How is a legend forged? WD-40—the 'universal lubricant'—exemplifies both the glory and the challenges of a blockbuster consumer product.

One trick, and you rule the world. In the fields of repair and DIY, WD-40 is regarded as a universal little blue bottle. Just as Cantonese people view herbal cooling tea—as a cure-all for any physical discomfort, inflammation, headache, or itch—WD-40’s applications are equally all-encompassing: from resolving common joystick drift issues in Nintendo Switch game consoles, to unsticking sluggish windows in Ford Focus automobiles, to cleaning dust and debris off DJI drone components. Seventy years after its launch, WD-40 Company (WDFC.O) remains deliberately vague about WD-40’s actual efficacy—and even actively encourages outlandish anecdotes. For instance, its official website claims a user once successfully drove away a python hiding beneath their car using WD-40. This aura of mystery surrounding WD-40’s formula and function has fostered niche user communities dedicated to exploring its myriad uses—and even inspired near-fanatical devotion among some users. From rocket maintenance to everyday lubrication: steady operations Product-wise, WD-40 Company relies on its flagship WD-40 Multi-Use Product to keep industrial gears running smoothly worldwide. Financially, over the past 40 years, the company’s revenue and net income have shown smooth, consistent growth. While quarterly figures fluctuate, annual performance remains remarkably stable—with no pronounced volatility. In fiscal year 2023 (ending August 31, 2023), the company reported $537 million in revenue—a 3.55% increase year-on-year—and a gross margin of 51.04%, up from 49.1% in the prior fiscal year. However, net income encountered some friction: it declined by 1.98% year-on-year to $66 million. (Note: The company’s most recent full fiscal year ran from August 31, 2022, to August 31, 2023. For consistency with the company’s reporting convention, this period is referred to herein as “FY2023”; other fiscal years follow accordingly. Unless otherwise specified, all monetary values are in U.S. dollars.) (Source: FLY Capital App) The FY2023 revenue growth was primarily driven by a significant surge in Q3 revenue (+14.6% year-on-year). During that quarter, revenue rose across all regions. First, revenue in the Americas increased by 16% year-on-year—mainly attributable to higher sales of maintenance products in the U.S. (+21% year-on-year). This growth stemmed largely from price increases; however, lower unit volumes partially offset the revenue gains from pricing. In Latin America, maintenance-product revenue rose 18% year-on-year—primarily because wholesale customers, anticipating future price hikes, increased bulk purchases in advance. Additionally, the company’s direct business in Mexico posted revenue growth, driven by two factors: rising product prices and favorable exchange-rate effects due to the strengthening U.S. dollar. Although oil-sector activity in western Canada rebounded compared to last year—boosting industrial demand for the company’s products—overall weakening demand in Canada led to a 23% decline in maintenance-product revenue there.

(26) 'Real Records of Value Investing': Case Study of a Business with an Economic Moat—WD-40, Part I

(Highlights the product’s high market penetration—or large total addressable market) • Current financial condition of the company: • Financial accounting data reveal WD-40’s exceptionally strong profitability—sustained at high levels for many years: • Consistently high operating margin (25%–30%) • Net margin (15%–18%) • Return on equity (35%–42%) • Strategic implications for the future (if applicable): • To counteract recent declining revenues (a trend emerging over the past few years), the company has adopted the following strategies: • Broadening its product portfolio: • Acquiring ‘Tri-Flow’ • Internally developing a more advanced lubricant, T.A.L.5 • Acquiring Lava, a hand-soap brand • Reflection: Can these strategies generate meaningful value growth? • How the company operates and markets this business or product: • WD-40 outsources all manufacturing, packaging, and logistics for its lubricants. • With only 167 employees, the company supports $144 million in revenue. • At its core, WD-40 functions as a marketing-and-sales company—spending roughly 10% of revenue annually on advertising and promotions. • It holds no proprietary secret formula. • WD-40’s economic moat (the above analysis leads to the conclusion that WD-40 is a business possessing an economic moat): • The data above reveal all hallmark traits of an economic moat: profitability significantly exceeding growth-based valuation metrics. • Thus, we must answer the following questions (WD-40’s economic-moat analysis)—with emphasis on: • Why have no competitors entered the market to steal customers and force WD-40 to cut prices? What deters potential rivals? • (1) Patents or technological barriers: • WD-40 holds no significant patents; any company could replicate the product. • (2) WD-40’s moat lies in pronounced customer lock-in: • Customer loyalty has been built over decades through sustained advertising and consistent user satisfaction—making it extremely difficult for competitors to persuade users to switch. • The absence of disruptive new technologies actually benefits WD-40: competitors cannot lure users away with superior innovations or next-generation alternatives. • Relative to product price, the cost of searching for alternatives is high: • A can of WD-40 costs under $5 and lasts for years. • Trying a substitute that saves just $1 offers negligible appeal—given the product’s long lifespan and infrequent repurchase cycle, switching to a better alternative is inherently constrained. • Moreover, if the substitute fails, consumers lose the $4 purchase price. Even assuming a 75% success probability, the expected gain is only $0.75 (75% × $1), while the expected loss is $1 (25% × $4)—making experimentation a losing proposition. • Beyond marginal economics, one must also factor in the time and hassle involved in seeking alternatives.

WD-40 Company CEO Has Shares Withheld for Taxes After Stock Vesting

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Steven A. Brass, CEO of WD-40 Company, had 3,101 shares withheld for taxes following the vesting of 6,092 restricted stock units, bringing his direct holding to 40,517 shares.

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