Prestige Navigates Supply Headwinds, Maintains Free Cash Flow Growth

Date of Call: Feb 5, 2026

Financials Results

• Revenue: $283.4M, down 2.4% YOY ($290.3M prior year) or 2.2% excluding FX
• EPS: $1.14 adjusted diluted EPS, down slightly versus $1.22 in prior year
• Gross Margin: 55.5% in Q3; 55.7% for first 9 months, up 50 basis points YOY
• Operating Margin: Adjusted EBITDA margin remained in the low 30s

Guidance:

• Revenue for fiscal '26 forecast narrowed to approximately $1.1B.
• Adjusted diluted EPS anticipated to be approximately $4.54 for the year.
• Free cash flow expected to be $245M or more.
• Q4 adjusted gross margin anticipated at 57%.
• Full year advertising & marketing spend rate now anticipated just under 14% of sales.
• Full year G&A expenses anticipated just over 10% of sales.
• Q4 interest expense expected to be approximately $11M, normalized tax rate 24%, share count just under 48M.

Business Commentary:

Revenue and Sales Performance:

• Prestige Consumer Healthcare Inc. reported sales of $283 million for Q3, which were slightly better than forecast and in line with expectations for gross margin and adjusted EPS.
• The company's revenue decline was mainly due to lower eye and ear care category sales, largely because of Clear Eyes supply constraints, although growth in channels like e-commerce offset some of the losses.

Supply Chain and Strategic Acquisitions:

• The company faced challenges with Clear Eyes supply, but sequential improvements were seen for the second consecutive quarter.
• Strategic actions included acquiring Pillar5 to gain direct control over an important element of the supply chain and bringing on new third-party suppliers to ensure production continuity and increase sufficiency levels.

Financial Health and Capital Allocation:

• Prestige reported free cash flow of $209 million year-to-date, up 13% versus the prior year, and maintained leverage in the mid-2s.
• The company focused on disciplined capital allocation, including share repurchases and strategic acquisitions, enabled by its strong financial position and consistent business performance.

Outlook and Expectations:

• The company narrowed its fiscal '26 sales outlook to approximately $1.1 billion, reflecting continued consumption momentum in growing channels but offset by slower order patterns in other channels.
• They anticipate sequential improvement in Clear Eyes supply in Q4 and maintain expectations for free cash flow of $245 million or more for the fiscal year.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed confidence in the core business and strong financial profile, noting 'solid results' and that the company is 'well positioned' to manage volatility. They stated they 'feel good about the action steps' taken to improve supply and are 'confident' in long-term growth algorithms. Specific quotes include 'We delivered solid results for the third quarter' and 'we have confidence in our core business, which remains well positioned'.

Q&A:

• Question from Rupesh Parikh (Oppenheimer & Co. Inc.): Concerns about shopper headwinds and inventory destocking impacting sales, and whether consumption is shifting to other retailers.
  Response: Confirmed it's a continuation of channel shift due to consumer volatility, with broad distribution allowing capture of consumption where shoppers go, not a decline in underlying consumption.

• Question from Susan Anderson (Canaccord Genuity Corp.): Update on Clear Eyes restocking timeline and impact on margins during supply disruption.
  Response: Sequential improvement in supply expected to continue into Q4 and through fiscal '27; margin impact not material, no meaningful change expected.

• Question from Keith Devas (Jefferies LLC): Rationale behind significant share repurchases versus reinvestment, and go-forward capital allocation path.
  Response: Repurchases are secondary to M&A but pursued when math shows attractive shareholder returns; strong free cash flow and leverage position provide optionality.

• Question from Jon Andersen (William Blair & Company L.L.C.): Unpack Q4 sales outlook being at low end of prior range despite Q3 sales ahead of forecast.
  Response: Attributed to reflecting volatile order patterns in Q3, with channels facing headwinds adjusting orders; consumption outlook remains positive.

• Question from Mitchell Pinheiro (Sturdivant & Co., Inc.): Impact of e-commerce growth on advertising/marketing spend and private label trends.
  Response: Marketing evolves to connect with changing shoppers; no expected savings, focus on efficiency and brand building. Private label share expected stable.

• Question from Carla Casella (JPMorgan Chase & Co): Details on supplier loan write-off and future M&A focus.
  Response: Write-off due to supplier shutdown after product transfer; future M&A focused on brands and long-term brand building value.

Contradiction Point 1

Timeline for Clear Eyes Supply Normalization

It directly impacts expectations regarding the production timeline and delivery capabilities of a key product, potentially influencing company revenue and investor expectations.

What is the current status and timeline for Clear Eyes restocking, the impact on margins during the supply disruption, the update on e-commerce penetration and growth, and the current status of the women’s health business? - Susan Anderson (Canaccord Genuity Corp.)

2026Q3: Full restocking and normalization will take time through FY27. - Christine Sacco(CFO) & Ron Lombardi(CEO)

Was the pull-forward from the online retailer into Q2 from Q3 quantified? Will Clear Eyes supply be fully caught up by year-end or spill into 2027? - Douglas Lane (Water Tower Research LLC)

2026Q2: Sequential improvement is expected in Q3 vs. Q2 and Q4 vs. Q3. By fiscal year-end, new suppliers and Pillar5’s new line will be in place... However, rebuilding retailer inventory and shelf space may extend into fiscal 2027. - Christine Sacco(CFO) & Ron Lombardi(CEO)

Contradiction Point 2

Characterization of Retail Inventory Health

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

What is the rationale for prioritizing share repurchases over reinvestment, and is this buyback level sustainable without M&A? - Keith Devas (Jefferies LLC)

2026Q3: Inventory pressure is more concentrated in large, competitive categories... Prestige’s portfolio is less impacted due to its needs-based, trusted brand positioning. - Ron Lombardi(CEO)

How would you characterize the health of U.S. retailer inventories excluding e-commerce volatility? - Rupesh Parikh (Oppenheimer & Co. Inc.)

2026Q2: Inventory at retail has been steady or predictable outside of e-commerce issues. - Ron Lombardi(CEO)

Contradiction Point 3

Primary Driver of Revenue Guidance

It reflects inconsistencies in the product roadmap and supply chain execution, affecting strategic planning and market confidence.

Why does Q4 guidance imply slower growth than Q3 despite Q3 sales exceeding expectations, what consumption growth is observed and expected for Q4, and how should the top line for FY27 be viewed? - Jon Andersen (William Blair & Company L.L.C.)

2026Q3: The Q4 outlook reflects volatile retail order patterns... - Ron Lombardi(CEO)

How is the macro environment impacting your business, and is the revenue guidance range primarily due to eye care recovery? How are underlying performance factors being considered? - Keith Devas (Jefferies LLC)

2026Q2: The primary driver of the revenue range is eye care recovery. The rest of the business is performing as expected... - Ron Lombardi(CEO) & Christine Sacco(CFO)

Contradiction Point 4

Retail Order Volatility Impact and Expected Normalization

It pertains to supply chain issues and demand forecasts, which are crucial for understanding market dynamics and the company's ability to meet demand.

Is the weaker performance due to inventory destocking and consumption shifts to other retailers, when will the headwinds subside, and what factors should be considered for the next fiscal year? - Rupesh Parikh (Oppenheimer & Co. Inc.)

2026Q3: The headwind is quarter-by-quarter unpredictable due to consumer volatility (e.g., unexpected events in Q3). For FY27, the company feels good about the organic performance base... - Ron Lombardi(CFO)

Could you elaborate on the change in retail order patterns and inventory destocking, including its scope, Q2 impact magnitude, and expected duration beyond Q2? - Rupesh Parikh (Oppenheimer & Co.)

2026Q1: The impact is expected to significantly affect Q2, but the company anticipates a return to more normalized retail order trends in the second half of the fiscal year. - Christine Sacco(CFO)

Contradiction Point 5

Characterization of Organic Sales Growth Headwind

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

Are consumption shifts to other retailers due to shopper headwinds driving weaker performance from inventory destocking, and when might this headwind abate, along with key considerations for next fiscal year? - Rupesh Parikh (Oppenheimer & Co. Inc.)

2026Q3: The weaker performance is attributed to a continuation of channel shifts and inventory destocking in affected channels, not consumption trends. - Ron Lombardi(CEO)

Does the 1-2% organic sales growth guidance account for a ~0.5 point headwind from timing shifts (e.g., e-commerce order timing shifts), and are there other factors causing it to fall below the 2%-3% long-term target? - Rupesh Parikh (Oppenheimer)

2025Q4: The $7 million benefit from pulled-forward e-commerce orders in Q4 (which will reverse in Q1) and unpredictable FX movements... contribute to the more conservative outlook. - Christine Sacco(CFO)