Waldencast plc Q1 FY2025 earnings call

• Brand development: Milk Makeup aims to be the top next-generation beauty brand, focusing on innovation, brand community expansion, and channel expansion. Obagi Medical aims to be the leading physician-dispensed dermatological brand globally, focusing on science-backed innovation, re-anchoring medical heritage, and brand awareness expansion.
• Supply chain: Strengthening supply chain flexibility and responsiveness, optimizing logistics and distribution center networks.
• Innovation: Milk Makeup launched Hydro Grip Gel Skin Tint. Obagi Medical launched ELASTIderm Lift Up & Sculpt Facial Moisturizer and other innovative products.

For the first quarter, net revenue was $65.4 million, a decline of 4.1% from the prior year. Adjusted gross profit margin was 76.4%, up 10 basis points year-over-year. Adjusted EBITDA was $4.4 million, or 6.7% margin.

• Milk Makeup: Revenue declined 15.1%. Domestic performance was solid despite the prestige beauty category slowdown, with the Hydro Grip Gel Skin Tint launch a success. Adjusted gross profit margin was 69.5%, adjusted EBITDA was $4.4 million with a margin of 14.9% of net revenue.
• Obagi Medical: Net revenue was $36.2 million, up 7.1% from the prior year. Adjusted gross profit margin increased 60 basis points to 82%, adjusted EBITDA was $5.9 million, or 16.3% of net revenue.

• Expect net revenue growth in the mid-teens and adjusted EBITDA margin in the mid to high-teens for the full year.
• Drivers include Milk Makeup's channel expansion, Obagi Medical's fulfillment rate improvement, launch of blockbuster innovations, and returns from marketing investments.

• Supply chain disruptions leading to product stockouts.
• Broader macroeconomic environment and softer consumer spending.
• Tariff-related cost increases.

Q: Could you expand upon the supply chain restructuring for Obagi and how it plans to improve operations? And does that also potentially allow for greater success from the innovation you alluded to, given streamlined operations?

A: We're streamlining the supply chain flow, moving from two warehousing steps to one to be more responsive. This transition caused some disruption in Q1 but will allow better response to demand, which hurt growth in Q1 due to stockouts.

Q: Can you discuss a little more the slowdown you saw in the physician channel?

A: The slowdown on Obagi is mainly due to no longer having the tailwind from Amazon business conversion last year; the physician channel itself is still robust.

Q: Can you provide more color around the sell-through trend versus sell-in just on Obagi and Milk? And also would love to hear your perspectives on how you're thinking about pricing strategy given the tariff dynamics?

A: For Milk, there's a difference between sell-in and sell-out due to timing and initiative. For Obagi, no real difference as it's mainly physician dispense. On pricing, tariffs are manageable with low to mid-single price increases evaluated.

Q: Can we expect that as you grow sales that you can keep SG&A as a percentage of sales flattish? Or will it grow with sales? And just on that you also discussed increasing investments in marketing. Are you doing anything differently?

A: SG&A will grow with sales but with operational leverage. In marketing, Milk is evolving to more top-of-funnel media, and Obagi is reaching consumers outside medical practices to drive business.