WD-40's Q1 2026 Earnings Call: Contradictions in Asia Recovery, Supply Chain Costs, and Margin Guidance Emerge

Date of Call: January 8, 2026

Financials Results

• Revenue: $154.4M, up 1% YOY
• EPS: $1.28 per diluted share, down 8% YOY
• Gross Margin: 56.2%, up 140 basis points YOY and up 150 basis points sequentially

Guidance:

• Net sales expected between $630M and $655M, growth of 5% to 9% YOY.
• Gross margin expected between 55.5% and 56.5%.
• Operating income expected between $103M and $110M, growth of 5% to 12% YOY.
• Advertising & promotion spend projected at ~6% of net sales.
• Diluted EPS expected between $5.75 and $6.15, growth of 5% to 12% YOY.

Business Commentary:

* Sales Performance and Market Dynamics: - WD-40 Company reported consolidated net sales of $154.4 million for Q1 2026, a 1% increase compared to last year. - The growth was primarily driven by maintenance products, which accounted for approximately 96% of total net sales, with a 2% year-over-year increase. However, this performance fell short of the company's long-term growth targets. - The softness in sales was attributed to timing-related factors within the marketing distributor network, particularly in the Asia Pacific region, rather than a decline in end-user demand.

• Regional Sales Variability:
• Sales in the Americas segment were $71.9 million, reflecting a 4% increase compared to the previous year, with strong growth in the U.S. and Latin America.
• In EMEA, net sales were $58.7 million, up 5% year-over-year, driven by a 27% increase in WD-40 Specialist sales, although offset by softer distributor market performance.

• Asia Pacific sales decreased by 10% to $23.9 million, primarily due to a significant 33% decline in distributor markets, again linked to timing of customer orders and inventory adjustments.

• Gross Margin Improvement:

• The company's gross margin for Q1 2026 was 56.2%, improving by 150 basis points sequentially and 140 basis points compared to the same quarter last year.

• The improvement was driven by lower specialty chemical costs, reduced CAM costs, and higher average selling prices due to premiumization efforts.

• Digital Commerce and Product Strategy:

• E-commerce sales increased by 22%, primarily driven by strong sales of WD-40 Specialist in the U.S.
• The company emphasized the growth of premium formats and the expansion of WD-40 Specialist, which saw an 18% increase in sales.

• Digital commerce is seen as a catalyst for growth, enhancing brand visibility and engagement globally.

• Operational Excellence and Strategic Focus:

• The company achieved a record-high employee engagement index score of 95%, reflecting a strong focus on people and collaboration.
• The strategic enablers, particularly in supply chain optimization, contributed to a global on-time performance of 97.6%, supporting operational excellence.
• Initiatives such as supply chain cost reductions and strategic sourcing are aimed at sustaining margin growth and operational efficiency.

Sentiment Analysis:

Overall Tone: Positive

• "We remain highly confident in the strength of our growth trajectory." "The second quarter is already off to an excellent start with solid growth across all 3 trade blocks." "We have visibility into a number of upcoming initiatives, giving us confidence in delivering the solid fiscal year results." "We are reaffirming our full year 2026 guidance... we're highly confident in delivering results at the mid- to high end of our guidance ranges."

Q&A:

• Question from Michael Baker (D.A. Davidson): What are the specific indicators pointing to strong results, and is the guidance for mid- to high end of the range more bullish than originally given?
  Response: Confidence stems from scheduled promotional activities in the back half of the year, expected strong U.S. performance, European direct market strength, and recovery in Asia distributor markets.

• Question from Michael Baker (D.A. Davidson): Are we already seeing a recovery in Asia distributor markets?
  Response: Recovery began in Q2, with stronger results expected in the back half of the year.

• Question from Michael Baker (D.A. Davidson): Is the accelerated buyback program more than double the previous expectation?
  Response: Yes, buybacks will utilize the entire remaining authorization, exceeding prior expectations.

• Question from Daniel Rizzo (Jefferies): What specific supply chain cost-reduction initiatives are being implemented?
  Response: Actions include global sourcing reforms (e.g., can reductions) and optimizing distribution networks to reduce mileage, with some benefits extending to FY '27.

• Question from Daniel Rizzo (Jefferies): Will these moves require significant CapEx, and is the 55% gross margin sustainable long-term?
  Response: CapEx remains low (1-2% of maintenance). Gross margin is currently above 55%, with ongoing cost initiatives expected to sustain and potentially accrete margin further.

Contradiction Point 1

Outlook for Asia Pacific Market Recovery and Business Cadence

This represents a significant shift in the expected timeline and nature of market recovery. The characterization moves from a future event ("improvement starting in Q2, with a return to growth in Q3 and Q4") to an ongoing reality ("already beginning in Q2"), directly impacting revenue forecasts for the near term.

Are we seeing a recovery in Asia distributor markets yet, or is it expected in the back half? - Michael Baker (D.A. Davidson)

20260109-2026 Q1: A recovery in Asia distributor markets is already beginning in Q2, with the main rebound expected in the back half of the fiscal year. - Steven Brass(CEO)

India's growth is expected to resume more in H2. Can you elaborate? - Linda Bolton-Weiser (D.A. Davidson)

2024Q1: India... expects to emerge from that disruption in the second half of the fiscal year. A portion of shipments were deferred from Q1 to Q2. The company anticipates seeing improvement starting in Q2, with a return to growth in Q3 and Q4. - Steven Brass(CEO)

Contradiction Point 2

Supply Chain Cost Reduction Initiatives and Capital Expenditure

This is a substantive contradiction regarding the capital requirements for stated strategic initiatives. The 2024 statement explicitly links a major initiative (new ERP system) to capital expenditure and future P&L impact, while the 2026 statement downplays capital needs for similar/same initiatives, suggesting a potential change in strategy or financial disclosure.

Will these supply chain changes require CapEx spending? Is the 55% gross margin guidance sustainable long-term? - Daniel Rizzo (Jefferies)

20260109-2026 Q1: Most investments are handled by third-party providers in an outsourced model, so CapEx remains within the 1% to 2% target. - Sara Hyzer(CFO)

When will ERP implementation costs impact the income statement? - Linda Bolton-Weiser (D.A. Davidson)

2024Q1: The new cloud-based ERP system is still on track to go live in Q2 FY2024. Amortization of the approximately $10 million in capitalized costs will begin to impact the P&L starting in Q2. - Sara Hyzer(CFO)

Contradiction Point 3

Gross Margin Expectations and Drivers

This involves a notable change in the financial forecast narrative. The 2025Q4 outlook presented a stable environment with clear tailwinds. The 2026Q1 commentary introduces a more complex picture, shifting emphasis to specific actions and explicitly timing benefits (current fiscal year vs. next), which could signal underlying pressure or a change in the margin trajectory.

Will these supply chain moves require CapEx spending? Is the 55% gross margin guidance sustainable long-term? - Daniel Rizzo (Jefferies)

20260109-2026 Q1: Regarding margins, while subject to oil and chemical cost variability, the company is finding cost-saving opportunities and expects margin accretion in the current fiscal year, with more benefits in the next fiscal year. - Sara Hyzer(CFO)

Could you provide insight into potential gross margin headwinds and tailwinds within your 2026 guidance? - Keegan Cox (DA Davidson, for Mike Baker)

2025Q4: The FY26 gross margin guidance (55.5%-56.5%) includes both headwinds and tailwinds. The company is currently seeing stable input costs. If oil prices remain at current levels, that could be a small tailwind (the guidance is built conservatively). Key tailwinds include ongoing cost-saving initiatives, supply chain optimization, and continuation of successful global sourcing efforts from FY25 that are expected to benefit margins in FY26. - Sara Hyzer(CFO)

Contradiction Point 4

Timing of Asia Pacific Distributor Market Recovery

This shows an evolution in the recovery timeline, moving from a forecast of a "strong rebound later in the fiscal year" to asserting it is "already beginning" in the current quarter. This is a material change in market strategy communication and affects the perceived timing of revenue growth.

Are we seeing a recovery in Asia distributor markets yet, or is it more in the back half? - Michael Baker (D.A. Davidson)

20260109-2026 Q1: A recovery in Asia distributor markets is already beginning in Q2, with the main rebound expected in the back half of the fiscal year. - Steven Brass(CEO)

How much runway remains for the distributor market in Asia Pacific? - Keegan Cox (DA Davidson, for Mike Baker)

2025Q4: The runway for growth in Asia Pacific distributor markets is very long... The company sees a strong rebound later in the fiscal year, though there may be some short-term lumpiness or pullback in Q1 due to distributor inventory management. - Steven Brass(CEO)

Contradiction Point 5

Scope and Clarity of Supply Chain Cost-Reduction Initiatives

This reflects a change in the communication of company strategy regarding its cost-reduction program. The 2026Q1 call provides more detailed, forward-looking structure (e.g., "next phase in specialty chemicals," "impact starting in FY '27"), whereas the 2026Q1 call (earlier in the fiscal year) was more generic. This could indicate a newly phased or clarified strategy.

What specific steps are you taking to reduce supply chain costs? - Daniel Rizzo (Jefferies)

20260109-2026 Q1: Initiatives include global sourcing strategies (e.g., can reductions... next phase in specialty chemicals), and optimizing the distribution network... Some structural changes will impact results starting in FY '27. - Sara Hyzer(CFO)

Could you elaborate on the specific steps the company is taking to reduce supply chain costs? - Daniel Rizzo (Jefferies)

2026Q1: The company is reducing costs through a new global sourcing strategy (e.g., for cans, which has already impacted margins) and is now focusing on specialty chemicals. - Sara Hyzer(CFO)