CLX Q2 Deep Dive: ERP Transition Drives Short-Term Volatility Amid Margin Recovery

Consumer products giant Clorox (NYSE:CLX) announced better-than-expected revenue in Q2 CY2025, with sales up 4.5% year on year to $1.99 billion. Its non-GAAP profit of $2.87 per share was 29.7% above analysts’ consensus estimates.

Is now the time to buy CLX? Find out in our full research report (it’s free).

StockStory’s Take

Clorox’s second quarter results surpassed Wall Street’s revenue and profit expectations, but the market responded negatively, reflecting investor concerns about the underlying demand environment and near-term volatility. Management cited the implementation of a new ERP system, which led to temporary inventory builds at retailers, as a primary driver of top-line growth during the quarter. CEO Linda Rendle acknowledged execution challenges in certain businesses and stressed, “It was a pretty dynamic quarter, and we didn’t get it all right, but we see clear opportunities to improve moving forward.”

Looking forward, Clorox’s guidance signals caution as management anticipates continued sluggish consumer categories and competitive promotional activity, especially in segments like trash bags and cat litter. The company expects improvement in the back half of the year, driven by new product innovation and better execution. CFO Luc Bellet highlighted that growth will depend on stabilizing category trends and the ramp-up of new revenue management initiatives, while Rendle noted, "We are not predicting a significant change to the consumer environment and are focused on reinvigorating our categories through good advertising spend and targeted innovation."

Key Insights from Management’s Remarks

Clorox’s management attributed the quarter’s strong margin recovery to operational efficiencies, while acknowledging sales were bolstered by significant, but temporary, retailer inventory builds linked to the ERP transition.

• ERP implementation impact: The new enterprise resource planning (ERP) system required retailers to temporarily increase inventory, inflating reported sales for the quarter and creating expected volatility between periods. Management emphasized this was not a structural change, but “noise between years.”
• Margin expansion: Gross and operating margins improved significantly year over year, benefiting from higher operating leverage due to increased shipments and cost savings from not needing to build internal inventory. Management stated these effects were partly one-time in nature.
• Execution gaps in key segments: While the cleaning segment performed as expected, businesses such as Kingsford and cat litter faced setbacks due to merchandising and promotional missteps. Rendle cited “execution, not brand health” as the issue, noting share losses in select categories were being addressed with updated plans.
• Innovation pipeline timing: New product launches were limited in the quarter as the company focused on existing platforms following the prior year’s cyber attack. Management plans to accelerate innovation, especially in the back half of the year, to support both market share and category growth.
• Consumer and market dynamics: Clorox observed increased value-seeking behavior among consumers, with a shift to smaller pack sizes and more competitive promotional activity in categories like trash and cat litter. However, the overall promotional environment remains “fairly rational,” and the company intends to use promotions more strategically to support innovation.

Drivers of Future Performance

Management expects ongoing category sluggishness and competitive pressures, with recovery hinging on innovation and improved execution in the second half of the year.

• Back-half innovation launches: Clorox plans to introduce new product platforms and expand current offerings later in the year, which management believes will drive both category growth and share gains. Rendle highlighted the importance of these launches in revitalizing segments that underperformed.
• Margin resilience initiatives: The company aims to maintain gross margin stability despite higher tariff and supply chain costs, relying on ongoing cost-saving programs and productivity improvements. Bellet outlined that targeted pricing and sourcing changes are expected to offset $40 million in anticipated tariff expenses.
• Dynamic promotional strategy: Promotional spending will be adjusted to align with evolving consumer behaviors, with a focus on supporting new product introductions rather than broad-based discounting. Management stressed that promotions will remain “strategic,” particularly in categories facing heightened competition, to preserve profitability while capturing demand.

Catalysts in Upcoming Quarters

In the coming quarters, our team will focus on (1) progress with the ERP transition and its normalization effects on reported sales and margins, (2) the ramp-up and early performance of new product innovations, and (3) the company’s ability to maintain margin improvements amid higher tariffs and promotional pressures. Continued monitoring of competitive dynamics in key categories and the impact of cost-saving initiatives will also be essential for evaluating execution.

Clorox currently trades at $123, down from $125.32 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

Our Favorite Stocks Right Now

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.