OLAPLEX HOLDINGS, INC. Q3 FY2024 earnings call

Key Points

• Amanda Baldwin discussed Q3 results, noting net sales of $119.1 million, a 3.6% YoY decline, but sequential improvement from Q2. Adjusted EBITDA was $44.6 million with a margin of 37.5%.
• Revised FY2024 guidance: net sales expected in $405M - $415M range, adjusted EBITDA margin 29.9% - 30.6%.
• International business: more complex issues than anticipated, requiring network rationalization and localized distribution. Slower investment in international sales/marketing contributed to demand moderation.
• Sales/marketing: longer time needed to see lift from brand investments. New product launches like No. 5 Leave-In Conditioner, Bond Shaper Curl Rebuilding, and No. 10 Gel showed promise.
• Leadership: Strengthened leadership team with new COO/CFO, CMO, and SVP of International.

New Product Launches

• No. 5 Leave-In Conditioner: Top 2 SKU on olaplex.com and Top 5 in Sephora's U.S. leave-in conditioner subcategory.
• Bond Shaper Curl Rebuilding Treatment: Early adoption in salons.
• No. 10 Bond Shaper Curl Defining Gel: Ranked Top 3 in Ulta Beauty's Curl subcategory.

Third quarter net sales were $119.1 million, a 3.6% decline year-over-year. Adjusted EBITDA was $44.6 million with a margin of 37.5%. Specialty retail sales were $42.6 million, down 1.3% year-over-year. Professional channel net sales decreased 12.6% year-over-year to $42.2 million. Direct-to-consumer sales were $34.3 million, up 6.8% year-over-year. Adjusted gross profit margin was 70.8%, up 110 basis points from the prior year. Adjusted SG&A increased to $40.4 million, and adjusted EBITDA declined 13.4% to $44.6 million.

• Revised FY2024 net sales range: $405 million to $415 million, down from prior range of $435 million to $463 million.
• Adjusted EBITDA margin expected to be in 29.9% to 30.6% range.
• Factors driving revision: weaker international performance, slower lift from sales/marketing investments, increased holiday promotions.
• Fourth quarter expected to see most pressure on professional channel, followed by direct-to-consumer and specialty retail.

• International business complexity: network realignment to fewer partners is impacting near-term net sales but aims for long-term success.
• Slower lift from sales/marketing: waiting for aligned marketing with new partnerships has led to moderation in demand.
• Increased promotional activity: holiday period expected to have higher promotions, affecting margins.

Q: Just curious on the overall consumer health, what you're seeing at the salon and as well as your DTC and on the retail side overall? You've mentioned higher promotions. Do you think it's more because the consumers are cautious? I would love any color there. And I would love to dig a little bit deeper into what you saw in terms of your international business. What are your key assessment there? And how you're thinking about the opportunity going forward and what it could be as a percentage of the mix over time?

A: Thank you for the question, and thank you, everyone, for being here today. First, I'll take the first half of that, which is with respect to kind of what we're seeing around the consumer, and I believe you're asking about both within the salon channel as well as retail and the consumer more broadly. Within the salon channel, I think we've been talking about earlier on throughout the year about overall trends within the salon category where there certainly over time has been less frequent visits into the salon. That hasn't changed in either direction in particular. I think it is sort of the way that people are thinking about their salon. And certainly, part of our focus and our strategy in supporting the stylist and rooted behind the launch of something like Bond Shaper Curl Rebonding Treatment is really supporting the stylists and making sure there's more reasons to come back to the salon. So we're excited to really support our stylist in that way. With respect to the consumer overall, yes, we did make a very conscious decision as we were thinking about going into this quarter and watching what we're seeing out in the marketplace and expecting overall a more promotional environment, making sure we're doing that, both some typical promotions, which we do use from a strategic point of view around key tentpole moments, but also in trade marketing and overall support for our retailer partners, both on the pro side as well as to the consumer. So that is something that we're watching carefully. And I think we'll see a lot of the things that many others have been talking about as we go into this key holiday season. With respect to international, I have spent a lot of time very recently on this topic. The first thing I would say is that the enthusiasm for this brand is incredibly strong. One of the things and one of the reasons why I joined this brand nearly a year ago was because I think it's very rare to find brands that have such global resonance. And that I have now seen on the ground, having been with consumers, having been with our retailer partners, distributor partners, sitting in salons around the world, this product really resonates and really translates. I think what we've really learned and what we were talking about today was that in order to ensure that we really maximize that opportunity, we need to be much closer. We can't have arms relationships. We need to be much more involved with our distributor partners. We need to be better translating our marketing efforts, all the things that we've started working on here in the United States that we are seeing early signs of opportunity around our marketing efforts. We need to be translating those internationally. And so in order to do that, that does require making sure that we have fewer, bigger partnerships that we are -- that was part of the rationale of bringing on someone to lead that part of our business so that we're just better partners, and we can support this brand globally.

Q: So I know you kind of talked about not yet seeing the marketing efforts provide any sort of lift. Just any more color on when you expect to start to see a lift? And any changes you think you need to make to the strategy?

A: Yes. Thanks for the question. I want to make sure that we really pull apart what we are seeing within our new launches and what we want to see across the entire portfolio and to draw a distinction between those 2. So, if we recall, in marketing and sales education, I really believe that brand is the thing that will -- along with innovation, will drive this business going forward. We've spent a lot of time, as we talked about, getting the brand vision right, getting the future product pipeline right. And what we had this fall was the opportunity to have 2 new launches and to start the process of really building a marketing muscle in this organization. We've seen a lot of really good things happen out of that. One of the things that we highlighted in the call was our No. 5 Leave-In Conditioner. I think that's really the first time that this brand has had, what I'll call, a full 360 approach, a tight partnership with Sephora, the ability to launch an exclusive SKU with them to really put the right experiential marketing, the right influencer marketing, the right kind of assets, the right kind of language. I mean we've been talking about this really since the beginning about, it's not just the money we spend, but it's how we spend it. And that launch is outperforming our expectations. So that's really exciting to see. What we need to see going forward and the thing that is sort of driving our guidance today is we need to make sure that we have that across the entire portfolio. And that's really going to be Phase 2 of this. And as we think about going forward and how we have a brand new CMO, Katie Gohman, who joined us in July, and she's fantastic and I think really helping us take this to the next level. So these things are work in progress, but I do feel like we're on the right track that we have, again, a brand vision that I alluded to, and I look forward to sharing more about that, as that becomes out in the world, and we have a great product pipeline. And so we're going to get better and better at this.