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P&G Takes $8 Billion Writedown on Gillette

Gillette has been impacted by currency rates, shave frequency and competition.

While most segments are looking rosy at Procter & Gamble, grooming still presents a challenge.

The business said Tuesday that it was taking a one-time, $8 billion writedown related to the Gillette business, which P&G bought in 2005 for $57 billion. Executives blamed currency impacts and lower shave frequency, plus an influx of new competitors in the shaving space. Chief financial officer Jon Moeller said increased competition had “much less of an impact” on Gillette than the other factors.

P&G is rolling out innovation in grooming across price points, and Moeller noted that Gillette’s Skin Guard launch, which is meant to help men shave with less skin irritation, is off to a strong start.

“That’s been one of the reasons men are shaving less frequently is because it’s irritating to their skin,” Moeller said Tuesday morning. P&G is hoping Skin Guard can bring men back into the shave category, he noted.

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Outside of product innovation, executives stressed the importance of making their grooming brands seems relevant to Gen Z and Millennial consumers. They also voiced confidence in their own brand-centric strategies versus the acquisition mindset of competitors like Edgewell and Unilever, which have acquired Harry’s and Dollar Shave Club, respectively.

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“If I step back again and look at what we’re doing, we’re doing more differentiation,” chief executive officer David Taylor said on a call with Wall Street analysts. “You’ve seen our Joy launch at Walmart has done very, very well. As we again activate across the ladder and what we see now with our willingness to differentiate, we’re rejuvenating both Gillette and the Venus brands.”

Gillette’s direct-to-consumer business has doubled over the past year, executives noted, and is expanding to new markets, including Germany.  The majority of sales still come from off-line, but executives stressed being available to consumers where they want to shop.

Taylor and Moeller spoke to Wall Street analysts after the business released its financial results for the fourth fiscal quarter and fiscal year. Except for grooming, the business posted gains across verticals.

Fourth-quarter net sales were $17.1 billion, up 4 percent from the prior-year period, with a diluted net loss per share of $2.12, due to the Gillette charge. Grooming net sales were down 3 percent in the quarter, to $1.6 billion. Beauty sales were up 3 percent, to nearly $3.2 billion.

For the fiscal year, P&G’s net sales were $67.7 billion, up 1 percent year-over-year. Diluted net earnings per share were $1.43, down 61 percent from the prior year, due to the charge on Gillette. Net grooming sales were down 5 percent for the fiscal year, to $6.2 billion, while beauty sales were up 4 percent, to $12.9 billion.

In beauty, sales continue to be driven by SK-II and Olay, which are both growing, the company said. Hair care also grew organic sales in the low-single digits, P&G said.

“Superior offerings drive market growth,” Taylor said. “Increasing consumption creates additional usage occasions. Bringing more spend into a category grows the market. This creates top-line growth that is typically more sustainable than simply taking business from a competitor.”

Beyond working to create those offerings, P&G has been working to hone its marketing strategy, and is now targeting “precise smart audiences,” executives said Tuesday. That means instead of targeting women from ages 18 to 49, P&G is looking at groups like “first-time washing machine owners,” the executives said.

They’re executing that strategy with the help of data. P&G said it has cookie data that it uses in order to target specific audiences, but also get many more new product ideas, that with its new lean innovation program, can be tested and launched quickly.