Edgewell Personal Care Company (EPC) Earnings Call Transcript & Summary

Good morning. Welcome back. I'm Steve Powers. I'm the lead U.S. consumer packaged goods here at Deutsche Bank, and I am thrilled this morning to welcome Edgewell Personal Care to the conference. Edgewell is a leading portfolio of more than 25 brands being sold in over 50 countries across Shaving, Grooming, Sun Care, Skin Care and Feminine Care categories. To tell us a bit about their story is President and CEO, Rod Little; as well as Chief Financial Officer, Dan Sullivan. I'm going to turn it over to Rod and Dan to run us through a brief presentation to introduce the company and update us on their strategy. And then we'll have some time for Q&A following that. So with that, over to Rod, and take it away.

Okay. Good morning, everyone. Good to be with you today. Always good to be back in Europe. I lived in Geneva for 5 years, 2009 to '14. Dan spent 3 years with his family in Holland previously. So it's always going to be back on the continent. That's us. We'll be talking these statements well, so let's get into it. We have a growth strategy that we put in place and talked to investors about at the end of 2020. And leading into 2020, I was CEO -- named CEO in 2019. As some of you know, if you followed our story, we were down a path to acquire the Harry's business, and we were blocked by the FTC in March of 2020, just as the pandemic was hitting. At that point, we created this strategy to effectively build part of which we were going to buy and acquire from Harry's from a capability standpoint and a real focus on becoming a more growth-oriented company. 2015 to 2019 was a period of low to mid-single-digit top line sales declines consistently through that period, losing market share and eroding margins. And this strategy, which was all about being more consumer-focused, was the thing that we needed ultimately to change and pivot and transform the company into a company that could grow with a strong consumer focus, not technology, and also be consistent and reliable. We are very erratic in those days in terms of what we would deliver, and we were missing commitments. So we started by improving the portfolio. We bought the 3 Grooming brands, Bulldog, Jack Black and then Cremo. We bought the Billie business, which is online DTC disruptive brand, which we're now launching into retail. And we sold off some other units. So we have a much better portfolio in attractive categories that are growing. I've talked about the consumer centricity. The other thing we did is we really focused on being a trusted partner with retailers and partnering with retailers in a very different way. That's led to increase in rankings around manufacturer, rankings by retailer. We've gone up in the ranks. The distribution outcomes are better. And more and more, we're leading discussions in long lead discussions around where the category is going and planning already. For example, what's going to be on the shelf in '24. We're central to those discussions, and we just weren't previously. And the final element is be a very efficient place to work and be a place that people love working was the elements of the strategy. This is interesting because we separated our portfolio into 2 pieces. We feel like our entire portfolio, we can be successful with. We've got scale, technology, IP know-how to win with every brand we have. The differentiation as we look at our business is some of our brands play in faster-growing categories. That's the accelerate growth or what we call right to win. Roughly 30% of our business is now in that bucket as opposed to less than 10% a few years ago. This means Grooming, Sun and Skin personal hygiene. Collectively, that's been about a double-digit growth set of categories over the last few years, and we've done well there. Stabilizing the profit pool is really about 2 businesses. It's a Fem Care business and a Shave business that, for us, historically, were very challenged. When I joined, Fem Care was down mid-single digits every single quarter, very consistently for a multiyear period. We actually look to sell the Fem Care process. We ran a process. We had a bid. We could have sold it. You all would have said, "Hey, that's good value." We get it. But we learned through the process that we could actually run the business significantly better ourselves. There were some issues that we had internally that were getting in the way of what we did. And so we've taken to stabilize the profit pool, both Fem and the Shave business, which I'll talk about in a moment from a position of decline to now very consistently growing, both of those businesses. And so our ambition at the time we put out, our growth algorithm was actually flat looked good for those 2 businesses, flat to down 1% or 2% was the ambition at the time with all the growth coming on the left. And now we've not only gotten to flat, we're actually growing those businesses. If you look at our Shave business, we've got a diversified scaled Shave business. Globally, we're the clear #2 player, behind Gillette from Procter & Gamble. And you see here, we have a nice geographic and category profile. Good balance to the business. Roughly 50% comes from North America post the Billie acquisition, which has added about $100 million of sales to North America and 50% international. And you see the category profile there is super interesting. We play across all segments of Shave in a very diversified way. And our biggest and most important business is actually Women's shave, which is 2 times the size of Men's. And we're a completely different company and profile in terms of what we are today versus what's spun out of Energizer back in 2015. We launched a new purpose values and behavior set out to the global organization in '21, following the strategy deployment in '20. And that purpose values and behaviors, combined with a focus on sustainability, diversity, equity and inclusion and then overall learning and development and investment back into the employee base has led to a significant increase in engagement across the employee base. When I joined the organization, the positivity score from the employees that would take the annual survey was 59%. Today, we're in the mid-70s, a statistically significant increase in terms of engagement and positivity, which, on one hand, is interesting. But on the other hand, it's led to significant increases in productivity and a significant change in the profile of the type of person we can now recruit into Edgewell in terms of who we are and what we offer. We're in the top 30 now in the U.S. across most responsible companies. We've just gone up in all of the ranks, and that's now something that we use to recruit a much better profile of employee. And all of this is around capabilities. If -- my assessment when I came to the company is we didn't have the capabilities to compete with our competitive set. Today, we do. I talked about the consumer focus on our innovation, not on technology, but on the consumer pain point. That's the focus. We also have enhanced commercial capabilities, not only in how we partner with retailers, but how we now go direct-to-consumer via digital channels and think about the omnichannel environment in a very differentiated way. And so that's from content creation to where it shows up, how it gets served all the way through our own direct-to-consumer sites where we connect directly with the consumer and make the sales. Dan's going to talk about cost reduction. But ultimately, the ability we have across the omnichannel environment is significantly improved. And what builds that out more than anything to me is our overall market share trends and ranks in positions. We're now holding or growing market share in well over half of the portfolio, and we came from a history of losing market share pretty much across the board. So final slide for me before I flip it over to Dan is our algorithm. This is exactly the slide in terms of numbers and words on the right that we put out in November '20 at our Investor Day when we launched the algorithm. At the time we put this out to grow 2% to 3% organic net sales, it seemed ambitious. We were coming off a period where as I said, we were in mid-single-digit declines. Many of the analysts wrote papers immediately following us saying there's no way they'll do the 2% to 3%. It's too aggressive and challenging us a little bit, where we're being too aggressive. And the fact is we weren't. Fiscal '21, we did 4% organic. Fiscal '22, we did 4% organic. Fiscal '23, we're now midpoint of our guide is 5% organic with a nice blend of both volume and price. It's not all priced in the year we're in. And so from a top line perspective, we feel like we've hit the algorithm, even beat it the last couple of years. And from a profitability standpoint, as you all know, with inflation and foreign exchange, which has greatly impacted us, that has lagged, to be honest, for the last 1 year, 1.5 years. But on an adjusted currency basis, we're well ahead of these profitability growth rates for the year we're in. And we have good line of sight to do this going forward with the real focus on gross margin, and we see clear line of sight to have our gross margin back to pre-pandemic 2018, '19 levels of gross margin, which is ultimately the unlock of delivering the profitability and cash flow. So with that, Dan, I'll hand it over to you.

Thanks, Rod. Good morning, everyone. Thanks for spending some time with us this morning. I'm going to pick up the conversation and try to unpack what's behind the results that Rod shared with you at a high level. This is a really good page of kind of who we were and who we are, right? Left side of the page, Rod alluded to it. When we launched our new strategy in November of 2020, the reality was we were staring at years of low to mid-single-digit declines at the top. And that would be relative to not only our growth, but also our market shares. Fast forward 3 years, you get to the place that you see on the right side of the page, where we've turned that business now into consistent, sustainable mid-single-digit growth. How we've done it? What's driven it? I would point to 5 factors, some of which you heard from Rob. The first one is around talent and capabilities. And I'm going to put aside for the moment around brand building and marketing. You heard Rod talk about that. But our commercial fundamentals are simply better. And 2 examples of that are on this page, which obviously have taken on increasing importance in the world we're operating in. We now have muscles and capabilities in areas like the ones you see on the page that we didn't have previously. Examples of that are we know where to direct investment. We look very much at ROI. We understand where to put that next dollar of spend. We operate almost 100% digitally now, far cry from where we were 2, 3, 4 years ago. And we are much better at understanding unit economics and really driving through good revenue management that next opportunity, not just in cost, which I'll talk about in a minute, but in revenue per SKU. The second thing I would point to, which is ultimately the banner of whether you're winning or not is performance on shelf. And this is the result of a lot of the things you heard Rod talk about around stronger brands, better brand architectures, really good digital activation, a much better, much more consumer-informed innovation program ultimately lands with better outcomes on shelf. Our brands on shelf now are healthier than they've ever been post spin, and we've now seen 3 turns of holding or gaining distribution in the U.S., both in quantity and in quality. So very simply put, better brands, better retailer relationships, better share outcomes on shelf. I think the third thing is we've used M&A as an important lever for us to do 2 things: to position us away from Shave; and in many ways, give us access to categories that we were not participating in. A great example of that is Men's Grooming where we've essentially built a Grooming portfolio through acquisition. And you see at the bottom of the page, the results from Bulldog, from Jack Black and from Cremo. The other thing it's done is given us access to brands that we think have a tremendous growth opportunity. And the example for that is Billie, which you probably know we've acquired and launched last year in the U.S. at retail, exclusively through Walmart. You can see the results of that launch here, tremendous support and activation on shelf, results that were quite candidly above what we even expected at Walmart. And that proved to then be the catalyst for year 2, which we're in now, which is taking the Billie brand national across U.S. retail. And you can see the examples of where we're playing now. And we're not even yet at full distribution. There's still plenty of opportunity for the brand. What's great about this is the very simple point that one of the things we suffered from years ago was being disrupted by the disruptor brands, whether that be Harry's or flamingo or dollar Shave. Billie is an example of how the tables have turned, and we are now the disruptor on shelf. And early results in the U.S. are incredibly encouraging. The brand has reached about a 5% share in the category, and our core portfolio actually continues to grow share. So we're cannibalizing. We're taking from others, not from ourselves. The fourth thing I would point to is our international business. You saw Rod's slide earlier talk about how important this is from a Shave perspective. We're about 50-50 in terms of our Shave business, U.S. versus international. We have redesigned our international organization. We've eliminated a layer of reporting. So Japan and China now report directly to Rod, and the rest of international report directly to me. So faster, better, stronger, linked in with the growth ambitions of the company. We've also taken steps to make important changes at country level. We have new general managers now operating in Japan and China and here in Europe, all joining the company in the last year. We think the international business, by the way, has the opportunity over the next 2 to 3 years to likely grow at a rate that's faster than North America. And then the last thing I would point to, and Rod alluded to it, is just the underlying fundamentals of the business and how we run this business. And you can see on the page a couple of examples. We are relentless on cost. I'll talk about that in a second, which is a catalyst for what we see as strong margin profile and the opportunity to return this business to pre-COVID levels in terms of gross margins, 45-ish percent is a pretty good proxy. And we have a business model that generates a really, really healthy cash flow, which gives us a lot of optionality in terms of how we want to deploy that capital. On the cost side of the equation, if you know us, you would know the fuel program, you would know what that program did for us over the 3-year period. And as soon as that program wrapped, we launched another program that ends this year with another $125 million of cost, which we will have achieved by the end of this fiscal. So over a 4- to 5-year period, $400 million of gross cost takeout in the margin -- largely in the margin line and still room to grow, still room to take more cost out once this program ramps. That's how we run the business. I think productivity, efficiency and being relentless on waste is core to who we are as an organization. And then the second element of the financials around strong cash flow. You can see the numbers here. Other than a choice we made last year to build inventories, you see a business that delivers somewhere north of $150 million to $200 million in annual free cash flow. Despite being a manufacturer, we're actually not very capital intensive. We spend about 3%, if not slightly below 3% of revenue on annual capital. And so this combination of relentless on cost, strong history of cost takeout strong cash flow generation really underpins our business model. And that leads to an approach that we think is optimal in how we deploy capital. And I think the 2 words on this page are really important, balance and discipline. We have a ton of optionality given the cash flow profile. We've taken that across these 3 levers. We've invested in the business and in growth. We've made acquisitions. We've implemented a dividend, which we think is interesting for investors. We've also committed to a buyback program. So we've got all of the levers you would expect us to in capital allocation working for us. I think in the near term, our priority is around debt paydown. We're about 3.5x levered. We've been as high as 4x. We've been as low as under 2x. We think the right spot for us is 2 to 3x, and we think we can get to that point next fiscal year. So despite having a lot of options and interesting ways to deploy capital, our focus right now is to continue to delever. So that's the story of kind of what we're doing and what's underpinning our success. Where are we in 2023? This is a snapshot of half 1 results. I won't go through everything on the page. I'll let you take it in. But you see a couple of things that are interesting here. You see a growth profile of over 7% for the first half of the year. And you see 2 elements of that margin story that I talked about earlier, working together. You see meaningful margin offsets coming from price and good revenue management. That's the 270 basis points. And then you see the good discipline around cost takeout, 230 basis points. So as you think forward to what's the margin opportunity for this business, somewhere in that 400 to 500 basis points of offsets through price and good cost discipline is a pretty good proxy for how we think about the business going forward. And you've seen that in the first half of the year. And then our full year outlook. You can see the numbers there, Rob alluded to some of these. We just took our full year sales outlook up to the high end of our range, 5%. I think importantly, we have a very clear line of sight to gross margin accretion, meaningful gross margin accretion in the back half of the year. You can see that on the page. And boy, if it weren't for this pesky dollar situation, we'd be talking about, on a constant currency basis, profit and EPS growth roughly of double digits for the year. That's the business that we are running here in 2023. So what do we want to leave you with today? I think the key point, we are a very different company than the one that spun out of Energizer. We've put a very, very compelling strategy on the page, and we've executed that strategy over the last 3 years really well. And I think it is a business that has a right to continue to grow top line and continue to deliver interesting profit growth as well. So with that, I'm going to pause. Steve will welcome you back up, and we'll take the Q&A.

If there are questions in the room, there is a process. There's a microphone in the back. If you have a question, feel free to raise your hand, and we'll try to work you in. I guess, as you highlighted throughout the presentation, just a tremendous amount of change over the past several years as well as improved results. And I guess of all the elements of change that you went through, what do you think was the -- has been the most significant change at Edgewell that's driven those results? And how far are you along the journey that you envision when you embarked on the change, whether you measure that by your own starting out objectives or benchmark against external capabilities? Just -- is the organization transformed? Or is it still transforming?

Yes. So I'll take those in order. I'm a big believer in people, and you have to get the people right. And if you get the people right, good that things can happen. If you don't, you're going to struggle. And so the biggest thing that's changed to driving a different company is a brand-new leadership team, not only myself and Dan and our chairs, but the entire leadership team is new at every position. And if you go to the top 50 to 100 leaders in the company, over half of that group is also new. It's one thing to be new and different. That's interesting, but when you can look at each individual and say, we've gotten better at every single position, which I think we have, that's where it becomes very interesting. And so the leadership of the company is ultimately transformed. That's where it all starts, and we got that right. The strategy we've talked about, there was lack of clarity on what had priority and what did not, and so the strategy has been key to transforming the business. And it's not just words on paper, like everybody knows it, and we allocate capital accordingly. If you're working in Sun and Skin, you know you're going to get good support for your business, for example. So people, strategy, those are the things that I would ladder back to that we've gotten right. Where we are in the transformation journey? I would say, 70%, 80% along the way. Most of the work is done. The international changes that we made 7, 8 months ago was a key change point. The thing that remains that we still need to get done is improving the front-end innovation engine of having better innovation come to market that's more successful in market and to do that more quickly. And so we've got a set of activities that really bolstering the front-end innovation engine. At that point, we've got the end-to-end work done. I would say, however, the bar continues to move, right? You're never done on the transformation journey. So even though I feel good about where we are, and we're near the end of that initial set, the game never stops, right? We're going to have to continue to evolve and get better. And I think that's a bit in our DNA on just how we think about things.

The innovation work, is that -- what's the time line? Is that 12 months out, 18 months out, 6 months out?

We're working on the changes now. It's near term. We've been on a journey of working on it of -- and we've made some changes already of getting more direct and more local and getting local teams, local marketing groups really empowered with some autonomy of what they do in their market with the innovation set as opposed to what has historically been more of a global average and a global approach to innovation and pushing that down on the markets. We're in the process of flipping that model.

Okay. Great. Dan, you talked about the 2% to 3% organic growth target introduced back at your Investor Day a few years ago. And as you said, on track to exceed it for 3 years in a row. What do you think is the single biggest driver of that overachievement? And is it sustainable, especially as inflation hopefully comes back down to earth?

Yes. Look, I think this is the most compelling piece of our narrative. When we launched our new strategy and held the Investor Day and quoted 2% to 3%, there was probably a very short list of folks who believed that and with good reason, right? There was high skepticism, could we take a business declining mid-single digits and turn it into sustainable growth? You've heard today all the reasons why from capabilities to brand, to architectures, to portfolio being stronger to the innovation platform being better. I think those are all true. I think the single biggest enabler is how all of that has landed on shelf. We are simply seeing much better distribution outcomes on shelf in quantity and quality. When I joined, we were experiencing annual losses across much of the portfolio, right? And so the difference in your business is measured with retailer support and ultimately voted on by the consumer. And we are seeing significantly better outcomes. And in fact, in the U.S., meaningful gains around women Shave and around Sun Care. And so I think those are the catalysts for it. Is it sustainable? We should think so, right? When you get the fundamentals right, when your brands are stronger, when your portfolio is better, when you invest better, more efficiently for better outcomes and you're better on shelf, that's all durable. That's why we're confident this business has the right to grow.

Okay. Great. There's a lot of concern right now about -- across consumer goods, about demand weakening, especially in the U.S., trade down, companies not being able to hold on to price, and just what normalized demand looks like beyond the pandemic and et cetera. I guess, what is your view on those topics as you think about Edgewell's portfolio entering a potential consumer slowdown? And what gives you confidence in that kind of environment that the growth commitments you've made can be upheld?

Look, I think it's beneficial that we operate in categories that are everyday use categories, not discretionary, right? You don't wake up in the morning and decide whether to shower or not based on the state of the environment. I think -- so there's durability in the categories. We've seen that over time. We're generally less impacted. We also operate largely in the mid-tier pricing. We're not at the high end of the latter. So I think there's also room for belief there that there's structural support if the consumer weakens. Look, we've been talking about expecting and anticipating the consumer weakening for the better part of this fiscal year. We haven't seen it. The consumer is incredibly resilient, especially in the U.S. And we haven't actually seen sort of any structural weakening there. We've seen no signs of any rollback of meaningful pricing that's gone in, which is also encouraging. And I think look no further than our second quarter results and even our full -- half year results, we're seeing pretty equal price and volume growth underpinning that organic number. So again, this could shift. If it does, we'll certainly respond. But right now, the consumer is resilient, and we're certainly comfortable with the profile of growth we've put out there with both volume and price.

I want to turn to some of the specific categories that you operate in. I don't know if we're going to get to them all. But Rod, I want to start with Wet Shave just because I think that's the biggest one. It's -- I think it still drives the most conversation, mainly because it's had a share of challenges kind of -- I don't know what the opposite of a story passes. But what do you think the state of not just your business, but the category is today? Actually, I think it's much improved versus where it was. And just what you're seeing kind of building on Dan's comments about consumer demand in that specific category?

Yes. A little bit of a history walk, and I'll try to do this quickly on Wet Shave because it matters. Wet Shave category historically was a very good solid category. By way of background, I was at Procter & Gamble for 17 years. I was on the deal team that helped acquire Gillette, integrate Gillette into P&G. So I know that business quite well. Historically, bad word, but the duopoly style situation globally in the category, innovate, price, innovate, price, high-margin structure, good financial outcomes. That all got disrupted in 2013, 2014 with the launch of Harry's, Dollar Shave Club followed. They were at value-oriented price points. So you had price point trade down. You then have Gillette respond with a 13%, 1-3. List price reduction across the board in the U.S., boom just dropped the bottom out on pricing. All of that happening while consumer habits and practices were changing, a little more relaxed, a little more facial hair happening. And so you had shave rates actually declining in use through that period, 2013, '14 all the way through '18, '19. And you had a declining category in total. Fast forward to just leading into the pandemic, you had all of that price rationalization normalizing. So price had normalized, and use rates had actually picked back up a little bit where it was stable. And we went into the pandemic with a slightly growing category, maybe flat to up 1%, 2% globally, depending on how you looked at it. Pandemic year 1, obviously, there was a big drop as people didn't shave much. But coming out of that, we've seen a nice recovery. And we are in a period now where, globally, ex China, Japan, which have not yet reopened, from a shave category standpoint, the category has been healthy, low single digit, growing even mid-single digits in some periods. The volume has flattened. We've not seen the shave rates go down. Pricing has not only become neutral. Pricing has become positive. We've taken 2 rounds of price in North America, for example. We've got more pricing going in globally in some international markets it's not even in yet. And we're now the disruptor. So from a category standpoint, we're the ones bringing the disruptor brand as opposed to being disrupted. And so it's almost like you're a game board, and you're at the beginning of the game, you don't know where the game is going to go. Like we've got the game board now, and it's really clear in terms of who the competitive set is, who's doing what in the path like to win the game at the end. Like we've got the path, the category is healthy, and we know where we're going. So it's an absolutely fundamentally different category than it was back in 2015 to '19, which was problematic for everybody.

Yes. Yes. So on that point of disruption, just the addition of Billie, I think, has been very impactful. I mean, the execution in the marketplace is fantastic. I saw -- I was coming for this conference and was at Target, and was really surprised positively by the distribution and the presentation of the brand. I guess when you think about the opportunities for that brand that remain, whether in the U.S. or internationally, how do you conceptualize them?

Massive opportunity for that brand. It is an amazing brand in terms of its architecture, the target it's going after and the brand values. It's a single best brand book I've ever seen in terms of what was created and developed by that team. The team is still all with us today. We've retained them. And so the brand has opportunity to continue its distribution path in the U.S. There's channels that's not even in yet that we've got line of sight to. And when we initially bought the brand, the view was it's a lifestyle brand. This is not a shave brand. Today, it's a shave-oriented brand, but it can be a full lifestyle brand. Think of Ala Harry's on the men's side, the bulk of that Harry's business is not actually shave, it's the ancillary soft products. We see the same profile here, and it's not theoretical. It's happening. We've got launch commitments in other categories around body and skin care to come on that brand. And then international, we've -- there's lots of room there internationally. We've got some markets in mind that makes sense. So massive growth opportunity behind the brand. And your point is right in Target. Target was actually 2. Many times, Target won't take -- Target's not used to being #2. Walmart was 1 in this case. It's usually the other way around. So to even get listed in Target was a win. And then the presence you saw, it's just the power of the brand. And what it did at Walmart in growing the category, it became a very portable story.

Okay. I want to get to gross margin down, but I also want to hit it quickly on men's grooming because it's another -- it's a business that didn't exist pre -- at least didn't exist with an Edgewell pre-transformation. Just -- so Cremo and Jack Black and Bulldog and that whole portfolio, what's your level of satisfaction versus original objectives with that portfolio? And in the current environment, what's the right level of annualized growth? I think there was a 10% target turn out there at one point.

Yes. The Grooming portfolio, which you're right, Steve, has largely been put together through acquisition is about 7%, 8% of our total revenue today. And we fundamentally believe the double-digit growth rate for that business is reasonable. As you break down the 3 brands mentioned, each of those has outperformed the business case that we underwrote at the time we did the deal. So if you look at something like Bulldog, which has grown almost 5x from when we acquired it or Jack Black, which is almost 2x what it was when we acquired it or now Cremo out 2 years into this journey has seen 20% growth over those 2 years. And there's a lot more to come, right? And so I think what we've done a good job on is expanding distribution, but also thinking about adjacent categories and new product. We haven't yet gotten the brands to travel. That's an opportunity. We just bought Cremo to Europe as an example on a DTC-only test and learn environment. So yes, we think there's been quite a bit of success for that portfolio of brands. And certainly, the double-digit algorithm that we've talked about publicly for Grooming, we still think is the right one.

Steve, if I could add, all 4 of those acquisitions are ahead of acquisition economics and what we committed to the Board. In a world where most innovation fails, this is not an accident, right? They were very targeted acquisitions where we've developed a playbook where we know we can be successful with them. It's not our priority to go do more right now. As Dan said, debt paydown is the focus. But we've got real capability around acquiring and then tucking in, in an interesting way.

Okay. So on gross margin, the -- maybe just -- you talked about the ambition, the expectation to get back to those pre-pandemic levels at 45% roundabout level. Maybe just talking about the path to get there. The cadence over the remainder of this year that you've called out, how you think you're set up into fiscal '24 for further progress. And just what is sort of the right timing for investors to think about in terms of that clawback to 45%.

Yes. That is the ultimate question. What's not in question for us is getting the brand back to that north of 45% margin profile. We've committed to that. We think we have all the right elements. I think the question, which is still a bit difficult to predict, is on what pace, how fast can we do that? And here, I think you have to separate that which we control and that which we don't. I think on the control side, you've seen the impact of pricing. You've seen the impact of the productivity work. 400 to 500 basis points of year-over-year offsets is a pretty good proxy. We've seen that over the last couple of years. I think the real question comes in, namely around inflation and, to a smaller degree, strength of dollar and what does that look like. Now the good news, we are seeing inflation sequentially dampened, right? We are seeing that. We exited last fiscal with north of 700 basis points of inflationary headwinds. In the first half of the year, that's down to about 500. In the back half of our fiscal, we think it's probably half that. So again, all going in the right direction. The strong dollar hurts as well this year to the tune of 100 basis points of margin headwinds for us. So despite all of that, we have a really clear line of sight to the back half of this year being meaningfully accretive in terms of margins, 150, 175 basis points back half of this year. So that's a good catalyst. We have clear line of sight to this margin profile returning. We will be margin accretive this year, about 30 basis points despite all of those puts and takes. It's really difficult to say when and how fast does this business then jump start back to the 45%. I'm not going to get into 2024 yet. But hopefully, you can see all the right ingredients there that lead to margin accretion. I think the question will be inflation and FX and when do those current headwinds potentially abate, then we have a real opportunity.

Okay. Just a quick minute left. You've got a $300 million commitment to share repurchase. You talked about debt paydown being the priority now. Beyond -- as you get that paydown down -- as you get debt paid down, do you do you think about repurchase program kind of in that same zone? Or does that when M&A becomes more front burner?

Yes, I think all 3 are interesting for us. I think right now, as you said, the priority is pay down debt. As we move past that and look forward, I think M&A is interesting and you've seen a quite successful lever for us. It's not the priority today. We have a super high bar on brands and deals. It doesn't mean we're not looking at a lot. We are. But expectations haven't diminished in the market, and this is not where we want to deploy capital. And we're going to continue to look at what makes the most sense. Is it stepping into the buyback even further? Could be. We'll see as we get there. But right now, it's about delevering.

Great. Rod, I'm going to give you last word. Any final thoughts, summation?

No, look, I think the team is in place. The strategy is working. We've got above average TSR, whether you look at the peer group, the broader indices. And so it's happening, right? This isn't theoretical. It's happening. We're confident we can continue the progress.

Great. Well, thank you both for joining us. Thank you all in the room for joining us. And hopefully, we'll see you next year.

Thank you. Thanks, everybody.