We initiate coverage on CLX with a Hold/$130 PT. CLX operates household, health, lifestyle and international segments, with leading franchises such as Glad, Kingsford and Burt’s Bees. Recent operating momentum reflects acute channel destocking versus Retail ERP transition, a dynamic not captured in EPS. A temporary EPS windfall will drive FY25E EPS to $7.00, but these high-water marks are unlikely to persist as one-off destocking effects wash out. We forecast FY26E EPS of $6.50, down y/y, while absorbing heavier tariff headwinds that we moderate relative to consensus. We value CLX at 20x normalized FY26E EPS, reflecting gradual margin normalization, persistent leverage (net debt/EBITDA of 2.5x) and constrained capital deployment, versus the current P/E near 22x. The setup offers 5% upside, tempered by muted volumes and sector beta relative to defensives. Execution risk around supply-chain normalization remains, but is manageable given CLX’s track record. Overall, the R/R is balanced, with recent trends flattering to deceive and more than 2 years of real margin upside less likely at this valuation.
Markets mispricing inventory
We find CLX’s gross margin resurgence standout in staples, attributable to not just cyclical cost relief but sustained productivity levers with line-of-sight to additional improvement. GM rebounded to 44.6% from a near-36% trough in FY24. Approaching pre-pandemic highs, this recovery outpaces branded peers grappling with lingering inflation and promotions. Management’s Ignite strategic plan provides tailwinds, capitalizing on supply chain efficiencies and sourced cost savings that are sustainable levers embedded in day-to-day execution. We expect another 125–150 bps of GM tailwinds