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ACCO Brands Corporation’s (ACCO) CEO Boris Elisman on Q2 2022 Results – Earnings Call Transcript

ACCO Brands Corporation (NYSE:ACCO) Q2 2022 Earnings Conference Call August 9, 2022 8:30 AM ET

Company Participants

Chris McGinnis – Senior Director, Investor Relations

Boris Elisman – Chairman and Chief Executive Officer

Deb O’Connor – Executive Vice President and Chief Financial Officer

Conference Call Participants

Joe Gomes – Noble Capital

Hamed Khorsand – BWS Financial

Greg Burns – Sidoti

William Reuter – Bank of America

Karru Martinson – Jefferies

Operator

Good morning or good afternoon all and welcome to the Second Quarter 2022 ACCO Brands Earnings Call. My name is Adam, and I will be your operator today. [Operator Instructions]

I will now hand the call over to Chris McGinnis to begin. So, Chris, Please go ahead when you are ready.

Chris McGinnis

Good morning, and welcome to ACCO Brands second quarter 2022 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today are Boris Elisman, Chairman and Chief Executive Officer at ACCO Brands Corporation; and Deb O’Connor, Executive Vice President and Chief Financial Officer.

Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude transaction, integration, amortization, and restructuring costs and other nonrecurring items, including the change in fair value of the contingent consideration related to the PowerA earn-out and reflect an adjusted tax rate.

Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and slides that accompany this call.

Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-GAAP measures. Forward-looking statements made during the call, including statements concerning the impacts of the COVID-19 pandemic on the company, are based on the beliefs and assumptions of management based on information available to us at the time the statements are made.

Our forward-looking statements are subject to risks and uncertainties and our actual results could differ materially. Please refer to our earnings release and SEC filings for an explanation of certain of these risk factors and assumptions. Our forward-looking statements are made as of today and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session.

Now, I will turn the call over to Boris Elisman.

Boris Elisman

Good morning, everyone. Thank you for joining us. We delivered our fifth consecutive quarter of strong comparable sales growth driven by the strength of our brands, demand for our innovative products, and our channel and geographic diversity.

However, our results were affected by a more difficult macroeconomic environment than previously anticipated, mainly reflecting slower economic growth, very high inflation and a stronger U.S. dollar that led to greater than expected adverse currency translation effects. I will give a short overview of our successes and challenges in the quarter and then Deb will comment on each of the segment results in greater detail.

Let me begin with successes. Comparable sales increased 5%, driven by improved pricing, grade back to school selling in North America, strong post-COVID recovery in Latin America, and return to office momentum in many of our markets. I’m very pleased with the 5% comparable sales growth. Since it was achieved, despite a slower overall rate of economic growth, and continued supply chain challenges.

Our sales performance speaks to the strength, breadth, and balance of our global product portfolio and its orientation towards sustainable organic growth. Excluding gaming, comparable sales were up 9% in the quarter led by [BTS] [ph] shipments in the U.S. and a struggling recovery in Brazil and Mexico.

Not only did we gross sales, we also increased market share in many of our categories. Shares were up for Five Star, AT-AGLANCE, Quartet, Swingline, and Kensington brands in the U.S; Leitz, [indiscernible] in Germany and PowerA products in the U.S. and UK. With inflation pressuring gross margins, we did a good job managing expenses and capital investments in the quarter.

Both reported and comparable expenses were down, compared to last year, even after investments in new product development and to drive go to market activities associated with higher sales.

Now, let’s check the challenges. The pace of inflation was higher in the second quarter than we anticipated. We took pricing actions globally in April to defend profitability, but they were not enough given the magnitude of commodity and especially energy cost increases. We passed through additional price increases on July 1 and expect that the cumulative effect of all price increases combined with moderating inflationary pressures in the remainder of the year will lead to grow margin expansion in the second half.

Likewise, foreign currency impacts are proven to be a greater headwind than originally anticipated given the strength of the U.S. dollar. This was particularly true in EMEA were currency translation reduced sales by 13%, or $20 million in the second quarter. We expect unfavorable currency impacts to continue for the remainder of the year.

Now, I’d like to make some comments regarding video gaming accessories. PowerA has been a great addition to our company. Over the long-term, we believe it will substantially increase our organic growth rate. This year, as for the rest of the gaming industry, PowerA’s demand in resetting from the high levels of demand during the pandemic and supply continues to be challenged by the lack of semiconductor chips.

We expect these temporary demand and supply chain issues to largely remain in place for the remainder of 2022 with gradual improvement throughout the rest of the year. As a result, we now expect PowerA sales to be down approximately 10% to 15% for the full-year. Our long-term expectation is for the start-up line to return to pre-pandemic growth trends of the industry, which historically were low double-digit growth rates.

In summary, we continue to be confident in our strategy to transform our company to be more consumer centric and to leverage the strength of our brand to accelerate organic growth. The breadth of our product categories in our geographically diverse footprint helped mitigate a difficult operating environment. I’m pleased with the execution of our team in such challenging circumstances.

We are controlling what we can control and while we will be prudent to spending, we will continue to appropriately invest in our brands and marketing programs to innovate with our new products, and be the best partner to our customers.

I will now hand it over to Deb and will come back to answer your questions. Deb?

Deb O’Connor

Thank you, Boris, and good morning, everyone. Our second quarter 2022 reported sales increased almost 1%, comparable sales were up 5% as 8% higher pricing was partially offset by a 3% volume decrease. Sales reflect the return to in-person education in Latin America and strong back to school sell-in in North America.

We saw increased volumes in note taking products, computer accessories, and business products. Adjusted operating income was $58 million, compared to $67 million last year. Adjusted net income was $36 million, compared to $42 million in 2021 and adjusted EPS was $0.37 versus $0.43 in 2021.

Now, I’d like to provide more context about the inflationary environment [pressuring margin] [ph]. We began to see the impact of inflation in the third quarter of 2021 with the pace of inflation accelerating over the last six months. Our margin rate has been impacted by the cumulative price cost gap despite numerous price increases.

We expect stronger margins in the second half of the year, reflecting the full effect of our price increases, including our most recent July 1 price increase and moderating inflationary cost pressures. Second quarter adjusted SG&A expenses were $92 million, compared with $87 million in 2021, primarily as a result of cost savings and lower incentive compensation accruals, as well as the positive benefit of FX, partially offset by continued investment in our go to market programs.

SG&A expense as a percent of sales was 18% below last year’s 19%, due to higher sales and overall lower expenses. As we have spoken in the past, there is a two year contingent earn-out related to the PowerA acquisition that is based on achieving established sales and profit targets. Based on 2021 results, $27 million was earned last year and we paid that out in the second quarter. Based on the latest PowerA forecast, we have reduced the earn-out liability reflected on the balance sheet by $9 million leaving approximately $3 million on the balance sheet.

Now, let’s turn to some details of our segment results for the year. Comparable net sales in North America increased 4% to 308 million. The increase was due to higher pricing and volume on the majority of products, partially offset by volume declines in gaming accessories.

Excluding gaming accessories, North America performed well and grew volume as demand increased in school and business products and computer accessories. Back to school selling was strong in the quarter and year to date. Retailers did pull forward some orders to ensure they were set for the important back to school season given the supply chain concerns.

We are monitoring the expected replenishment activity as retailers are closely managing their inventory. North America adjusted operating income margin decreased due to higher prices of commodity materials, including paper, and increased inbound and outbound freight costs. However, margins for the six months were flat, compared to the prior year. In addition, our back-to-school sell-in did not fully reflect the impact of our increased pricing given the early placement of orders for the season.

Now, let’s turn to EMEA. Net sales were down 12% to 138 million, reflecting unfavorable currency impacts. Comparable sales were relatively flat at 158 million, mainly due to price increases, which were offset by volume declines. Volume in this segment was negatively impacted by high inflation in the region and an associated reduction in demand.

In addition, we faced difficult comparisons against a strong prior year and sales grew 78% And we have posted lower operating income and margin as our previous price increases were not large enough to offset the accelerated inflation generally, but also more specifically related to cost increases on locally sourced raw materials and energy costs.

Our pricing has lagged as many of our customer contracts require a notification period prior to the increases taking effect. As mentioned earlier, we expect our July price increases to meaningfully mitigate the overall impact of these inflationary cost increases.

Moving to the International segment, net sales increased 16% and comparable sales rose 20%, equally split between higher pricing and improved volume. This growth was driven by improved demand in Latin America, especially [in note taking] [ph] products, as schools and business are now open for in-person education and work.

The International segment posted higher adjusted operating income and adjusted operating margin as a result of the higher sales, stronger product mix, and strong cost control. These improvements were driven by the rebound in Mexico and Brazil.

Let’s now move to the balance sheet and cash flow. Year to date, we had a $96 million use of free cash flow, which was a higher use than in the prior year. We seasonally grow our inventory in the first half. However, we also started 2022 with a higher level of inventory in order to mitigate supply chain issues.

Inventory has remained high as we continue to have more in-transit and safety stock inventory than anticipated, due to the ongoing supply chain disruptions. Given these factors, there is a greater proportion of paid inventory. As we bring inventory down, we should shift into a more normal payment pattern.

Since supply chain issues have not improved as quickly as everyone expected, we will continue to hold some incremental safety stock and in-transit inventory at the end of the year. Due to business seasonality, we used cash in the first half of the year. We ended the quarter with a base net leverage ratio of 3.97x, compared to 4.2x a year ago.

As we generate cash flow in the second half, we expect that ratio to be approximately 3x at year-end versus 3.3x at the end of 2021. CapEx year to date was $7 million. We also paid dividends of $14 million year to date, while also repurchasing 2.7 million shares of stock for $19 million. At quarter-end, we had used $240 million of our $600 million revolving credit facility.

Turning to our outlook. We are updating our guidance to reflect a more conservative view for the remainder of the year, including a moderating demand environment, continuing cost inflation, and more adverse foreign exchange. We remain committed to returning our longer-term adjusted gross margin to a 33% level, but this is an ongoing challenge due to higher costs and the magnitude and persistence of inflation.

While we now expect adjusted gross margin improvement in the second half, given the first half performance, full-year adjusted gross margins are expected to be flat to slightly down in 2022. We anticipate adjusted SG&A to be under 19% for the year. We also expect foreign currency impact to be more of a headwind than we had anticipated earlier this year with a 4.5% negative impact on sales and a $0.06 negative impact on adjusted EPS.

For the full-year, our outlook for reported sales growth is in the range of being down 0.5% to up 1.5% with comparable sales growth of 4% to 6%. Full-year adjusted EPS is expected to be in the range of $1.39 to $1.44. The adjusted effective tax rate is expected to be approximately 29%. Intangible’s amortization for the year is estimated to be $42 million, which equates to approximately $0.31 of adjusted EPS.

We expect our free cash flow to be within the range of $135 million to $150 million after CapEx of $20 million. Looking at cash uses for the remainder of 2022 we expect to prioritize dividends and debt reduction.

Now, let’s move on to Q&A where Boris and I will be happy to take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] The first question today comes from Joe Gomes from Noble Capital. Joe, please go ahead.

Joe Gomes

Good morning, Boris and Deb.

Boris Elisman

Good morning, Joe.

Deb O’Connor

Good morning.

Joe Gomes

So, I just first want to start-off on EMEA with the volume declines there, which is reversal from the first quarter when you saw volume increases. You had the price increases in April and you just said one here in July, is there any concern that maybe the price elasticity is gaining steam here as prices have been increased that there – maybe there’s starting to be people being a little more cautious in buying product, due to the increased pricing?

Boris Elisman

Yes, Joe, we’re somewhat concerned about that. We’re very watchful of that fact. Q2 was really the first quarter with the full effect of the war in Ukraine being felt on energy prices in Europe, specifically. So, I think the macro situation in Europe is difficult as a result inflation is very high there. The consumer sentiment is fairly negative as a result. So, we think rather than just pricing and price elasticity, it’s more of a macroeconomic issue in EMEA that’s affecting demand.

As Deb mentioned in her prepared remarks, inflation is very high and we need to take price in order to maintain an assemblance of positive margins there. And I think that needs to overcome the elasticity concerns just because of the level of inflation that we’re seeing there, which is significantly higher than any other parts of the world, primarily due to energy costs.

Joe Gomes

Okay. Thank you for that. And two, on the gross margin, If I’m looking at it on a sequential basis, obviously, improved Q1 to Q2, but if I look at the decline year-over-year in the second quarter was down 290 ninety basis points, in the first quarter was only down 100 basis points year-over-year. Even though you have been putting in those price increases, just maybe you can give us a little more color as to how you think just that gross margin should be improving here in the second half of the year?

Deb O’Connor

Okay, Joe. So, the margin cadence as we kind of think about the year, we did talk about the back half expansion, but sequentially third quarter is much more similar to the current quarter. Volumes are typically equivalent. And as you know, fourth quarter is historically a stronger quarter for us seasonally. So, as we think about the back half, the pricing methods are going to take a little while to take hold.

So, again, kind of pushing that to later in the year to mitigate inflation. And then we’re also anticipating, as I said in my comments, more moderation in inflation, which, kind of goes as the year progresses. So, it’s going to take some time to get there and that’s why I think as you think about third and fourth quarter, you’ll see that kind of ever increasing margin.

Boris Elisman

Yes, Joe. And then the other thing is, last year, in the second half of last year is when we started to feel incremental inflation. So, from a compare standpoint, that’s when the margins started to go down last year. And as Deb said, that will be sequentially improving this year.

Joe Gomes

Okay. And then one last one, if I may, Boris, last quarter you raised your comp sales growth projections and some of the things you talked about then was the Q1 performance was baked in, your belief in a stronger back-to-school season and return to the hybrid mode and here we sit here today and all three of those things we said on the call, obviously Q1’s baked in, you talked about a stronger back to school season, a continuing return to in-office, so just, you know, try to get a little more color or detail on the pretty significant change in the sales growth guidance today from the first quarter. Just a little more color there if you could, I’d appreciate it. Thank you.

Boris Elisman

Sure. So, if you look at a quarter ago, we guided to comparable sales growth of 3.5% to 8.5% and then we took it down this quarter to 4% to 6%, all of the things that you mentioned in terms of our expectations for a good back to school, the return to office and obviously Q1 being baked into the numbers. That’s still the case, though there’s still our expectation.

The difference between the quarters is gaming accessories. As we’ve mentioned in prepared remarks, we took that down to minus 10% to 15% growth for this year just given where the market is and what the expectations for the demand are in gaming accessories for the remainder of the year.

So, that is really the primary reason for narrowing of the growth. And then the secondary is we’re a little bit more concerned about the macro situation just given what the Fed has done over the last quarter, what the channel partners have reported in terms of their inventory and what they’re seeing with the consumer. and then being a little bit more conservative on replenishment.

They’re cautious in watching inventory and their cautious in bringing in more inventory. So, that would be the secondaries and the primary would be the game accessories. But still, going back to 4% to 6% comparable sales growth. Any year, we would take that and smile about it. So, it’s still a very good growth and we’re happy with that level of comparable sales growth.

Joe Gomes

Thanks for that, Boris. Much appreciated. I’ll get back in queue.

Boris Elisman

Thank you, Joe.

Operator

The next question comes from Hamed Khorsand from BWS Financial. Hamed, your line is open.

Hamed Khorsand

Hi, good morning. I just wanted to ask, if you were taking pricing adjustments in April and you were giving guidance in end of April, early May, what was your assumption as to what your thought was going to happen now that you’re reversing and lowering sales guidance?

Boris Elisman

Be more specific comment, assumptions about what?

Hamed Khorsand

Your assumptions for the sales numbers for the full-year when you issued guidance, what didn’t happen to plan? Because it sounds like you were already taking price adjustments in April?

Boris Elisman

Yes. As I just mentioned in my answer to Joe’s question, the major difference is gaming accessories. We’re still expecting a low-single-digit growth in gaming accessories for the year and now we’re guiding to minus 10% to minus 15%. And what happened during the quarter is really fundamental change in the assumptions of demand for gaming accessories in 2022.

Our expectation was that the demand will recover in Q2 and especially in the second half. And now given what the industry is reporting, what other companies in the gaming space have reported and expectations [will base that] [ph] and what we’re seeing from industry analysts, our expectation is that the gaming market will be down for the year. And hence, that’s the major change between call it plus 5% growth to minus 10% to 15% growth in gaming accessories.

The rest of it is fairly minor. And as I mentioned this, the secondary effect is just more concerned about the macro conditions, given additional quarter, but all of the things that we previously assumed in terms of strong back-to-school, strong first quarter, some tailwinds from return to office, those are still our assumptions.

Deb O’Connor

Yes. I would just say we tightened up the range on our sales guidance to be clear. We had a much larger range and we’ve kind of tightened that down now that we’re midway through the year. So, I just don’t want people lose sight of that either. And our pricing is as expected and we continue to do the pricing as we had talked at the first quarter. Pricing assumptions haven’t changed.

Hamed Khorsand

Okay. And then could you provide some insights to what you’re seeing from retailers with fall on orders and what the conversation has for the next 12 months, given the retail environment?

Boris Elisman

12 months is too far to look at, but if we look at, what’s happening right now is channel management is just being conservative with the replenishment. Given what we heard out of Walmart and Target, in the last couple of months. We are being cautious about how much inventory they carry, especially for their everyday sets. And that’s partially reflective. in our forecast. As I mentioned, that was, kind of a secondary factor.

Hamed Khorsand

Okay. Does the level of free cash flow change your outlook as to what you would do on the M&A front?

Boris Elisman

I don’t think that’s related to it. I think right now we’re happy with our organic portfolio. We’re thinking we’re capable of low-to-mid single-digit organic sales growth with a portfolio as is. We know we’re entering more difficult economic times. Our priority is on delivering and paying down debt. So, whether we deliver $160 million in free cash flow, $145 million of free cash and the priority doesn’t change. So that…

Deb O’Connor

Yes, I agree. I totally agree Boris. And with this environment with interest rate rising and the macro uncertainty, we’re going to prioritize debt pay down.

Hamed Khorsand

Great thank you.

Boris Elisman

Thanks Hamed.

Operator

Next question is from Greg Burns from Sidoti. Greg, please go ahead.

Greg Burns

Good morning. With the revision on PowerA, I know semiconductor shortages have been an issue for demand in the space, was it more than that? Was it still that or is it more of a downshift in demand overall?

Boris Elisman

Hi, Greg. It’s both. Semiconductor shortages have been playing the consults for a while and that’s continuing. And you still can get a PlayStation 5 or a Switch or an Xbox in most places than you want it, but also there’s a demand impact as well with opening up of the economy post-COVID, with [events travel] [ph] going on, people being out, and doing other things.

Certainly, we’re seeing the demand for gaming has gone down that’s been [indiscernible] well reported by multiple players. Just recently, we saw from NVIDIA, earnings release from NVIDIA from Coursera, from Turtle Beach they’re all reporting the same thing. So, the demand is down as people are doing other things.

The long-term prospect of gaming is still very positive. We still have billions of people that’s gaining all over the world. So, the long-term process are positive, but you got this huge build-up of demand during [coated years] [ph] where the demand for gaming and gaming accessories way exceeded anyone’s expectations. And now, it’d be normalized and resetting to, kind of a normal trend. So, we’re coming down from highs to normal levels of demand.

Greg Burns

Okay. So, if it comes off 10% to 15% this year, is that the base to grow off of or is there still more like to get back to pre-COVID trend, is there more downside to that?

Boris Elisman

No, we think with a 10% to 15% it will get to what it was to get to the pre-COVID trend and we think we can blow off of that in 2023.

Greg Burns

Okay. And then with that in mind, in terms of expanding beyond North America into Europe and maybe Asia, what are the plans there and the timing of that?

Boris Elisman

Yes, great question. That impact is going really well. Most of the demand reduction that we’ve seen is in the U.S., specifically. The business is doing fairly well in Asia and EMEA. It was, kind of flattish in Europe and it was actually growing Q2 in Asia and we are accelerating our plans to use our, on the ground sales force in EMEA and Asia to sell more gaming products.

So, hopefully we can make incremental progress there and drive additional sales, but certainly our expectation is for growth in the second half in those two regions. That’s small for us. It’s still about 25% of [indiscernible] sales for us, but we’re certainly accelerating the efforts in those regions.

Greg Burns

Okay. And then lastly, I know you said you were prioritizing debt reduction and dividends, but you did buyback a little bit of stock this quarter, is that something that’s on the radar screen now?

Deb O’Connor

As we talked about, we took the opportunistic approach and given where the stock price was and where it was trading, we took that opportunity to buy our shares. So, as you’ve [said, saw] [ph] 3 million shares. Going forward, we’ve always said, we’ll have a balanced capital allocation, and so, the opportunistic approach, but prioritizing dividends and debt.

Greg Burns

Okay. Thank you.

Boris Elisman

Thanks, Craig. The next question is from William Reuter from Bank of America. William, please go ahead.

William Reuter

Hi, good morning.

Boris Elisman

Good morning, Will.

William Reuter

My first question is in the – hi, Boris – in the 4% to 6% comparable sales growth, how much of that is pricing and what’s implied for units?

Boris Elisman

Price is higher than that and units are down.

William Reuter

Okay.

Boris Elisman

Deb said that in the quarter, we raised – prices were up 8% and since with the raising prices, you’d assume that for the year, it would be even higher than that. And the volume was negative. That’s our assumption.

William Reuter

Got it. Okay. Yes. So, the most recent July 1 price increase, that one was 8%?

Boris Elisman

It varied. It really depends on country. I don’t think it was 8% on average. It was lower than that. But Q2 pricing, [Multiple Speakers] last year is plus 8%.

Deb O’Connor

A cumulative effect of pricing.

Boris Elisman

Yes.

William Reuter

Okay. And then you – when talking about the longer-term outlook for PowerA, you continue to expect I think low-double-digit growth, what gives you the confidence that that will be the long-term outlook? What are the data points or things that in the industry that you’re hearing that would suggest is the right amount? I don’t know enough about video games?

Boris Elisman

Yes. If you look at PowerA’s track record, historically, they’ve grown faster than the industry. If you look at – the industry historically has grown about 13% and PowerA certainly have exceeded that, if you remember last year, [the group] [ph], for example, 23%. We’ve seen estimates of growth from industry analysts and they’re forecasting as an industry, roughly mid-single-digit growth going forward.

That was the incremental efforts for us to expand our share, which we think is underrepresented in EMEA, in Asia, we think we should be growing faster than that and we think we should be growing in at the low-double-digit growth rates.

William Reuter

Okay. And then just lastly for me, I’m not sure if we’re at a point now where you would call it normalization of office work, but when you look at the office components of your office supply business, where are we relative to pre-pandemic levels? How much of that business may have been permanently reduced or do you think that’s more or less being offset by those products being purchased for home and hybrid work environments?

Boris Elisman

Yes. Overall, if you look at it from a comparable basis, we are slightly below where we were in 2019 overall and kind of a degree depends on of the region and where they are vis-à-vis their recovery from COVID-19 pandemic. Specific to office, that’s still a positive for us. If you look at our commercial sales they were up 7% or so in the quarter, compared to last year.

We still are seeing people returning to work. In fact, if you look at the Castle office occupancy tracker has a proxy for that. They recently hit a high of office occupancy. It’s still significantly below where it was in 2019, but it’s moving in the right direction and it is a tailwind for sales. And we expect that to continue.

We don’t think we’ll never be at 100% office occupancy. We think the hybrid is the future model, but certainly that hybrid includes people being at work two to three days a week. And that’s a good thing for us because of the demand of office supplies, business supplies in the office and whether they use them in the office or home from, kind of sales perspective and a channel perspective, that’s a positive thing for us.

William Reuter

Great. That’s all for me. Thank you.

Boris Elisman

Excellent.

Operator

[Operator Instructions] The next question comes from Karru Martinson from Jefferies. Karru, please go ahead.

Karru Martinson

Good morning. When you look at the retailers being in service [conservative] [ph] with replenishment, how was the back to school ordering to begin with? Where are we at inventories at retail today?

Boris Elisman

Yes, back-to-school was good. As Deb mentioned in her remarks, retailers took products early. They wanted assurance of supply. So, we had a little bit earlier loading, like historically a little bit in Q1 and a lot in Q2. They know they need to have inventory for the season. So, they were – we didn’t see any delays in back to school where folks are being the challenge being [a little bit more conservative with] [ph], is on the everyday set, and the replenishment of the everyday set.

Karru Martinson

Okay. And when do replenishment orders or back-to-school normally happen, like when would you have insights into that figure?

Boris Elisman

Normally, we see it second or third week of August. They should be happening as we speak. We’re still early in back to school. This is still roughly a quarter of the season through, but next week or so, this week or next week is when the orders normally come in.

Karru Martinson

All right. And then when we look at the office orders, certainly commercial sales up 7%, what’s the outlook when you look at your overall growth guidance for commercial for the rest of the year?

Boris Elisman

I’m not sure we broke it down that way, Karru. I mean, overall, we’re looking at 4% to 6% growth. So, my expectation is with a 4% to 6% comparable growth there’s positive growth for office for the year, but I don’t have the exact magnitude. I don’t know if Deb you have any?

Deb O’Connor

I don’t have any currently.

Boris Elisman

We didn’t look at it that way. We don’t look at it that way for the year.

Karru Martinson

Okay. No worries at all. And then with the free cash flow, the debt pay down priorities, I’m assuming here we pay down the revolver, correct?

Deb O’Connor

Yes, that’s right. Yes.

Karru Martinson

Thank you very much. Appreciate it.

Boris Elisman

Thank you.

Operator

As we have no further questions, I’ll hand back to the management team for any closing remarks.

Boris Elisman

Thank you, Adam. Thank you everybody for your interest in ACCO Brands. Our company has a proven track record of managing well and increasing our competitive advantage in periods of economic uncertainty. We are confident we have the right strategy and believe we are well-positioned to continue to deliver organic sales growth, compelling market performance, and improved financial results in the second half of this year and beyond. We look forward to talking to you in a couple of months to report on our third quarter results. Thank you.

Operator

This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.


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