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Kenvue is a consumer health company best known for products like Tylenol, Band-Aid, Benadryl, and more. Formerly the consumer health arm of pharma giant Johnson &amp; Johnson, Kenvue spun out from the parent company in August 2023 and operates around the world. The company’s brands are separated into the self-care, skin health and beauty, and essential health segments. Other notable brands that Kenvue operates include Neutrogena, Aveeno, Listerine, and Zyrtec.

Q2 2025

Q1 2025

Kenvue (KVUE): Company Profile, Stock Price, News, Rankings

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Kenvue

kenvue

Hello, and welcome to the KenView First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sofia Tasinis, Head of Investor Relations for Kenview.

Good morning, everyone, and welcome to Kenview's First Quarter twenty twenty five Earnings Conference Call. I'm pleased to be joined today by Tiba Mongone, Chief Executive Officer and Paul Rue, Chief Financial Officer. Before we get started, I'd like to remind you that today's call includes forward looking statements regarding, among other things, our operating and financial performance, market opportunities and growth. These statements represent our current beliefs, expectations or assumptions about future events and are subject to various risks, uncertainties and changes that are difficult to predict and could cause our actual results to differ materially. For information regarding these risks and uncertainties, please refer to our earnings material related to this call posted on our website and our filings with the SEC.

During this call, we will reference certain non GAAP financial information. The presentation of this non GAAP financial information is not intended to be considered in isolation substitute for financial information presented in accordance with U. S. GAAP. These non GAAP financial measures should be viewed in conjunction with the most directly comparable U.

S. GAAP financial measures and are not presented as substitutes for or superior to those most directly comparable U. S. GAAP financial measures. Those most directly comparable U.

S. GAAP financial measures and a reconciliation of our non GAAP items to their respective nearest U. S. GAAP measures can be found in this morning's earnings press release and our presentation available on our IR page of Kenview's website, investors.kenview.com. With that, I'll turn it over to Thibaut.

Thank you, Sofia. Good morning, everyone, and thank you for joining the call. Alongside our first quarter earnings report today, you will have seen that we have also announced plan for a CFO transition, and I'll speak more about that shortly. To begin with our results, we entered 2025 with clear and deliberate plans to accelerate profitable growth over the course of the year. We have an enviable portfolio of leading and resilient Consumer Health brands where efficacy and trust matter to consumers.

While we are not immune to significant macro shifts and seasonal variability in parts of the portfolio, we are well positioned to navigate through the current complex environment. In Q1, our teams demonstrated strong execution of our plans. As such, we are maintaining our organic sales growth outlook for the year, and we are updating our adjusted operating margin and adjusted diluted EPS outlook to reflect the estimated impact of incremental costs associated with current tariffs and of current foreign exchange rates. As anticipated, following a first half where we continue to expect the underlying health of the business to be masked by well identified factors, we expect to accelerate our top line performance in the back half of the year as we realize the compounding benefits from the structural changes and investment we have implemented across the business. While staying agile and flexible amidst dynamic market conditions, we continue to advance our three strategic priorities.

First, our new operating model is now fully activated. Our brands are benefiting from more innovation and impactful marketing activation campaigns supported by more competitive level of investments. As discussed at CAGNY, we are increasingly leveraging what we call our CanView's five extraordinary powers to unleash the full potential of our brands, leveraging our superior science, launching insights led innovation, increasing our presence with health care professionals, activating breakthrough marketing campaigns, and driving seamless commerce. Second, we are continuing to optimize our cost structure through operational efficiencies. In April, we reached a major operational milestone, completing our transition services agreement program, finalizing the exit of more than 2,300 TSAs as per plan and without any disruption to our business.

We are starting to see the benefits from our more streamlined and efficient systems and processes that are fit for purpose for CanView. Third, we are strengthening our performance culture with new ways of working, new reward systems, and a new milestone. In March, we moved into our new global headquarters in Summit, New Jersey, where we consolidated seven U. S. Locations under one roof for the first time in our history, unlocking greater internal and external collaboration and speed.

So now let me provide more context on our first quarter results. Organic sales declined 1.2% versus Q1 last year, which was consistent with our full year outlook. As anticipated, this included a 3% to 4% headwind from the combined impact of destocking mostly in China and the strategic investment we are making in price and trade spend in The U. S. To improve the competitiveness of our brands.

As we have discussed, the destocking in China is driven by both the lingering impact of the weak pediatric pain and fever season and actions we are taking to improve distributor execution. We are on track with our plans to strengthen and streamline our distributor network and expect to have these two factors behind us by the end of Q2. Globally, we are activating our five extraordinary powers, driving stronger consumption performance for the company in Q1 relative to Q4. In fact, consumption for the quarter outpaced organic sales growth across each of our three segments. In Self Care, we delivered organic sales growth of 0.3%.

Growth was broad based across our allergy, digestive health, and smoking cessation franchises and more than offset a decline in the cough, cold, and flu category. Our self care brands are stronger and performing better than ever, with nearly 80% of the business expanding or maintaining market share. We further enhanced our leadership positions around the world this quarter. As it relates to cough, cold and flu, both consumption and replenishment in the exceeded our expectations due to higher than anticipated incidences, helping mitigate the impact of a very subdued season in EMEA and Asia Pacific, where consumptions and destocking were worse than anticipated. Importantly, our teams capitalized on the seasonal spike in The U.

S. And strengthened Tylenol's number one position, gaining share for the eleventh straight quarter and widening the gap further with competition. We rolled out successful innovation and drove consumer engagement with our Greatness Hurts football themes campaign. And once again, Tylenol was the only brand in the category gaining value and volume share in Q1, increasing household penetration and expanding points of distribution. In Allergy, we strengthened Canju's leadership in the category with Vertex growing both value and volume share this quarter, also widening the gap relative to our competition.

Similar to what I just described for Tylenol, our teams delivered an increase in household penetration and in distribution behind the excellent execution of a packaging refresh that leverage consumer insights and the strategic implementation of value pricing on some codes. While a prolonged winter shifted the start of the season this year, we are well positioned to continue to win with consumers. In Skin Health and Beauty, organic sales declined 4.8% amidst a decelerating category backdrop, largely due to three reasons: the impact from destocking in China, the soft sun season in Latin America, and our planned strategic price investment in The U. S. Along with a loss of rotations in the club channel this quarter.

Our EMEA region remained an area of strength, with organic sales growing year over year for the twelfth consecutive quarter, largely driven by double digit growth in our Avino brand with excellent performance in The UK and the successful rollout of the brand across new doors in Central Europe, as well as continued momentum in OGX. Similar to what we discussed for self care, consumption outpaced organic sales as expected. In The U. S, we have driven sequential consumption improvement in Q1 versus Q4 as a result of our breakthrough brand building campaigns paired with expert recommendation and relevant value equation. In April, we drove positive consumption for our priority platforms of Neutrogena Face Care, Aveeno Body Care and OGX Hair Care, which represent together the majority of our U.

S. Business. And the investments we made on several Neutrogena and Aveeno lines to ensure our pricing was in line with consumer psychological thresholds are starting to pay dividends in sell out with double digit volume growth for a number of important offerings in face and body care. In particular, looking at our biggest brands, Neutrogena, we launched our new Beauty to a Science brand positioning in February. We supported it with a three sixty degree media campaign featuring artist and Gen Z influencers, Tate McRae, and world renowned dermatologist, Doctor.

Shah. The buzz across social media behind this campaign has been terrific with over 8,000,000,000 earned media impressions so far, and it is enabling Neutrogena to reach a new younger audience in a highly relevant and authentic manner. In fact, Neutrogena's household penetration with Gen Z consumers grew 30 basis points, a critical demographic driving about half of the growth in the skincare category. And all of this has been showing up in market share with Neutrogena face maintaining its number one share position in America in both value and volume for the second quarter in a row. So while we expect global organic sales for Skin Health and Beauty to continue to contract in the near term due to the remaining impact from destocking in Asia, strategic price investment in The U.

S, and what has been so far a slow start to the sun season, we are encouraged by the improvement in the underlying health of our brands. With the recent momentum in consumption growth and the strong slate of innovation we are activating in the back half, we remain laser focused on returning the segment to growth this year. Finally, in Essential Health, Q1 organic sales flat in the context of global category deceleration, as growth in Wound Care was offset by declines in Women's Health and Oral Care. While we did see positive global consumption, organic sales were negatively affected by competitive pressures in certain geographies, which we are addressing and destocking in Asia. We continue to do well with our premium offerings.

Two examples from The U. S. Market in Mousewash, our most premium platform, Listerine Total Care and Listerine Clinical Solutions, grew double digits in Q1. And Listerine is now the fastest growing brand in dollars and in units on Amazon. And in Baby, Avino grew double digits in Q1, growing four times faster than competition, and is the fastest growing brand in the category.

Moving forward, while we are seeing a deceleration in the categories, we are activating a two pronged approach designed to ensure that we capture consumers across the price spectrum. On one hand, we continue to drive premium innovation to gain distribution and increase household penetration. In Q2, just to name a few examples, we are rolling out Listerine clinical solutions outside The U. S. While launching a new variant targeted at sensitivities in The U.

S. We are also expanding the Bond Aid brand and Avino Kids ranges with Bond Aid waterproof and Avino Kids for coily air. At the same time, we are bringing to market additional entry price point offerings across categories to meet the evolving consumer needs and continue to implement our strategic price and trade investments in The U. S. So throughout the portfolio, we are seeing increasing evidence that our new operating model is working, and we remain focused on continuing to bring new users to our categories expand usage occasions for our brands.

Now before I turn it over to Paul, I want to share more on our CFO transition. First, I want to thank Paul for his leadership and many valuable contributions to Kenview as we established the company as a standalone business through the separation and the IPO. With much of the work to establish CanView as an independent company completed and our strengthened commercial and operational foundations now in place, now is the right time for this transition. We wish Paul all the best in his next chapter and appreciate him continuing to support the company through a transition period. We are pleased to share that Amit Banati will join us on May 12 as our new Chief Financial Officer.

Amit is a world class executive with thirty years of experience at global consumer product companies and a proven track record in both financial and operational roles. So we look forward to his contributions as moves into its next chapter. And now, I will turn it over to Paul.

Thank you, Thibault, and good morning, everyone. I appreciate the kind words as Cambio transitions to its next CFO and thank the rest of the leadership team and all of you, our talented Cambioers. There are many accomplishments to be proud of as we established Cambio as a stand alone company, positioning the organization for accelerated growth. I look forward to working with Thibault, Amit and the rest of the team to ensure a smooth transition, and I will be cheering Kenview on in its next chapter. Now, I will go over the company's first quarter results.

In Q1, organic sales declined 1.2% versus Q1 last year, as the team executed on our plans against an increasingly dynamic external backdrop. As anticipated, both value realization and volumes were unfavorable in the quarter, declining 0.30.9% respectively. As we indicated on our Q4 call and at CAGNY, we implemented strategic price investments and in store activations in The U. S, which weighed on value realization and more than offset the contribution from select price increases outside The U. S.

While we have actioned these strategic investments across our segments, during the quarter the impact was most pronounced in skin health and beauty. We have been very deliberate with our approach, targeting specific categories and SKUs to enhance our brands' competitiveness. And as Stephen mentioned, we are seeing improvement in consumption as a result of these actions, which is very encouraging. As we look at our segment performance, in self care value realization drove 0.3% growth in organic sales, as volumes were flat. Growth in our allergy, digestive health and smoking cessation businesses more than offset the impact of a weak cold, cough and flu season outside The U.

S. In Asia Pacific, the pediatric business was softer than we anticipated, which means it will take a little bit longer to fully digest elevated trade inventories. In terms of consumption, we keep driving strong share gains across the portfolio, a testament to the strength of our brands and the quality of the execution of our strategy. In Skin Health and Beauty, organic sales declined 4.8% as volumes and value realization were down 2.91.9% year over year respectively. These results reflect our targeted and focused approach to investment within the Skin Health portfolio, a loss of rotations in the club channel this quarter and the continued impact of destocking and known distribution network adjustments in China.

At the same time, the category was softer than anticipated, particularly in The U. S, as well as in Sun, which resulted in weaker volumes in the quarter. As anticipated, we expect Q2 to remain pressured for similar reasons, with stronger performance in the back half of the year, as we lap the first half trainers and continue to execute on our powerful commercial plans. And lastly, in Essential Health, organic sales were flat as a 0.1% contribution from pricemix offset a 0.1% decline in volumes. We saw category deceleration as well as destocking in Asia Pacific weighing on performance in the quarter and expect the latter to be largely behind us by the end of Q2.

Switching gears to adjusted gross margin, which came in at a good level of 60%, although down 20 basis points versus last year. Our supply chain teams continue to successfully execute our productivity initiatives, but volume deleverage, unfavorable currency and inflationary headwinds, as well as the price investments that we're making more than offset those benefits. As anticipated, adjusted operating margin contracted two twenty basis points versus last year to 19.8%. This was entirely driven by the increased support behind our brands we initiated last year. As a reminder, we started to reflect the significant step up in investment in Q2 last year, so the base period comparison is lower in Q1 relative to the rest of the year.

Importantly, we continue to take out infrastructure costs and reduced SG and A spend, executing brand investments, and we are pacing well towards realizing the $350,000,000 in gross annualized savings of our View Forward initiative by 2026. Moving down the P and L, both net interest expense and adjusted effective tax rate came down slightly versus last year to $94,000,000 and 27.5 percent respectively. This resulted in adjusted net income of $465,000,000 and adjusted diluted EPS of $0.24 including about a $02 headwind from currency. Now let me turn it back to Thibaut for our outlook.

Thank you, Paul. Let me turn now to our outlook. As you have heard from other companies over the past several weeks, from a macro perspective, 2025 is shaping up to be a dynamic year. Despite this backdrop and with our first quarter results consistent with our full year expectations, we are not changing our organic sales growth outlook for 2025, which remains in the 2% to 4% range. We continue to anticipate a muted first half, followed by growth acceleration in the back half behind strong commercial activation, launch of superior innovation, increased contribution from revenue growth management and the lapping of headwinds that are weighing on the first half, specifically stepped up trade and price investments and disruptions in trade inventory.

As a reminder, we did anticipate at the beginning of the year that the categories and markets where we compete would decelerate towards the 2% to 3% range in 2025 with sequential deceleration relative to prior years driven by the absence of price. This continues to be our base case scenario at this time. We will continue to closely monitor actual category dynamics, whether linked to seasonal incidents or macroeconomic factors. For example, in the short term, from a seasonal incidence point of view, the prolonged winter in The U. S.

Has pushed allergy and sun seasons out, leading to a soft start to the season for both categories. And from a macro point of view, we have seen some retailers tightening order management in April in The U. S. So these two factors may shift volumes from one quarter to the next and require us to remain agile. So we are proactively taking additional actions to address this fluid environment, such as ensuring we have sufficient offerings across both ends of the pricing spectrum and reframing our communication to highlight the value our brands bring to consumers.

Regarding FX, since February, the dollar has depreciated. And based on current rates, we are assuming approximately 1% drag on top line from currency, which is better than the approximately 3% impact we assumed previously. So this leads to a 2% improvement in the full year net sales growth range to 1% to 3%. As it relates to our adjusted operating margin and adjusted diluted EPS, we continue to expect margins expand in the back half of the year, albeit at lower levels than we previously thought due to the impact of tariffs on costs. Regarding tariffs, the outlook we provided in early February accounted for the tariffs that were in effect at that time.

Since then, the situation has evolved considerably and remains quite fluid. Based on what we currently know, we estimate the gross impact of tariffs that have been implemented by The US as of May 7, as well as the retaliatory measures implemented to date by other countries, will be nearly $150,000,000 for 2025. Even though our current infrastructure is set up so that most of our manufacturing happens close to our end markets, there are some finished goods and raw materials that move across borders. We are implementing a number of actions to help mitigate the impact of tariffs, including accelerating our productivity initiatives, activating alternate sourcing, optimizing our supply chain and leveraging revenue growth management. But even with these mitigation actions, we will face higher than previously anticipated costs for imported products and components and will not be able to absorb the full impact this calendar year.

Importantly, we are determined to preserve the long term health of our brands and will work with our retail partners to find the best way to minimize the impact for our consumers. Given this backdrop and our ongoing commitment to invest in our brands, we now expect adjusted operating margin to contract slightly for the full year. Please note, we have not changed any of our below the line assumptions. Taking this all together, we now expect adjusted diluted EPS for 2025 to be about flat versus last year. This forecast assumes that currency is a low single digit headwind to EPS, with adjusted diluted EPS up low single digit on a constant currency basis.

So in closing, we are focused on executing our strategy to accelerate profitable growth, while ensuring that we remain agile and nimble to strengthen our competitive positions as we navigate through this dynamic and evolving environment. And all of this is made possible by all viewers around the world. Our teams are getting stronger every day, and I would like to thank all Cannes viewers for their continued commitment to unlock our full potential and drive long term shareholder value creation. And now we will open the call for questions.

Thank you. At this time, we will be conducting a question and answer session. In the interest of time, we ask that you limit yourself to one question to allow for as many questions as possible. If you have a question, please press star one on your telephone keypad. Our first question comes from the line of Bonnie Herzog with Goldman Sachs.

All right. Thank you. Good morning, everyone. I guess I wanted to drill down a little bit on some of the innovation plans that you have for the year and spending, just given the environment and the macro, just curious to hear how maybe your innovations, the innovation plans have evolved, if at all, especially given some of the slowdown we're seeing and the consumer pressures. I guess I'm asking in terms of timing of launches and or merchandising support, especially as consumer spending may be pressured.

Any color there would be helpful. Thanks.

Yes. Good morning, Bonnie. Thank you for your question. Indeed, we have a strong plan for innovation and brand activation throughout 2025 with an expected acceleration in the back half of the year. We believe that in times like that, our brands are well positioned to really respond to what consumers are looking for.

Consumers are looking for efficacy. They are looking for for trust. And that's what CanView is, is all about. Now when consumers are pressured, value and convenience, matter. And that's why we are tweaking our plans to make sure that we are present where shoppers, are and offer the right value equation.

And I think we were we did plan the year with investment in price and trade in The U. S. That weighs on our results in the short term, but that's helpful in an environment like this to make sure that you have the right price equation. And you heard in my prepared remarks the impact we start seeing on consumption moving in the right direction. So are we planning to change our plans significantly given the external environment?

The answer is broadly no. We continue to believe that innovation and giving reasons for consumers to enter our categories that remember are all underdiagnosed, undertreated, underpenetrated is more important than ever. But for those consumers who are already in our categories, we need to make sure that our products are present in store, visible, and offers a value equation. Now we are augmenting our plans, given the existing the current environment on on a number of fronts. On one hand, we are making sure that we have the right entry price points and right price pack architecture to make sure that we respond to the different needs of different consumers.

If you are looking for low cash outlay pack, we will have that. If you are more looking for a high volume value pack, we will also have that. So we make sure that across all categories, we offer the right value equations. We also make sure that we are present in the channels where shoppers are. As you know, we are present in omnichannel, that we make sure that we continue to be where consumers are.

So these are some of the things that we are doing to augment our plans in this environment.

Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Thanks, operator. Good morning, everyone. Hope you're doing well. I wanted to ask just on kind of the phasing of organic growth, maybe specifically on the second quarter. It sounds like a weaker start to the allergy season.

You mentioned some destocking in The U. S. In April as well as in China, continued price investments. So is there any way to frame an expectation for second quarter organic growth versus what we just saw in the first quarter? And then I guess just related, totally understand, Tboe, some of the headwinds are going to reverse in the back half of the year.

But can you just talk about the degree of confidence in the embedded improvement in the back half just given the uncertain backdrop? Thanks.

Great, Peter. Good morning. Good to see you. So your first question is on organic growth in the second quarter, given what we see in the environment. As you know, we do not guide by quarters.

Our plans still assume muted first half followed by an acceleration in the second half. What has not changed for Q2 and the very short term is that our organic sales growth will continue to be burdened by the headwinds from destocking in Asia and the impact of the strategic price investments we are making in The U. S. That was in the plan, that has not changed. To your point, what we are monitoring right now, because it could have an impact in terms of shifting revenue from one quarter to the next, is Season and Macro.

On the Season side, we have experienced a prolonged winter and coughcold incidences in The U. S. So that has been positive for our, Tylenol brands, for example, in q q one. But the side effect of that, it has that's pushed, spring out a bit. And so what we see is the allergy and sun season have been pushed out, and we see a slow start at the beginning of the second quarter for the seasons.

But as you know, much of the season remains in front of us. These things can change quickly as you have seen in the past year and past quarters. So it's way too early to call on the season. From a macro point of view on consumer confidence, we see some deceleration in some categories and geographies. But then that's the beauty of our Consumer Health categories.

People are not leaving all categories. In some spaces, they are spending less per trip. And so we need to see how these things continue to evolve. What matters for us is regardless of the external environment, how do we remain laser focused on increasing household penetration, and we have a lot of opportunities there and gaining share as we activate our brands. And that's why we are encouraged by the momentum we saw in consumption and share across some of our categories and geographies.

I talked about self care. I talked about part of skin health in The U. S. Or skin health in Europe. That's what we are pushing forward.

Your second question on our confidence in the outlook for the back half. So as you rightly said, the back half of the year will not have some of the headwinds that are clouding our results in the first half, namely the investment in trade and price in The U. S. As we lap a higher base period comparison, but also the destocking in Asia, where we are on track to put that behind us by the end of Q2. What gives us confidence that we will accelerate growth in the second half is the strength of our commercial plan.

We have more innovation. We have we see that our investment in breakthrough marketing campaigns is paying back. Consumers are responding. We see an increase in household penetration. We are investing in in store presence and prominence and have exciting plans in this regard for the back half.

And we also start realizing benefits of our enhanced RGM capabilities. And if you look at the full year 2025, we expect pricing to be a net positive. And overall, we see that our teams are executing at a higher level through 2025. So that makes us very confident in the back half. Now as I said, what could impact the second half performance is if the underlying demand for our categories is lower than anticipated, which would have an impact on the sales lift from our Brand activations.

So that's where we'll need to continue to be agile and make sure that we augment our plans where necessary. But to date, we don't see our categories going below the 2% to 3% that we anticipated the year. But this is a very fluid environment, and we'll see how things play out for both seasons and macro. Regardless, CanView is here to play to win.

Thank you. Our next question comes from the line of Andrea Teixeira with JPMorgan. Please proceed with your question.

Thank you, operator. Good morning. And in particular, wishing Paul all the best in the new chapter. My question is on kind of like builds into what you just said, Thibault, in terms of like the building blocks of innovation and what keeps you confident, in particular the skin health and beauty. Understand that the initiatives and the dermatologist, the backing, and the influencer.

All of that is positive, but it's not probably giving us, you know, a lot of, like, at least in the sell in confidence at this point. So, I wanted to just double click on that and see how we should be thinking understandably knowing that you're very strong in the summer season. It might be early to gauge the success of these campaigns, but just to give investors some confidence across channels how it's behaving in terms of, like, in parsing out the effect in in in China and all of those, and in particular, double clicking in The US to see how we can measure success and how you're going to be tracking and how can investors track this in more details. Thank you.

Yes. Thank you, Andrea, and good morning. So just to be clear, on Skin Health and Beauty, we are encouraged by the positive signs we see in terms of consumptions and how consumers react to our campaigns. We are not yet where we want to be, and we totally understand that we have more work to do. Having said that, we are really encouraged to see the flywheel starting to turn in the right direction with given all the actions we have taken to drive consumption in positive territory.

And so we are very happy to see that in the most recent period, we see that happening on the in the areas of the business in The U. S. Where we have focused our attention, namely having AVEINO BODYCARE, NEUTROGENA FACECARE and OGX Hair Care that together represent the majority of our business of our Skin Health and Beauty business in The U. S. So what we have said all along is that this year, consumption will come ahead of revenue of organic sales growth.

And that's what you see playing out in the first quarter with consumption growing outpacing organic sales growth. So we continue we expect to continue to see that playing out in the first half of the year.

Thank you. Our next question comes from the line of Anna Lazul with Bank of America. Please proceed with your question.

Hi, good morning, and thank you so much for the question. I had a follow-up to Bonnie's question earlier on skin health and beauty. Just with the significant promotional activity you're doing in these categories, how are you expecting to balance this with marketing investment as we're moving through the year? And then given your upcoming innovation, are you expecting some bigger shelf space gains in this segment? How are those conversations with retailers going so far?

Any early reads on this would be helpful. Thank you.

So good morning, Anna. Thank you for the question. Our investment for the balance of the year, we continue to plan to invest more this year than last year behind our brands. That's across the portfolio, and that is the case for Skin Health and Beauty. We are going to continue to do that in a responsible way with keen eye to ROI as we always do.

But we have a lot of space to go to go after with with our brands. And as long as we see the right return on investment, whether it's on media ROI, on number of displays we get from retailers or increase in weekly recommendations by dermatologists, we will continue to invest. Again, we are very encouraged to see consumptions moving into positive territories for our priority platforms, and we expect to continue to do that moving forward. This year, as anticipated, we are in investment mode in Skin Health and Beauty. We are making progress in terms of improving our gross margins with Supply Chain efficiencies.

This is masked in especially in the first half by the investment we are making in price and trade investments in The U. S. And overall with our marketing investment. But over time, we will we expect our margin to improve as consumption increases, we gain volume leverage and as the first half headwinds dissipate.

Thank you. Our next question comes from the line of Keith Davis with Jefferies. Please proceed with your questions.

Hi. Thanks for the question. Good morning. Just wanted to drill down, I guess, on the price and trade investments you guys are making, most notably in skin health and beauty. It looks like the consumer is responding.

I guess, from your perspective, it'd be good to know, are you largely do you feel like you're largely catching up to where competitors are in terms of the kind of the price different price offerings, how you expect them to respond? And then maybe just broader, the consumption uplift in April. Any context around, are those new customers that are new entirely new to the brand or old customers returning that may have may be a little price sensitive? Thank you for the color.

Yes, Keith. So on on skin health and beauty, you're right. We see consumers increasingly responding to our investment and effort. Again, early days, and we are certainly not claiming victory. It's not a victory lap today, but it's really encouraging signs that the actions, the cumulative impact of our actions is starting to play out.

And that's what makes us confident for not only the balance of the year, but the future of these brands. We see, as I said, what we are particularly excited about is to see the increase in household penetration with Gen Z consumers, which is a demographic where we were lagging our competitors and seeing this group of consumers who, as you know, represent a big part of consumption in skincare categories, select Intrageny as their brand is extremely encouraging for the future. So we are pleased about that. We see that our breakthrough marketing campaigns combined with relevant innovation, but also investment in making sure that we have the right price points are playing back. Just want to make sure that it's clear for everybody that when I talk about investment in having the right price point, it's not necessarily being the cheapest.

We are not the cheapest in the categories. But we want to make sure that we hit the right psychological threshold that our consumers are comfortable with. So think about $4.99 9 point 9 9 dollars 14 point 9 9 dollars We were not always well positioned. That created some confusion and made it less easy to shop with these corrections that we have a short term price to pay in terms of top line, but it's definitely helping consumers shop Neutrogena, Aveeno, GX and other brands in a much easier way, and we see the impact on consumption.

Thank you. Our next question comes from the line of Nik Modi with RBC Capital Markets. Please proceed with your question.

Yes. Thank you. Good morning, everyone. Thibault, I just wanted to get your thoughts on supply chain. A lot of reports on shipments from China to The U.

S. Are down significantly more recently and it might continue just given some retailers and even some manufacturers aren't taking some of the inventory under their own P and L and keeping it over in China. And so I guess I had two questions on that. One is, have you thought about that exposure? Does that create any risk in terms of ingredients coming that could potentially lead to some issues in terms of product shortages?

But more importantly, a lot of competitors in the beauty space and the personal care space are produced in China. So I'm just curious if you think this could create an opportunity actually. And do you have the supply chain agility to deliver on the demand if in fact retailers have some bare shelves? Thanks.

Nick, that's a great question. And it seems like you could be in our offices working with our teams because that's exactly the way we look at it. On the one hand, we are making sure that we are working very hard, as you heard from Paul, to mitigate the impact of tariffs as much as we can in a fluid environment. Dual sourcing and adjusting our supply chain is part of it. As you know, China represent a relatively small part of our imports into The U.

S. Our supply chain is structured to be in region for region. So we produce very close to where we sell. But what it means is that the small part that doesn't fit this model is there for a good reason. And so it's not easy to move quickly because if it were, we would have done if it was easy, we would have done it some time ago.

So that's why making these adjustments is going to take time. But you are absolutely right. We are also looking at opportunities this situation creates for us. Again, in Consumer Health, we are in resilient categories. CanView brands are trusted by consumers.

And so that's why you have us really deploy the playbook that we have used in the past when it's getting tougher for consumers, which is continuing to stay the course on innovation to bring new consumers in our categories that are underpenetrated, continuing to advertise and invest behind our brands, especially those like ours who are number one and number two in their categories. But making sure that you are extremely precise in the type of packaging format you offer and making sure that you are where shoppers are. I would add one more point on supply chain resiliency. You know that we have invested quite a lot in the past number of years since COVID in increasing the resiliency of our Supply Chain. And for times like this, a resilient Supply Chain is certainly something that is valued by our retail partners.

Just one more point to add. In terms of our annualized exposure to foreign sources, China represents only about 10. So that gives you a frame of reference of how much we're talking about. In addition, of course, to the point that Tivo just made, we have been working hard on making our supply chain more resilient with dual sourcing, triple sourcing. So we have created some of the agility to give us the flexibility to capture some of the upside opportunities that you mentioned.

Thank you. Our next question comes from the line of Filippo Folorni with Citi. Please proceed with your question.

Hi, good morning everyone and best of luck to Paul in next chapter. First, I have two questions. One on self care, maybe can you talk about like the benefits that you saw from the high incidence in The U. S. Causing flu?

I think your expectation was that you were not expecting any replenishment of inventory, but maybe can you help me understand if you got one in Q1? And then another one on tariffs, the $150,000,000 gross impact that you mentioned, can you help us understand what buckets it's composed of in terms of like what raw materials or finished product it includes? And obviously, there's been so far an exemption on pharmaceutical imports. But maybe can you give us a sense of the potential impact if there were some incremental tariffs on pharmaceutical imports? Thank you.

Okay. So Filippo, let's good morning. Let me take the first one and then Paul can take the second one on tariffs. So on self care and specifically the cough, cold and flu season, overall, globally, the season was, I would say, about flat. If you think about the combination of Q4 and Q1, slightly down versus last year.

So not a great versus last season. So not a great season with marked differences by region. So in The US, if you recall, we had a very low season in q four followed by an initial peak early February. It went down, then a large peak in in so a first peak in January, a second peak in February. And, what we saw in the month of March is distributors replenishing the inventory, not to the appropriate level, I would say, not to a large degree, but slightly more than what we anticipated to an appropriate level.

So I would say that in The U. S, Distributors left the season with an appropriate level of inventory to go through the coming quarters until the next season. In Asia, we saw something different with a low level of incidents continuing in the first quarter. As a result of that, if you recall correctly, we were expecting retailers to deplete their inventory with the expected increased demand during the first quarter. That didn't happen to the level and to the extent we expected.

So that's going to be somewhat of a small headwind in the second quarter because the destocking will continue to happen in second quarter for them to hit the appropriate level of replenishment. So overall, they balance each other, but different dynamics between The U. S. And China.

take the tariffs question. So Philippe, as you said, we have a gross impact of tariffs that are currently in place of about 150,000,000 for 2025. Let me break it down into two dimensions. The biggest importer is Canada, Canada into The U. S.

And most of that is finished goods. And it has been qualified the majority under current U. S. MCA exemptions. So that nets out to a small proportion of the total impact, less than 10%.

The other dimension is where does the biggest impact in terms of the tariff come from and that's from China. It's only about 10% of our annualized trade spend. However, it is the largest impact. It's about two thirds of the annualized impact at the current rate of 145%. To give a little bit more color, two thirds is finished products, about one third is raw materials.

And that's what we have embedded into our guidance. In terms of your question on Pharma tariffs impact that has not gone in effect, We are of course assessing the impact, but at this point we're not ready to provide a number. It's not in effect yet.

Kenvue (KVUE) Q1 2025 Earnings Call Transcript

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