The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Daniel Rizzo - Jefferies - Analyst
: Good morning everyone. Thank you for taking my questions. If we can start with just with tariffs, I understand you're making some adjustments,
but I was wondering how much you ship across borders, if you produce or produce and sell locally or how much tariffs will have an impact, both
the tariffs that's being proposed by the US and I guess the retaliatory tariffs from China. Just any color you can provide on the ongoing volatile
environment.
Question: Daniel Rizzo - Jefferies - Analyst
: Okay. So China announced retaliatory tariffs. It's very early, but you also announced or alluded to maybe restricting sales within the country and
just doing other things that are kind of as a retaliation against US. I was wondering if that affects you guys at all that the restricting your product,
the restricting what you can do? Or is there any signs of any potential emerging headwinds from that?
Question: Daniel Rizzo - Jefferies - Analyst
: Okay, and thank you for that. And then you mentioned optimizing your supply chain. I was wondering if that means you're going from dual sourcing
to sole sourcing or vice versa or just a little bit of color on that, if it means you're going to more sources to make it less -- more cost-effective maybe,
but -- and a little more stable or if you're going to do one source to make it more optimized or how we should think about it?
Question: Daniel Rizzo - Jefferies - Analyst
: Does it take a while to kind of qualify a supplier? I mean is it a multiyear process? Is it a multi-month process? Or how does it work? And how easy
is it to shift?
Question: Daniel Rizzo - Jefferies - Analyst
: Okay. And just two more questions. One, so your gross margins are going -- are expected to be a little bit better than expected, but the operating
income is the same. So I assume that's from SG&A or it appears to be from SG&A. And I guess I just want to make sure if that's just coming from
higher expected compensation expenses for the rest of the year or for something else that's keeping those SG&A expenses elevated through the
end of the year?
Sara Hyzer - WD-40 Co - Chief Financial Officer, Vice President - Finance, Treasurer
Hi Daniel, I can take that one. So the guidance -- the SG&A costs for the year are substantially as expected when we look out both in the first half
and the back half of the year. The reason the operating income is not shifting with the increase in our margin is strictly from the impact of the
foreign currency. So when you look at -- the air conditioner just went on in here. So the impact of foreign currency for the first half of the year has
been a headwind.
And when we look at that for the full year, depending on which market you're looking at, the impact of that is now masking. The gross margin is
masking the headwind of the foreign currency. So our operating income is expected to be in line with the initial expectations that we had at the
beginning of the year.
Question: Daniel Rizzo - Jefferies - Analyst
: Okay. And then last question just on FX. Is there a rule of thumb you guys have like a $0.01 move in the euro translates into excellent number of
millions of dollars? Or is it not really that easy?
Sara Hyzer - WD-40 Co - Chief Financial Officer, Vice President - Finance, Treasurer
It's not really that easy just because of the dynamics of the costs over in Europe. So we don't necessarily have a rule of thumb that we guide to on
that.
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