Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales for the second quarter were $103.9 million, showing sequential improvement from Q1.
- Adjusted EBITDA was $32 million, reflecting a strong adjusted EBITDA margin of 30.8%.
- Olaplex continues to rank number one or number two for 17 of the top 18 premium hair care equities among prestige hair care consumers.
- The company has a strong social media presence with 2.5 million Instagram followers and four of the five best-selling prestige hair products in the first half of 2024.
- Olaplex is launching new products, including the Bond Shaper Curl Rebuilding Treatment and No. 10 Bond Shaper Curl Defining Gel, showcasing continued innovation.
Negative Points
- Net sales for the second quarter declined 4.8% year over year.
- The professional channel net sales declined 18.4% versus a year ago, partly due to distributor rationalization.
- Direct-to-consumer channel net sales decreased 11.5%, driven by a focus on prioritizing partners that build brand equity.
- Adjusted gross profit margin was 71.9%, down 80 basis points from the second quarter of 2023.
- Q2 adjusted EBITDA declined 12.7% to $32.1 million versus $36.7 million in the second quarter of 2023.
Q & A Highlights
Q: Amanda, you mentioned the conclusions from your consumer survey showing the Olaplex brand has extendability. Is that more in innovations you're currently exposed to, expansion to other consumer subcategories you're not exposed to today? And can you help us understand the opportunities going forward on that front?
A: The perception study was focused on understanding the equity in the Olaplex brand and the interest level in broader innovation. It confirmed the brand's strong perception and highlighted areas for improvement in marketing messages and education. We are on a journey to ensure our increased marketing spend is effective, and we will continue to learn and iterate on our strategies.
Q: Can you unpack a little bit about the channels, the changes that you saw in specialty retail and DTC, and how did it differ by region? Also, can you explain the gross margin dynamics and what you expect going forward?
A: We are seeing stabilization in consumer demand across channels, with consistency in volume and split within channels. The uptick in retail is due to inventory rebalancing, while professional channel movements are related to distribution cleanup in international markets. For gross margin, Q2 was softer than expected due to increased sampling and inventory obsolescence charges. We expect a dip in Q3 due to holiday kits but anticipate expansion in Q4.
Q: What are you seeing in the prestige hair care category, and how do you see the promotional environment? How are your new product introductions being launched this year compared to last year?
A: The prestige hair care category remains healthy and growing. Our marketing and education efforts are focused on clearly communicating the benefits of our new products, like the Bond Shaping Technology, to both pros and consumers. We are ensuring that our launches are supported by strong marketing and education to drive demand.
Q: Is there a preference shift to shopping more in specialty retail and DTC versus the pro channel? How are you thinking about your strategy around partnering with the pro channel?
A: There are macro shifts in the pro channel, such as increased time between visits and more retail options for pro-first products. However, the pro channel remains a priority for us. We are focusing on providing additional ways for pros to build their business, such as new treatments like the Bond Shaping Technology.
Q: Can you give some color on how sales trended throughout the quarter and how you exited the quarter? Should we expect positive growth in the back half based on the guidance?
A: We saw consistent, stable sell-through throughout the quarter across all channels. For the back half of the year, we expect to benefit from holiday kits and new product launches. We are up against a better underlying demand comparator, which should support positive growth.
Q: Can you help us understand your second half plans for gross margin, especially with new product launches and sampling investments?
A: We expect a sequential step down in gross margin from Q2 to Q3 due to holiday kits but anticipate a rebound in Q4. Our plans for the second half remain largely consistent with our expectations, with continued gross margin expansion driven by lapping inventory obsolescence and lower warehouse costs.
Q: What is your view on the underlying demand in the pro channel, separating out the impact of diversion control?
A: We see consistent demand in the pro channel, similar to other channels. We are focusing on driving demand through new product launches and initiatives to support pros. Our efforts to control diversion are ongoing and are expected to support long-term growth.
Q: How far along are you in the distributor rationalization work in Europe, and what gives you comfort that the same won't be needed in other markets? Are you seeing an improvement in diverted product in the US?
A: We are on track with our distributor rationalization process, focusing on ensuring the right partners and operational processes. We are seeing progress in controlling diversion and expect continued improvement.
Q: How much of the improvement in the second half is dependent on ending the diversion issue? Is it already done, and do you have visibility on the impact?
A: The work on diversion control is ongoing, and we have line of sight into what needs to be done. We are making progress at the expected pace and are confident in our plans to address this issue.
Q: What does stabilization in consumer demand mean for retail, and how does it differ between the US and Europe?
A: Stabilization refers to the consistent demand for our products driven by their effectiveness and consumer loyalty. We see similar trends in both the US and international markets, with a strong base of loyal users. Our focus is on building incremental demand through innovation and marketing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
