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Prestige Consumer Healthcare Inc (NYSE:PBH)
Q2 2021 Earnings Call
Nov 5, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2021 Prestige Consumer Healthcare Earnings Conference Call. [Operator Instructions] [Operator Instructions]. [Operator Instructions]

I would now like to hand the conference over to your host. Director of Investor Relations, Phil Terpolilli. Sir, please go ahead.

Phil Terpolilli -- Investor Relations

Thanks, operator, and thank you to everyone who's joined us today. On the call with me are Ron Lombardi, our Chairman, President and CEO; and Chris Sacco, our CFO. On today's call, we'll begin with some topical remarks given the pandemic, review the results of the second quarter and first half fiscal year '21, provide an outlook update and then take questions from analysts. We have a slide presentation, which accompanies today's call, can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors link and then on today's webcast and presentation. Remember some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations between the nearest GAAP financial measures are included in today's earnings release and slide presentation.

During today's, management we'll also make forward-looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on page two of the slide presentation accompanying the call. These are important to review and contemplate as everyone on the call today is well aware, business environment uncertainty remains tightened due to COVID-19. These items include shutdown impacts from many areas of the economy, ongoing changes to consumer purchasing habits, the potential for disruptive supply chain, heightened unemployment and many other economic factors. This means that results could change at any time and the forecasted impact of risk considerations is the best estimate based on the information available as of today's date. Additional information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-K.

I'll now hand it over to our CEO, Ron Lombardi. Ron?

Ron Lombardi -- President and Chief Executive Officer

Thanks, Phil. Let's start on slide five. I'm pleased to report our long-term strategy and business positioning continued to deliver solid results as seen in Q2, where we experienced strong earnings growth and a stable revenue performance. We continue to focus on the critical near-term factors that I've previously discussed in order to successfully navigate the pandemic environment. For starters, our long-term strategy of providing consumers with a wide range of brands they know and trust continues to work. In this unique time, we continue to see consumers turn to our leading brands to meet their healthcare needs. Meanwhile, our business continuity efforts have been paying off. We continue to work closely with our manufacturing partners to ensure consistent service levels in this tight supply environment.

In Q2, we continue to find effective ways to optimize our brands during the pandemic as consumer habits have begun to stabilize. We are benefiting from these agile investments in channels such as e-commerce, and our portfolio remains well positioned for the long time. Finally, our strong operating model and disciplined capital strategy continue to reward stakeholders. We continue to use our industry-leading financial profile to further reduce debt in the quarter. We have reduced leverage levels to the lowest point since 2014, which continues to increase our capital allocation optionality. So to recap, we continue to feel good about our positioning and the agile adjustments made during COVID-19. Q2 performance reinforces the strength of our business, and we look forward to further benefits.

I'll now hand it over to Chris to review Q2 financial results.

Christine Sacco -- Chief Financial Officer

Thanks, Ron. Let's turn to slide seven and review our first half financial results. As a reminder, the information in today's presentation includes adjusted results that are reconciled to the closest GAAP measure in our earnings release. Q2 revenue of $237.4 million declined 50 basis points on an organic basis versus the prior year, which excludes the effects of foreign currency. By segment, North America revenues were up 1.3%, positively impacted by the women's health analgesics, Oral Care and ear and eye care categories, partially offset by lower cough and cold and GI shipments at certain categories we participate in face declines in incidence levels and usage rates related to COVID-19. Our international business declined approximately 16% after excluding foreign currency. This decline was primarily attributable to significantly lower sales of Hydralyte in Australia as a result of COVID-19's impact to lowering both general consumer illness and activities such as athletic. We anticipate headwinds for the brand and the region to persist for the remainder of the fiscal year. Adjusted EBITDA and EPS for the second quarter grew approximately 5% and 15%, respectively, versus the prior year. Solid EPS growth was attributable to lower G&A costs and lower interest expense from debt paydown.

Let's turn slide eight for more detail around consolidated results and first half performance. For the first half, our revenues were down 60 basis points, excluding foreign currency. Revenue growth continued to benefit from strong consumption trends in the e-commerce channel as consumers continue to shift to online purchasing. We broadly benefited from strength in many brands in our portfolio, but did experience consumption declines in certain categories as a result of COVID-19, most notably the cough, cold and motion sickness categories. Total company gross margin of 58% was flat to last year's adjusted gross margin and stable to recent quarters. This was in line with our expectations for Q2 and also what we anticipate for the remainder of fiscal '21. Advertising and marketing came in at 16.1% of revenue in Q2 and 14.2% for the first six months. As anticipated, A&M returned to normalized levels in the second quarter. We expect A&M for the full year to be just under 15% as a percent of sales as we continue at a normalized rate of spend in the second half. G&A expenses declined both for Q2 and the first six months of fiscal '21 versus the prior year, owed largely to disciplined cost management. For the full year, we anticipate G&A expenses to approximate 9% and remain below prior year in absolute dollars. EPS for the first six months of fiscal '21 grew approximately 23% versus the prior year.

Lower operating costs, lower interest expense and lower share count were all contributors to the strong growth. Finally, I'd like to provide a few additional comments on below the line items for your modeling purposes. Moving forward, we anticipate our ongoing tax rate to approximate 24%, reflecting the recent finalization of tax code changes. For the full year fiscal '21, we expect interest expense to approximate $83 million. Now let's turn to slide nine. In the second quarter, we generated $43.1 million in free cash flow, which was lower than last year due to planned capex investments. First half fiscal '21 total free cash flow of $115.7 million grew 18% versus the prior year. In the second quarter, we continued to focus on debt reduction and paid down $74 million in debt. At September quarter end, we had approximately $1.5 billion in net debt, which equated to a leverage ratio of 4.3 times. We expect to continue to prioritize debt pay down as our primary use of free cash flow, followed by other opportunistic capital allocation decisions.

And with that, I'll turn it back to Ron.

Ron Lombardi -- President and Chief Executive Officer

Thanks, Chris. Let's turn to slide 11 to provide an update on our efforts during COVID-19. Despite the uncertainty caused by the pandemic, a few key factors underpin our strong financial results in the first half and have us well positioned for the balance of the year. We continue to remain focused on safety and business continuity. Our team members have adapted impressively to this vulnerable environment faced today. This extends to our third-party suppliers who we continue to work closely with in a dynamic supply chain environment. Ultimately, the objective of these efforts is to maintain a laser focus on service levels to our retail partners. Although a continuing effort, I'm pleased to report that we've maintained a strong supply chain that's enabled to remain well stopped at retail. Now let's turn to slide 12 for an update around our brands in the current environment. Our broad and diverse portfolio is an invaluable core strength of our business. Not only are we diversified, as shown on the left side of the page, but the vast majority of our key brands have a deep heritage in connection with consumers. The majority of our key brands are number one in their category, which allows us to focus on meeting evolving consumer needs.

These factors provide us a great starting advantage as we navigate the impact of COVID-19. We are leveraging these attributes and investing in our key brands for long-term success. The strategy is working and is evident in our stable results for the first six months, where these factors helped to offset declines in certain categories like travel, sports activities and cost. This diversification and leading positions have also found great tailwinds from various consumer trends during COVID-19. For example, consumers have increased the use of health and hygiene-related products, while at the same time, being more cautious around time spent in public. The result of this is an accelerated shift to e-commerce shopping, along with consumers increasing purchases of self care products. Even further, consumers are seeking brands they know and trust during this recession. We are well positioned to from these shifts. First, we have the benefit of having many leading brands that help consumers treat health incidences at home. We've reallocated marketing dollars to opportunities to help with self-care, like Monistat, Compound W and DenTek. Our toolkit is wide ranging. In this example, the end goal is to remind consumers how our leading brands help them avoid a doctor's visit.

Second, we benefited in a big way from consumers shifting additional purchases into e-commerce. Our early investments in this channel over the last several years continues to pay off. Finally, with 10 of our top dozen brands holding number one market shares, we have the fortunate position of being the trusted go-to brand for consumers in many categories. We continue to benefit from these strengths, resulting in a stable business performance during the pandemic thus far. Let's turn to slide 13 to discuss some more specific examples of how we are winning as the consumer shifts to online. Our multiyear investments around e-commerce are delivering impressive results. These investments have led us to achieve market shares above our brick-and-mortar share in many categories. In the second quarter and first six months, we were able to successfully engage with consumers as their spending patterns continue to shift online. We experienced solid results that are direct results of our efforts and positioning with Q2 consumption e-commerce growing triple digits once again. We've also experienced success in omnichannel consumer shopping. As a leader in consumer healthcare e-commerce, we are pleased to continue to benefit from the growing interest in this channel by consumers. We are continuing to make investments behind online content broadly with the goal of expanding our share of consumers.

The examples on the right side of the page are useful reminders that our investments are wide ranging. Our Monistat.com web page was recently refreshed. And since the refresh, the Monistat site has seen, on average, 300,000 visitors a month, including helping about 90,000 women a month self-diagnose infection with the brand's symptom checker. This online tool is one of many examples where we go beyond supplying a product being a consumer's trusted connection as they research their healthcare needs. We have also enhanced the marketing and communications around our brands that consumers are using at home. Compound W is one example of this. We are focused on expanding our leading position by using simple to understand marketing that reminds consumers of the ability to treat works effectively at home. These strategies have resonated with consumers, enabling and expanding our strong number one market share position. To recap, by remaining active and investing around e-commerce, our brands are set up for success. As the pandemic continues to shift consumer preferences, this provides a great positioning for our brands to benefit. Now let's turn to slide 14 for a couple of marketing updates. We have achieved portfolio stability by rapidly transitioning our marketing efforts to adapt to the current environment. We continue to adjust our brand-building strategy in real-time, focusing investments around current brand opportunities.

Our largest brand, Summer's Eve, is engaged in a multi-pronged marketing effort designed to grow household penetration with women over time. With consumers staying at home, we refocused marketing efforts around home workouts for the recently launched Summer's Eve active product. Omnichannel efforts have driven consumer awareness and positive feedback and Summer's Eve active is often listed as a best choice by Amazon when consumers research feminine wash. This is just one of many efforts that is driving Summers Eve solid sales growth year-to-date. On the right of the page, is Clear Eyes. Brand messaging has evolved during the pandemic to emphasize the brand promise of having brighter, lighter and more comfortable eyes. We focused on the concept of at home usage and are using time-tested brand building tactics. Most recently, we have a new spokesperson, Supermodel Hilary Rhoda. As a Clear Eyes user, she demonstrates the ability Clear Eyes has of giving a consumer great redness relief at a great price. Now let's turn to slide 16 to discuss our outlook. More than halfway through the year, our business positioning and execution of the strategy behind it have resulted in a stable top line performance that is driving meaningful cash flow and earnings growth. The portfolio diversity and our business strategy highlighted today, position us to continue to maintain and grow market share across our key brands in coming quarters.

Given our recent stability, we are offering full year guidance based on the trends we are seeing today. For the full fiscal year '21, we anticipate revenue of approximately $925 million. This outlook reflects our assumption that the business trends and stability experienced in Q2 continues into the second half, along with a headwind in the second half during the peak season for cough and cold products. Most importantly, we remain committed to our long-term brand building and investment strategy to position our portfolio for long-term sales growth. We also anticipate adjusted EPS of approximately $3.18 in fiscal '21. Our cost management efforts, along with the benefit of our capital allocation strategy and debt reduction, enabling full year earnings growth of high single digits. Last, our strong and stable free cash flow remains a company's strength. Free cash flow is expected to be at or above last year's level of $207 million. As always, we intend to execute a disciplined capital allocation strategy with a near-term focus on debt reduction to drive shareholder value.

With that, I'll open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Rupesh Parikh of Oppenheimer. Your question please.

Maddie Stone -- Oppenheimer -- Analyst

Hi, good morning.This is actually Maddie Stone on for Rupesh. Thanks for taking our question. So just as you look at some brands that have been impacted by COVID-19, such as Hydralyte. How are you thinking about recovering these categories? Do you think there could be any permanent changes that could impact the recovery for some of these brands?

Ron Lombardi -- President and Chief Executive Officer

Good morning,Maddie, this is Ron here. So we're still really early in seeing how COVID impacts consumers. But at this point, we don't anticipate any changes to the long-term category sizes. And it's still really too early to tell what to expect in terms of the rate of recovery at this point.

Maddie Stone -- Oppenheimer -- Analyst

Okay. Great. That's helpful. And then secondly, on cough and cold, so what percent of your business is roughly cough and cold? And then how do you see the current environment playing out? And where are you seeing the challenges here? Is it less mobility that could lead to a softer season?

Ron Lombardi -- President and Chief Executive Officer

So cough cold is about 10% of our sales. And really, the anticipated impact in the second half of the year is expected to be driven by incident levels, right? Consumer habits have changed. People are traveling less. They're out public less. Kids are spending less time in the classroom or in other activities. So just as we saw in the Southern Hemisphere, right, they just finished up their cough cold flu season in the last couple of months here, we anticipate the incident levels to be down significantly versus last year.

Maddie Stone -- Oppenheimer -- Analyst

Okay, great. That's helpful. Thanks so much, I'll help pass it on.

Ron Lombardi -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Mitch Pinhero of Sturdivant. Your question please.

Mitch Pinhero -- Sturdivant -- Analyst

Yes, good morning. Thanks for taking my questions. Question number one is, so Chris, I don't know if I heard this right, but you're going to -- you're expecting to increase advertising and marketing back to sort of normal levels in the second half. Is that correct?

Christine Sacco -- Chief Financial Officer

That's correct.

Mitch Pinhero -- Sturdivant -- Analyst

And so as it relates to -- your sales guidance just looks like we're going to still see continued year-over-year decline. I mean, are you getting the same bang for your buck? Is this something where -- I mean, you're spending just to maintain or reallocating within your categories. Can you talk a little bit about your strategy around advertising and marketing in the second half and how it relates to sales?

Ron Lombardi -- President and Chief Executive Officer

So Mitch, let me start with, I think, some clarity around our outlook for the second half. So our outlook for the second half really is based on the stability that we've seen in our business. In the most recent quarter and really through October, where it gets funky is when you start to compare our outlook to last year. As a reminder, we're going to be comping in the quarter end of March. The big COVID lift that many companies, and we saw in March last year. So the first thing is that we're really not anticipating a decline, but rather continued stability in our business. And that's, I think, the most important thing to take away. The second is, if you dig in into the different pieces of our business, what you'll find is that -- so our consumption was down about 1%, I believe, in the second quarter.

If you pull out the COVID impacted categories, so like Dramamine for motion sickness, cough cold, the convenience channel, you'd see that the consumption level for our business in the second quarter was about 2%, which is consistent with the trends that we've been seeing for a while now. So I think it's important to emphasize really the stability that we're seeing across the vast majority of our business with some disruption for these COVID-disrupted categories. So that's the first part. The second part is then we've been quick and agile to readjust our marketing investment and spend. And I think our results in the second quarter and really in the first quarter and the gains that we've had in e-commerce and the omni-channel, I think are great examples of our ability to understand what's going on with the consumer in being able to line up our investments against those changes. So I hope that provides a little color to your questions.

Mitch Pinhero -- Sturdivant -- Analyst

Yes, very helpful. And I guess just one other question is, so you have an interesting portfolio of sales categories, pretty broad. Are -- when you look at your -- the diversification that you have among the categories, do you feel that you number one, there is -- are there categories that you're interested in getting bigger in the near term, either through M&A or stronger sort of the marketing focus that you just touched on? Or I mean, are you happy with your portfolio and the categories that you're in? It's sort of frustrating just to see how COVID affected some of these categories? Certainly, it sort of came out very unexpected, how this all played out. But is there anything in the portfolio that you're looking to either overemphasize or underemphasize?

Ron Lombardi -- President and Chief Executive Officer

Sure. So the first of those questions there is, are we happy with our portfolio, and it's a strong response, which is yes. And it's because that the portfolio is heavily concentrated around #1 brands that have substantial leading positions in the categories that could compete in. And this is even true for the COVID disruptive categories. We still continue to feel very good about Dramamine, right? It's number one, it's got a 50-plus percent share. We continue to look for ways to invest to position that brand to grow the category and its share over the long term. So even with the brands that are disrupted by COVID, we continue to feel good with them. And certainly, we're going to overemphasize and concentrate our investments in our power core brands, right? So we have five brands that make up over 50% of our sales, and we're going to be looking to concentrate our investments around there. Summer's Eve, Monistat, Clear Eyes, DenTek is where we'll be concentrating our efforts and looking for our largest areas of growth long term. I think it's -- as an example, Summer's Eve has had solid growth year-to-date in the high, mid-single-digit growth year-over-year. So we continue to feel good about those big brands as well.

Mitch Pinhero -- Sturdivant -- Analyst

Okay, thanks for taking my question.

Ron Lombardi -- President and Chief Executive Officer

Sure, thank you, Mitch.

Operator

Our next question comes from Steph Wissink of Jefferies. Your line is open

Steph Wissink -- Jefferies -- Analyst

Thank you. Good morning, everyone.Three really quick ones. Chris, the first is for you, is just on the reported quarter. I think you had guided kind of down mid-single relative to where you came out down just a touch. If you could just help us bridge where the performance of the business was relative to your expectations kind of either by brand segment or just overall revenue composition? And then, Ron, a question for you on e-commerce because you've talked a lot about it as it's an untracked channel. There's a lot of growth there. Have you done any benchmarking around your market share online versus in bricks and mortar? And then how does that factor into your ad spend composition between digital activation versus at shelf activation?

Christine Sacco -- Chief Financial Officer

Sure. So Steph, it's Chris. I'll take the first one. Relative to the guide that we put out for Q2, you remember we had broken down kind of consumption expectations to be down in the in the mid-single digits, low to mid-single digits as well as some expected destocking, while we did see some modest adjustments to inventory in the quarter, it was really owed to better consumption across the portfolio. Near flat, in line with our sales performance.

Ron Lombardi -- President and Chief Executive Officer

So Steph, let me, I guess, jump on your second and third questions, which were around e-commerce. And I guess, to start our market share. We do get information on our performance in e-commerce and omni-channel. And I think in my prepared remarks today, I commented on in many categories, we see actually larger market shares in e-commerce and omni-channel than we do in brick-and-mortar. And some of it is due to just the expanded offering of our brands that we have online. And certainly, some of it is due to the early investments we made in positioning ourselves to be ready when the consumers showed up an increase in numbers to make their purchases online. So it's an important part of our growth in some areas that we're focusing on. In terms of around managing our advertising and marketing mix, we really make the decision on a granular basis, brand by brand in terms of what's the best mix and best return for the different options that we have, whether it's digital, at shelf along with many other options that we have to connect with consumers. So we make it brand by brand. But clearly, there's been an ongoing shift to digital over time as it's playing a bigger role in connecting with consumers.

Steph Wissink -- Jefferies -- Analyst

All right. That's great. And then just one follow-up. Ron, you had made a comment earlier, just reminding us of that big lap in the fourth quarter. So I'm curious, as you look at your back half guidance or the implied back half guidance, Chris, can you give us any scope around Q3 versus Q4, just to make sure we're those quarters correctly relative to that comparison effect?

Christine Sacco -- Chief Financial Officer

Sure. So I guess I'll preface it with Q3 is always the most difficult quarter to call with the holiday season approaching. But when we think about Q3, we would expect top line to be down a few million dollars sequentially versus Q2. And that's really due to the cough and cold impact that Ron talked about a little earlier. It's important, I think, just also to just remember everyone that while we're providing a second half outlook, there's still a lot of uncertainty out there. So in terms of Q3, a little bit heightened because of the holiday season, but again, I think if you think sequentially down a few million dollars from where we landed Q2, I think you'd be in the ballpark.

Steph Wissink -- Jefferies -- Analyst

Thank you, very [Indecipherable]

Ron Lombardi -- President and Chief Executive Officer

Steph, this is another opportunity to reinforce some of the detail behind our outlook for the second half, right? It's really based on our business continuing to be stable and consistent, and we feel good about that. We saw the trend from Q2 continue into October. And then we reflected the anticipated decline in cough cold year-over-year. And then as a reminder, we really have that Q4 comparison. So for the quarter ended March last year, we saw a benefit as consumers rush to the stores at the beginning of COVID and stock up and retailers replenish their inventory. So unlike many other companies that maybe have at year-end, who aren't facing that COVID comp yet, our fiscal year has comping against that, which is really driving the year-over-year decline. But again, it's important to remember that we believe that our business is pretty stable here.

Steph Wissink -- Jefferies -- Analyst

Thank you.

Ron Lombardi -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Joe Altobello of Raymond James. Your question please.

Adam -- Raymond James & Associates, Inc -- Analyst

Hey, guys this is Adam [Phonetic] on for Joe. You've given some good color on the top line. So I don't want to belabor it too much. I guess the one thing I wanted to follow-up on was is there any destocking at all baked into that guidance? That will be helpful. Or is it mostly just reflecting the cough cold, the incident levels and kind of a tough compare 4Q and kind of how does it trend North America versus international? And in terms of how we're thinking about the back half?

Ron Lombardi -- President and Chief Executive Officer

Yes. So in terms of retailer inventory activity, we're not seeing any signs at this point, Adam, that we would anticipate changes in inventory levels at retail. One of the comments we made during the prepared remarks today was that we've seen stability in consumption levels and retailer order patterns. And we actually review inventory for levels for our customers every other week with our sales organization, and we're not seeing any indication that we would expect that at this point for the remainder of the year. And Chris, I think there are some other questions maybe that you want to comment on for Adam.

Christine Sacco -- Chief Financial Officer

Sure, Adam. So as I noted in my prepared remarks, we're expecting international headwinds to continue. In the back half, some real difficult comps, as Ron mentioned. But if you think about absolute dollars, perhaps for international in the back half similar to the first half, essentially, the impact of Hydralyte is pretty significant, right? Hydralyte as a brand to think about being impacted by COVID by the way Dramamine is, so great share still doing really well, but really impacted by COVID. So again, the advantage of our diversified portfolio, when you put it all together, and we're essentially flat for the period, but international and comp basis should be hit a little harder than North America.

Adam -- Raymond James & Associates, Inc -- Analyst

That's helpful. Thanks both of you for commentary. If I could kind of tack on one more here. I was curious, you guys gave the impressive. I think it was 122% e-comm POS growth. Just kind of your updated thoughts on where you think e-comm can be as a percent of revenue, where it is now, perhaps where it could be end of the fiscal year? And then maybe a few years out, unless it's just too difficult to forecast. And then I know you also mentioned the priority will remain debt reduction and you continue to make good progress. Is there anything brewing on the M&A side? Or if not, if you look to share with us?

Ron Lombardi -- President and Chief Executive Officer

Yes. So let me comment on e-commerce and omni-channel share trends and, and I'll let Chris comment on M&A. So first of all, I'll start with -- we really don't care where consumers choose to buy our product. As you've seen in our financial profile and gross margin profile over the last few quarters, no matter where the consumer chooses to buy the product, our financial profile holds up. And we talked about that for a long time. And certainly, the proof is in the pudding over the last couple of quarters here. But from a bigger picture, it's likely that the convenience and the offerings that consumers are finding in terms of e-commerce and omnichannel purchasing will stick over the long term. And our focus will be to continue to connect with consumers so that they understand that the products are available and ready for them in those channels or whatever else they may choose to buy them. So likely to stick. But at the end of the day, it really doesn't matter to us.

Christine Sacco -- Chief Financial Officer

Yes. And then, Adam, just to comment on the M&A environment. We continue to evaluate opportunities in the arena. Our strong and consistent free cash flow generation really gives us a lot of flexibility. And we've actually resumed share repurchases in the second quarter, as you'll see in our 10-Q, which has continued into the third quarter now. So we continue to evaluate effective capital allocation to maximize value. And with the visibility we discussed today, we feel comfortable of reinitiating the repurchase program that we had in place prior to COVID.

Adam -- Raymond James & Associates, Inc -- Analyst

Great, thanks Ron and Chris. Congrats for the rest of the year. Good luck for the rest of the year. That's a good quarter.

Ron Lombardi -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Linda Bolton-Weiser of D.A. Davidson. Your line is open.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Yes. Hi.I was curious if you could comment on -- in terms of the rapid e-commerce growth of your brands, which brands are benefiting most from a market share perspective because of the e-comm -- the rapid e-commerce growth. So are any of them able -- are any of the brands able to, say, broaden their demographics or attract a new category of consumer or anything like that, but which brands would you call out most is benefiting from that?

Ron Lombardi -- President and Chief Executive Officer

So Linda, for starters, I point to our power core brand. So Summer's Eve, Monistat and DenTek are seeing nice share gains online as consumers are finding, in some cases, more broadly available product offerings. And a slightly different maybe competitive landscape than what they may face in brick-and-mortar. That's helping us grow share there, but that, in a lot of ways, plays out across our broad portfolio.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Okay, thank you very much.

Ron Lombardi -- President and Chief Executive Officer

Okay.

Operator

Thank you.Our next question comes from Anthony Lebiedzinski of Sidoti & Company. Your question please.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Hey, guys. Good morning and thank you for taking the question. So yes, I appreciate the color as far as the Q4 -- Q3 and Q4 revenue, kind of how you're thinking about it. Is there anything to call out as far as gross margins or A&M expenses or G&A expenses as we look at updating our models between Q3 and Q4, given your full year guidance?

Christine Sacco -- Chief Financial Officer

Yes. Anthony, this is Chris. So A&M spend should be higher in the third quarter, both as a percent in an absolute dollars. And then G&A is probably going to be consistent in the third and fourth quarters.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Okay. Got it. Okay. All right. And then as far as the supply chain, I think, Ron, you mentioned it's a tight supply environment. Are you seeing this across all -- most of your brands? Or just -- is this isolated to just some of your brands?

Ron Lombardi -- President and Chief Executive Officer

It really is -- so the kind of patents we're seeing could potentially impact really any of the brands in our portfolio. We're seeing some tightness in general packaging and other kind of commodity-type products. For the most part, the API supply chain has been fairly good, and we work with our suppliers over the long term for them to carry safety stock, if you will, of API and other critical components to ensure that disruption and that wouldn't impact our ability to produce finished goods. So our focus is to make sure that we don't have any meaningful out of stock at retail, so that we can continue to support our share and our share growth over time. And that will be the way that we continue to manage the supply chain over time. But where at this point, we've been able to get through the current environment in such a way that we're in a really good position at retail.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Got it. Okay. And my last question is you mentioned that the convenience store channel is challenged. It has been challenged here because of COVID. So what is your exposure to the convenience store channel?

Ron Lombardi -- President and Chief Executive Officer

I believe our total sales are in the high single digits as a percent of total company sales. Although it's concentrated in a couple of key brands. BC & Goody's, Clear Eyes with our Pocket Pal business, Dramamine and Luden's, to a lesser extent. And again, we've seen trends improve a little bit from the trough at the end of kind of June. But in a lot of ways, even though consumers are out and about more now than they were in the quarter ended June, they're filling up their car with gas, but they may not necessarily be heading into the actual store in making those impulse purchases around BC & Goody's or Dramamine or Clear Eyes kind of thing. So we anticipate a slow recovery in that space, Anthony.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Got it, OK. Thank you and best of luck.

Ron Lombardi -- President and Chief Executive Officer

Thank you, Anthony.

Operator

Thank you [Operator Instructions] Our next question comes from the line of William Reuter of Bank of America. Your line is open.

William Reuter -- Bank of America -- Analyst

Good morning. In the earlier question about e-commerce penetration, I think one component of it was kind of lost in the shuffle. Your first quarter penetration was 10%. I don't think -- I think I missed what it was for the second quarter. Did you give that?

Ron Lombardi -- President and Chief Executive Officer

Chris, do you want to comment on that?

Christine Sacco -- Chief Financial Officer

Yes. So the first quarter, we highlighted that because in our Q, as you know, there's a filing requirement and anything that over 10% needs to be disclosed. So that's why we don't ordinarily give out individual customers or channels. But the growth that we're seeing in e-comm is still significant to triple digit. You'll note in the deck that we put -- we talk really consumption around that. So again, still very consistent and strong e-comm growth in the second quarter as well as the first quarter. That's why we didn't highlight it.

William Reuter -- Bank of America -- Analyst

Okay. Sounds good. And then while consumption across the board has been kind of flattish. There have obviously been certain categories impacted by COVID. I guess, do you anticipate that any of your brick-and-mortar retailers may change shelf space allocations to some of these categories, given the risk that COVID may continue to impact behavior for the next year or who knows?

Ron Lombardi -- President and Chief Executive Officer

Yes. No, we're not seeing any signs that retailers are looking to make changes to their product offering because of the, I guess, what I'll call, short-term impact of COVID, but I think they generally change their shelves kind of annually. And at this point, we're not seeing any indications that might impact Dramamine distribution over time. And even if they do decide to skinny up on the available shelf space in our categories, we wouldn't expect to be meaningfully impacted because our brands tend to be the leaders with large shares in the category. So if they decide to tighten up on motion sickness, clearly, they're the impacting Dramamine, which is the leader, which invests in growing the category and has a 50-plus percent share. So that benefit of a leading position continues to play out in lots of different ways as an advantage for us. And that's just another example of it.

William Reuter -- Bank of America -- Analyst

Okay. And then just lastly for me. Last time you'd highlighted a leverage target, it was 3.5 to 5 times. You're kind of slightly above the midpoint of that. Does that continue to be your target? And then, I guess, given potential M&A, have you spoken about how high you would take that leverage up given certain opportunities?

Christine Sacco -- Chief Financial Officer

Yes. So 3.5 to five times continues to be our target. You're right. We've now hit the midpoint of the target. We we've talked about likely our ability with our strong and consistent free cash flow, our variable operating model and financial profile, stepping slightly above five times, I don't think would be out of the realm, with our ability to quickly get back in within the range within a quarter or two.

William Reuter -- Bank of America -- Analyst

Great, very helpful. Thank you.

Ron Lombardi -- President and Chief Executive Officer

Thank you, Will.

Operator

Thank you. At this time, I'd like to turn the call over to the Chairman, President and CEO, Ron Lombardi, for closing remarks. Sir?

Ron Lombardi -- President and Chief Executive Officer

Thank you, operator. Thanks again to everyone for joining us today. We look forward to updating you on the business again in a few months. Have a great day. Thanks.

Operator

[Operator Closing Remarks].

Duration: 46 minutes

Call participants:

Phil Terpolilli -- Investor Relations

Ron Lombardi -- President and Chief Executive Officer

Christine Sacco -- Chief Financial Officer

Maddie Stone -- Oppenheimer -- Analyst

Mitch Pinhero -- Sturdivant -- Analyst

Steph Wissink -- Jefferies -- Analyst

Adam -- Raymond James & Associates, Inc -- Analyst

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

William Reuter -- Bank of America -- Analyst

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