The Clorox Company's (CLX Quick QuoteCLX - Free Report) shares have lost 7.2% since the company reported second-quarter 2025 results on Feb. 3. Although both revenues and earnings beat the Zacks Consensus Estimate, shares fell due to a 15% year-over-year decrease in revenues. The decline resulted from ongoing inventory normalization and strategic divestitures, including the Better Health Vitamins, Minerals & Supplements ("VMS") and Argentina businesses.

This decline is in sharp contrast to the 27% revenue growth seen in the prior quarter, which had been temporarily boosted by higher volume reflecting the lapping of the cyberattack. Meanwhile, this performance contrasts with the broader industry’s decline of 1.2%, the Consumer Staples sector’s rise of 0.1%, and the S&P 500’s increase of 0.8% in the same period.

CLX Stock's Price Performance

Image Source: Zacks Investment Research

Despite the better-than-expected earnings report, investors seem to be assessing the company’s prospects, considering the ongoing operational transitions.

More Insights Into CLX’s Revenue Decline & Outlook

Clorox's second-quarter fiscal 2025 performance was impacted by declines across all key business segments, reflecting ongoing headwinds. The Health and Wellness segment saw a 13% drop in sales, driven by lower volume and an unfavorable price mix, leading to a 25% decline in segment-adjusted EBIT.

The Household segment experienced an 11% revenue decline, with volume contraction as the main factor, while segment-adjusted EBIT plummeted 48% due to higher manufacturing and logistics costs. The Lifestyle segment reported the sharpest revenue drop at 16%, entirely volume-driven, contributing to a 36% EBIT decline. Meanwhile, the International segment fell 12%, largely due to the Argentina divestiture and unfavorable currency rates, though organic sales grew 6%. Despite this, segment-adjusted EBIT still dipped 34%.

Additionally, CLX provided a bleak outlook for fiscal 2025, anticipating a net sales decline of 1%-2%, compared with a flat to down 2% projection stated earlier. This includes a 1 to 2 percentage point gain from incremental shipments related to the Enterprise Resource Planning (ERP) transition, which is anticipated to reverse in the first half of fiscal 2026.

Organic sales are anticipated to increase 4-7% versus the previous projection of 3-5% growth. The guidance excludes 2 points of negative impacts of the divestiture of the company's business in Argentina and 3 points of unfavorable impact from the sale of the VMS business. Excluding the impact of incremental shipments related to the ERP transition, organic sales are expected to grow 3% to 5%.

Is CLX Well Poised for the Long Term?

To counter these challenges and drive future efficiency, Clorox is investing $560-$580 million in digital transformation, including ERP replacement and cloud-based platform transitions. About 70% of these costs will be recorded as incremental operating expenses, impacting reported earnings per share. While these investments create near-term pressure, they are expected to streamline operations and support long-term growth. Selling and administrative expenses are forecasted between 15% and 16% of net sales, indicating a 150-bps impact of strategic investments in digital capabilities and productivity enhancements.

In the fiscal second quarter, CLX also achieved gross margin expansion for the ninth consecutive quarter, driven by a strong quarter of cost savings and effective demand creation plans. The results underscore the strength of its portfolio as Clorox continues to invest in its brands, delivering superior value and fostering consumer loyalty.

Further, the management expects gross margin to expand 125-150 bps compared with the 100-150 bps increase mentioned earlier. The growth is expected to be driven by comprehensive margin management efforts, partly offset by cost inflation and higher trade promotional expenses.

Clorox is on track with the IGNITE strategy and the integrated plan. It is also focused on value creation in the long run. CLX’s holistic margin-management efforts have been boosting growth, and the company is on track to revert to pre-pandemic gross margins in fiscal 2025 while investing in the business. Hence, the company concentrates on offering superior value to consumers via investing in its brands and making innovations.

What is the Best Approach for CLX?

Reflecting the near-term headwinds from weaker earnings and muted guidance, concerns about CLX’s short-term growth persist. However, its long-term strategies provide a solid foundation for recovery. For now, investors may want to wait for signs of stabilization in earnings before considering a position in CLX. Currently, Clorox carries a Zacks Rank #3 (Hold).

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