Great. Thank you. Good afternoon, everybody. Thank you for joining us. I'm Olivia Tong, the B eauty and HPC analyst for Raymond James, and we're delighted to have with us Olaplex. Joining us from the company is Amanda Baldwin, CEO, and Eric Tiziani, CFO. Really appreciate you both being here.
Thanks for having us.
Thank you.
Thank you. Maybe, Amanda, can I start with you? You know, you joined Olaplex as CEO in December so quite recently. So can you share what, first of all, drew you to Olaplex, and then share some of your early observations of the business so far?
Absolutely. Well, first of all, thank you for having us. It's great to be here. I think that, you know, my background and my history is, is a combination of having started on Wall Street as an investment banker and an investor in the private side of consumer businesses, and then growing up in some of the larger names in the space, Estée Lauder, LVMH, and then pivoting into really the next generation of digitally driven brands through both the investing side again and the last seven and a half years at Supergoop!
So when you think about kind of like, why did I find myself in this seat here today, it really comes from, first and foremost, a love of brand building, a love of product, a love of getting to create something, underpinned with what I think are sort of some tremendous advantages that Olaplex has as it looks forward in its business. That really ties into early observations. I think first and foremost is really the incredible power of the science and the technology behind this brand. I've been around a lot of product development, seen a lot of science, and created a lot of products.
This one really stands up for something that I think is really quite unique, whether it's patented technology, how it comes together in the formula, the power of what it's able to do, both for the stylist, it's enabling them to do their jobs better, as well as for the consumer, who really feels like: Wow, my hair is different because of this product. That's something incredible in its foundation. The second is it has an enormous scale. So I've seen businesses of all sorts of different shapes and sizes, from, like I said, Clinique, Dior, the big global entities, starting at Supergoop! when it was, you know, a tiny business and a big idea. I think we sit somewhere really nicely in the middle.
So how do we take advantage of that scale, and also take advantage of our agility? Like, kind of sitting in both of those seats at once is something that's really exciting for me. And last but not least, I think we have an exciting team, a lot of excitement for change. I'm a builder, I'm a change maker, and the way that I've really been accepted into this organization by the team members, by our retailer partners, by the stylists, by every single person who plays a role in the future of Olaplex, you know, that's a pretty great place to start from.
Given that you've been with the company now for a few months, what's been surprising, both positive and negative, to be fair?
Yeah, a lot of people have asked me, what surprised you? I don't know if it's me or the company, but I'm not surprised by anything. You know, I think, I think that, again, you know, I think there's a lot of opportunity to get at, but I think what I was hoping for from the outside is what it's proven to be, on the inside. So I remain really enthusiastic about what the future can be. And now we've got to do the work to make it happen.
Can you talk about some of those opportunities as you see them so far, whether it's innovation or pushing , number three, ominuously marketing?
Yeah, I mean, I think when we had our first call last week, I highlighted three principal objectives for this year. Again, that's really what the focus is for 2024, and then we can see how that leads into the future. But where our heads are focused right now is really amplifying our marketing, our sales, and our education objectives. And what do I mean by that? If we go back to the science of this brand, the power of the product of this brand, that's always been there. That hasn't changed. That's still there. How well we're articulating it to the stylist, to the end consumer, that is an opportunity that I think is. I'm very focused on. And what does that mean?
That means literally what we're saying at what moment in time with what creative and what, you know, those kinds of details. I think the detail is really in the execution around these sorts of things. That's where I'm spending a lot of time right out of the gate. That also includes reconnecting with our stylist community. This brand would not be where it is if it weren't for that original group of stylists, and I've, you know, met some of them, right, who sort of found this product and said: Oh my gosh, this is changing my ability to color someone's hair, to deliver healthy hair. I'm a better colorist because of it. Really never forgetting that. I think revitalizing a brand and really getting back to its potential is about really what made it great in the first place.
I've spent a lot of time really thinking about that. So that's mission number 1. Mission number 2 is to make sure that we're doing as much work on the things that the consumer and the stylist may never see, as the things that they do, right? That comes down to infrastructure, to culture building, to how we're communicating as a team. That stuff really matters. And again, I sort of lived that firsthand, in building Supergoop! and seeing some of these bigger businesses. How are we figuring out what makes the most sense for us? I think it's about pulling from the best of all the worlds. A lot of these initiatives were great gifts that were given to me that were started before I got there. We're now actually seeing them really take flight.
So something like an Integrated Business Planning, the things that really are required as a business has grown, and again, not atypical for something that's grown as quickly as it had. And also setting up the team has been a very important part of our mission. And the third is, what is that long-term roadmap, right? I think it's very important to have your long-term goals. A lot of work that goes into that. There's a reason that we're not putting those forward at this point, is because it takes time to get that right. And I want to make sure that we're using the right level of insights and data to drive those decisions.
They're giving ourselves some time to think, and time to really understand what the opportunity is that goes with that.
Eric, maybe if I could turn it over to you. You guys provided a fiscal year 2024 outlook on your earnings call last week. So can you just walk us through some of the puts and takes, particularly on the top line and the cadence of that, given particularly the comps?
Absolutely, Olivia. So I'll just start by saying, you know, the 2024 guidance is really about after a challenging year in 2023, where we saw sales decline, seeing those sales stabilize and build momentum in 2024 and setting us up with the priorities that Amanda talked about, for the future. So net sales in 2024 builds as the year progresses. One, our new product launches, our key new product launches in 2024, are more back-weighted in 2024, where they were more first-half weighted in 2023. Second, we see the benefits of our marketing initiatives, of the key customer programs that we're participating in, you know, build in the balance of the year, Q2 through Q4.
And also, there's just a normal level of seasonality in our business. Specifically, we sell in holiday kits in the third quarter in our professional and specialty retail channels, and we see generally just a seasonal uptick in net sales in the fourth quarter around that buying period as well. So that's what we expect there. In terms of what we're lapping, just one thing to keep in mind is that we will only start lapping the period where we said in 2023 that we saw our sell-through absolute dollar sell-through stabilize in the back half.
We saw that stabilize in the back half of 2023, so that's when we'll, we'll start to lap that comp in 2024 as well. All that helps to understand, one, how net sales will build in 2024, and then one—one of the reasons why the, the comps will be what they are.
Got it. Should we expect on a quarterly basis, on a year-over-year basis by quarter, for it to get a little bit better each quarter? Is that a fair assumption?
Yeah, I mean, we've given specific net sales guidance, a range for Q1, so that's, that's out there.
And then, you know, Q2 through Q4, we're not giving specific guidance on, but on the basis of all the things I just mentioned, you start to see, you know, the momentum build as we get through the year.
Got it. And then have you talked to your retailers yet about some of the innovation coming, or is it still too early for that?
We have, I mean, absolutely. And, Amanda, I don't know if you want to talk about-
Yeah
- all the conversations you're having.
All the conversations. So anything that's coming this year, obviously, has been presented to the retailers, and we're in the planning process of bringing it to life, whether those are, you know, again, with stylists, with our own direct-to-consumer business-
... with our partners in Sephora and Ulta, and obviously around the world. So those conversations are, like, I guess we're saying, in flight, they're happening.
We're landing exactly, you know, what those initiatives will look like when they hit the actual consumer level. We're also planning for the future, so that starts ready.
Great. And then, Eric, back to you. Can you talk a little bit about the cost and profit expectations for this year?
Absolutely. So, in our full year 2024 guide, we've guided to a range of EBITDA margins around 33%-34%, so still top tier in our industry. And within that, we see gross margins improving in 2024 versus 2023, in part because we're getting past some of those challenges that we experienced in 2023. Very specifically, we had some inventory obsolescence charges in 2023 that normalize as we get into 2024, and we see an uplift from that. The second primary driver is the cost savings initiatives that we've put in the business, which are more than offsetting the kind of more moderated inflation pressures that we see in the market as well. So gross margins come up.
The second piece that we guided to with some specifics last week was around SG&A. So SG&A spend up in 2024 versus 2023. Half of that uptick is in our sales and marketing investment at what we think is the appropriate level in 2024 to support this plan and future growth. And the second part is in really organization costs, and the bulk of that is, frankly, annualizing the cost of the investments we made, particularly in the back half of 2023, with some of these capability builds to support the business moving forward. You take all that together, you get to the EBITDA guidance and the margin range that I talked about.
Amanda, you talked earlier about the three priorities that you have for this year. They sort of build on each other.
First is, does that seem to suggest that we should get an idea on the long-term roadmap by year-end? And then what is it that you need to see in order to get to feeling good about long-term objectives?
So won't commit to a specific timeline at this point. What I will say is that I have a huge sense of urgency about answering a lot of these questions, right? I think in order to lead a team and lead a business, you need clarity about where you're going. So, you know, the work is already being done about what that looks like, but when we come back and we share it with everyone, I want it to be really buttoned up and something that we really feel that we can commit to over the long run. So that, that's why these things. There's lots of work happening, but it, when we're ready to bring it, we certainly will, will do that.
Got it. And I imagine that, an EBITDA margin target will be part of that?
That, absolutely. That will. We know that that's a question that everybody is very fairly asking.
Fair enough. Perhaps let's talk about competition a bit in prestige haircare.
There's been a lot of increased competition, whether it's brands that we know that have come to market-
with bonding technology or new brands that have come in. There have been some others. So how are you changing your strategy to address the competition?
... from both sides?
Yeah. Look, what I would start by saying is that beauty is a very competitive market. There is no doubt about that. I think that is a fact of life of operating in this industry. And so I think that's the first thing to just sort of say, that's not unique to Olaplex, that is the category in which we operate. It's part of its attractiveness, is that it certainly has a lot of businesses that will come into it. I think the question is really, to your point, what do you do about it? And I think that is really where, first and foremost, you go back to the quality of your product. Do I have something that's truly differentiated in what it delivers?
Olaplex, and its science, and its patented technology, its molecule actually is different. So without going down a scientific rabbit hole that I'm not... You have to have a chief scientist here to explain all of the details, but I've spent a lot of time really understanding what is different about our technology and its ability to actually relink disulfide bonds. What on earth does that mean? I had to ask myself that question and really understand it, is it's really the essence of repairing the hair from the inside out. That's the best way to explain it. We're the only brand on the market that really is able to relink those disulfide bonds. That's unique to us as a company and as a brand. We've got to make sure that that's much more clear.
I think that necessarily, before there were others talking about bond building, that maybe wasn't as necessary. So really making sure that's where the marketing and the sales, the education really matters. The second thing is that it's not unfamiliar territory for me to be in. And when I started at Supergoop!, you know, seven and a half years ago, nobody talked about skin, skincare and sun care in the same sentence. It was, you know, sun care was a mass category. Nobody paid attention to it. It certainly was not something that had the daily conversation that it has today. So I've got very comfortable with this idea of you create a category and other people are going to enter it. What do you do about it? That's where the next generation of innovation really matters.
That's where the brand, with the capital will be, and how well you really create, you know, brand love and, and brand loyalty. Those are things that, you know, there's a lot of nuance to that and, and how you do that, but that was a very important part of, like, always staying one step ahead. You know, people can't copy what you haven't done yet.
Great. Any specific channels or geographies where you think the company is set up particularly well versus peers, or ones where-
... it will take a little bit more extra time?
Yeah. I mean, I think one of the things that I always admired about this business, and coming into it, has certainly proven to be the case, is that it has this diversified distribution strategy. And this brand has translated in a lot of different places, in a lot of different countries, right? That's an incredible foundation to get to build off of, right? So to have this three-prong strategy of the stylist, again, that's where we began. We can never lose sight of that. To complement that with specialty retail as well as DTC, and to have that kind of mix, and again, it flows out differently around the world. But that interlocking nature of our distribution strategy, I think, is something that's very powerful.
How we get after it is really a part of that longer-range plan, is how to really understand what makes purchasing a product or having a service in a stylist or in a salon, in the chair, versus on the shelf, versus on a website. Those are different experiences. Now, the consumer is moving fluidly between all of them. So you have one brand and one experience with the brand, but what makes me convert at these different places, and how do I really leverage the strength of each one of these channels, is an important part of the work to be done.
What about geographies?
I'd say the same thing, right?
You know, one thing that I would say is that the technology and the actual ability to do this, you know, all hair has bonds. No matter where in the globe it is, no matter what kind of hair type it is. So you're starting from a place of the brand is relevant, what we do is relevant. That, that's a great gift that, that cannot be said for everything that's out there. So we, we start there. Hair types are different around the world, so I think understanding that, but again, the best brands are built with a unification across the globe, with, you know, localization of strategies that are appropriate for the uniqueness of the consumer, for the uniqueness of the distribution channels, and there's a slightly different mix everywhere.
You know, really thinking through what that is gonna take. Again, the proof points are there. How do we go deeper in each of those geographies is part of the work.
Very helpful. Eric, could you compare and contrast the international business versus the U.S., and where you see the international opportunities for the business?
Absolutely. I mean, I think it starts with, Amanda, what you were just saying earlier. You know, already 55% of our sales, this was in 2023, came from international. I say that, but we still have a tremendous amount of white space. And that starting point, though, starts from a place where we know the brand has resonated really well with consumers around the world, and that's a great place for us to start. You know, we see significant opportunities in parts of the world where we're under-penetrated versus global peers. APAC, broadly, is one of those regions. Latin America is another. We've seeded the brand in many of the countries in those regions, and we're seeing nice, good early success. So it, it's really just about continuing the work that Amanda's talked about.
How do we tailor our strategy and approach in those markets, you know, precisely for that consumer base? But the early signs are strong, and the early signs are good. So APAC and Latin America is two standout opportunities, but we're not done yet in Europe. We're not done yet in, you know, a lot of the other parts of the world where we already have a more established base.
Got it. Eric, on the [audio distortion] call. Sure.
[audio distortion]
Yeah, I mean, I would say that that's where the business is, even in, even today, right? If you think about it, what causes hair damage overall? Yes, there's the chemically treated or colored hair, but all of our hair as we, you know, blow dry it, or wash it, or go outside and go through all the normal day-to-day of our lives, hair is damaged, right? So the idea of repairing hair and your bonds being broken is a universal. How extreme that is, as you said, is different. So if you look at, for example, our shampoo and conditioner, those are great shampoos and conditioners that have a lot of people that really love them, myself included, who, you know, I don't color my hair, right?
One of those things is not necessary in order to use the product.
[audio distortion]
You mean in terms of the market size overall?
Yeah, I mean, so we play in the global prestige haircare market, which, depending on your data sources, is in that $6 billion-$7 billion range, and it's growing high single digits, you know, mid to high single digits and is expected to continue to grow at that kind of clip for the foreseeable future. I think the question is one of our best opportunities.
... yes, we have some products in our portfolio that are specifically designed with that technology to treat damaged hair. We have lots of other products in our still tight assortment of products that are a great shampoo, great conditioner, a great dry shampoo, for example, that has other benefits. You know, just to bring it to life, our dry shampoo leaves no white residue, right? So it's differentiated against other products in the market for reasons in addition to these foundational benefits around hair health.
Let me ask one more question, and then we'll turn it over to Q&A for a bit. But on the earnings call, you talked a bit about some actions you're taking that are difficult in the short term, you know, to clean up the channel, but necessary to build a healthier business. So can you explain those actions and what you hope to achieve by taking those actions?
Yeah. I mean, we talked about some of these choices that we're making to get the fundamentals and health of the business right in 2024, and really poise ourselves for the future. One of the examples is around focusing on our existing core customers, key customers, and key markets, and making sure that the flywheel is humming exactly as we want it to. You know, giving those customers the attention that we want to. The opportunities to expand distribution from there are still there, right? There are still plenty of white space opportunities that we're gonna be able to tap into in the future, but we want to focus on those key customers this year.
The second one is around actually some distributor rationalization that relates to diverted product into unauthorized resellers of Olaplex. It's not a issue that's unique to Olaplex as a professional haircare brand with an omni-channel presence. It's not unique at all, nor is it particularly large in relation to our total business, but it's a thorn in our side that we think is important to address, and it's because of, you know, progress we were making on this front in 2023. I'll just give you an example through a technology we use called Track and Trace. You know, we can look at the QR code on our product, you know, taken out of an unauthorized reseller, and trace that product back to what distributor we sold it to.
And that allows us to then have a conversation with that distributor. "Okay, let's get to the bottom of this. Was it a sub-distributor that was, you know, lower in the chain? Do we take action there?" Well, there are nuances there, but we're using that technology already to take actions and make good progress there. And for that reason, we built that into our 2024 plan and guide, and we think it's, you know, some short-term pain, but it's the right long-term thing to do for the business.
You just discussed some technology that you're using to help you with that. Do you think you have the necessary systems in place to get the data and reporting you need to make further decisions, particularly with thinking about the growth opportunity in front of you?
We do. We do, and look, what—like any business, we do, and it's constant and continued initiative.
... to improve it. So I would say we have, you know, we have the consumer insights data. We have the data we get from our own dot-com platform, which is very rich around our consumer insights. We have the data that our customers give us around sell-through and inventory, we have our own data, et cetera, et cetera. I think one of the opportunities we've had and a path of capability that we've been on is around how we democratize that data within the organization, right data, right people, right time to make the best decisions. And on that front, we've been implementing new tools. We implemented one last year with our field sales organization, so that all those insights they're getting from in the store, they're plugging in, and it's going to be available to everyone.
One that we're implementing right now is a single source of truth, like, all in one place and document tool for the organization. We're going to call it Ola docs. We have a lot of Ola stuff, right? So Ola docs is-
Got to brand it.
... is that tool. So, you know, yes, but more to come.
Got it. Last question from me is just: what about people investments? You know, as you think about Olaplex of old, you know, but Olaplex predating you was more of a decentralized organization. Do you think that there need to be people investments made in order to get you into the next chapter?
Look, I believe the team is everything, right? Strategy is important, but the people who bring it to life is really what makes something happen. I think that, you know, certainly I've been excited by the team that's welcomed me in, as we talked about at the beginning. That doesn't mean that we don't need to make some changes, of which I've made a few already, in terms of making sure we have the right innovation capabilities, we have the right sales capabilities. Those are the two places that I started. You know, look, it is part of my role is to make sure we have the right people to service the long-term vision. But I've been really excited by what I sort of have to start with.
Great. I saw some hands. Can we get a mic to ...
I don't need a mic. I have a loud voice.
We hear you.
Good.
Can be repeated after.
[audio distortion]
Yeah, go ahead. Okay, yeah, so that everybody can hear. The first question was: what's the penetration of pro? And that's about 40% of our business is in some version of the stylist, whether that's front of salon retail or services, right? That's all in one group, and that's a global figure. In terms of the other retail distribution, that we break down into specialty retail and then direct- to- consumer. Direct- to- consumer includes our own website, plus other pure players. Though that's split about 50/50 between those. You know, we have a lot of great relationships. We are in all doors within those relationships, but I think, again, there's a lot of opportunity going forward.
[audio distortion]
I'll take that one.
So, just to make sure everyone can hear it, we have high margins, we have, you know, high cash generation. What’s the capital allocation strategy ultimately? And, you know, Amanda talked about the third priority we had for this year, which is the work we’re doing on long-term strategy, financial framework. That will include capital allocation. I’ll just start by saying we start from a great place, right? We are a highly cash-generating business. It’s an important profile, characteristic of our business that we want everyone to understand. And so all of those options are on the table, whether it be debt paydown, whether it be share buybacks, whether it’s, you know, you know, what has been for us, from an M&A perspective, technology-focused, about how we accelerate-
... plans we have for new product, development. All of that's going to be a part of the long-term strategy work, and we look forward to sharing more, when we can.
Maybe if I can ask one last one-
... in the last minute, but, could you just talk a little, you, you alluded to this earlier, but, just a little bit more about some of the early signs of progress that investors and analysts should expect as the year progresses. What do you think you'll be able to, to share as proof points that the strategy is working?
Go ahead.
I'll start. Look, you know, we put a plan and guidance out there, and of course, one of the proof points is going out and doing our best to deliver against that. Those are the numbers, right? Of course, I'm going to say that. Of course, you're going to expect that. I just want to come back, you know, again, Amanda, your three priorities that we have embedded in the organization, those aren't just things that we're telling the outside world. That's what we're telling everyone in the organization, and those three priorities feed down into everyone's work plan. And so that's how we know we'll be making progress, is our progress against those priorities.
Great.
I know I saw a few extra hands. Unfortunately, we're out of time. Please feel free to join us in the breakout, which is just downstairs. Thank you, Amanda. Thank you, Eric.
Thank you all for being here.