Edgewell Personal Care Company (EPC) Q4 2020 Earnings Report, Transcript and Summary

Good morning, everyone. And welcome to the Edgewell Q4 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Chris Gough, Vice President of Investor Relations. Sir, please go ahead.

Good morning, everyone. And thank you for joining us this morning as we discuss Edgewell's fourth quarter of fiscal year 2020 earnings. With me this morning are Rod Little, our President and Chief Executive Officer; and Dan Sullivan, our Chief Financial Officer. Rod will kick off the call, and then he will hand it over to Dan to discuss our results, and we will then transition to Q&A. This call is being recorded and will be available for replay via our website, www.edgewell.com. During the call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, savings and costs related to restructurings, changes to our working capital metrics, currency fluctuations, commodity costs, category value, future plans for return of capital to shareholders and more. Any such statements are forward-looking statements, which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption of Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2020. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances, except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are shown in our press release issued earlier today, which is available at the Investor Relations section of our website. Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. With that, I would like to turn the call over to Rod.

Thanks, Chris. And good day to all joining us. I hope everyone as well as we work our way through the ongoing COVID-19 pandemic. I will keep my comments relatively brief today as we'll be updating you on our overall strategy at next week's Investor Day session. I will provide a summary of our improved topline and overall financial performance in the quarter, including a discussion of the current environment and its impact on our results. I will then discuss the progress we made this year against our key strategic initiatives and how we are advancing towards sustainable top and bottom line growth. You'll hear a lot more about these initiatives next week. I'll wrap up with a summary of our outlook for growth in fiscal 2021. And then as always, Dan will take you through the specific details around both our Q4 performance and 2021 outlook. Amidst the challenges presented by a global pandemic in this extraordinary year, I could not be prouder of the entire Edgewell team across the world, and all that they accomplished this fiscal year. I want to personally thank our employees whose commitment and determination allowed us to maintain continuity of global operations in an unprecedented pandemic impacted environment. Second, the disciplined commercial investment and sharp management of expenses and working capital, we successfully navigated this difficult period. We responsibly invested in our brands, and now we exit the year in a strong financial position with ample liquidity. Third, our entire organization coalesce around our key strategic initiatives to improve underlying top line trends and bring stability to our results. And while there remains plenty of work to do, we made notable progress in fiscal '20. Fourth, we have made good progress in increasing internal capabilities with a focus on impactful innovation, improved brand marketing and integrated digital capabilities. And finally, we over delivered on our Fuel program, demonstrating a core capability that not only served us well in 2020, but will continue to be a source of strength moving forward. Dan will say more about this shortly. We are pleased to close out an unprecedented fiscal year with a quarter that demonstrated a return to more stable underlying topline performance and solid gross margin gains, despite continued global category headwinds in our core Wet Shave and Sun Care segments. Our improved performance in the quarter was driven by strength in some of our key focus areas, including Wet Ones, North America Sun Care, Men's Grooming and Women's Wet Shave. It also reflected good execution against our strategic initiatives, particularly in e-commerce. Our strategic focus continues to be on strengthening our brands in both men's and women's Wet Shave, extending our market strengths in Sun Care and Men's Grooming and leveraging the unique opportunities afforded to our category-leading Wet Ones brand. But we are encouraged by this progress, work clearly remains. Our Fem Care results were disappointing in the quarter, although in part, the result of the previously discussed distribution losses at Walmart related to the April planogram resets. We know the path back to a flat topline risk category will take time and require better brand activation and execution at retail. Overall, quarter four was a good indicator of the progress we are making across our full business, and it positions us well in fiscal 2021 and beyond. In the US, in particular, I am pleased with the results in the quarter. In Sun Care, our flat consumption results amidst a declining category drove further share gains. In Skin Care, our Wet Ones brand again outpaced the category, with consumption increases well ahead of significant category growth, leading to continued share gains. And in Wet Shave, our Schick brand held share in the quarter, despite the previously communicated distribution losses at Sam's, with particular strength in women's, where we returned to growth following the new campaigns launched at the end of the second quarter. And while there is opportunity for improvement across our portfolio, we are encouraged by the clear signs of meaningful progress being made in the US market. The key point of focus for us entering 2020 was to continue the underlying stabilization of our topline, gross margin and cash flow profiles, the current COVID environment notwithstanding. This has always been an important first step in reshaping our business. And I am pleased that on an underlying basis, we largely achieved this goal in fiscal 2020, despite the meaningful disruption across most of the categories in which we compete as a result of COVID-19. With underlying organic sales and gross margin rates essentially flat year-over-year and having generated $190 million in free cash flow, we enter 2021 well-positioned to execute against our new strategy, despite what will surely be continued headwinds related to COVID-19. Our global operations and supply chain have proven to be a critically important strength of the business. This is one of the foundational elements of our company. And in this current pandemic impacted environment, it has never been more important to the success of Edgewell. Our teams have taken necessary steps to ensure safe operations at all of our manufactured plants. They’ve maintained the continuity of production and availability of essential products to consumers and all of our global manufacturing plants and distribution centers remained open and fully operational. In the midst of the most challenging of times, this team also demonstrated great agility as they quickly brought on incremental capacity to our Wet Ones business, adding an additional production line of increasing third party manufacturing supply to better meet market demand. Having a more stable business underpinned by strong manufacturing, technology and IP, is a great foundation for the business. And there are many other steps we took this year to improve the fundamentals of our company. We reshaped our leadership team and also continue to build critical capabilities across the organization. The specific focus in our digital, brand marketing and R&D teams. We over delivered on the aggressive cost reduction targets for Project Fuel and now expect gross savings through fiscal 2021 to be in the range of $265 million to $275 million. With these demonstrated capabilities core to how we will run the business going forward, disciplined cost management while generating fuel for growth will continue to be an important element of our business model Next, we invested behind our strategies, although much of our gross savings went to offset higher input costs and the effect of lower volumes over the past few years, we have been able to fund important strategic areas of our business, including our Sun Care and grooming businesses, the new women's Wet Shave campaigns in the US, and reinforcing our market-leading positions in Wet Shave in Japan. As I said, we’ve also invested in enhanced capabilities that will be fundamental to our go-forward strategy, including e-commerce and digital, brand marketing and R&D. We increased our focus on strengthening our key retail relationships and partnerships. I have personally made it a priority to improve and expand our retail partnerships. Listening to the needs of our retail partners and using these insights to improve execution and serve as important considerations as we co-develop unique offerings for the consumer. Ultimately, the impact of these efforts will play out in the spring planogram resets, and I am encouraged by the direction of the discussion so far. We've made important portfolio shaping M&A decisions, divesting the non-core Infant and Pet Care business last December, and increasing our presence within the fast growing men's grooming category is demonstrated by the closing of the CREMO acquisition in the fourth quarter. We now bring to market three leading brands in Jack Black, CREMO and Bulldog that make up over 25% of the emerging brand subset of the US men's grooming category, excluding razors and blades, allowing us to compete effectively across all price tiers. We are extremely well-positioned to capitalize on the attractive growth profile that insurgent brands offer in the category. And lastly, we have designed and activated a new culture. Redefining as well has always been about more than our brands and business model. I've discussed the importance of having the right talent and work environment for our employees. And our commitment to creating a culture that attracts and retains diverse, world-class, highly engaged talent. We are a company that is hungry to win, holds itself accountable and is committed to responsible environmental, social and governance practices. In the third quarter, we unveiled our Sustainable Care 2030 strategy, establishing 10 bold and comprehensive ambitions for the next decade and reinforcing our role in creating a sustainable future. In summary, these actions I've described are fundamental to our go-forward plan, and they are already paying dividends as we made solid press against each one in fiscal 2020, and we will build on this progress again in fiscal ‘21. As we look to fiscal ‘21, we are pleased to be able to reinstate a financial outlook despite obvious unknowns. And it is difficult for us to fully contemplate the impact and duration of the current COVID-19 environment. And as such, our forward-looking outlook contains a higher than normal degree of uncertainties. However, despite these unknowns, we felt that it was important for us to be as transparent as possible as we set our expectations for fiscal ‘21. What we do know is that we will continue to manage the business with strong discipline and agility, and be ready to pivot as conditions necessitate and as the year progresses. Our team continues to demonstrate an un-relented commitment to transformation and improvement in a challenging environment. And we have to find a clear go-forward strategy for Edgewell, certain elements of which you have already seen practice. Following the underlying stabilization of our business in 2020, fiscal ‘21 is an important year for us, and we expect organic sales growth in the low single digit growth range, leveraging our compelling offerings in men's grooming and Sun Care and capitalizing on durable demand with Wet Ones. Importantly, the foundational improvements seen in 2020, we will continue to take an investment stance with respect to our priority brands and markets, ensuring strong discipline and agility, as the markets in which we compete evolve. The project fuel will again be a core driver of value creation, with expected gross savings of $60 million next year. With a business poised for topline growth, coupled with the strengthening gross margin profile, we also anticipate operating profit growth and another year of healthy free cash flow generation. Before turning the call over to Dan, I want to, again, recognize the extraordinary efforts of our teams across the company, extend my gratitude to each and every team member. Their hard work and dedication enabled our progress in fiscal 2020. As we head into fiscal ‘21, we are confident in our positioning and excited to execute on the next chapter of growth for Edgewell. And now I'd like to ask Dan to take you through our fiscal fourth quarter and full year results and to, share more detail on our outlook for fiscal 2021.

Thank you, Rod. And good morning, everyone. As Rod discussed, we were pleased to close out the year with a quarter that demonstrated a return to more stable underlying sales and gross margin performance, despite a backdrop for our core categories that continue to be impacted by the effects of COVID-19. We saw some improved category metrics in North America Wet Shave, Sun Care and personal hygiene categories in the fourth quarter. But overall, we continue to operate in a highly challenging and uncertain environment. So as I mentioned a quarter ago, we remain highly focused on managing the business with discipline, focused equally on near term efficiency, while taking the right steps to position Edgewell for sustainable growth. We've stayed laser-focused on our core priorities. First, execution. Against our commercial and operational strategies, both short and long-term. We saw the benefits this quarter, best illustrated by our successful efforts to win in the market during the extended Sun Care season in North America. And also with Wet Ones, where our agile disciplined capacity expansion provided immediate benefits. Second, strengthening the balance sheet, by ensuring a strong liquidity position with an emphasis on maximizing cash with strong financial discipline and working capital management, we were able to deliver a 16% increase in cash from operations in the quarter and a 22% increase for the year, resulting in $190 million in free cash flow generation for fiscal 2020. Third, maximizing our brand-building investments. By optimizing our media mix, increasing our digital focus and improving in market execution, while prioritizing those investments with the potential to generate the highest returns. The benefit of increased and more targeted investment levels was evident in our results across women's Shave and North America Sun Care. And fourth, executing on Project Fuel, where we delivered another quarter of meaningful gross savings and have now increased our 3 year savings target by about $40 million to $265 million to $275 million by the end of this fiscal year. We executed well against these priorities, which, coupled with sequential category performance improvement enabled us to outperform our own expectations for the quarter and significantly improve our performance versus a quarter ago. We believe this sets us up well to deliver organic net sales and adjusted EBITDA growth in fiscal 2021. Now I'll turn to the detailed results for the quarter. Organic net sales in the quarter decreased 3.5%, a substantial sequential improvement from Q3. Net sales results improved as the quarter progressed and slightly exceeded our internal expectations. This improved performance was driven by North America, with organic sales growth year-over-year of about 3%. Within North America, Wet Shave improved sequentially, down about 1% from Q4 last year, with women shave growing nearly 13%. Sun and skin care organic net sales increased over 40% in the quarter, driven by good end of season execution in Sun Care and continued accelerated Wet Ones growth. International organic net sales declined about 10% in the quarter when adjusting for the impact of last year's consumption tax load in Japan, reflecting solid sequential improvement from last quarter. International Sun Care was again significantly impacted by the ongoing effects of COVID-19 on tourist Reliant markets. Our e-commerce business, which for the year represented 7% of total company net sales, grew organically by 97% in the quarter, with strong growth in all regions and all segments, as our efforts to deploy a digitally enabled consumer platform gained traction. In our largest e-commerce channel, Amazon, sales for the full year increased by 90%, and we gained 240 basis points of market share. Looking at performance by segment. Wet Shave organic net sales decreased 5% in the quarter, largely driven by COVID-19-related category declines globally, cycling the pre-consumption tech selling in Japan and the impact from the noted distribution losses in North America, partly offset by growth in women's private label shave. In the US, the Razors and Blades category was down about 6%, a sequential improvement over last quarter's decline of 10%. The decline in the quarter was largely driven by men's systems, down 9%, with continued transitory declines in shaving incidences for men, reflective of the continued work-from-home environment. Women's systems increased just over 1%. For the 12 week period, our US market share in Razors and Blades declined 180 basis points, consistent with last quarter and 52 week performance, reflecting distribution losses at Walmart and Sam's Club, and heightened competitive pressures in the men's category. However, consumption results in the quarter do point to signs of progress in our Wet Shave business. Total share for the Schick franchise was essentially flat in the quarter despite the lost distribution in Sam's and Walmart, a significant improvement from the 52 week trend of down 130 basis points. Women's disposables grew almost 8%, with share gains of 120 basis points driven largely by skintimate and reflective of distribution gains at BJ's, increased promotional support and strong response to our new brand campaigns. In women's branded systems, where we maintained a 30% share position, we declined 7%, entirely result of distribution losses, most notably on Intuition f.a.b. Hydro Silk gained 40 basis points of share benefiting from the strong media push behind the new campaign. Importantly, Schick Women's continue to perform well on Amazon, driving 220 basis points of share gains in what is the third largest women's shave customer. And while our men's branded Shave business results remained sluggish in the quarter, excluding the distribution losses at Walmart and Sam's, Hydro share was flat for the second consecutive quarter. Lastly, Shave Preps continue to follow similar patterns of the razors and blades category, and we realized 170 basis points of share gains. As we have said, stabilizing our Wet Shave portfolio is a critical objective for the business. And while work remains, we are certainly encouraged by recent performance, especially in our women's branded and disposables categories. Looking ahead to 2021, while it's still too early to have a complete read of final outcomes, we continue to anticipate that the planogram resets at our key strategic retail partners will likely result in a mostly neutral impact versus today across our Wet Shave portfolio. There certainly will be puts and takes, but our aggregate expectation on both men's and women's is for consistent item and facing counts. Sun and Skin Care organic net sales increased nearly 9% driven by strong demand for wet ones, and 37% growth in North America Sun Care, partly offset by international, which continues to be significantly affected by COVID-19 and the resulting impact on travel to global tourist destinations. In the US, the overall Sun Care category declined about 2% in the quarter, a marked improvement from the 18% decline seen in Q3, as favorable weather was a catalyst for an extended Sun season in the US and our brands continue to perform extremely well. Banana Boat and Hawaiian Tropic gained 60 basis points of share in the quarter with stronger velocities and increased distribution. Despite a highly disrupted category, our full year results in US Sun Care were strong, and our full point of market share gains is evidence of our improved assortment, compelling innovation and impactful consumer communication. Men's grooming organic net sales decreased 3.4% in the quarter, driven by the impact of COVID-19 related category declines in the US market and Europe. Despite the challenging COVID environment, our grooming business grew almost 5% for the full fiscal year, led by 9% growth in Bulldog. Wet Ones organic net sales increased 85%, with continued strong demand for products that meet consumers' heightened hygiene and sanitation needs, with growth further enabled by our ability to increase capacity. In the quarter, the category increased by 31%, and we gained 130 basis points of market share. For the full year, we grew the business by about $40 million, capturing over 500 basis points of share gains in the category. As we enter fiscal 2021, we have essentially doubled our internal capacity versus pre-COVID levels through a combination of capital investment and extended operating hours, while also increasing third party manufacturing, all in an effort to further capitalize on this consumer led focus on personal hygiene in support of our category leading brands. Feminine Care organic net sales decreased 11% as compared to the prior year period, with half the decline attributable to the distribution losses, most notably related to general glide at Walmart. The remainder of the decline resulted from overall category softness due to COVID-19 related pantry loading in the fiscal second quarter, and the impact of increased competitive pressures. In terms of consumption, Fem care category sales declined 3.5%, and our market share declined 180 basis points. In the quarter, our focus was on activation for Carefree breeze [ph] with increased brand’s spend and feature and display activity, and we remain encouraged by the continued growth in trial and repeat rates. For the year, Fem Care organic net sales were down 3% versus a 6% organic sales decline in 2019, and we lost about a point of market share. Moving down the P&L. Gross margin rate on an organic basis increased 90 basis points year-over-year to 45.4% driven by lower trade promotional spend, higher Sun Care pricing in the US and savings from our cost reduction actions related to Project Fuel. A&P expense this quarter was 12.4% of net sales as compared to 11.3% of net sales in the prior year period. We remain committed to investing in our strategic brands and markets and deploying incremental investments in areas of expected highest return. We continue to reshape our A&P profile and in the quarter, our working dollars increased over 17%, including digital spend, which grew by 25%. Our investments were focused on the activation of the new Hydro Silk and Intuition campaigns, the new Wilkinson Sword master brand campaign in international markets and supporting the extended Sun Care season in North America. SG&A, including amortization expense was $101 million, or 20.7% of net sales. Excluding one-time costs, as well as acquisition and integration costs, SG&A increased $6.6 million versus the same period last year. This was primarily driven by increased compensation and incentive costs and higher bad debt provisions, largely related to COVID-19. GAAP diluted net earnings per share were $0.38 compared to $0.75 in the fourth quarter of fiscal 2019. And adjusted earnings per share were $0.59 compared to $0.86 in the prior year period. Now let me turn briefly to the full year. Although this was an extremely challenging year and our key categories were significantly impacted by headwinds related to COVID-19, we were encouraged by the underlying stability we drove in our topline and gross margin in fiscal 2020. The year essentially played out across three distinct time periods. Over the first 5 months ended February, organic net sales were up almost 2%, gross margin rates had improved about 60 basis points and we saw solid year-over-year gains in adjusted EBITDA, EPS and free cash flow. Of course, things changed dramatically in the months that followed and after an initial topline benefit in March due to consumer pantry loading, we saw dramatic declines across most of the categories in which we compete, leading to steep top and bottom line declines year-over-year in Q3. And then in Q4, as we saw some modest category improvement, we executed our plans extremely well, accelerating our fuel efforts, investing in our brands in a disciplined and highly effective manner and generating significant free cash flow. As such, Q4 reflected a return to a more structural, stable business despite continued uncertainty around the virus. Organic net sales for the year decreased 4.4%, including an estimated $100 million impact from COVID-19. Excluding this, we estimate that organic net sales would have been essentially flat. Gross margin rate increased 10 basis points year-over-year, reflecting the benefit of project fuel savings, favorable commodity tailwinds and lower promotional intensity, largely offset by the impact of lower volumes and unfavorable category and product mix. We generated $74 million in gross savings from Project Fuel in fiscal 2020, slightly above initial expectations, as we accelerated efforts in response to the uncertainty created by the pandemic. As we discussed last quarter, our business model is defined by strong operating cash flow generation and efficient free cash flow conversion, which we demonstrated this year despite significant top and bottom line headwinds. Net cash from operating activities for the full fiscal year was $233 million, a 22% increase year-over-year. Free cash flow was $190 million driven by improved working capital performance and lower CapEx, and we strengthened our balance sheet. During the year, we focused on solidifying our capital structure, successfully refinancing and upsizing to our $750 million 2028 notes and executing a $425 million revolving credit facility. These efforts greatly stabilized our capital profile, which now has a weighted average maturity of 5 years, and a weighted average interest cost of 5.3%. We ended the year with $365 million in cash on hand after closing the CREMO transaction and a net debt leverage ratio of 2.6 times. We have ample liquidity with our cash balance plus full access to an undrawn $425 million credit facility. So as we enter fiscal ‘21, despite the uncertainty related to COVID-19, we do so from a position of operational and financial strength. And that brings us to our outlook for fiscal 2021. Our intent has always been to reinstate a financial outlook for our business once we had greater visibility into our categories, our markets and our business. As Rod mentioned, while there remains a great deal of uncertainty about the path and duration of COVID-19, we do have better insights into many of the components that we expect will drive growth in our business in fiscal 2021. Having said that, given the macro environment and unknowns associated with the virus, we entered the year with greater uncertainty than normal. For fiscal ‘21, we anticipate low single-digit organic net sales growth, fueled by meaningful tailwinds from our Wet Ones brand as continued durable demand and increased capacity and product availability, drive further growth in that business. We also expect continued top-line headwinds as a result of COVID-19 in the first half of the year, with anticipated gradual recovery later in the fiscal year. As such, we anticipate slightly declining organic net sales in the first half of the fiscal year. And mid single digit organic net sales growth in the second half of the year, as we anniversary the impact of COVID and expect some modest recovery. Adjusted operating profit margin is expected to be largely in line with 2020 levels on a full year basis, as further fuel execution and slight commodity cost tailwinds continue to strengthen our gross margin profile, while we remain in an investment stance with respect to A&P in support of our growth outlook. However, we expect significant operating margin rate contraction in the first half of the year. On the heels of large increases in advertising spend and more modest increases in R&D and SG&A and resulting deleverage given first half sales declines. More specifically, in Q2, our planned step-up in brand investment and resulting expense deleverage reflects investments behind our new brand campaigns, timing of our new product launches and cycling abnormally low levels of A&P spend in Q2 last year. Adjusted EBITDA is expected to grow largely in line with organic sales growth on a full year basis. Quarterly interest expense is expected to be about $17.5 million. Adjusted EPS is expected to be in the range of $2.62 to $2.82 and is inclusive of approximately $0.22 of headwinds, equally attributable to last year's Infant Care divestiture, and higher interest expense associated with the 2028 notes. And we expect that approximately two thirds of our adjusted EPS will be delivered in half two of the fiscal year. Fuel gross cost savings are again expected to be strong at about $50 million to $60 million, and free cash flow conversion is expected to be approximately 100% of non-GAAP net earnings. For more information related to our fiscal 2021 outlook, I would refer you to the press release that we issued earlier this morning. In summary, we closed out a historic and unprecedented year with demonstrated progress towards stabilizing our underlying business trends. There remains work to be done, and we're encouraged by the foundational efforts and clear progress made in 2020. These efforts have set the stage for top and bottom line growth in fiscal '21 and beyond. And we look forward to sharing more about this at our investor meeting next week. And with that, I'll turn the call back over to the operator to start the Q&A session.

Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Bill Chappell from Truist Securities. Please go ahead with your question.

Thanks. Good morning. Hey just wanted to follow-up on the kind of the brand spend that you're talking about, especially as we move to kind of the second quarter. And maybe you can give a little more color, and we might get to, I guess, in a week. But where - or which brands, you know, kind of the focus is trying to understand, is this on the Schick franchise, is this on Fem Care? Is this on some of the newly acquired brands like CREMO? And just trying to understand, what the focus of that heavy spend will be? And in the same vein, maybe if you can talk about early signs or early readings of kind of where you will fit all in the planogram resets in terms of like Fem Care, if you're losing share continuing or is that stabilizing? Just any early reads as we go to the spring, both for spending and kind of shelf space would be great?

Yes. Thanks, Bill. Good morning.

Good morning.

Good to hear from you. On the first one, on the brand spend for the year ahead, you saw us here in the fourth quarter, start to pivot and put more investment behind the business. And we do expect that to continue into next year. Dan and Chris can quantify kind of how we think about that within the guide. But we like our campaigns better in terms of what's coming, the work being done on the targeting, the messaging of the brands, it's just better. And so we do feel like it's the right time to start to dial-up some of the investment and put that investment back in. You're going to see it broadly across the portfolio. We actually have increased investment in Shave broadly. It probably skews a little heavier towards women's. When you look at some of the campaigns that we've launched here in the back half in women's, they're working. It's driven our women's business back to growth. Grooming is an area where we have been in investment mode on both Bulldog and Jack Black now for the last couple of years, increasing our investment year-on-year, not only in dollars, but keeping the absolute percentage very high. That will continue. You'll see us put more investment against CREMO, so that men's grooming space, which has been growing nicely, and we expect to continue - we'll get more investment. And then Sun Care is another area where we look at it. There's a big question mark still on the category and how that plays out. But we like the campaigns. We like where both brands are going. The messaging is resonating with consumers. You saw that in our share growth this year in that business. And so that would be another area we'd look at. As far as the planograms, if you look across Wet Shave broadly here in the US, it's a very interesting point for us in time. We look at the planogram outcomes in Shave is basically being unchanged in the year to come versus where we sit today. Despite all the competitive intensity, we expect to have stability in the planogram, which is the first time we will have had that in the last 3 or 4 years. One of the problems we had in the business is our ideas at the brand level, haven't been good enough to resonate with the end consumer. We haven't had velocity at shelf and our retailer partnerships haven't been strong enough. It's a dangerous combination. It ultimately leads to a decline in shelf space and quality. This is the first year where we feel like we will not lose shelf space, nor quality. So again, we got to let that play out in the spring, but that's what we're seeing. And across Sun Care, Wet Ones, we obviously feel really good about distribution outcomes there. Fem Care is still a wildcard, I would say again. I think we're optimistic that we'll have a positive to neutral outcome there. We actually want to get some back that we've lost there. We're still working on some of that. So that's an open question.

Got it. Thank you. And just one quick follow-up. What are the expectations for next year for Sun Care in terms of international, I mean, I think that was the bigger hit in terms of the less international travel. And I guess it's - we're all kind of questioning whether there's a whole lot of international travel to far away beaches in most of 2021. So any thought there?

Yeah. It's an issue. Bill, as long as travel is restricted to these tourist beach locations, the bulk of our international business, particularly in Asia and Latin America are fueled by that tourism traffic. And so as long as that's down, I expect our business in Sun Care to be down internationally. Again, who knows when that opens, that, we've tried to be prudent in terms of how we planned this. In US and Europe, it's different. There's - while you don't have the same level of tourism travel potentially by airplane, you have people finding a way to be outside and knowing they need to protect themselves. So I think the bulk of our business its in US, Mainland Europe, but your point is right, on the international markets.

Great. Thank you.

Thanks, Bill.

Operator, next question please.

Our next question comes from Jason English from Goldman Sachs. Please go ahead with your question.

Hey, guys. Good morning. Congrats on a strong finish of the year. And thanks for the welcome news on planogram for next year. It's certainly a relief. Speaking on the last one, a question on international, maybe we can stay abroad on the other side of the pond, and you can walk us through, how your Wet Shave business is performing maybe in Europe and Asia? And how your growth initiatives are advancing over there?

Yeah, Good morning Jason. And thank you for the comments. The Wet Shave business internationally is - I would say, challenged at the moment. And it's nothing about our lack of competitiveness. That's fine. It's the category is still challenged with Shave incidents being down, due to COVID-19. If you go region by region, and Latin America has been heavily impacted by this. And it's primarily a disposables business there. And so until we get to the other side of COVID-19, I think we'll still see some headwinds there, particularly in the first half of the year, it starts to moderate. Once we lap and get to the second half of the year. Europe is much the same. It looks similar to the US, we believe, in terms of Shave incident rates. And then in Asia, you've got them coming out the other side of the pandemic first. We actually had a negative fourth quarter in Asia, but it wasn't anything to do with COVID-19. We were lapping a big ship in the prior year in Japan, around that tax changes. When you take that out, we're seeing Asia start to normalize. And so I think Asia would be the leading region to come through this. And our performance overall vis-à-vis competition, our share position internationally has been very stable. And Japan, a big market for us, it's actually been quite good. So it's primarily a COVID story, until we clear that with our relative competitiveness versus the category, largely being at category average.

Got it. That's helpful. Thank you. And one more question, if I may. But switching gears entirely to capital allocation. Rod, Dan, you guys are effectively calling this - the transition, the inflection for the business, where you think you've found the stability, you're at a turning point, you're on the cusp of returning to growth. The market doesn't seem to believe you based on, where they're valuing your stock. It's still valuing it as a secular declining business. If you have so much confidence in conviction, why not to be more aggressive on buying back your shares. You've got enough cash on hand to buy back 20% of your market cap right now. If this is really the inflection, isn't that the best use of cash and capital at this point in time?

Good point, Jason. We'll talk more about this next week at the Investor Day. But we like the investments we're putting in into the organic business now. We really like the CREMO transaction at the pricing that, that went off at. And the ability effectively for CREMO to not only be very successful on its own, but for that to give us a halo back across the balance of the legacy Edgewell brands in terms of how we build, activate the brands, connect with consumers, have more interesting dialogue with retailers. So we definitely want to fund all of that because we think - we do think there's growth to be had. But there is plenty of excess cash for returning capital to shareholders, while maintaining a very responsible debt load. And so we'll talk more about that next week. But share repurchase is definitely something that we see as being part of the mix.

Understood. Thank you very much. I’ll pass it on.

Thanks, Jason.

Operator, next question, please.

Our next question comes from Olivia Tong from Bank of America. Please go ahead with your question.

Great. Thanks. So just sticking on Shave for a second. I understand your commentary about planograms, which is great. Can you talk a little bit about the space allocated to shaving and grooming overall? Do you think that stays the same if we are still disproportionately working from home? Is there any concern that there will be less space for the total category, not necessarily just now, but in years to come as well? Thanks.

Yeah. Good morning, Olivia. Thanks for the question. We are not seeing any material changes to the Wet Shave space with retailers. In fact, when you get into the grooming territory, there's actually incremental space being allocated to the men's grooming area, for example, if you just go walk the aisles, you actually see that, right? That passes the eye test. But we're not seeing Wet Shave lose space within the footprint of the stores. I think retailers look at it the same way we and probably our competitive set look at it as there's a transitory event here in COVID-19 that is putting people at home rather than in the office in social situations, which is reduce shave incidents. I think you go back to what was the category doing prior to COVID-19, globally and even domestically here within the US, the category was flat to slightly up, flat to up 1%. And so the view is, I think you've heard some of our competitors talk about this. I share the same view that the category will return to that flat to slightly positive place, we believe, once we get to the other side of COVID-19. Until then, we're just going to have less shave incidents. And that's kind of how we look at it. I think the retailers see it the same way. So there's no need to go do a dramatic shift in space allocation until we get to the other side. And I think we return to normal.

Great. That's helpful. And then just a follow up. Can you talk a little bit about the promotional environment across your categories? Just a little bit more detail on your gross margin expectations for the coming year, pricing plans? And then specific to Q4, you've obviously got a little bit of M&A related improvement. Is that a one-time step up? Or is this more a function of just replacing lower margin Fem, Infant Care with a higher-margin skin care business?

Yes. So the competitive environment in general, is very, very high, particularly if you look at Wet Shave and what's happening across the competitive set. So within that, it's probably as competitive as I've ever seen it in terms of number of brands and players. With that, it does potentially lead to some promotional intensity. We feel like we're in a good spot with our plan of having reflected that not only in the last couple of quarters. But as we go forward, we've got that all baked in to our plan that does have us returning to growth and gross margin expansion. And so I think the Wet Shave intensity is high. In Sun Care, Wet Ones and some of the other categories, you - in that grooming skin space, you've actually seen promotional intensity be down, less promotional over the last couple of months. And then in Fem Care, there was a very promotional period. There's the big stock up in our Q2 and load up and then consumers have been working off that pantry load, even in the last quarter. In Fem Care, we were down - the category was down 3.5%. And on top of that, we lost share in the quarter due to a heavy promotional spend by our competitors, that we didn't match at the same rate. As we get into October, November, we start to see that moderate and return to more normal levels. So it's very different by category. But overall, I think it's a pretty competitive environment, and we've got it baked into our forward-looking plans.

All right. Thank you.

Thanks, Olivia.

Thanks you. Operator, next question, please?

Our next question comes from Nik Modi from RBC Capital Markets. Please go ahead with your question.

Thanks. Good morning, everyone. So maybe just a quick clarification, then I have a broader question. On the women's Wet Shave, really good result there, Rod can you just talk about was there anything else outside of just advertising, I'm just trying to understand really became that good of return on the ad spend or was there new product launch or some timing issue that grow that number to be so good?

Yes, Nick. It was strength across disposables was a key area for us – is a new – a brand that we're building out beyond preps. As you've seen us consolidate all of our women's disposables, where we had three or four different disposable sub-brands, underneath the Skintimate brand singularly. So we've consolidated under Skintimate on the disposables range, and we've launched a really cool new systems launch within Skintimate as well. So Skintimate is a brand has been very strong for us. Hydro Silk has a new - not a new launch, but a new campaign against a really interesting growth area within the Women's Grooming space around Dermaplaning. And we have Hydro Silk Touch-Up that we've launched and put a campaign around where it goes at eyebrows of the new lips in a masked environment where the lips and the mouth are sometimes hidden, the expression comes from the eyes and eyebrows. And so we're right on trend with a really good tool to help women shape their eyebrows. And so that's been successful for us. And then the private label business, when we look at a table and our supply there, that's been very strong as well. So there's not a singular thing. It's across all of those elements. And frankly, it's just really good execution by our teams.

Excellent. And I guess the broader question I had is you talked - you've been CEO for about a year. You've spoken about a lot of developments within the company, especially the block deal of Harris. And I'm just wondering, what inning do you actually believe this turnaround is in? And I'm sure you'll provide more complex next week, but just kind of wanted to be an understanding of kind of where we are in kind of your longer-term vision.

Yeah. It's a good question, Nik, because you have to step back from the quarter-to-quarter movements. We started this fiscal year thinking we were going to be acquiring Harry, so we were close to making that happen. And we had no foresight to COVID-19, right? That no one even talked about that. And we were blocked by the FTC on the Harry's transaction in January, and then COVID-19 hit really end of February, beginning of March. And so as I looked at that and our team looked at it, the view was we've got to leverage this time period to accelerate our progress and come out the other side of this pandemic stronger than where we entered it. It's a different plan than what we had for Harry's. But I would put us still at the early innings, Nik, of the turnaround. We stabilized the business. We have organic net sales flat. We've stabilized the gross margin. We're projecting a modest return to growth next year at low-single-digits. We're starting to invest back in the business. We put Wet Ones capacity in. We've acquired CREMO. We're building our digital e-com capabilities. We've got entirely new teams, not just leaders, teams in doing that that have just shown up during this last six month coronavirus period. Clarifying our strategy, you'll hear more about that next week. I've got my leadership team set, the structure is in place. And across all of that, we've delivered on Fuel. And one thing that I think doesn't get talked about enough. That's the real strength of this capability is the operation and supply chain capability that we have. It's rock-solid. It's delivered all through the pandemic. While taking out significant costs, which you're now seeing start to show up in margin. So that's all kind of just hitting. I'm not happy where we are, but we're definitely on the right track, and I put us in early innings with a lot to come.

Great, thanks.

Thank you, Nik.

Operator, next question please.

Our next question comes from Jonathan Feeney from Consumer Edge. Please go ahead with your question.

Good morning. Thanks very much. Could I ask specifically about e-commerce and within Wet Shave? And maybe even to get super specific within women's, it seems like obviously, e-commerce is something you've got a lot of thinking about its role in disrupting shave. And it does strike me you're in a natural position to lead that disruption just given the marketplace that you inherit. As you transform the company, what's the progress on your e-commerce capabilities? How competitive are you in that channel within Wet Shave relative to your bricks-and-mortar business? I think you talked about some wins. And do you anticipate that being the major driver of your growth going forward? Or am I off base on that? Thank you.

Yeah. Good morning, Jonathan. You're not off based on that. E-commerce is going to be a big driver of growth. It was for us in the year just finished, and it will continue to be over the next couple of years. COVID, we’re not either way. I think this is a durable shift in terms of how people are acquiring products. I look at e-commerce, particularly in Shave in three buckets. First is DTC, direct-to-consumer, then you've got e-tailers, so partnering with retailers that have a brick-and-mortar presence and also a dot.com presence and then pure players like Amazon and the like. And so if you go across all three of those, we have a very strong business with Amazon. We're growing share in all the categories we compete in, in Amazon. We have a very strong and good capability, partnering with brick-and-mortar retailers and helping them be successful in their own dot.com com channels. And that's a big change. Just in the last six months in the company is our capability across both of those. And then in DTC, we're playing from behind, quite frankly, on the DTC front. All of our competitors have more customers, bigger sales in the DTC channel. And while I don't necessarily believe that there's going to be a bunch of brand DTC winners. Out there uniquely, consumers don't love to shop that way. There's some aggregation that happens. That's why Amazon is who they are. It is very important to play in that DTC channel to have access to the consumer, the consumer information and engagement with the consumer, not only to transact a sale, which is important, and we obviously want to do more of. But we want to have a dialogue with that consumer because today, we're at a disadvantage, or historically, we have been, that's rapidly closing around how she likes our product, what's the issue she still has with a product that we can then go address with a better product or different messaging, it's that that becomes really important as you think about DTC as that consumer information. So definitely a growth channel, our capabilities are completely different and far superior than they were even six months ago with the teams we have in place and how we're now activating there. So I'm optimistic that we'll continue to grow share, if you will, in that channel.

Makes a lot of sense. Thank you.

Thanks, Jon.

Thank you, Jon. Operator, next question please.

Our next question comes from Faiza Alwy from Deutsche Bank. Please go ahead with your question.

Yes. Hi, good morning. So I also wanted to follow-up on Wet Shave in North America and the e-commerce angle. But I was actually really encouraged by the organic sales growth in North America. Sales decline in North America being down 1% when the data was showing something a lot worse. So I was hoping - I know you mentioned that you had sort of 90% plus growth in Amazon specifically. But I was hoping to get not exactly a bridge, but some kind of a bridge between the data that we're seeing and what you're reporting? And some of it might be Amazon or e-commerce more broadly and some of it might be private label or something else. But just help us – how should we think about bridging that gap in the quarter and on a go-forward basis?

Yeah. Hi, good morning, Faiza. You hit on it, there's – our organic results are better than what shows up in Nielsen on share reporting consumption, and that's been that way for quite some time. There is a disconnect and it's getting bigger, not smaller. Part of that is e-commerce and just what's not measured within that set. But the other part of it is private label. It doesn't get picked up and captured in that set. And on women's, in particular, I told you we have had and have some strength there. So that's the other thing that explains it. I think Chris and Dan can give you a little more perspective on that, but those are the two big drivers.

Okay. And then just my second question is around Project Fuel. Can you just talk more about - just looking back to the last couple of years, what you've been able to accomplish and what areas of the cost buckets are you attacking now versus what you have been doing in the past?

Yes. Fuel is something, Faiza that we're proud of how we've executed on that one. And frankly, it was super necessary that we got that in place and moving a couple of years ago. We will deliver and beat our gross savings objectives versus where we were at the beginning. The large beat and over delivery of that has been in cost of goods and a lot of really good work across our supply chain and operations teams. From footprint changes, you've seen us change our footprint there, from procurement of how we buy materials, low cost automation, where we do certain things, automating the work that we do and just becoming more efficient. That's been the big driver of over delivery. Unfortunately, we gave a lot of that back. We dropped some to the bottom line. We were able to reinvest some over the last couple of years. But a lot of that was eaten up with lower volumes and a net increase in commodity and tariff costs and just running the business. And so, as we move forward off of what we feel really good about from a net savings profile, it's going to be heavily focused on cost of goods as we continue to move forward. We think there's more there. And as we have stabilized the business, now you start to see the fruits of some of that actually show up in the P&L, for example, with an improving gross margin profile in the last couple of quarters and also in the outlook moving forward. And so, as we stabilize the sales, we're more confident that we'll start to realize the benefits of that in the P& L as we move forward.

Thank you, Faiza. Operator, next question please.

Our next question comes from Kevin Grundy from Jefferies. Please go ahead with your question.

Great. Thanks. Good morning guys and congrats on the progress in the quarter. Rod, I wanted to come back to US men's grooming. And specifically, not to beat a dead horse on this, but specifically what you're contemplating in the current environment and specifically, what gives you optimism that this will be the year you can return to growth. And I guess, I asked that in the context, you indicated that the environment is as competitive as you've ever seen it. It's not lost in the US dollar Shave club. Its Unilever is rolling it out at Walmart. So this is kind of more disruption at an opening price point on the heels of the large degree of success that Harry's has had in years, Procter to cut pricing, et cetera, would just seem to be more risk for both ship and your private label business in an environment that's likely to get more promotional, not less. So can you spend a little bit of time talking about the assumptions embedded in your guidance? And what gives you optimism that you can return to growth this year? And then I have a quick follow-up. Thanks.

Rod Little>: Sure. Hi, good morning, Kevin. Yeah, I think the environment is competitive as we've seen it, as I said earlier, and I think you point out. At the same time, our capabilities as a company, as brand builders and what we put into the market is significantly better than where we were a couple of years ago. There's been a lot of hard work done by a lot of people every single day on the fundamentals of this business and how we show up. Our women's business has remained, I would say, relatively stable and solid through this. The private label business broadly has remained the same. Our issue has been in men's. In men's systems, we have not been strong enough or good enough with our brand building effort and ultimately, connecting with consumers and bringing things that they desire and want to take-home and use more of. And so as we work through that and sort that out, we've been putting a lot of energy against that space. I think you'll see with some innovation and what we're launching in the year to come, a movement in the right direction there. Again, we've held on to our space, we think, as this plays out, and we've got some new innovation coming. And so that has to be good enough and cut through the noise of what everyone else is bringing. At the same time, a risk, but it's almost more of an opportunity at this point, because what you called out in your report and saw it shelf at the Walmart walk that you did is the result of not being good enough versus the competitive set over the last 3 to 4 years, and our shelf space has come down. That's what's hurt our P&L the last few years. And so as we sit here today, I think we can say we've stabilized that, and we're confident that it's more of an opportunity than a risk as we move forward. We have technology, IP, capability that others do not have, and it's up to us to take that and do something with it, which comes down to building brands and messaging that resonates with consumers with really interesting innovation to come. And so we're on a journey to put all of that back in place and get back some of what we lost, and this is a bit of a transition year, but we're optimistic on the direction.

Okay. Got it. Thanks for that Rod. A quick follow-up. Just on the advertising and marketing levels, and maybe I missed this in terms of what is in the guidance for 2021 and what's appropriate longer term. And I guess the longer-term context here with this has been that it's been coming down, both on a dollar basis and as a percent of sales. Some of that, I get is just the private label dynamic where it's going to be lower. So - but understanding that, this is one sort of in the mid-teens for now down to 11%. And it's also happening, I guess, within the context of where you guys have done a good job with project fuel savings. But typically that there in sort of lies the opportunity to sort of lean in and put it behind your brands. So when you come out on the other side of the sort of productivity restructuring programs that the portfolio is in a better place. So and you have one year left on Project Fuel, I suspect, and Dan can jump in. There's probably more to come beyond just what you're going to realize. But it's all sort of like the bigger wind up here. What's the appropriate level? What's in your guidance? Has there been any concern, Rod, from your perspective that this has been sort of the slow drift down where your market share trends have not been in -- where you want them to be. So your commentary there would be helpful. Thank you.

Yeah. Let me address the past. Briefly, Kevin, and I'll flip it to Dan for more perspective. Dan's actually been on point as we look at return on our A&P spend for the whole company on this. But if you look at the last couple of years, we have come down, you're right, and my view is you have to have good things to invest in or put money against. Otherwise, it's a wasted spend. And my assessment has been and not just me, or the leaders in the company. That some of our messaging has been too legacy-oriented. So built against an environment that existed in 2016, ‘17, not 2020, 2021 in terms of how we engage with consumers. The channels we use, the messaging we give, all of that. And so as we are working to get all of that fixed and you look at return of some of that legacy approach, it's just not there. And so beyond just being good stewards of the P&L and managing bottom line profitability and cash flow delivery there was just a reality that we didn't have a lot of good campaigns to be investing in, which has gotten us to where we are today. Now it's different, right? As we start to flip and pivot, we see ourselves putting more back in. So Dan, I'll throw it over to you on that second piece.

Yes, sure. I think as you look at ‘21, our guide contemplates a clear investment stance in A&P. As Rod said, we feel much better about quality of campaign, quality of message and ability to execute. And that was always an important deliverable for us, having felt much better about that. We're leaning in. We're going to get behind key execution in our new campaigns. We're going to invest certainly in the grooming category, particularly as CREMO joins the family. We've got some interesting new products coming. So yeah, we're certainly in an investment stance for A&P. We called out in the prepared remarks that Q2, in particular, for all the reasons I mentioned, plus the cycling of last year's Q2, where we obviously pulled back in light of COVID. Sort of all of that informs our thinking. And as you look at a Q4 for us, 2020, rate of spend was more like a 12%, and that's certainly a better indicator of the go forward. And I think that's always been our position once we felt like we got the messaging right. And here we are. So we're excited about that.

Got it. Thanks for the time guys. Good luck.

Thank you, Kevin. Operator next question please.

[Operator Instructions] And we do have an additional question from Carla Casella from JPMorgan. Please go ahead with your question.

Hi. A couple of questions related to Wet Ones. You commented last quarter that this is - could be approaching $100 million brand. And I'm wondering if you're there, given the strong growth in this quarter, and also if that was a retail or a wholesale figure? And then the second part to that is you flex your capacity significantly for Wet Ones. Wondering how much - how flexible that is to go up or down based on further fluctuations in COVID?

Dan, go ahead.

Yeah. So the short answer is, it's a $100 million brand. We executed extremely well in the quarter and achieved exactly what we thought we would. We're incredibly bullish on this going forward. We've essentially doubled our capacity from pre-COVID levels just internally, and we've added additional third-party capacity as well. So super excited about this. It's durable demand. We think we're in a good place to meet that demand. We do have further flex operationally, which will continue to invest in. And as I said in the upfront remarks, this is the lion's share of our organic growth thinking for the year of low- single digits. So we think a lot of runway here for the brand.

Yeah. And Carla, the other point on Wet Ones, I think, is important not to lose sight of. It's the leading brand in this segment. And it's a trusted brand. And one of the opportunities we have, as you look at, what's being put out in the market today, there's a lot of products that don't live up to the promise they're making. And that's being sorted out right now. And so, that's another thing with Wet Ones being a trusted leading brand that is part of the durability of the story.

Thank you. Thank you, Carla. Operator, next question please.

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to Mr. Little for any closing remarks.

Yeah. So thanks, everybody. Look forward to seeing some of you virtually next week, at our Investor Day. We’ll talk more about our strategy and the path ahead, but appreciate the interest and continued engagement with us.

Ladies and gentlemen, with that, we'll conclude today's presentation. We do thank you for joining. You may now disconnect your lines.