Wendy Davidson and CFO Lee Boyce from Hain Celestial, thank you for joining us at the CSI conference. Maybe to start things out, Wendy, you outlined your strategy, Hain Reimagined, last fall, including 3%+ organic sales growth and about 400-500 basis points of gross margin expansion. That's through fiscal 2027. As we sit here now, nine months later, can you talk about some of the bright spots in the portfolio as signs of progress towards these milestones?
Yeah, I appreciate it, and appreciate the invitation to come and chat. As we said in September on Investor Day, our focus would be on the Focus and Fuel pillars of Hain Reimagined. There's 4 pillars in the strategy. We didn't have the luxury of a robust balance sheet, so in order to be able to invest behind the business, we would need to drive focus and to generate fuel to allow us to invest. Those are the areas we've made the most progress. In Focus, we've really streamlined the business down to 5 priority categories and 5 geographies. If those of you who have followed Hain for a long time, you would know the company was essentially functioning like a holding company. 25 years of 60+ acquisitions in the last 5 years, a series of 30-some divestitures.
But through all of that, very little integration of the business and still running essentially in multiple silos. That creates a lot of complexity, but also a lot of stranded cost. So we've spent time over this last year and a half really streamlining the five categories and then streamlining our geographic footprint. We've consolidated operations in meat-free in Canada from two plants to one. We've consolidated our personal care manufacturing from two dedicated plants to one and removed about 60% of our co-manufacturers on the personal care business. We've streamlined the portfolio of brands, the sale of Thinsters in the last quarter. We actually won't be announcing it 'cause it's relatively small, but this week we closed the divestiture of Queen Helene, which is one of the very small personal care brands. We've eliminated some non-core categories, especially in personal care.
The company had taken essentially the brands into multiple subcategories, where really we didn't have brands that had the right to play. So taking a brand like Alba, that's very good in sun care, but taking it into skin care and hair care, or taking a brand like Jason, that was really strong in hair and skin, but taking it into deodorant and toothpaste, you end up with really small pieces of business, a lot of complexity in your supply chain, and what's worse, unproductive SKUs on shelf that the retailer really doesn't then wanna help invest behind the brands. So we've really tightened the portfolio of businesses and brands. In the fuel side, that's probably where we've made absolutely the most progress. Our supply chain's been reimagined end-to-end. We've improved our forecast accuracy.
We've reduced our inventories by about 10 days, or about 10% in the last year. We've improved our days payable by about 9 days, so we're working our cash better. Our operational efficiency, so those of you who have followed Hain for a while, you would know that we had a lot of supply chain challenges that was resulting in fill rates on shelf that really weren't competitive. It's hard to get a retailer to partner with you when you're not keeping products available on shelf. Our fill rates are in the top tier in the industry, according to Circana, and that's improved over the last year and consistently maintained in that top tier, while we've reduced inventories. And that, for folks who are in CPG, is sort of the Holy Grail.
You want to be able to reduce your inventories, but usually when you do that, you result in service level issues. So the fact that we're doing both of those has been, has been a real win. And I don't know, Lee, if you wanna add anything else relative to-
Yeah, I just, I guess just, you know, to build on your point there, I mean, you know, what was laid down in Hain Reimagined was $165 million of net working capital reduction. We have made significant progress this year. So consequently, because of that, we've actually been able to reduce our net debt by close to $50 million. So, you know, part of the thing was deleveraging the business overall, getting to the 2-3 times. You know, based on where we were in the last quarter, we're about 3.9 times, as measured by kind of our bank definition there. So that's been a big focus for us, reducing the net debt.
And then to Wendy's point, you know, really focusing in on the payables. So, you know, getting the payables up to 70 days. So we've got a lot of kind of headroom to continue to do that, and then driving the inventory down to the 55 days. So we've made some investments in our forecasting ability. We've invested in integrated business planning in something called Blue Yonder, and we're seeing the kind of the fruits of that right now.
That's great. And maybe on the flip side, can you talk about some parts of the strategy that have either taken a little longer or been more challenging than you initially expected back in September?
The pivot to growth has taken longer than we anticipated. As we communicated in the latest quarter, we're providing more visibility. So we're providing the revenue visibility by category, so you can actually see the size of the relative categories. 85% of the business is in growth, so year to date, it's grown a little over 3%, which is on our algorithm for Hain Reimagined. But the 15% that's not growing is down double digits, and that 15%'s become a material drag to the business. Some of that, we know, is temporary. Infant formula supply issues is temporary. We're actually back in production with Perrigo, and we'll have supply that actually helps us, you know, get back in market, supporting the Earth's Best brand.
What I'm happy to say is, where we have begun to resupply Earth's Best formula, the velocities are where they were when we had full supply two years ago, which tells me that the brand has strength, and once it's on shelf, the consumer wants to find it. So infant formula is a unique sort of acute issue. Personal care, we've made decisions to pull forward a pretty significant amount of SKU rationalization, and it's that portfolio simplification and getting out of these subcategories that we really shouldn't be in. But that's become a material drag to the business, but it's a relatively small part. As you would've seen when we disclosed the revenues by category, personal care is about 5% of total sales, so it's right-sized in the portfolio.
The part of the business that has been more challenging than I would've anticipated is in meat-free, plant-based meat-free. Now, we know that there's structural dynamics in that category for everyone. We're the leader in Canada. We're the number 1 brand with Yves in Canada, and we're the number 2 brand in the U.K. with Linda McCartney. Both brands, the research tells us that they are beloved by consumers. They deliver on the two most important attributes in plant-based meat-free, which is taste and health. So they're viewed as cleaner label. They, they deliver on the promise. The challenge that we have in the category is you have the structural dynamics in plant-based meat-free.
It's a category I believe we should be in, but we're dealing with a broader category and marketplace dynamic that requires us to also to focus on affordability versus animal proteins and consistently available on shelf. We've had service-level issues as we went through the plant consolidation in Canada, and we've had some service-level issues as we went into SKU rationalization in the Linda McCartney portfolio in the U.K., and so those have created some short-term challenges. So I feel like meat-free, we will be—we will get back on path, so the stabilization plans are in play. I feel good about where infant formula is at. Personal care is one that will continue to be a focus, and it's probably the one that we've taken the most radical pull forward of things we had planned in Hain Reimagined, but we really didn't plan to do until fiscal 2025.
We've pulled forward plant consolidation and SKU rationalization and category consolidation faster.
Yeah, and sorry, just to build on that a little bit. So, you know, on the personal care side, and we kind of outlined this in the last earnings call, you know, we have a shrink-to-grow strategy there. So, you know, we have in the process of consolidating the plants. What it should actually drive, though, is a much improved margin profile. So 11 percentage points, you know, margin improvement, gross margin improvement as we move forward. So that, you know, kind of is the key focus, coming from a pretty low base there within that business.
The other thing, Wendy, I probably would just build on is, since both of us has joined, is our starting point, you know, within the company and the fixing and things that we had to put in place, you know, was possibly a bit more than we'd anticipated. So we are seeing some really good progress on that now. As we've moved to a global company, we have global functions. We're leveraging that, kind of building back to the point we made before on supply chain. We're seeing that flow through, specifically in the supply chain area.
I think that's a great point. You know, we talk a lot that we're a stronger company today than we were a year ago, but we're not as strong as we'll be a year from now, and I think that extends from both how we work and how we've integrated the business, but the predictability of our business and the health of our balance sheet. Those are things that they're better than they were a year ago. They're not as strong as they'll be a year from now, but I think Lee and I both feel really good about the progress that's made, and the areas that are a challenge are controllable. And that's what we're all about, is stabilizing those pieces that are a challenge.
Great. And just to build on some of the investments that you've made to become the global company, to integrate some of the functions, a key tenet of Hain Reimagined was the FUEL initiative, which is the cost savings initiative. And you expect to reinvest a good portion of the savings back into the business. Can you talk about the areas of reinvestment, both on the infrastructure side as well as on more of the marketing and advertising?
Yeah, yeah. I mean, so a few things. You know, you know, we said that, you know, we're, we're focusing and investing back in some functional capabilities. So, you know, we're looking at the away-from-home channels, part of channel expansion. It's in the innovation area. So that's where we're looking to kind of make the investments. We're driving a couple of things. We're also looking at the operating model overall. So we said the SG&A profile within Hain was probably about the right envelope. What we have been doing, though, is redistributing that. We've got some areas where we have some opportunity, we're probably above benchmark, and then we're taking that and then investing back into these other capabilities. So where we're seeing that fall through is things like revenue growth management.
So we've built capabilities in kind of both regions. We've got that linked across, and we're actually seeing those revenue growth management benefits flow through. We're actually seeing it in trade efficiency. So that's kind of some of the examples of where we're seeing it. It's really building out these functional capabilities.
Yeah, one of the challenges that we had when we first started doing the evaluation of the company, certainly when I started and definitely when Lee came on board, Hain was subscale in so many ways. While we have great brands across multiple categories, we weren't talking about ourselves in the right way, and we weren't planning our business in the right way to actually be able to drive scale and reach. It is okay to have smaller brands when you're in billion-dollar categories. We've never talked about ourselves in billion-dollar categories, so it just made it look like we were a small fish in a pond with very big players. To do this right, we need the best of both.
I wanna have scaled capabilities of big CPG, and the kind of geographic reach and capabilities around planning, forecasting, revenue growth management, but I need to be able to be agile and nimble and disruptive the way a challenger brand would be. And if we do this right, then we've got scaled capabilities that we out-small or out-big the small guys, but we've got the ability to move faster and invest in breakthrough thinking to out-small the big players. And that's really the goal that we've been about, is where are the capabilities we want to build that are scale? Well, we needed to have really good revenue growth management, driving net price realization, trade efficiency, mix management, price pack architecture. How do we put our brands within arm's reach of the consumer everywhere they happen to be?
And we make better-for-you , accessible and affordable to more consumers. That's a message that has resonated with our retail partners. We also need to have better planning. I can't say to you, "Well, you know, we really could have grown, but our supply chain, we're just not able to punch above our weight." Actually, we are. As we've consolidated procurement globally, in some cases, we have the same supplier. 50% of our spend is global, but we haven't treated it global. So we've actually got five or six different prices, different deal structures, with the same supplier for the same ingredients. Because Hain's been picked off in pockets instead of leveraging the scale where we can have it.
So we're looking at back-office scale that allows us to punch above our weight, and in-market agility that allows us to be a challenger disruptor, and we're seeing that play out. So Garden Veggie is a phenomenal brand. We launched innovation this year with Garden Veggie Flavor Burst. It is outperforming category. It's the number one better-for-you snack launch in MULO+C in the industry this year to date, and 82% of the sales are incremental to the brand. That's really a phenomenal innovation launch, but it's the first time Hain's ever used traditional CPG consumer back research to do a launch. Those are where we can have scaled capabilities, but we move fast in the marketplace to be a disruptor.
Sorry, and just to build on that a little bit, the other thing as well is, you know, I think historically, Hain had kind of peanut butter spread some of the investments. So, you know, by segmenting our business and to grow, maintain, and stabilize, you know, with the capabilities we've put in place, we're making sure we're getting much more of a return on our investments back into those businesses, but also that we're investing in the right areas that are gonna be value accretive for us longer term.
Before we dig into the category segments, Hain sits at a unique position with better-for-you, attainably premium brands. From that perspective, can you talk what we are seeing from the consumer landscape? We've talked about a weaker low-end consumer. Volumes have been a little slower to recover across the store. Maybe just from your perspective, what are you seeing from consumers, and how do you expect that to develop maybe over the next twelve to eighteen months?
So pre-pandemic, we actually saw better-for-you velocities as a category, just broadly, with the consumer, turn substantially better than conventional categories. When the pandemic hit, people retrenched back to conventional products, and in some cases, supply chains made that happen. You had to have sort of the core on shelf because you couldn't have all of the, the ancillary SKUs. What we've seen, and I think everybody anticipated, well, the consumers walked away from better-for-you, and it was inflation. Well, they can't afford the premium products, so they're moving and retrenching back. We're actually seeing in the last 12 months, that's come back around. We're now seeing better-for-you outperform conventional in market broadly as across the categories that we're in. We're in a unique spot because we are the entry price point to premium.
So we're not super premium, but we're an affordable premium. So people who really do want better-for-you, they're willing to pay slightly more for better-for-you than conventional in snacking, in nut butters, in oils, but they don't wanna pay super premium. So we appeal to a higher income consumer, but we're an affordable for an everyday consumer as well. Our goal is to actually make our products available in more places. What we found in the last year is, we have brands that are beloved. We make it really hard for you to find it. So you have to go to very specific outlets to be able to find the full assortment. So that's part of the focus around away from home, it's the focus around e-commerce and channel expansion.
How do we take our best-selling SKUs, our core, make them available in the right pack size in more places, that allows price pack architecture to make it affordable for the consumer at the price point where they shop? And that's playing out very well for us.
I wanna go back to something Lee said, which was that the investments that you've made have improved your revenue growth management capabilities. We've heard food companies talk about the level of promotional activity in large categories being rational and kinda in line with 2019 levels. Can you talk about what you're seeing in your specific categories and how your improved revenue growth management tool set is allowing you to perhaps promote a little more efficiently than what you've done in the past?
So I'll start, and I'll let Lee add to it. We track the same data everybody else looks at, and we look at it both in measured channels and in non-measured channels. We focus very much on how much of our sales are on promotion and what's the type of promotion. Big change for Hain in the last year has been in what we've learned, especially in snacks. I use that as a category we don't need depth of promotion. What we need is frequency, because it's about making it available more often to the consumer. They're not buying it because it's on deal, they're buying it because it's top of mind. So we're using our trade dollars to actually drive frequency more than we're driving depth.
Our promotion rate of sale is about at industry, about category average, but our lift is about 15% better on those promotional dollars than category average. We're seeing the same thing in tea. In Celestial Seasonings, which has been a fantastic brand for us, in the last year, we reshaped our price pack architecture. We launched a couple of pieces of innovation that actually created new news in the category, and we focused on driving right assortment on shelf. Our promotion dollars, or our sales on promotion are about category average, but our lift is better than category average. So the promotion dollars are more effective and efficient for us. We're trying to take those same learnings that we've had in snacks and in tea and apply it to the other categories. And in the latest quarter, we've seen yogurt, for instance, be highly productive.
Greek Gods yogurt be highly productive with promotional dollars and right assortment on shelf.
So the only thing I'd add to that is just, you know, in terms of the metrics themselves, what we've seen, and to Wendy's point about the effectiveness, is five out of eight of our categories, the promotional lift is better than the category average. So that, that speaks to kind of that insight that we're putting in place.
What do you think supports the higher-than-category-level lift for Hain's brands? Maybe take snacks as example. Is it driving awareness that's lower than the category average for the leading brands, or is it bringing down the price point of a, you know, a more better-for-you-type product, inducing trial?
That's a really good question. What we've seen is the products perform really well when they're in disruptive locations. So we've tried to use promotion dollars to add secondary placement in store, more than price reduction, because it, it isn't that people are buying it necessarily on deal that they might be looking for in conventional snacking, but they are looking for, "It's available, and I'm aware of it." So we use it as an awareness driver and a physical availability driver that then drives frequency of purchase.
Very good. I wanna go back to the comments around SKU rationalization. If you can remind us kind of what inning we're in for SKU rationalization? We're seeing a nice return to growth in the U.S. measured channels for Hain's portfolio overall, and just if you could help us understand how we should think about SKU rationalization, how many SKUs are coming out of market today, and the phasing of future rationalization as a part of the plan that you've announced.
Overall, we've reduced about 6% of the SKUs, but I would also say that they were unproductive SKUs, so it doesn't really translate into revenue drag. But it is an improvement in our relationship with our retail partners because we're not asking them to dedicate unproductive shelf space to SKUs that just aren't gonna move for either one of us, and it reduces complexity in our supply chain. So it's about 6% of the SKUs, significantly more in personal care. And in personal care, as I talked about earlier, it's us getting out of whole categories that we really shouldn't be in, and focusing each one of the brands where it can be unique and distinctive in a particular category where it makes sense. We're actually seeing that play out.
Some of our personal care brands, like Avalon, performed very well in the last quarter. So we think getting down to this radical core for personal care will be productive for us. But I think in the balance of the portfolio, and I don't know if we've given a total-
So, on personal care, I think we gave a perspective. It's 60% of the personal care SKUs, but less than 30% of the revenue. And to Wendy's point earlier, that's 5%-6% of the entire portfolio. So one of the things we did do as we went through in the earnings call is break down that portfolio size. I don't—we hadn't done that before. We wanted to provide more transparency. So again, you know, 60% of the SKUs within that 5%-6%, less than 30% of the revenue. Obviously, what we're targeting and what we've pushed with the teams is to improve the flow back into existing products.
Again, just as a reminder, I mean, what that's gonna drive is a much more profitable footprint within that, personal care piece of our portfolio.
If we go back to one of the growth levers, which is distribution expansion opportunity, can you talk about the channels that you're looking to expand into, and how receptive retailers are to Hain's products, whether it's snacks or some of the other categories? What gives you the confidence in Hain's ability to grow profitably with strong velocities as you expand into new distribution opportunities?
Hain has historically been really focused and heavily concentrated in a couple of channels: specialty, retail, so, so natural food stores, and club. That doesn't make the products available where the consumer is shopping. What we saw is, certainly in the last four years, while consumers used to make multiple trips and go to special retail outlets to find particular products, during the pandemic, they consolidated their purchases into fewer locations, and they leaned to online as well. Hain didn't move as quickly in that direction to make sure that our products were available in all the places where the shopper's shopping. That's been our focus, and actually, the team have worked it in both regions, market back. Where should the brands be based on where our core shopper is shopping? Where are we, and how do we close that gap?
In some cases, it was we needed packaging so that we had the right pack sizes specific to a channel. In some cases, we needed to invest in a go-to-market. So in the U.S., we've added an away-from-home team. We've added to our e-commerce teams so that we have people specifically calling on those outlets to make sure that we're driving distribution, and we've had really good success. Our away from home, particularly in C- store, the C- store business is up double digits in both one, both regions. Garden Veggie, you'll see in about 10,000 C- stores beginning in this last quarter, and the team continues to add momentum, especially in the snacks portfolio, in more points of distribution especially in C- store, and that just allows our brands to be available wherever the shopper is shopping.
That makes it more accessible and more available for better-for-you. And when you shop in small, sort of limited SKU environments, you typically don't find good, better-for-you options in those locations. We think Hain can be a great partner to our retailers in making sure that our brands are available in more places, and the response from new retail partners who we've never really had conversations with, has been incredible. They—but they're looking for our insights as well. If you're going to have an offering, what are the right brands? What are the absolute right products, and what's the right pack, where it needs to be, that's gonna generate a benefit for both of us? In Garden Veggie, for instance, we have found our core assortment actually turns better than some brands that have two and three times the ACV on shelf.
We've now got data to be able to talk to our retail partners that this can be a highly productive portion of your store or portion of your shelf, and here's the data to prove that we can partner with you and help you win, and we win.
Very good. Maybe one more question, then I'll open it up if there's any questions in the audience. Lee, you talked about the balance sheet improvement and some of the cash efficiencies-
Yeah
... and working capital. Can you talk about, as you continue to prioritize debt reduction in the near term, as you de-lever towards your target, how the capital priorities shift for Hain?
Yeah, I mean, I'd say the first focus is on the deleveraging and the bringing down, you know, bringing down debt. So, you know, we talked about that in parts of Hain Reimagined. You know, I think thinking further beyond that, you know, we obviously need to kind of bring it down first of all. So, I don't see any fundamental change, you know, kind of on the horizon in terms of kind of how we're gonna allocate the capital. It's the deleveraging piece that we're focused in on.
Very good. Any questions from the audience?
Can you just remind me what the targets are, and to get there?
So, on the debt side, we said 2-3 is what we're looking to get to by 2027, so...
Lee, is that the bank definition of leverage?
That is the bank definition of leverage. So the only kind of primary difference between the bank definition and our Adjusted EBITDA is we do get some allowances for things like inventory reserves. So, you know, and that's why one of the things I think as we focus in on this, is really we're looking at that total net debt and bringing down the total net debt.
Maybe one last question, Wendy. We've seen really nice growth in the snack segment in U.S. measured channels on a quarter to date basis. Can you talk about kind of what's driving that growth? You've talked a little bit about innovation and how sustainable the current growth is.
So in the four pillars of Hain Reimagined, in the growth pillar, we said there would be really three drivers of growth. One is gonna be brand building, one's gonna be innovation, and the other is channel expansion, really for all of our Grow brands. Snacks is a great example of where we're seeing all three of those play out. So in brand building, you'll see actually for the first time this year, is a master brand campaign around Garden Veggie. What we learned from the research is Garden Veggie, as a brand, had very high awareness. Sensible Portions did not. You won't see us talking about Sensible Portions going forward. It'll be Garden Veggie as a master brand, and then the subcategories below that. So brand building has performed very well for us, for both Terra and for Garden Veggie.
Terra, we learned the consumer absolutely loves the Terra brand. It's hard to find, so we're working on that. But they also don't see a substitute, so when Terra is not available, they don't see that there's an alternative chip that they would buy in its place. It's a great story for us to take to retail partners. So brand building is a place that you'll see us lean into, and it's performed well thus to date. Innovation, Garden Veggie Flavor Burst, I mentioned, which is the tortilla version of Garden Veggie, number one better-for-you snack launch in the industry this year. And our take rate, it's just now starting to get onto shelf in broader distribution.
It's been in fairly limited distribution, but the turns are good, so velocity is strong, and consumer receptivity of that as an incremental to the brand has been very high. Channel expansion is our biggest growth vehicle, and it's putting our brands within arm's reach of the consumer everywhere they're shopping. We've been very concentrated in club and really in mass, moving into food, looking at the role of discount, looking at the role of on the go, so think airports. When you're in hotel lodging, here at the hotel, finding it in the lobby. We've got brands that should be available in those places. And so that's the work of our away from home team, is driving more points of distribution, which is a benefit of both, physical availability, but also mental availability.
As it's available on that shopper's journey, just seeing it is brand building. So us driving points of distribution is also helping us drive brand building at the same time.
Very good. Thank you very much for joining us-
Thank you
... here at the CSI conference. I appreciate it.