paying close attention to whether changes in the consumer environment will provoke more competitive behavior or increased spending in the market. Retailers have provided additional support for private label products, but this hasn't led to an increase in private label market share recently. We are monitoring these trends closely. Overall, while the environment remains rational, consumers are becoming more price-conscious, focusing on what matters most to them within their portfolios and the categories we operate in. One area we are closely watching is food. Generally, the overall food category has faced challenges, particularly in the segment we participate in, such as salad dressing, which has experienced low single-digit declines and considerable variability. We've adjusted our strategy accordingly, and you may have noticed in our comments that both large and small package sizes in this business are performing well. This is an example of how we plan to utilize price pack architecture to meet consumer needs, offering a Hidden Valley option that provides the best value per ounce or a more affordable small size for those needing pantry staples for upcoming meals. Additionally, for our new innovations, similar to what was mentioned previously, we've integrated price pack architecture considerations into our product development. For instance, we have innovations coming in the litter category that will have thoughtful price points, and our team has these strategies embedded in our innovation process to ensure we effectively capture a broad audience upon launch. We can discuss these innovations further as they roll out in the latter half of the year.

That's helpful. And if I can squeeze in one for Luc on the gross margin side. I understand that, obviously, there was a lot of operational deleverage. But you also mentioned commodities coming in, I think, slightly better, if I'm not mistaken. Anything to add to that in terms of like your flexibility to perhaps get into a better range than guided? I understand some of these ranges will go to 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.

Sure, Andrea. Let me first address the overall inflation trends we're observing related to both commodities and supply chain factors, and then discuss the various impacts on our gross margin outlook for the full year. Currently, we expect moderate inflation for the year, which is somewhat more favorable than our previous estimate in July. At the start of the year, we projected a rise in input costs and inflation of just under $90 million for the entire year, with around half attributed to commodities and half to supply chain costs, including manufacturing and logistics. Our updated projection is now an increase of about $70 million, resulting in a $20 million improvement. This adjustment also maintains the split between commodities and the rest of the supply chain. Additionally, we are facing tariffs, which we estimate to be a $40 million headwind for the year. When combining all these factors, we see a total of around $110 million in impacts, which is $20 million better than our initial forecast for the year. However, there are a few other factors to consider regarding our gross margins for the full year. We incurred extra expenses in the first quarter due to disruptions in demand fulfillment connected to a slower-than-expected ERP ramp-up, which offsets some benefits. Moreover, as our teams finalize and optimize their demand creation plans for new products in the second half of the year, we have increased spending in both trade and advertising, which adds more pressure. Consequently, we are trending towards the lower end of our range. Nevertheless, it’s important to note that we feel confident about our ability to achieve our gross margin projections, and we anticipate robust gross margin expansion in both the third and fourth quarters.

I want 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 the opposite? So it's a little hard to read given everything that's going on. I'm curious where you are. And layer, 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? And if so, maybe just some more details on what it is and how much you expect it to contribute?

Yes. I can start by clarifying the underlying performance of the first quarter since there has been quite a bit of noise. In Q1, organic sales, excluding the ERP impact, declined by about 3 points. Within this decline, there were a couple of factors at play. One factor was a timing advantage due to some early shipments for merchandising that shifted from Q2 to Q1, which contributed favorably. However, we also faced challenges from out-of-stock situations that affected our market share and impacted certain categories in some businesses, totaling about 3 points of headwind. Therefore, if we consider the 3-point decline in Q1 and exclude those two factors, the underlying performance was roughly negative 1. This context aligns with our previous indications that the first half would experience low single-digit declines.

Go ahead.

Yes, yes, go ahead. I was just going to ask you to.

Perfect. So 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. And you saw that primarily impact August in a material way. We saw September a bit better and again, in October continues that trend. But we can't say we're satisfied with that. We intend to grow market share over the long term. And so we are laser-focused on that as we head into Q2 and the back half of the year. And that's why you're seeing us continue to refine and tune our plans, which we feel good about in the back half. We feel great about the innovation that we have, feel good about the spending levels we have. And 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, and that's household penetration, which remains stable. In fact, if you look at our biggest mega brands, that's up in household penetration, the Clorox brand and up fairly significantly. Our consumer value metric remains higher, significantly higher than it was pre-COVID. And again, we have all of the right spending and tools and innovation in that plan to drive market share performance. So while I'm 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.

Following up on Kaumil's question, Linda, you mentioned that a lot of the improvement in the second half is due to the innovation plans you have. Can you provide more details on the categories where innovation is occurring and what makes it unique? What gives you confidence that this innovation will succeed? Additionally, could you give us a more detailed look at trash bags and cat litter? These categories continue to face significant challenges, and you mentioned increased promotional activity. It would be helpful to have an overview of the plans for these specific categories as well.

Sure, Filippo. On innovation, I'll discuss some recent launches that are currently in the market. For Glad, we’re continuing to enhance our successful scent platform. You’ve heard about Bahama Bliss, our last significant scent release, and we’re introducing a new scent that we believe will perform well and appeal to consumers seeking a little treat at home during challenging times. In Brita, we are modernizing our pitchers with new colors and adjusting our pricing structure to accommodate consumers who may not be able to afford larger pitchers right now. We’ve introduced smaller sizes for both pitchers and filters to retain Brita customers. Regarding Birts, we’ve expanded a successful platform by launching a boosted bomb previously and are now introducing it into body care. We’ve also launched new products including lotion, butter, and moisturizer, which we believe consumers will really enjoy. These just came out, and we feel optimistic about them. We plan to introduce more innovations across all of our major brands this year, particularly in the second half. Some of these will be entirely new areas for us and will address specific consumer needs, while others will build on our existing capabilities. While I can’t share all the details right now, the main takeaway is that we are committed to innovation across all major brands. I’m very pleased with the innovations launched in Q1 and have high hopes for the latter half of the year. We have the right investment strategy and believe we have a strong mix between enhancing our core offerings and bringing new innovations that provide significant value to consumers, which we expect will generate lasting value for years to come.

Great. And maybe just on fresh bags and litter, we've seen continued pressure from a market share standpoint. So maybe can you give us a sense of your assessment of those categories and how sustained this promotional environment can remain in those categories?

Yes. On both of those categories, they're largely what we expected to see, which is very competitive, more promotional activity, continued innovation, and 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. So we saw a bit more share decline than we had expected. But obviously, once we're back in stock, and we, for the most part, are now, we've begun to see those shares rebound. But both of those continue to be marked by higher-than-normal competitive activity, and we see that in pricing. We see that in additional promotional spending. And 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. And 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. And so we're being very choiceful. There are places where we have increased our investment in Glad. We're being very surgical about that. And there are places where we're willing to lose a bit of share in the short term in service of that long-term objective. So 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. But 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. But we will go after all of the things that we think aren't working quite right for us in Litter right now. And we're hopeful that, that will show a marked turnaround in the back half once we get that implementation in market.

My first question is about the spending plans for the second half of the year. I'm curious to know how these have developed since the beginning of the year. Specifically, I'm interested in whether you plan to focus on your new innovations and fund them with the cost savings from more favorable commodities, or if you are considering a wider range of activities to achieve better results beyond those innovations. Additionally, how are you approaching the balance between promotional activities and advertising? I have a follow-up question as well.

I'll start, Chris. So yes, 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 talk a lot 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, and we have one of the leading ROIs in the industry from an advertising perspective. So 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 the 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. So 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 and that 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. So 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. And 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. And frankly, we'll probably continue to make adjustments as we learn more. And our business units are fully empowered to do that, and they're watching the consumer carefully, and we'll make adjustments if they need to, to support innovations or the base.

Okay. One follow-up. We've seen an increase in portfolio actions, I guess, if 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, a 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 want to play more in. So 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?

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. And so there's 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. But we're staying very disciplined in taking a long-term portfolio focus. And 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. And we've seen moments of that over the last several years, and it's certainly been choppy given the external environment and some of the challenges we've had on our own. But that's our #1 focus, and 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. And 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, and that is delivering real results every day in the portfolio. And we are always looking with our Board at all options for our portfolio, whether that be tuck-ins, 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. But we will remain disciplined. The good news is we do have a strong balance sheet. So if there is something that we think is attractive from a shareholder perspective, we have the ability to act on it. But we want to make sure that we are taking a long-term view always and not chasing some short-term temporary disruption and setting ourselves up for good long-term shareholder returns.

Just wanted to ask, we're hearing from peers in the space that there's some destocking here from certain retailers. And I suppose with the ERP transition, you're not as exposed to that right now, but I was wondering if you can comment on this inventory trend. And 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 mentioned in the past that Glad was a brand that had significant competition from the club channel. And 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.

Sure. And 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. So largely, we're not seeing any material destocking behavior impacting results. And 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. And that's good for everybody over the long term, but we don't see anything in the short term. And again, that could change as retailers' plans change that are impacting our business. And we have largely recovered our inventories from the period during the ERP implementation disruption. But 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, and 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. And so we work very closely with our club customers and others to ensure that we're getting the right member value for them. And 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. But for now, what we're focused on is ensuring consumers who want a large count of trash bags can get them in other places. So obviously, we have very strong distribution across other channels that also sell large sizes, and so we're focused on that and focused on the club customers where we have good distribution. But I think I feel very good largely about where we are in club and our ability to specifically target innovation that provides great member value.

Okay. And 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. So I'm curious for your thoughts here relative to private label share and the increase that we're seeing versus on the branded side.

Yes. So in aggregate, we have not seen private label make any material inroads in aggregate. But there are a couple of categories we call it. I actually wouldn't call it wipes as being one of the categories that we have concern about or are watching carefully. But actually Brita is one that we're watching carefully right now. We've seen some consumers trade down to private label filters and smaller sizes. And so we have reacted with ensuring that we have the right lineup of pitchers and filters and making sure that we're having the right value there. But that's one place we're watching very carefully. We've 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, but that's a place that we've been watching pretty carefully. And then I would say in Bleach would be the other place that we're watching very carefully. Generally, our cleaning portfolio is doing very, very well, particularly against private label, and we're 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, but we're seeing that bounce back. But Bleach is a place we're watching carefully. We've seen a bit of private label uptick. We feel like we have good Bleach plans in the back half, and that's a place where we have targeted strengthening the plan in the back half. But those are two categories that we're 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.

I wanted to follow up on your guidance regarding the expected organic sales growth decline of negative 5% to 9%. I'm looking for more details on the factors influencing this. You mentioned that your current expectations are leaning towards the lower end of the range, but I'm wondering if reaching the high end is possible. If so, what would be the drivers behind that? Additionally, could you clarify whether there was a greater inventory unwind in any particular areas of your business than what you anticipated?

Yes, thank you, Bonnie. I can address that. First, regarding your last question, we generally feel positive about our inventory situation at the end of the first quarter. You may have noticed that we refined our estimate of the negative sales impact associated with the IP transitions from a range of 7 to 8 points in fiscal year '26 to a more specific estimate of 7.5. We have a solid tracking process to monitor those incremental orders, but we also needed to wait until the end of the first quarter to finalize these estimates due to some customers using algorithm-based ordering systems. Overall, we feel confident about the current retailer inventory position at the end of Q1 and are pleased to have finalized the ERP transition estimate. Now, looking at the outlook for organic sales growth, I want to highlight a couple of points. First, it is still early in the year. Second, the range is quite broad, which was a strategic decision to keep us flexible and realistic as we respond to market dynamics and external factors throughout the year. So, while it is a wide range, for us to reach the higher end, all our assumptions would need to align perfectly for a strong sales performance in the latter half of the year. This implies that category growth would need to be on the higher side of our estimates, averaging at least one point or more for U.S. retail, as well as excellent execution on our innovation and demand creation plans. Additionally, we would have to assume no supply chain or other unforeseen issues arising as the year progresses. That’s the situation we need to see unfold.

You mentioned in your prepared remarks that category growth rates have stabilized, even if they are lower than historical levels. What gives you confidence in that stabilization? Many of your peers appear to be concerned that conditions could worsen through the first half of calendar '26. You also mentioned current category growth being flat to plus one. Are you anticipating improvement as time goes on, or is it more about your innovation and other strategies that are contributing to ongoing stabilization in market share?

On the topic of category growth, we've been discussing the ongoing pressures faced by consumers and have been anticipating muted growth rates for a while. Our estimates have ranged from 0 to 1, fluctuating over several quarters. This past quarter leaned toward the lower end, particularly when excluding beauty, where our presence is limited. Category growth was approximately flat. It's worth noting that we were out of stock in certain areas, which may have contributed to this lower range. We expected category growth to perform better, perhaps more in line with the previous two quarters. However, we remain confident as we operate in essential categories that cater to everyday needs, such as cleaning, pet care, and waste disposal. This provides a steady baseline for the categories we serve. Additionally, we feel optimistic about our plans for the latter half of the year. Our primary focus is on revitalizing category growth, and we are also dedicated to increasing our share in these categories through improved ideas and execution. We are monitoring consumer behavior closely due to the various ongoing factors that could impact their reactions. Nevertheless, considering the current dynamics and consumer responses over recent quarters, we maintain a positive outlook on our category growth estimate of 0 to 1.

Got it. 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 forward, pushbacks, etc., for the remainder of the year?

On the ERP, we have made significant progress. The most challenging aspects were addressed in Q1, and we successfully completed one additional implementation later in the quarter without any issues. We have a smaller implementation coming up, which we believe will also go smoothly. The entire company is now concentrated on utilizing the new ERP to create value and revitalizing category growth while executing our plans for Q2 and beyond. There’s a lot of excitement within the team; we’ve anticipated this moment for a long time. This system enables us to create exceptional value for consumers, respond quickly to changing consumer behaviors, and gain comprehensive visibility in our supply chain, enhancing our responsiveness to retailers and consumers. Furthermore, there’s considerable potential for savings through improved efficiency. This end-to-end visibility helps us reduce costs and supports our net revenue management initiatives and other strategies we've discussed over the past couple of years. Overall, the organization is very positive and focused on leveraging this transition to reinvigorate categories and provide consumers with the best value when they need it the most.

I just wanted to just confirm, given the issues related to ERP in first quarter, are your customer fill rates now back to normal? Or are you still like a little bit below normal in your second quarter? And then secondly, I had a question on price/mix. There's 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. So 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?

Thanks, Robert. I'll take the first one, and then I'll pass it over to Luc for price/mix. So 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. But yes, from a customer perspective, they're experiencing more of a normal Clorox, and we're able to get back to the type of fill rates that they expect from us.

And on price mix, Robert, you're correct. Last year, we experienced about two points of negative price mix. This was largely driven by consumers seeking value and shifting channels, as well as some additional promotions as we normalized promotions and faced increased competition. This year's outlook anticipates a smaller headwind, around one point. Essentially, it reflects the ongoing value-seeking behavior and channel shifts. Promotions remain relatively stable year-over-year. We're also seeing some positive effects from net revenue management activities, but these do not fully counteract the impacts of consumer behavior and channel shifts. For the year, it will be approximately one point, and it was about that for the first quarter. It may vary from quarter to quarter, but we are observing good momentum, and we'll see where we stand after next year.

Question probably for Luc, but Linda, I'd like to get your thoughts as well. So it's kind of twofold. Number one, on run rate EPS, how we should still be thinking about that, but then sort of relative to adequacy of investment levels. So Luc, I think you said before, we should be thinking about adding back the entirety of the ERP transition and EPS now seems like it's going to be the low end of the range, like a $5.95 number, and then we just sort of gross that up for the ERP transition as we're thinking about sort of run rate going forward. And I want to kind of take your temperature on whether you both still feel comfortable with that thinking. And I ask in the context that your market share is not where you'd like it to be. Promo is ramping. It seems like the cost of business is moving higher. A lot of categories are slower. So do you still feel comfortable with that sort of thinking? And I guess the question really gets to, as you're 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? So love to get your thoughts there on that.

Sure, Kevin. I'll start. We believe that despite a minor hiccup in our order fulfillment implementation, this year has largely unfolded as we anticipated. Consumer behavior, category trends, and competitive actions have aligned with our expectations, and our execution has been consistent as well. While there are some variations by category, which is normal for our diverse portfolio, overall, the environment and competition are just as we predicted. We remain confident in our ability to navigate this landscape and achieve the performance we hold ourselves to. Moving forward, we’re focused on increasing value through innovation and strategically investing in our brands, which we are committed to this year. We feel that our current investment levels are appropriate given the various factors we previously discussed. Overall, our perspective on the situation hasn’t changed since our last discussion. The only adjustment we made was updating our outlook for the quarter to reflect the implementation hiccup. However, the other insights remain valid. We are particularly attentive to when we can stimulate category growth and aim to achieve that in the latter half of the year. We want to return our categories to the growth rates of 2% to 2.5% that we typically see. Even if growth doesn’t return quickly and this period extends, we are confident that our brands can still lead in the categories and create value and earnings for shareholders, though it may be at a lower growth rate. It’s too early to determine the trajectory. We're focused on progressing toward 2026, making strides in the second quarter and the latter half of the year. Overall, we remain steadfast in our belief and confidence in our ability to navigate this year and continue delivering strong earnings for our shareholders.

And 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. And again, as a reminder, we essentially ended up shifting two weeks of sales out of fiscal year '26 into fiscal year '25. So the absolute sales dollars and EPS dollars in fiscal year '26 are understated. And as you lap that, you will see a step-up in fiscal year '25.

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.