Analyst Note| Erin Lash, CFA |
After flying high since the pandemic took hold, Clorox seems to be coming back down to Earth if the third quarter is a guide. In this vein, organic sales slipped 1% (following a 5% retreat in volumes), gross margins contracted 320 basis points to 43.5%, and adjusted operating margins sank 200 basis points to 17.1% by our calculation. However, we don’t think this suggests consumers are turning their backs on Clorox’s cleaning and disinfecting fare. Rather, from a sales perspective, Clorox is still standing above where it was prepandemic, with 15% top-line growth on a two-year stacked basis, including 16.4% higher marks in its health and wellness arm (which houses its retail and professional cleaning operations). However, cost pressures are also wreaking havoc as it pertains to transportation, logistics, and commodities, and we don’t anticipate these headwinds will subside soon (sentiment that seems to align with the broader consumer products cohort). We don’t think Clorox is sitting still but is employing a tactical approach, anchored in investing in consumer-valued innovation supported by advertising, pursuing cost savings, and surgically taking price (with plans to raise prices in its Glad lineup beginning in July).