Question-and-Answer Session
Operator
Thank you. And we’ll go to Jeff Zekauskas at J.P. Morgan.
Jeff Zekauskas – J.P. Morgan
Good afternoon, this is Ben Richardson sitting in for Jeff Zekauskas. Looking at your gross margin we saw a decline year over year of about 90 basis points. And can you talk a little about what you’re experiencing, whether it’s in aerosols, cans or in on the petroleum end.
Michael Irwin
Well I mean a couple things to keep in mind; I just want to put this in perspective. In the case of just using a can of WD-40 as an example, the majority of the cost of the WD-40 can finished product is not related to the cost of petroleum because the biggest chunk of it is related to packaging. But as Garry mentioned earlier, oil hitting $112 barrel today, we’ve seen higher costs of the component ingredients that go into those products, higher petroleum costs also affect us in the plastic parts like the straws and the spray nozzles and that sort of thing and affect us in plastic bottles in which we sell many of our household cleaning products.
We’ve seen a continued rise in the cost of aerosol cans which I think have gone up by more than 75% over the past five years. That too is a major factor to us. And so we’ve been in this cycle of spiraling upward of costs across many of our cost lines on our underlying cost of goods. So it is a concern to us. We don’t sit around and feel like we’re waiting on costs to go down and so what we’ve done is we’ve taken a three pronged approach to helping improve our gross margin which is a strong priority to us. Number one we’ve taken price increases where we can and where it makes sense.
We are a company though that believes that our job is to deliver above expectation performance at extremely good value to end users and so we’re mindful of what our challenge is and so we try to maintain efficiency in our operation. But we have taken price increases and we’ve taken price increases I believe for every single one of the past four fiscal years including the current one and that’s a consideration. Number two, we want to use innovation as a way to improve our gross margin as Garry mentioned.
We have been in the implementation phase of the transition of WD-40 in the regular spray nozzle cans to the smart straw which is a way of delivering added value to end users and it just so happens that that added value also comes in the way of a higher price. So much like the toothbrushes which are of higher value today but also more expensive, WD-40 is following that step in the US. And so we’re using innovation for things like that to help address the margin. And then the third area is that we continue to look at our supply chain and ways to help improve our efficiency, improve our gross margin while at the same time delivering better service to our customers.
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