OLAPLEX HOLDINGS, INC. Q1 FY2024 earnings call

Amanda Baldwin noted the first quarter had net sales slightly above guidance, driven by earlier shipments in specialty retail, and strong brand health metrics. Key strategic priorities for 2024 include maximizing sales, marketing, and education investments; strengthening capabilities and culture; and developing long-term road map. Progress made on these included marketing campaigns, enhanced business planning processes, and opening a NYC office. Eric Tiziani discussed financial performance, channel trends, and guidance reiteration, emphasizing stabilization and momentum building in the second half.

Net sales for the first quarter of 2024 declined 13.1% year-over-year to $98.9 million, slightly exceeding the high end of the guidance range. By channel: Professional channel sales were $38.7 million, down 19.9% YOY; specialty retail sales were $34.4 million, down 1.2% YOY; direct-to-consumer channel was $25.7 million, down 15.7% YOY. By geography: U.S. sales increased 2.5% YOY, while international business declined 24.3% YOY. Adjusted gross profit margin was 74.3%, up 170 basis points from the prior year. Adjusted SG&A grew 13.2% to $37.2 million. Adjusted EBITDA declined 29.1% to $35.5 million. Cash from operations for the first quarter was $43.7 million, and ending cash was $507.5 million.

Reiterated 2024 net sales range $435M-$463M, adjusted EBITDA $143M-$159M, and adjusted net income $87M-$100M. Anticipates gross margin expansion of 110-170 basis points, SG&A increase, and momentum in the second half with new products, holiday kit sell-in, and seasonal lift. Also expects lapping of 2023 customer inventory rebalancing effects.

Risks include distributor rationalization impacting professional channel performance, competition in the beauty market, macro consumer trends affecting salon sales, and inventory rebalancing effects impacting sales comparisons.

Q: Just curious on professional channel, what you've been seeing lately on the salon -- help with the salons and the stylist and also just the overall beauty category, if you've seen anything noteworthy, any slowdown in general? And then just another question on gross margin. You've seen nice expansion this quarter. Any reason why we shouldn't expect more expansion throughout the year?

A: Amanda Baldwin discussed distribution shifts and belief in prestige hair care category; Eric Tiziani spoke on gross margin expansion, expecting similar expansion in second half with seasonality effects but savings initiatives supporting it.

Q: Thank you Eric, for all the help and wish you the best of luck. I have one question for Amanda on consumption and a follow-up on international distributors. First on consumption, Amanda, how are the trends as you exit the quarter, in particular in light of what we have heard from your peers, from one of your customers? And second, on the international market commentary, I appreciate that you were reducing and streamlining, but international was a big decline. When should we expect you to lap that? And how far we in the innings of reorganizing and we're thinking about how to go to market internationally?

A: Amanda Baldwin commented on international business lapping harder comps and strong future in international markets; no specific comment on quarter exit trends.

Q: Thank you, Eric, for all the help through the years. So it's nice to see that it looks like sales to retailers have stabilized. First, could you talk about if there was anything one-off or do you think you've reached a steady state on the retail channel? And then also as you limit the distribution and work towards controlling diversion, can you give us any color on where the diversion is coming from? I would imagine that PRO is the main culprit, but I would love to have some color there?

A: Eric Tiziani discussed distributor rationalization impacting professional channel, with diversion in professional channel EMEA/European distributor base; Olivia Tong asked about retail steady state and diversion color, Eric and Amanda responded on rationalization progress and retail trend stabilization.

Q: So I know you spoke about -- you was talking about improving trends sequentially in market. But I was just curious if you could share a little bit more detail on retail sales. Are sales up yet in specialty multi, I know you talked about olaplex.com. I guess I was curious what the other DTC channels kind of retail trends that you're seeing. And if things are still down, and I know we're early in the -- we're fact-finding and planning, not in full turnaround mode yet. But given all the brand health metrics that you cited, if you're not growing yet, why do you think that is? What is -- who is growing or give me names. So why isn't Olaplex growing yet at retail?

A: Eric Tiziani discussed comping issues due to lapping negative media moment, and Amanda Baldwin mentioned growth tied to new products and marketing in progress.

Q: And Eric, best of luck in your next endeavors. First, I'd like to ask a little bit on if you could quantify that kind of like pull forward of sales in the specialty retail channel and how much that may have pulled out of Q2? And then on the marketing spend, if I did the math -- I mean you're trending at about, I think, 15% of sales on spend on marketing this year. That is significantly lower than what we still see with a lot of other beauty peers. So what gives you confidence that, that's kind of like the right rate for Olaplex, and then as we think over the longer term, is that a proper sustainable rate going forward?

A: Eric Tiziani didn't quantify specialty retail pull forward; Amanda Baldwin discussed marketing investment focus on planning and long-range assessment, feeling current spend is appropriate for 2024.

Q: Yes. Eric, a pleasure working with you and best of luck in your new endeavors. I guess my question is with Amanda. I wonder whether you can elaborate more on the findings of this brand assessment that you mentioned, whether you [drove] for how differentiated the Olaplex brand is versus your key competitors, be it L'Oreal Redken, Unilever's K18. I'm coming back to -- and I understand that you already touched upon the marketing spending. But is 15% the right level given the size of the budgets of these two competitors? And I have a follow-up.

A: Amanda Baldwin discussed brand perception study confirming brand foundation, strong product science, and emotional connection with PRO; marketing spend focus on strategy and long-range planning, not directly comparing to competitors' budgets.

Q: You talked a bit about some new product launches coming out this year to help drive sales. Just wondering if you could give some color on kind of what these products will be or what category they'll be in? And then also, when we think about the rollout, should we expect a full retail door launch or certain retailers? I guess, just trying to get an idea of the magnitude there?

A: Amanda Baldwin stated she can't give detail on new products for competitive reasons but emphasized innovation is key; on professional channel, discussed macro consumer trends affecting salon sales and the importance of supporting the PRO channel.