The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q4 2020 Earnings Conference Call - Final Transcript
Aug 25, 2020 • 08:30 am ET
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
Thanks, good morning. Question on gross margin. You reached over 25% in the second half of the fiscal year, which was great. I know you've targeted 30% gross margins over time. When do you think Hain can reach that sort of a gross margin and to date, a lot of the gross margin expansion has resulted from divestitures and other rationalization. And of course, you had that boost with regard to COVID during this period, which will continue into the next fiscal year. So how should we think about the pace of improvement from here? And maybe you want to break that down also into the Get Bigger versus Get Better portfolio? Thanks.
Mark L. Schiller
Yes. I'd be happy to take that one. So look, we're going to see continued steady progress on margin. You saw several hundred basis points of margin growth this year about 250 basis points something in the fourth quarter and frankly had it not been for the fruit business, you would have seen another 170 basis points something of margin expansion on top of the 25% that we delivered. So we clearly have an issue on the fruit business that we have to deal with, but if you take that aside, we're already close to 27% and we will get several hundred basis points on top of that.
The Get Bigger brands are already at the 30% margin level and we said that we anticipate that we will get those more into the mid 30s. We're well on track to do that. The key to doing that continues to be top line growth, because most of those are self manufactured and we get tremendous absorption benefits as we fill up the plants. We also have very robust programs in terms of automation. We have some consolidations left to do. We still have some opportunity on SKUs and on uneconomic spending. So we continue to believe that there is a significant margin improvement to still be had on the Get Bigger brands. And by the way mix also plays a big role on those businesses as well.
On the Get Better brands, which -- remember back at Investor Day, they were 50% of our sales and virtually zero percent of our profit. They are now about 33% of our sales in North America and 20% of our profit. So they have significantly improved the margin 600 basis points over the year, and we expect again that there will be continued improvement there coming through the same kinds of things. Design to value, taking out the bells and whistles that consumers aren't willing to pay for in the products and cost reducing them, continued management of distribution and warehousing costs, better forecasting, which leads to less discards and customer fines, and there is a mix benefit within there as