Linda Rendle
Chief Executive Officer at Clorox
Thank you, Lisah. Hello, everyone. Thank you for joining us. Fiscal '21 was an extraordinary year for Clorox, with the pandemic putting us through the ultimate test of volatility, including rapid changes in consumer demand and significant cost inflation, which was reflected in our Q4 results. Despite the complexities we faced, we delivered 9% sales growth for the fiscal year on a reported and organic basis, reflecting growth in all four reportable segments. This was on top of the reported 8% increase we delivered in fiscal '20. On a two-year stack basis, we delivered 17% sales growth. With rising cost pressures, we experienced declines in gross margin, particularly in Q4, resulting in a decrease of 200 basis points for the fiscal year, which we will discuss in more detail.
Fiscal year '21 adjusted EPS decreased 2% to $7.25. Recognizing the immediate priorities before us, I would like to reinforce what matters most: long-term profitable growth. With a business that's significantly larger than before the pandemic and a portfolio of trusted brands exposed to more tailwinds, we have clarity in our strategic imperatives, and I have every confidence in our ability to continue delivering long-term value creation for our shareholders. When I look at fiscal '21, our performance has shown the strength of our people, brands and products as well as the resilience of our category as we work tirelessly to supply consumers with products across our portfolio. As a result, we experienced significant growth in demand and strengthened our position amongst global consumers, with strong household penetration, supported by higher repeat rates across new and existing users. The last 12 months have also demonstrated the need to accelerate our IGNITE Strategy to address near-term headwinds and capitalize on long-term opportunities.
The industry environment remains dynamic, with significant inflationary pressure and continuing uncertainty. In the face of these conditions, our top priority is strong execution to mitigate the impact of elevated cost headwinds and continue to improve market share. The pandemic has also highlighted areas where additional investments can help us be as agile as possible in the future. We are clear on the opportunities ahead of us to differentiate Clorox and build a stronger, more resilient and more profitable company. This includes driving our growth runways and making investments to enhance our digital capabilities and drive productivity improvements, which I will discuss shortly. We are confident that strong execution of our IGNITE Strategy will enable us to achieve our 3% to 5% long-term sales target and deliver long-term shareholder value. Before I discuss Q4 and our progress against our strategy, I would like to thank our Clorox teammates around the world for everything they have accomplished over the past year as well as their commitment and dedication to serving people and communities around the world.
For Q4, faster-than-expected moderating demand for cleaning and disinfecting products had a pronounced impact on sales growth as we moved through the peak of the pandemic and lapped the unprecedented demand we experienced last year. The magnitude of this quarter's gross margin contraction was a result of faster-than-expected sales moderation, acceleration of inflationary headwinds and improvements in supply, which led to broader product assortment, including the reintroduction of value packs. I'll discuss shortly the actions we're taking to address these headwinds. Now let me share a few highlights of our progress on our IGNITE Strategy. First, with fuel growth being a critical focus to help address elevated cost pressures and ensure the long-term health of our brands, I'm pleased we delivered over $120 million in cost savings in the fiscal year, surpassing our annual target. Second, we made strong progress on our 2025 goal to know 100 million people, crossing the halfway mark to our goal this fiscal year. Our higher investment in personalization has led to significantly improved ROI. It has been one of the contributors to increasingly strong payouts, driving our confidence in continued investments in our brands.
Third, with innovation at the heart of our strategy, we doubled our innovation investments in fiscal '21, and new products were a bigger contributor to our top line, which we expect to continue in fiscal '22. Next, as consumers have increased their digital usage during the pandemic, we leaned into digital marketing and commerce, resulting in our e-commerce business nearly doubling in the last two years, which today represents about 13% of total company sales. Finally, we continue to make progress on our ESG goals. For example, we advanced our commitment to climate action and submitted our proposal on science-based targets for our operations and Scope three emissions to the Science Based Targets initiative in June. And as a people-centric company, we continue to focus on the wellbeing of our teammates and our values-based inclusive culture. I'm particularly proud that during this trying year, we achieved our best safety score in recorded history, with a recordable incident rate of 0.26, significantly lower than the 3.3 industry average. I'm also pleased that in fiscal '21, we continued to have high employee engagement of 87%, putting us at the top quartile of Fortune 500 companies.
Now let me turn to fiscal '22. We expect inflationary pressure to persist, along with continued moderating demand as we lap COVID-19-related demand surges in the first half of fiscal '21. While this is reflected in our fiscal '22 outlook, which Kevin will discuss, by the second half of the year, we expect to be within the lower end of the range of our long-term sales targets. Like others in our industry and beyond, we are experiencing significant increases in input and transportation costs across all categories in our portfolio, which have accelerated since Q3. And we're holistically and dynamically managing this with a laser focus on rebuilding margin. We implemented pricing on Glad and announced actions on our Food, Cleaning and International businesses. This represents about 50% of our portfolio. We're also pursuing pricing in additional parts of our portfolio, which we'll communicate at the right time. Based on the constructive conversations we're having with our retail partners and importantly, the strength of our brands, we feel confident about our ability to execute our pricing plans. In addition, we will continue to drive our hallmark cost savings program.
We expect sequential gross margin improvements as we progress through fiscal '22, with our assumption for gross margin expansion by Q4. In terms of market share, as we've discussed previously, we have experienced some declines due to supply challenges, but have made notable progress. With strong investments in internal and external production capacity, including additional manufacturing lines and a significant expansion of our production team, in June, we achieved our highest case fill rate since the start of the pandemic. I'm pleased to see that in the latest 13-week data, ending July 17, we saw market share gains in seven out of nine businesses. Certainly, we recognize there's more work to do in parts of the portfolio, such as Glad Trash, and we have adjusted our plans to drive market share improvements over time. Despite these near-term headwinds, we remain focused on our long-term priorities rooted in our IGNITE Strategy to deliver our long-term growth aspirations. While some pandemic-related behaviors may revert over the next 12 months, we continue to believe there's been a shift in behaviors that will advantage Clorox longer-term, including a focus on health, wellness and hygiene, more time at home as well as increased adoption of e-commerce and digital platforms.
The pandemic also revealed the urgency to upgrade our digital infrastructure and capabilities. Last year, I brought in Chief Information and Enterprise Analytics Officer, Chau Banks, who has extensive experience in business-driven digital transformation, to conduct a fresh assessment of our own program that was already underway before the pandemic. With that assessment now complete, we are accelerating our transformation through planned investments of about $500 million over the next five years to enhance our digital capabilities and drive productivity improvements, including replacing our ERP. This will enhance our supply chain to better position Clorox to meet customer needs, yield efficiencies and support our digital commerce, innovation and brand-building efforts. Prior to the pandemic, we were already adapting our business to differentiate Clorox from a digital perspective. We'll continue to invest in e-commerce and digital marketing across our portfolio, leveraging data-driven insights to engage with consumers in more relevant ways. Moving to innovation. Innovation continues to be a key focus area for me and our new Chief Growth Officer, Tony Matta, who joined last October.
Tony has more than 20 years of brand-building experience with leading consumer companies. Ensuring we have stickier innovation delivering multiyear value, we're driving lasting new product platforms, such as Fresh Step Clean Paws and Scentiva, which continue to grow. In addition, we're extending innovation by leveraging external partners to create new revenue streams. We're continuing to support our brands, especially margin-accretive innovation, with disciplined high-ROI advertising and sales promotion investments to build and strengthen consumer loyalty. We also remain very focused on driving our growth runways to build Clorox into a global cleaning and disinfecting brand. We are still in the early stages of a multiyear journey, but continue to believe they can become a meaningful contributor to growth longer-term. And as we execute on all these initiatives, we will continue to drive the strategic link between our societal impacts and long-term value creation as we live our purpose and keep our ESG commitments front and center in our decision-making every day.
With that, I'll turn the call over to Lisah to review our business unit performance.
