Clorox (CLX.N) shares experienced an 8.1% decline on Thursday, reaching their lowest point since May 2018, following a warning from the cleaning supplies company. The warning stated that a cyber attack in August would result in a quarterly loss and could reduce its revenue by up to 28%.
Clorox shares were last traded at $121.16, hitting a low of $119.56 earlier in the day, marking the largest single-day percentage loss since February 2022.
Warning about a first-quarter gross margin decline
Late on Wednesday, Clorox projected a loss per share ranging from $0.35 to $0.75 for its fiscal first quarter ending on September 30th, compared to a profit of $0.68 in the same period the previous year. The company also anticipated a year-over-year decline in net sales of 23% to 28%. Following this announcement, Evercore ISI lowered its Clorox price target from $160 to $120, while Raymond James downgraded the stock from ‘outperform’ to ‘market perform.’ Bank of America reduced its price target from $145 to $120, and Deutsche Bank lowered its target from $155 to $136.
Anna Lizzul, an analyst at Bank of America, who rates Clorox as ‘underperform,’ emphasized that the warning about a first-quarter gross margin decline was significant, especially as she had expected it to be the quarter with the greatest gross margin expansion in fiscal year 2024. In addition to the cyber attack and a challenging consumer environment, Lizzul noted that rising shipping costs due to higher oil prices might lead Clorox to reduce promotional activity in fiscal year 2024 to safeguard its margins. She also pointed out that there was limited potential for price increases, as the company had already implemented four rounds of price hikes in the past two years.
Diminishing operational impacts in the second quarter
Clorox had reported the cyber attack on August 14th, which led to the suspension of some systems. On September 18th, it indicated that the first-quarter results could be materially affected. On September 29th, the company announced that all its manufacturing facilities had resumed operations and that it was increasing production to replenish inventory after the attack.
However, Evercore ISI analyst Javier Escalante, who also rates Clorox as ‘underperform,’ expressed concerns about the time it took the company to assess the financial impact of the attack. He also noted the warning about “ongoing, but diminishing operational impacts in the second quarter,” which he found to be a troubling discrepancy between operations, financial planning, and reporting.