Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-forty Company First Quarter Fiscal Year 2021 Earnings Conference Call. At the end of the prepared remarks, we will conduct a Question and Answer 1 on your telephone keypad. Please make sure you're
Our growth aspirations and believe we can grow the product line to approximately $100,000,000 in revenue. In the Q1, sales of WD-forty Specialists were $11,500,000 up strong sales in all three trading block And retain talented tribe members and to grow tribe member engagement to greater than 95%. I have never been so proud of our tribe. One even thrived in some unexpected
The said that look is what happens when preparation meets opportunity. While we remain saddened that the pandemic continues to impact So many lives around the globe. We are pleased that our products are creating more positive lives quickly and ride the changing waves, particularly as it relates to the e commerce channel, Well, we experienced global sales growth of over 90% in the Q1. Now let's take a closer look at what's were up 16% in the Q1 to $54,200,000 Sales of maintenance products increased 16% in the Americas due to increased sales in the U. S, Latin America and Canada, which all experienced double digit sales growth.
In the Americas, we experienced a 14% increase in sales of WD-forty multi use product and a specialist sales due to the isolation and renovation phenomenon and increased sales to the e commerce channel during the pandemic. The United States and Latin America also saw triple digit growth of our Cycling has experienced a boom amid the pandemic with increased ridership and the associated maintenance of bicycles throughout the region. In addition, we saw increased sales in Latin America during the Q1 in many of our home care and cleaning products in the United States and Canada due to increased demand as a result of the pandemic. However, we continue to consider our home care and cleaning products, except for those listed strategic brands as Harvest Brands continue to generate meaningful contributions and cash flows that are generally expected to become a smaller part of the business over time. In total, our Americas segment made up 44% of our global business in the Q1.
Over the long term, we anticipate sales within this segment will grow between 2% 5% annually. Now on to EMEA. Net sales in EMEA, which includes Europe, the Middle East, Africa and India were up 40% in the Q1 to $54,700,000 Changes in foreign currency exchange rates had a favorable impact on sales for the EMEA segment from period to period. On a constant currency basis, sales would have increased by 33% compared to last year. Sales of maintenance products increased by 42% in EMEA due to increased sales in both our EMEA Direct and our EMEA Distributed Markets, which increased 47% and 34%, respectively.
In our EMEA direct markets, we experienced 42% increase in sales of WD-forty Multi Use Product and a 61% increase in sales of WD-forty Specialist due to the isolation and renovation phenomenon and increased sales through the e commerce channel during the pandemic. Our EMEA direct markets also saw a 265 In our EMEA distributor markets, we experienced a 34% increase in sales of WD-forty Multi Use Product and a 42% increase in WD-forty Specialist Sales, primarily due to improved economic conditions as a result of reductions in COVID-nineteen related movement restrictions. We saw particularly strong sales of the WD-forty Multi Use Product in Northern Eastern Europe and India, which were up 62%, 24% 120%, respectively, areas where we're experiencing strong recoveries. In addition, the isolation renovation phenomenon led to increased demand and consumption of our products in some of our EMEA distributor markets. In the Q1, net sales in our EMEA distributor markets accounted for 35% of the region sales.
In total, our EMEA segment made up 44% of our global business in the Q1. It's interesting to note that sales in EMEA and the Americas both represented about 44% of our total global business this quarter. This demonstrates a significant future growth opportunity available to us in EMEA. Over the long term, we anticipate sales within this segment will grow between 8% to 11% annually. Now on to Asia Pacific.
Net sales in Asia Pacific, which includes Australia, China and other countries in the Asia region, were up 24% in the Q1 to $15,600,000 Changes Foreign currency exchange rates had a favorable impact on sales for the Asia Pacific segment from period to period. On a constant currency basis, sales would have increased by due to increased sales in China, Australia and our Asia distributor markets, which all experienced double digit sales growth. In Australia, net sales were $5,200,000 in the 1st quarter, up 28% compared to last year, driven by increased demand for both our home care and cleaning and maintenance products. Sales of our home care and cleaning products were up 44% as a result of the COVID-nineteen pandemic. Furthermore, sales of WD-forty Monkey Use Product and WD-forty Specialist were also up 20% 25%, respectively, due to the isolation renovation phenomenon.
China net sales were $3,600,000 in the 1st quarter, up 53% compared to last year, driven primarily by the timing of customer orders and increased sales through the econcommerce channel. In addition, sales in China During the Q1 of fiscal year 2020, we're negatively impacted by the 70th anniversary National Day in China, which resulted in slowed market conditions and lower sales with no comparable event occurring this year. We remain optimistic about the long term opportunities in China. However, we expect volatility along the way due to In our Asia distributor markets, net sales were $6,900,000 in the Q1, up 11% compared to last year, primarily attributable to the timing of customer orders in the region. COVID-nineteen lockdown measures were reduced considerably in many of the Asian markets during the Q1 of fiscal year 2021.
These reduced lockdown measures have positively impacted economic conditions in the region, which resulted in our marketing distributors normalizing their inventory levels. Although the health concerns associated with the pandemic Lessened and the resulting movement restrictions were lifted in many Asian countries, so larger countries in the region continue to observe movement restrictions. In total, our Asia Pacific segment made up 12% of our global business in the Q1. Over the long term, we anticipate sales within this segment will grow between 10% to 13% annually. Now let's dig into our must win battles.
As Gary mentioned earlier, our must win battles are the tactics or specific steps we are undertaking to deliver against our anticipated revenue targets. We have 4 global must win battles. Expansion. Our largest growth opportunity in the 1st Muslim battle is a geographic expansion of the blue and yellow cam with the Little Red Top. We estimate the potential global growth opportunity for WD-forty Multi Use Product to be approximately 1,000,000,000 We are laser focused on delivering long term growth in our top 20 growth markets around the world.
China remains our largest growth And our digital strategy in the country is a significant area of opportunity. India also represents a substantial long growth opportunity for us. 3 years ago, we initiated our Step Up program in partnership with our InjaMD, and this has already delivered impressive results. In Latin America, we transitioned Mexico from a distributor market to a direct operation in May of 2020, and we are set for very strong growth in Mexico over the coming years. Our second must win battle is premiumization of WD-forty Multi Use Product.
Our Smart Straw delivery system has been our most successful innovation and is loved by end users across the world. Premiumization creates opportunities for revenue growth as well as for gross margin expansion. As we continue to roll out Smart Straw next generation, which will increase capacity and reduce costs, our objective is to grow Smart Straw penetration to greater than 60%. Our 3rd must win battle is to grow WD-forty Specialist. Gary mentioned earlier, We debuted our refreshed brand architecture for WD-forty Specialist in fiscal year 2020.
Now for the first time ever, WD-forty Specialist is fully leveraging Our most iconic asset, the blue and yellow can with a little red top. WD-forty Specialist range of products aims to provide maintenance professional and DIYs alike over 20 unique formulas to complement our iconic multi use product. This makes the WD-forty brand even more relevant to more people in more places who will use more of it. We believe this refreshed packaging Our final must win battle is digital commerce. We set our global digital ambition 2.5 years ago.
Our ambition is to engage with end users at scale and become the global category leader in our category within the digital Commerce Platform. Since 2020 was the year that a global health crisis would transform the way people shop, our heightened focus on digital and e commerce has never been so important. With e commerce set to deliver over half of global retail growth by 2025 and digital interactions playing an increasingly important role in purchase journeys, we believe we're well positioned to benefit from the significant shift to online behaviors in the years ahead. We certainly see digital and e commerce as a strong accelerator of our future growth. In closing, I want to share a few thoughts with you about the future.
Over the long term, we are optimistic that many of the new end users who have interacted with our products during the pandemic will become permanent users of our maintenance and home care solutions. However, the short term to mid term is much more difficult to see clearly. Due to the uncertainty that the pandemic continues to present, it's very difficult for us to estimate how the pandemic might continue to impact our business. Many regions continue to experience increased COVID-nineteen case counts, resulting in temporary closures and lockdowns, which could negatively impact our sales in the short term. In addition, if there is a shift in spending patterns We're actively monitoring supply chain and transportation capacity constraints, which have arisen as a result of the pandemic.
We are managing through these issues, But there are market constraints impacting all consumer packaged goods companies that are not allowing us to meet some of our normal levels of service with our customers. Despite these uncertainties and risks, we remain cautiously optimistic about fiscal year 2021 I believe current market conditions suggest that for the full fiscal year, total net sales are likely to be in a range of between 4.35 to $470,000,000 Now I'll turn the call over to Jay, who will provide you a financial update on the business.
Thanks, Steve. Let's start with a discussion about our 55, 30, 25 business model, long term targets we use to guide our business. As you may recall, the 55 represents gross margin, Which we target to be at 55 percent of net sales. The 30 represents our cost of doing business which is our total operating expenses excluding depreciation and amortization. Our goal is to drive our cost of doing business over time toward 30% of net sales.
And finally, the 25% represents our long term target for EBITDA. First, we'll look at the 55 compared to 54.3 percent last year. This represents an improvement of 210 basis points year over year. Changes in major input costs, which include petroleum based specialty chemicals and aerosol cans, positively impacted our gross margin by 340 basis points. Petroleum Based Specialty Chemicals had a positive impact on gross margin of 260 basis points and the remaining 80 basis points came from lower costs associated with the aerosol cans.
Beginning in late February 2020, crude oil reached multi year lows and has consistently remained lower year over year since Therefore, the average cost of crude oil which flowed through our cost of goods sold in the Q1 was significantly lower than in the prior year benefiting our gross margin. In addition, we achieved favorability in cost of aerosol cans due to higher than anticipated purchase volumes, especially in our EMEA segment. Also impacting on a positive way our gross margin or sales price increases primarily in EMEA and Asia Pacific which impacted gross margin by 40 basis points in the Q1. These positive impacts to gross margin were partially offset by the negative impacts of higher warehousing and inbound freight costs in both the Americas and EMEA, which negatively impacted gross margin by 120 basis points. The unfavorable impacts were primarily due to increased freight and warehousing expense due to the high demand, labor shortages and distribution networks related to the pandemic.
Finally, miscellaneous costs, unfavorable sales mix changes and other changes in foreign currency exchange rates when combined negatively impacted our gross margin by 50 basis points. Though we cannot control market dynamics like foreign currency exchange rates or commodity based input costs, we continue to be focused and deliberate in managing the rest of our business so that we can maintain gross margin atorabove our target of 55% over the long term. Now I'll address the 30% or our cost of doing business. In the Q1, our cost of doing business was approximately 32% of net sales compared to 38% last year. Although SG and A expense increased by $3,400,000 compared to the Q1 last year, Our cost of doing business as a percentage of sales decreased year over year due to the significant increase in revenue in the Q1.
The increase in SG and A expense in the Q1 was primarily due to the higher employee related costs. For the Q1, 80% of our cost of doing business came from 3 areas: people costs, investments we make in our tribe, Investments we make in marketing, advertising and promotion. As a percentage of sales, our A and P investment was 4.4 percent in the first quarter due to the significant increase in revenue. However, our A and P investment was relatively flat in dollars compared to the prior year. And finally, the freight costs to get our products to our customers.
And this leads us to EBITDA, the last of our 50 fivethirtytwenty five measures. EBITDA was 24% of net sales for the Q1, up from the 17% last year. I've shared with you many times that revenue growth is the most important factor in achieving our goal of the 55%, 30%, 25 measures, That being EBITDA of 25%. And this quarter clearly demonstrates just how impactful revenue is within our business model. That will complete the discussion of the business model.
And then now we'll turn to the other items that fall below the EBITDA line. The provision for income taxes was 15.7 percent in the Q1 compared to 14.7% last year. We expect that our effective tax rate will be approximately 20% to 21% for the full fiscal year 2021, which compares to an effective tax rate of 19.6 percent in fiscal year 2020. Due to the strong revenue growth and improved gross margin, we reported net income for the Q1 was $23,600,000 compared to the $12,200,000 last year. Diluted earnings per common share for the Q1 were 1 point $0.72 compared to the $0.88 for the same period last year.
Now, a word about our balance sheet and our capital allocation strategy. The company's financial condition and liquidity remained strong. When the pandemic began, we took numerous steps to further strengthen our balance sheet. In order to preserve cash while we monitored the impacts of the pandemic, we elected to suspend the stock repurchases we were making under our previously approved stock buyback plan, which expired at the end of August 2020. We do not expect to seek Board approval for a new share buyback plan until we start to see a reduced level of uncertainty regarding the pandemic.
As a result, no repurchases were made during the Q1 of the fiscal year 2021. We will continue to remain vigilant in managing our cash and liquidity during these unprecedented times. However, we continue to return capital to shareholders through regular dividends. On December 7th, our Board of Directors approved our regular quarterly cash dividend of $0.67 per share payable January 29th to shareholders of record on the close of business on January 15th. Our capital allocation strategy includes a comprehensive approach to balance investing in long term growth capital projects, the majority of which will be used to complete the procurement of the proprietary machinery and equipment that we're using to manufacture our next generation smart straw delivery system.
We have historically had and asset light business model which has required very low levels of capital investment, roughly between 1% 2% of sales. We believe that beginning in fiscal 2022, we'll begin to see CapEx return to these levels. The pandemic continues to inject a measure of uncertainty into our business, which makes it very difficult for us to accurately forecast short term financial results for the company. As a result, we will not be issuing comprehensive financial guidance fiscal year 2021 at this time. Well, that will complete our discussion of the financial overview.
Now I'll turn it back to Gary.
Thank you, Jay. In summary, what did you hear from us on this call? You heard that sales of WD-forty multiuse product were up 24% in the Q1. You heard that sales of WD-forty specialists were up 37% in the Q1. You heard that sales of WD-forty Bike were up nearly 2 60% in the 1st quarter due to strong demand around the world.
You heard that sales of Home care and cleaning products were up 15% in the Q1, driven by strong demand for cleaning products due to the pandemic. You heard that global e commerce sales grew by over 90% in the Q1 with strong sales growth across all three trading blocks. You heard that we continue to return capital to investors through regular dividends. You heard that due to the uncertainties and risks The pandemic continues to present. It is very difficult for us to estimate how the pandemic might continue to impact our business over the short to mid term.
You heard that despite these uncertainties, We remain cautiously optimistic about fiscal year 2021 and believe our current market conditions Suggest that for the full fiscal year, total net sales are likely to be in a range of $435,000,000 to $470,000,000 And you heard that while we are not issuing comprehensive guidance, we remain confident that our revenue growth aspirations remain a realistic future opportunity. In closing today, I'd like to share with you a quote from my friend, Simon Sinek. It is important to celebrate our victories, But we cannot linger on them for the infinite gain is still going and there is still much work to be done. Thank you for joining us today. We would be pleased to take your questions.
And your
Hello. Happy New Year and congratulations on a great quarter.
Thank you, Linda.
So I guess first of all, thank you for giving the guidance for revenue for the fiscal year. And I'm just curious What holds you back from giving earnings guidance? Is it the movements in your petroleum based input costs because there has been a recent rise in oil or is it more of the supply chain constraints? What element of the earnings profile? Is it that you're a little uncertain about?
I mean, it's truly most of it is aligned With the revenue, we don't we believe our gross margin will be within our range, pretty as a historic range for the year. But also the uncertainty around the extra or the implied costs That may come in because of certain changes in distribution due to the pandemic Things that we can't rely on. So we think we've got a good idea of the revenue, but we are Not comfortable issuing a comprehensive EPS down to EPS guidance at this time. And I'm sure you understand that. We're not on our own here.
Okay. Also, can you talk about your A and P spending? I mean, you noted that the high revenue growth kind of made the ratio lower. But I'm also wondering how much you're spending behind your brands given that maybe in some cases you're chasing demand a little bit. Is that an environment where you would actually want to pull back a little bit on brand spending because you're kind of chasing demand and don't need to spend as much?
Could you comment on that?
No, not at all. We've continued to invest in our marketing activities. The one area that we've been not pulled back on that have been forced to reduce is areas of our marketing toolbox that require physical impact, for example, sampling our sampling programs, which are highly People intensive, but we are continuing to use this opportunity to further strengthen our brands. And As you know, in some markets we've got a lot of awareness opportunity. So no, we won't be we have no intention of pulling back on our Fundamental brand building marketing activities.
And also, can you Give us some of your thoughts on I know this is a long time from now, but a year from now when you're facing These strong comparisons due to the pandemic. What are your thoughts on being able to grow your revenue against such strong comparisons a year from now? Well, our long
term aspiration It hasn't changed. We and as Steve has shared and I've shared over many years, we believe that there's still a long growth path for us in many countries around the world. As Steve mentioned in his comments, We'll see how many of the new users that have come into our brand that we've identified actually Stick and historically, we would believe that will be a very, very high number. So I wish I could I wish I had a crystal ball to give you that answer, but the game is over. We're playing the infinite game and we In other areas too, Linda, like specialist, our business and specialists particularly in e commerce is very, very exciting.
So these are all new users we're bringing in with new products and specialists, new delivery systems. We hope we're hopeful that That will help us continue some momentum, but we'll see. A lot depends on how soon we're set free as a human race again. But we believe that during the pandemic, we've actually strengthened our position with our end user base And we've strengthened our brand position globally.
Okay. Thank you. That's it for me.
Thanks, Linda. All the best. Stay safe and well.
Thank you.
And your next question comes from the line of Daniel Rizzo from Jefferies.
Daniel, good to hear you.
Good to hear you. Good to talk. So just looking at Europe was much, much stronger than I think anybody anticipated. And while I realize a lot of that was from the remodeling trends you mentioned, I was just wondering, was there something particular in that particular region that led to strong growth? And also the margin seemed much better than I think they've historically been.
And I was wondering what was driving that as well?
I'll ask Steve to comment on the revenue side. He's very close to the European business.
Thank you, Gary. Hi, Deb. Yes, I mean, it's really for Europe. There was Some rebound in terms of the marketing distributors. I mean, these are really kind of global trends that we've seen.
Our marketing distributors are rebounding Strongly from kind of lockdowns and limited activity during the pandemic. That's the first thing. And the rest of it's really The same drivers, our Muslin Battles that have just been translated to Europe. Great growth on our Smart Straw premiumization strategy across Europe, WD-forty Specialist growing very, very nicely. Yes, some of our markets rebounding strongly, India, Russia, some of the challenged markets we had in 2020 have rebounded very, very strongly.
WD-forty Bike has done very, very well across, well, across the world, but very strong growth across Europe as well. So Really the same kind of drivers that have driven our global results in terms of those must be in battle and great execution from our EMEA team.
And the margins?
You're calling on gross margin or
I was looking at the EBIT margins actually, which were I think upwards of 32%.
It's really drive to revenue. We We've often said that, as Jay mentioned, that we've got a business model that we've built for the future. And as we start to build revenue, We get the benefit of the leverage of the revenue. So If you think about our future goal of 55, 30, 25, we're actually at 56, 32, 24, Which does prove that the model that we built for the future is a model that's realistic. And that was something that was a very something that when we experiencing that in the quarter was something that we were very pleased
Okay. And then I know that there was some tailwind from lower oil prices or lower petroleum costs that Kind of flow through well, the costs were lower, but the pricing was lower less than earlier in the year. Now you're kind of feeling it. I was wondering if that's kind of peaked and should probably ease Over the next 2 to 3 quarters.
Jay can speak to that.
Yes, we've seen as oil has Correct. Up recently, we've seen or we will see 90 to 120 days and Beyond a little bit higher or a little more headwind to margin from where it Today.
Okay. All right. That's helpful. And then I guess finally, just in terms of timing, I mean, in the past Has the Chinese New Year ever had an effect on sales or does it historically have an effect on should we expect a seasonal slowdown here in the Q1, at least in Asia?
Well, it depends when it falls. Last year, obviously, it fell right in the beginning of the COVID time. So we see that we always get an upswing after Chinese New Year, but we would we believe that It would be no different to previous years. And as you know, Chinese New Year does fall at different times during the year during that first part of the year.
Okay. And then finally, I think I saw in the deck you mentioned that the cost of doing business went down pretty decently in the quarter. I was wondering if that's again, that's just executing better or if there's something you're doing differently to reduce those costs?
It's revenue.
You said revenue?
As a percentage Cost of business as a percentage went down. In real dollars, our cost of business went up. And as a percentage of revenue, it went down. It was because of the higher revenue.
Thank you very much.
Okay. Thanks, Daniel.
Ladies and gentlemen, that does conclude are allotted time for questions. We thank you for your participation on today's conference call and ask that you please disconnect your line.