"Prestige Consumer Healthcare's Q2 2026: Contradictions Emerge on Clear Eyes Supply, Gross Margins, Inventory, and Macroeconomic Impact"

Date of Call: None provided

Financials Results

• Revenue: $274.1M, down 3.4% YOY (prior year $283.8M)
• EPS: $1.07 adjusted EPS for Q2, down vs $1.09 prior year
• Gross Margin: 55.7% for first six months, up 60 bps YOY; expect full-year 56.5% and Q3 ~56%

Guidance:

• Fiscal 2026 revenue expected $1.10B–$1.115B; organic decline ~1.5%–3%
• Full-year adjusted EPS $4.54–$4.58; Q3 EPS ~ $1.14
• Q3 revenue ~ $282M (down vs prior year; includes ~$5M timing impact from Clear Eyes)
• Full-year gross margin ~56.5%; Q3 ~56%
• A&M ~14% of sales for FY; Q3 A&M >15%
• Free cash flow expected $245M or more for FY
• Tax rate remaining ~24%
• Expect Pillar Five acquisition (~$100M) to close in Q3

Business Commentary:

• Q2 Revenue and Sales Trends:
• Prestige Consumer Healthcare's revenue for Q2 was $274 million, a decline of 3.4% from the previous year, but exceeded expectations due to timing factors.
• The decline was primarily due to lower eye and ear care category sales and reduced cough and cold sales, but these were partially offset by accelerated e-commerce shipments.
  
• Eye Care Supply Chain and Recovery:
• The company faced Clear Eyes supply constraints, impacting sales and market share, particularly in the eye care segment.

• Efforts to mitigate this included adding two new suppliers and acquiring the eye care manufacturer Pillar Five, with expectations of sequential improvements in Q3 and Q4.

• Adjusted EPS and Financial Performance:

• Adjusted EPS was $1.07, meeting expectations despite lower sales, due to favorable A&M timing and interest expense improvements.

• The company maintained a strong free cash flow of $134 million for the first half, up 10% year-on-year.

• Dental Care Expansion and Branding:

• DenTek brand dental guards, representing over half of DenTek's revenue, saw market share exceed 50%.

• The Fantasy Guards marketing campaign, targeting fantasy football enthusiasts, contributed to this growth, increasing market share by more than 5 percentage points.

• International Business and E-commerce Growth:

• International segment revenues increased by 2.7%, driven by higher Hydralyte sales, despite distributor order timing impacts.
• The company experienced double-digit e-commerce consumption growth, facilitated by long-term investments, contributing to overall revenue trends.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Q2 results exceeded the expectations we communicated in August"; adjusted EPS $1.07 ahead of expectations; first-half free cash flow $133.6M, up ~10% YOY; leverage stable at 2.4x; reiterated full-year revenue and EPS guidance while noting sequential Clear Eyes supply improvement expected Q3→Q4.

Q&A:

• Question from Susan Anderson (Canticore Genoity): Color on how Clear Eyes supply will flow through the rest of the year; did you lose shelf space at retailers; is international distributor order weakness related?
  Response: Two supplemental suppliers are online and Pillar Five’s high‑speed line is ramping; management expects sequential supply improvement Q3→Q4, lost shelf space to be recovered over time as supply and marketing ramp, and Pillar Five constraints affected some international eye care orders.

• Question from Rupesh Parra (Oppenheimer and Company): How do you characterize the health of U.S. retailer inventories outside e‑commerce?
  Response: Outside e‑commerce volatility, retail inventories are steady/predictable; e‑commerce order patterns are the primary source of variability; women's health weakness this quarter reflects lumpy comps but is up over multi‑quarter periods.

• Question from Keith Davis (Jefferies): What are you seeing on the macro environment and is the difference between high/low of the guide tied to eye care recovery?
  Response: Needs‑based consumer health demand remains resilient; management sees no material change to outlook and confirms the guidance range variability is primarily driven by the timing of Clear Eyes recovery; rest of business performing as expected.

• Question from John Anderson (William Blair): Excluding Clear Eyes, what are consumption trends and assumptions for reclaiming shelf space?
  Response: Ex‑Clear Eyes TTM organic sales ~+2.5% (International ~+5%, North America ~+1%); shelf‑space recovery will be gradual as retailers rebuild inventories and marketing is reintroduced once supply is stable.

• Question from Mitchell Pinero (Sturdivant and Company): Inventory up $5M sequentially—is that Clear Eyes? Clarify Q3; A&M initiatives; e‑commerce variability; plans to insource or raise safety stock?
  Response: Inventory step‑up was not Clear Eyes but broad retailer/order timing; despite ~$5M late Clear Eyes receipts, Q3 should sequentially improve; A&M timing is brand‑driven; e‑commerce order timing remains unpredictable; no broader insourcing planned beyond Pillar Five and no material permanent increase to safety stock is expected.

• Question from Anthony Lebanzinski (Sidoti): Once supply normalizes, will A&M spend as a percent of revenue rise? Any meaningful change from private label?
  Response: A&M will be reallocated to opportunities but not necessarily higher company‑wide; marketing on Clear Eyes was deprioritized when supply was constrained; private label has not meaningfully impacted their core categories.

• Question from Doug Lane (Water Tower Research): How much pull‑forward from the online retailer into Q2; will Clear Eyes be fully recovered by year‑end; financing for the $100M Pillar Five deal?
  Response: Clear Eyes timing benefit was about $5M; production changes should be implemented by fiscal year‑end but rebuilding retail inventories/safety stock may carry into FY2027; Pillar Five acquisition expected to close in Q3 and will be financed primarily with cash on hand.

Contradiction Point 1

Clear Eyes Supply Recovery and Market Share

It involves differing expectations about the recovery timeline and market share preservation for the Clear Eyes product, which are critical for sales projections and investor confidence.

What was the extent of the online retailer order pull forward in Q2, and when will Clear Eyes supply be fully resolved by year-end? - Doug Lane (Water Tower Research)

2026Q2: By the end of our fiscal year, all supply chain improvements will be in place, enabling us to meet demand. - Ron Lombardi(CEO)

How confident are you in normalizing Clear Eyes supply in H2, and will past sales be recovered? - Rupesh Parikh (Oppenheimer & Co.)

2026Q1: We expect to recover lost sales over time. - Ron Lombardi(CEO)

Contradiction Point 2

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

How have other North American brands performed excluding Clear Eyes, and what are the assumptions for regaining Clear Eyes' market share? - John Anderson (William Blair)

2026Q2: Gross margin is expected to improve in Q4 due to cost savings and international segment stabilization. - Christine Sacco(CFO and COO)

What factors will drive gross margin for the remainder of the year? - Susan Anderson (Canaccord Genuity)

2026Q1: Gross margin is largely steady, influenced by variable cost models and mix shifts. - Christine Sacco(CFO, COO)

Contradiction Point 3

Clear Eyes Supply Chain and Market Recovery

It directly impacts expectations regarding the recovery of a key product's supply chain and market share, which could affect the company's revenue and investor confidence.

How are you addressing the Clear Eyes supply issues, and have they led to shelf space loss at other retailers? - Susan Anderson(Canticore Genoity)

2026Q2: The international eye care orders are affected due to Clear Eyes supply constraints. - Christine Sacco(CFO and COO)

How do you view Clear Eyes' recovery going forward? What is the retail in-stock situation, and when do you expect channel inventory to normalize? - Rupesh Parikh(Oppenheimer & Company)

2025Q3: Clear Eyes production levels were in line with expectations in Q3. - Ron Lombardi(Chairman, President & CEO)

Contradiction Point 4

Inventory Levels and Control

It involves changes in strategy regarding inventory management and control, which are critical for operational efficiency and financial performance.

Can you clarify the Q2 inventory increase and whether any areas could be brought in-house to improve control, and whether higher inventory is needed due to past supply issues? - Mitchell Pinero (Sturdivant and Company)

2026Q2: We have over 100 suppliers, but Clear Eyes is unique. We have no plans for further in-house expansions beyond Clear Eyes. Inventory levels may see minor adjustments but no significant change overall. - Ron Lombardi(Chairman, President, and CEO)

How do you assess the recovery for Clear Eyes in terms of supply and inventory levels? - Rupesh Parikh (Oppenheimer)

2025Q4: We continue to optimize our supply chain, including significant capacity expansion at our existing suppliers and the addition of 2 new suppliers, specifically for Clear Eyes, during fiscal 2026. - Ron Lombardi(CEO)

Contradiction Point 5

Macroeconomic Impact and Consumer Behavior

It involves differing perspectives on the impact of macroeconomic trends on consumer behavior, which could affect forecasting and strategic planning.

How is the macroeconomic environment affecting your business, and what are the key drivers of your sales outlook this year? - Keith Davis(Jefferies)

2026Q2: Our core categories are less affected by macroeconomic trends due to their need-based nature. - Ron Lombardi(Chairman, President & CEO)

Assess the forward-looking recovery of Clear Eyes, current retail stock levels, and the timeline to normalized channel levels? - Rupesh Parikh(Oppenheimer & Company)

2025Q3: The change to the Blackwell GPU mask is complete without functional changes. - Ron Lombardi(Chairman, President & CEO)