No-Moat Church & Dwight's Sales Could Stumble in the Face of Mounting Competitive Pressures

We’ve long held no-moat Church & Dwight lacks the scale, resources, and negotiating prowess of its larger brethren. We see this as an unenviable position, particularly when juxtaposed with persistent macro and competitive pressures, cost headwinds, and supply chain tension. Although Church has emphasized 40% of its mix skews toward value offerings, we're skeptical this alone will insulate it. Rather, we posit Church’s category mix makes the firm susceptible to consumers trading down or out if their financial position warrants. Beyond the top line, we surmise reaching its 45% prepandemic gross margin could be delayed by intensifying competition (from well-resourced peers and lower-priced private-label offerings) if promotional spending steps up from relatively dormant levels the past few years. As a smaller operator with less-entrenched retail relationships, we think this could put Church in the crosshairs, making further margin expansion harder to come by. Further, while inflationary headwinds in aggregate have died down, labor, transportation, and logistics remain elevated and could put added pressure on its margin trajectory.