Q4 2021 Olaplex Holdings Inc Earnings Call
Okay.
Ladies and gentlemen, thank for standing by and welcome to all the Plex, Inc. Fourth quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
If you require any further assistance. Please press star Zero I would now like to turn the conference over to your Speaker put today Allison Malkin you may begin.
Okay.
Thank you and welcome to the Ola plaques fourth quarter, 2021 and fiscal year 2021 earnings call with me today are Julie <unk> Chief Executive Officer.
And Eric <unk>, Chief Financial Officer for today's call <unk> will begin with highlights of our fourth quarter and fiscal year as well as the priorities. We have set for the business in fiscal 'twenty two.
Then Eric will review, our financials in more detail and provide our guidance.
Knowing the prepared remarks, the operator will open the call. So that we can answer your question before.
Before we start I would like to remind you that management will make certain statements today, which are forward looking including statements about the outlook of our Texas business and other matters referenced in the company's earnings release issued today.
Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in or implied by such statements.
Additional information regarding these factors appears under the heading cautionary note regarding forward looking statements in the company's earnings release and in the company's filings that it makes with the Securities and Exchange Commission that are available at Www dot.
E C dot Gov and on the Investor Relations section of the company's website at IR Dot all the plaques dot com. The forward looking statements on this call speak only as of the original date of this call and we undertake no obligation to update or revise any of these statements.
Yeah.
Also during this call management will discuss certain non-GAAP financial measures, which management believes are useful in evaluating the company's performance. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Yes.
You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to the most directly comparable GAAP measures in the company's earnings release, a live broadcast of this call is also available on the Investor Relations section of the company's website at <unk>.
I R dot all the plaques dot com with that I will now turn the call over to Julie wants.
Good morning, everyone and thank you Allison I am pleased to speak with you to share our fourth quarter and fiscal year, 2020 one results.
Our performance Mark.
Hello finish to a strong year of growth at all apart and so past the guidance, we introduced on our Q3 earnings call.
Flexible power technology enabled approach to health care and the focused execution of our strategy by all team I would like to thank all our team members for their valuable contributions.
As more and more consumers and professionals have come to know all success is a direct result of our product that work to improve health from the very first year.
All attachment pet had born with a unique system. So that it can be a healthy kansas to receive other treatments, whereas the chemical color straightening or otherwise.
Although it's also highly beneficial as a stand alone treatment SB damage, all hairball and daily.
Born Ah ha agnostic, serving 80 heads high regardless of a person's age gender ethnicity.
And the city.
This gives us a vast white space opportunities from which to grow and has led to all pets being part of millions of consumers hair care regimen.
Must have treatment for stylists to apply on the climate.
We see this unification of health care as an ongoing trend and one that we believe has tremendous runway ahead as we apply our patent protected technology to meet current and new consumers, we co product values everyday for head protection and repair and products.
For state.
With 11 established products and more than 100 Hudson for existing and new technology, we have the competitive mode and are confident in that.
Ability to deliver consistently strong sales growth at robust EBITDA margins into the future.
The fourth quarter saw net sales increased 17%.
Adjusted EBITDA increased 68, 2% with an adjusted EBITDA margin of 66.5%.
For the fiscal year net sales rose, 112% and adjusted EBITDA increased 105.1% with an adjusted EBITDA margin.
68, 3%.
The year marked several noteworthy accomplishments, which we are proud to share.
Although platform on it with 33 industry awards, the most ever in our history, surpassing the combined number awarded to US you know seven year history.
According to the NPD group retail tracking data in the U S in 2021 .
<unk> had the best selling prestige had caught up with our number three have pro factor.
All of our clients have the best selling prestige shampoo and.
<unk> has the best selling prestige condition.
And continuing with a track record of eight plus new product launches <unk> had the best selling hair care launch with number eight our bone intense moisture mask.
Ah get puzzled MPD group retail tracking data the prestige hair care market grew 47% in the U S. In 2021.
As a result of our focus on market development.
Fueled by innovation and product excellence.
It looks like gain 500 basis points of market share.
This category in this period.
<unk> was the number one hair care brand by Tripe dynamic earned media value in 2021 and has started 2022 in the same position.
Outside the U S on Singles' day in China, We will the number one hair care brand across all classes of trade on Tmall global for the period from October 20 to November 11th.
And we will the number one hair care brand.
For Europe in 2021.
We continue to lead in social media as.
As of December 31, 2021, the all Opex cash tax has been used over $12 9 million times across social media platforms by our community of professional hair stylist and consumer who create their own content about their hair care regiments.
In fact during 2021, we had exceptional engagement.
Ended the year with an Instagram community of over $2 2 million followers.
<unk> generated $2 6 million light and an average of approximately 13500 story views a day.
Our passionate consumer base is also demonstrated by our presence and take talk where all videos have been viewed over $10 6 million times between October to December of 2021, and as of December 2021 video using all types of hashtag.
Has been viewed over 542 million times since the hashtag first appeared on the platform.
We continue our sustainability goals to reduce our carbon footprint and maintained our leadership in diversity and inclusivity.
To this end, we promote handheld without threatening the environment with cruelty free and non toxic formula.
Sulfate free salad free and phosphate suite.
Limiting secondary packaging since 2015, we have prevented 35 million panels of greenhouse gas being emitted into the environment and say 57 million gallons of water from weight.
82% of our board is female 18% of our board a racial minorities.
And 76% of all employees identify as female 46% a ratio minority.
We expanded our talent base, increasing executive leadership, and all associate base across the organization to support our growth.
Since the beginning of 2021, we have added nine four professionals to our senior leadership, including the addition of our chief scientist Lavina pump his SKU.
<unk> transformation Officer, Julia Park, Chief Financial Officer, Eric TCR knee and Charlotte once it as our Chief marketing Officer.
As well as six leaders in R&D, and seven theaters and professional and retail sales.
We also expanded Helen is in finance and operations, Eddie a senior Vice President of operations, our senior Vice President of accounting and Vice President of Finance.
We successfully completed our initial public offering.
Subsequent to year end, our cash flow generating business model allowed us to optimize our capital structure with a new term loan and revolving credit facility that lowered our outstanding debt and ongoing interest expense, while maintaining sizable cash on hand.
And liquidity to me organic or inorganic investment opportunities to refine to keep driving our business.
As it relates to the fourth quarter, our sales continue the positive momentum we delivered during the first three quarters of the year with growth balanced across product channel and geography.
In terms of product core products drove our growth in all our primary focus.
24 of our 33 awards in 2021, well for our coal products number 03456 and seven.
We saw very strong growth from our new product launches throughout the year.
Among the three new innovations in 2021 to one for take home use and so across channels. The number four key blood and Hamzah and number eight ball intense moisture map.
And why was fulfilled for the professional segment the fall in one moisture mass professionals the long treatment.
This launches show our continued commitment to providing high performance products to both the health professionals and consumers.
We have proven that innovation complements our core so consumers have purchased.
Four or more of our products on average our market leadership in all subsets invite others to participate in the categories, we serve well.
Well the growing interest for our products.
With competition that will be growing interest and awareness in the hair category. We believe this benefit all the plants as we can leverage our leadership position to continue to disrupt neat and shape the market by investing in innovation and further distance.
Ourselves from the competition.
Overall, the expansion opportunities that are presented by our patent protected technology gives us a significant competitive advantage, which we expect to capitalize on to further set us apart from peers.
Turning to our sales channel.
The China business model again delivered broad based growth across our three channels of professional specialty retail and direct to consumer.
For the full fiscal year 2021, compared to 2020, the professional channel, which represented 43% of our business grew 66%, especially retail grew 247% and direct to consumer grew one.
<unk> hundred 17%.
Growth within specialty retail was driven by productivity gains with current doors and from the expansion of space and new retail partnerships.
Fourth quarter also saw initial shipments to Ulta beauty in preparation for an all retail store and online rollout that occurred at the start of 2022.
The direct to consumer channel continues its robust growth across both Oh look like Stockholm, as well as with our E Commerce partners.
On <unk> Dot com, we expanded into new market, such as the UK and Australia and continue to see healthy momentum in average order value and retention, particularly through our virtual bundles.
The professional channel also delivered strong growth both in the U S and internationally.
We remain focused on both expanding penetration with new stylist as well has been expanding the purchases of existing customers.
In one of our biggest professional customer in the last 12 months, we sold 25% growth in new customers and 20% growth in purchases by existing customers.
As many of you are aware, we have a sizable international business.
Over 40% above sales.
Outside the U S in 2021.
On the international front, we grew 91% for the full fiscal year 2021 compared to 2020.
We are taking our omnichannel playbook.
That has.
Well for us from a market like the U S and the UK and we are applying this model.
Success in other key markets.
Italy and Spain.
Samples of bid in 2021.
While we remain at an early stage of our growth in China. We were also very pleased with our results in cross border E Commerce into China with Tmall Global.
Overall during Singles' day for the period from October 20th to November the 11th we was the number one hair care brand across all classes of trade on Tmall global.
We know that Asia and in particular, China also saw a significant growth opportunity.
We are proud of our 2021 accomplishment and intensely focused and excited about our opportunity in 2022.
As our guidance suggests we are expecting another strong year of growth at robust margin.
Our priorities in the year ahead, our focus on increasing loyalty and brand affinity with each use of all attacks across all core the launch of two to three new products and identifying and capitalizing on opportunities to expand our distribution around the world.
To this end our loyalty continues to grow as demonstrated by social media followers view and post increasing from year end.
Currently we have well over 750 million take top view.
<unk> Colo plus $2 2 million Instagram followers, and $13 2 million posts on Instagram hash tag all of that's.
All of this translates to a rich user generated content library, where we can continue to leverage in our marketing and community building efforts.
Our current distribution, we are intensely focused on increasing productivity, which will be complemented by expansion into new distribution, both in the U S and <unk>.
Internationally.
In terms of new distributions at the start of the year, we entered Ulta beauty with a full portfolio that by introducing all of flex two ultra 35 million loyalty members pro.
Performance, thus far has surpassed our expectations.
At the same time, we continued to grow in double digits with Sephora with Ono penetration at Sephora moving from 9% in 2021% to 12% of support customers currently in the U S. We are currently in all of the four stores and we will be.
Doubling to Sephora Europe , Stockholm in 2022.
In addition, we will be expanding our sephora at Kohl's store call from 200 to 650 in 2022.
Further to our success with glass on Dot Com. We will also end to more than 100 bugloss stores in Germany in 2022, as we continue to drive expansion into key international markets.
We have a rich pipeline of innovation to support our 2020 to plan and we expect to continue to introduce two to three new products each year.
As you saw from us in 2021, while we don't provide information on expected launches for competitive reasons. This introductions are planned well in advance of launch and are included in our guidance.
I would be remiss not to acknowledge the completion of our initial public offering in September .
I would again like to thank the team and our business partners for their hard work and dedication to contributing to our successful offering.
First fiscal year as a public company.
We believe that we are still in the early stages of realizing the full potential for all of us and we see significant opportunity for fiscal 2022, and well beyond without disruptive business model and unique competitive advantages.
I've said before every great story has the beginning a middle and an N and in the case of <unk>. It is all just the beginning.
I will now turn the call over to Eric.
Thanks, Julie and good morning, everyone I'll be covering our fourth quarter 2021, and fiscal year 2021 financial results as well as the introduction of our fiscal year 2022 guidance.
As Julie noted fourth quarter capped off an outstanding year for our clients.
I'd like to begin by acknowledging the <unk> team who made this possible.
We more than doubled the business, having $316 million of net sales and $210 million of adjusted EBITDA in 2021, amidst a volatile macro environment.
This is a testament to the depth of our competitive moat.
The resilience of our operations.
But we have to serve the old flex community.
Our growth was broad based across products channels and geographies and we expect this to continue in 2022.
And our growth was very profitable with adjusted EBITDA and adjusted net income also growing triple digits.
We enter 2022 with strong momentum.
Our outlook for 2022 has only improved since our IPO in September 2021.
We have strong conviction that our strategy will continue to deliver healthy growth with robust profitability.
Now turning to our financial results My remarks will focus on our adjusted results you can find reconciliation tables to the most comparable GAAP figures in our earnings release, which was also furnished on our form 8-K with the SEC today.
Highlights of our fourth quarter included the following.
Net sales grew 79% to $166 5 million, 95% growth in the U S and 61% growth internationally.
It was yet another quarter of sequential growth in a.
A quarter in which each of our sales channels exceeded our expectations.
Specialty retail led the way with 332% growth at $59 6 million as we benefited from strong momentum in existing distribution as well as supporting new distribution.
This included continued velocity gains at Sephora.
The launch into support at Kohl's in 200 locations in.
And the initial pipeline to support our retail and dot com launch into all of them Ulta in January 2022.
This initial pipeline accounted for $15 million in net sales in the fourth quarter in line with our expectations excluding.
Excluding the ultra pipeline sales specialty retail still would have grown over 220%.
Total business would have grown over 60% in the quarter versus the same quarter last year.
Direct to consumer sales rose, 85% to $49 7 million continuing our strong growth at <unk> dot com and across our E Commerce partners.
This was supported by increased digital marketing spend and the expansion of <unk> Dot com new markets, such as the UK and Australia.
Professional sales grew 9% to $57 1 million.
This was slightly ahead of our expectations.
We have historically seen some seasonality in this channel higher shipments in the third quarter versus the fourth quarter due to the ordering patterns of stylists, leading up to the winter holidays.
However, we were lapping a fourth quarter of 2020.
Higher shipments related to the reopening of salons.
I'll note here that the full year 2021, net sales growth and professional was strong at 66% and we expect Q1 2022 growth to also be strong for the professional channel as we continue to realize both higher penetration and higher velocity.
Adjusted gross profit margin was 84% versus 81, 6% in the fourth quarter of 2020.
The 120 basis point decline was primarily due to higher inbound logistics and warehousing costs.
Adjusted SG&A was $22 6 million compared to $10 2 million in the fourth quarter of 2020.
The increase was driven by an incremental $2 7 million in sales and marketing expense.
$3 6 million in payroll for expansion of our workforce.
$6 million and other expenses relating to general business growth such as outbound freight.
Company costs, which were not present in 2020.
Adjusted EBITDA grew 68, 2% to $110 7 million.
Adjusted EBITDA margin was 66, 5% compared to an adjusted EBITDA margin of 76% in the fourth quarter of 2020.
Adjusted EBITDA margin. This year reflects the decrease in adjusted gross margin and the increased investment in SG&A to support our higher sales.
This included a year on year increase of 103 basis points as a percentage of sales and sales and marketing expense and a 160 basis point increase in payroll and other G&A, including public company costs.
Net income increased to $69 3 million growing by 108% versus the fourth quarter of 2020.
Adjusted net income increased to $71 4 million or 10 cents per diluted share.
This compared to $46 million or <unk> <unk> per diluted share in the 2024th quarter and represents 55% growth year over year.
Now I'll move onto the financial highlights for the fiscal year 2021.
Total net sales increased 112% $598 $4 million with 131% growth in the U S and 91% growth internationally.
Adjusted gross profit margin was 85% versus 81, 6% in 2020.
110 basis point decline was primarily due to inflationary cost pressures, mostly for inbound freight and warehousing.
Adjusted SG&A increased 134% to $72 million in 2021.
In 2021. This represented 12, 1% of net sales compared to 11.0% of net sales in 2020.
In 2021 compared to 2020, there were increases out $9 8 million in sales and marketing expense.
$8 6 million in payroll driven by the expansion of our workforce.
X million in distribution and fulfillment costs related to the increase in product sales volume.
$5 5 million in cash settled units compensation expense.
And $11 2 million and other SG&A expenses pertaining to general business growth, including public company related costs.
Net income increased 462% to $221 million <unk>.
Adjusted net income increased 110% to $275 million and adjusted EBITDA grew 105% to $409 million.
We generated 40.
Adjusted net income per fully diluted share versus 21 and 2020.
Turning to the balance sheet.
Inventory at the end of 2021 was $98 4 million compared to $33 6 million at the end of 2020.
We are comfortable with the level and composition of our inventory, which supports the strength of our business.
This includes higher in transit inventory levels versus prior periods, given the longer lead times required given the macro supply chain environment.
Overall, we believe we're well positioned to meet the continued high demand we're seeing in 2020.
Turning to cash flow.
Our asset light business model continues to drive very strong operating cash flow generation.
At year end cash provided by operating activities rose $71 million $200 million, reflecting our strong EBITDA performance, which more than offset our investment in working capital.
We continue to possess a strong balance sheet with higher cash and lower debt versus 2020.
As of December 31, 2021.
We had cash and cash equivalents of $186 4 million, an increase of $175 million from 2020.
Long term debt was $738 million a decrease of $17 million.
On February 23, 2022, we completed a refinancing of our credit facilities further reduced long term debt and lowered our current underlying interest rate by 300 basis points.
Now, let's look forward to our fiscal year 2022.
We are expecting another strong year of growth in 2022 as we leverage.
Our competitive advantages continue to disrupt the market as a leader in prestige hair care.
Our 2022 guidance reflects broad based growth from our core as well as new products are.
Our three sales channels.
Existing distribution points as well as new distribution points, particularly in specialty retail and from both the U S and internationally.
Our investment priorities to drive this growth also remained consistent.
Doubling down on our disruptive sales and marketing model.
Increasing investment in R&D to support science based innovation.
Further investing in the organization to measure the growth of the business, including costs relating to becoming a public company.
For fiscal year 2022, we expect.
Net sales in the range of 796 million to $826 million.
Based on the midpoint of this range this is 36% growth versus 2021.
Adjusted net income in the range of 363 million to $379 million for based on the midpoint.
<unk>, 35% growth versus 2021.
And Ah.
Adjusted EBITDA in the range of $504 million $526 million.
Based on the midpoint.
26% growth versus 2021.
We'd also like to provide the following additional inputs.
We expect Q1 2022 net sales growth to be higher than the full year 2022 guidance led by strength in specialty retail and professional above that expected by DTC as we lap the higher DTC trends experienced in Q1 2021.
Our expectation for Q1 net sales growth to be above the growth for the full year was expected given that last year's new product launches and distribution gains were largely introduced after Q1.
It is already factored into our full year guidance.
Also keep in mind that our guidance includes an expectation for adjusted gross margin to be down moderately versus 2021, as we absorbed cost inflation.
Entirely offset by our mitigation efforts inclusive of cost savings initiatives and tactical pricing.
Regarding interest expense.
Given the successful refinancing and based on our assumptions on future interest rates.
We expect annual interest expense to be $40 million of which $12 million will be in the first quarter.
Lastly, our effective tax rate is expected to be approximately 21% in 2022.
Keep in mind that we're not able to provide without unreasonable effort a reconciliation on the guidance for adjusted EBITDA and adjusted net income for the most directly comparable GAAP measure because the company does not currently have sufficient data to accurately estimate the variables individual adjustments.
Included in the most directly comparable GAAP measure that would be necessary for such reconciliations.
In summary.
We are pleased with our accomplishments in 2021, and even more enthusiastic about the opportunities that lie ahead.
We believe that we're at an early stage of growth.
High potential and ample white space, both grow our core as well as expand our portfolio and distribution into new areas. We.
We expect our disruptive business model and deep competitive advantages to drive this growth in 2022 and well beyond.
This concludes our prepared remarks, and we will now turn the call back over to the operator.
Operator.
Thank you.
Before we begin the Q&A portion I would like to turn the call over to Julie for a few remarks.
Thank you very much and first of all thank you everyone for taking the time to attend our earnings call. We would like to start by saying that our thoughts are with dose and Ukraine and the initial licensing laws to this horrific war.
The impact on the people of Ukraine is obviously top of mind.
We do appreciate you being here with us today to discuss our results.
Also want to address some misinformation surrounding all of pads and Lily upfront in lieu of taking questions on it during the Q&A.
In the last 10 days with information on all types has surfaced.
With regard to live with our products.
We have been actively communicating across all our channels to ensure that all customers have access to the facts.
Alleviate any anxiety that has been caused by this misinformation.
<unk> is a fragrance ingredients, commonly found in beauty and household products.
In September of 2020, the EU regulatory authority.
The intent to phase out the use of beautiful personal Macbook pro panel, which is linear.
March of 2022.
All of concern that linear when you.
Certain quantities.
Could have negative impact on women's fertility and reproductive system inks injustice.
In response to the EU states out of linear we no longer produce products with linear.
Prior to the EU phase out.
Number three have prospective product.
<unk> very small amount of lear to enhance the product fragrance.
<unk> was never.
Active all functional ingredient in a product and independent medical and catalyst experts have confirmed that the very small amount of 0.0119% previously used by all of plaque in this result number.
Three have constructed caught up.
No impact on fertility and productive system.
We have provided updated and detailed information on our website under the <unk>.
There's also a link to it.
Article, citing experts from the medical and science community as well as the original study that led to the phase out of Juliet.
We take pride in.
Investment in R&D, and our commitment to ensuring that our products are designed and produced with the safety and health of the consumer at heart.
We will continue to abide by health and safety standards as they evolve.
And as we have always been.
We will continue to proactively and transparently communicate with our customers.
The market to ensure they are well informed about our products.
Thank you for your attention and I will now turn this over to the operator for Q&A.
Thank you ladies and gentlemen.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
Again, Thats star one to ask a question.
We ask that you limit yourself to one question. Please.
Please feel free to rejoin the queue for any follow ups.
Our first question comes from the line of Dara <unk> with Morgan Stanley . Your line is open.
Hi, guys good morning.
So I wanted to ask about the <unk>.
To rollout.
It sounds like it's going well.
Well, even better than expected so far.
Can you just be a bit more specific on the ultimate level of contribution you might see there as the business builds out going forward.
So for can you also talk about the Incrementals, you're seeing to your total business.
From ultra sales so far.
Through early March here.
<unk> may be cannibalizing some of the rest of your portfolio and then last just in a broader sense.
What type of impact you expect on your household penetration of the Olympics branded general from the Ultra launch what are you guys seeing so far there. Thanks.
Yes.
Thank you.
Julian Let me take that question and please feel free to all built on it. So first of all your question in terms of how our business is doing we have obviously monitor very closely and we are happy to report we are the number one brand.
At Ultra for health care.
And in terms of services, 25% of our color services at Ulta users all of us as an additive and that service is ahead of plan.
In terms of cash.
Cannibalization as you can as you all know.
Altra really does almost close to 90, 95% of their business with a 35 million loyalty customers and we are we have now the ability to be exposed to that $35 million.
<unk> that we have probably would not have gotten full exposure to had we not been in ulta.
And the other thing that.
<unk> that you asked in terms of impact on household obviously, we don't see that because we are getting into new markets and given our results. Thus far where it is above our expectation as well as <unk>. We are very confident that we will continue on the path of delivering but the consumers are looking for and what the.
Look from us.
The ultra guests and once things from us.
Do you have anything to build on this.
Hi, Jerry Hi, Darren I would only add one thing Derik just to put it simply when you think about our 2022 full year guidance you see basically.
The rest of our business is on plan and this over performance that we're seeing in Alta is leading to the strong guidance that we've been able to report.
Okay. That's very helpful and if I can slip in one more Eric on that point, just as you think about 2022 guidance, obviously, the broader market concerns about the indirect fallout from Russia, Ukraine and weaker consumer spending.
For beauty companies in general, particularly premium ones like yourself.
So just how do you think about the potential impact if weaker consumer spending develops on your business obviously.
You guys don't have a long history through economic cycles, but.
Maybe the experienced during COVID-19 and how that might inform any impact and as you think about your 2022 guidance have you built in some conservatism on that front.
Either directly for weaker consumer spending or maybe other areas.
As you think about your 2022 guidance and clarity behind that thanks.
Right.
Yeah, Dara I'll take that and Joey I'm pleased that as you see fit so first let me just address the.
Question about Russia, and Ukraine, just for everyone's information, we have no direct operations in Russia, Ukraine, or eastern Europe , or direct exposure to Russia, and Ukraine is very small much less than 1% of sales and only between 1% and 2%. If you include all of Eastern Europe .
Question is more broad than that Dara, what about consumer spending.
Our macro outlook for the year.
And we've reflected our assumptions in that guidance.
Haven't seen an impact yet to the prestige hair care category, which has proven to be resilient through.
Multiple crises.
And I'll point to.
The market growth that we saw in the U S. In 2021 at least as measured by NPD. So that's the U S retail market was 47% and we expect.
That same market to grow double digits again in 2022.
Great. That's helpful. Thanks, guys.
Thank you.
Our next question comes from the line of Andrea <unk> with J P. Morgan.
Line is open.
Thank you good morning.
And should we Eric.
I wanted to perhaps.
Bridge the top line the sales growth that you have embedded for 2022, I know you normally don't break it down between new doors and distribution or same same door.
But you did say many times innovation is the is the biggest component. So it was helpful. If you can kind of elaborate more I'm, assuming and correct me if I'm wrong, you're not embedding any hair care or I'm, sorry, any skincare or NAO care or even color here.
Hair color on this on this top line, so I just want to clarify that.
Then.
Also the concern that investors had is the cost pressures to our third party manufacturing.
It looks like if it wasn't like a big impact this year. So I was hopeful to see if the contracts are.
Broadly longterm and then youre not seeing much of a pressure there would.
It needs to be passed on some pricing at this point if there is any pricing embedded in your guidance. Thank you so much.
Thanks, Andrea I'll take that.
So first on the breakdown of our 2022 gross guidance I won't break it down specifically for 2022, but I'll reiterate the way that we've described are kind of long term algorithm here, which is.
Broad based growth and in that sense.
About a third from our core.
About a third from the impact of innovation, new products, and then about a third from new distribution and it won't exactly be that in every single year, but thats more of the long term algorithm that you can think about and thats very similar to how we're looking at 2022.
In terms of the cost pressures and your question on third party manufacturers that we are seeing cost inflation on average not just not with our third party manufacturers, but more broadly in terms of market indices in the.
Mid to high single digits, which we expect to partially offset with our cost savings initiatives and tactical pricing.
Our contracts with our third party manufacturers.
Long term.
<unk>.
We work with them.
Quarterly to six month basis, whereas needed to review cost increases that they're experiencing but also the increased volumes that we're driving at those third party manufacturers as well and leveraging those efficiencies. So we built our assumptions on cost inflation into this guidance and will continue to evaluate it.
As more information becomes available.
That's helpful and just to clarify so there is no major innovation outside her for for this year.
And Thats correct, yes, I mean, as you have kind of said.
The runway and the opportunity for her is tremendous and we only have 11 established skus at this time. So the focus is going to be on here yes.
Thank you very much I'll pass it on.
Thank you. Thank you.
Our next question comes from the line of.
Jason English with Goldman Sachs. Your line is open.
And sorry, Julien I know you said you wanted to keep really auto Q&A and address it upfront, but I do have a quick question on it we.
We see a big spike in like Twitter mentions and read it post in Google searches. They all look like they stated sense, but.
Even if theres not substance behind the concerns.
<unk> matters have you seen any negative impact in retail sales related to this.
Okay.
I think you know what I want to point you back to the fact that we are addressing it on all fronts. This only happen as well.
So early on statement in the last 10 days. So we are monitoring and looking at everything from all angles, but the primary concern now is to really address all of this misinformation because you can appreciate how some of the anxiety has created for women.
They read about infertility.
Very happy to be able to slight expert not affiliated with older plants not paint by us fighting that.
No impact to fertility.
Okay.
Then let me move on to the different question and that's that's China can you give us some more detail around your strategy.
You've entered most markets you've kind of seen it in salons, and then scale beyond China. It seems like a very different approach, where you're just coming through cross border.
Is it going to stay that way do you have a salon strategy. If you could just expound upon your plans in that market. Thank you.
Yes. Thanks for the question. So first of all we have done.
Independent studies with our transformation team identifying where to consumers really look at buying innovative and even hair care products and all studies have shown that tmall JD Dot Com E. Commerce site Barr Nunn is where a lot of consumers buying their products.
That doesn't mean that beauty salons do not factor in but what I'm trying to convey here is that the fact that on the right platform marketing as far as communicating on oil cuts is gaining mindshare and wallet share as evidenced from our singles day. You just saw was not the number one.
Brad for hair care on Tmall global for all classes of trade gives us confidence that our strategy is working and that.
While it is still a small piece of our business represents an opportunity that we will continue to monitor and to continue to see how best we can continue to get access to that market.
Watching very closely on the animal testing policy.
Got it. Thank you that's helpful.
I'll pass it on.
Thank you.
Our next question comes from the line of John Kim with Cowen Your line is open.
Thanks for taking my question I'm, just curious one of your key strength is your ability to launch new products that did not cannibalize existing sales. So just curious if you're seeing similar trends. This year have you seen the launches and sort of how should we think about the cadence of new product launches. This year and also just curious about professional.
At all.
Within the U S. As things go back to sort of normalcy, we expect to see sort of higher growth in that channel for that.
It'll be helpful to get color. Thank you so much.
Well. Thank you again for the question I'll take the last one first and then built on that first of all our professional channel is very important to us.
Panel that really less authority and credibility. So we will continue to support that channel.
And whether it's in marketing and communications in education and in social media connections. So that is bar, none a focus of ours. The other thing too is that in terms of new launches. While we will continue to look at two to three launches as you say the way we will cadence the launch is going.
To conclude discussions with our retailers to make sure that we get the best exposure, both on retail and physical brick and mortar as well as online and digital presence. So that would give us a lot of opportunity to really optimize the exposure of the launch as well as on the Brent obviously again.
This is planned out well in advance we have dose already calendar rise, but I'm not at liberty to share the specific date.
Because of competitive reasons.
But ultimately we are not just going to look at one thing at a time.
I've heard from our prepared statements. We are looking at core growth and innovation as well as international and U S expansion. So all of those.
Triggers are going to be us.
To ensure that we will continue to grow this.
Brian both by leading it shaping it.
As defining it.
Thank you.
Thank you.
Our next question comes from the line of John <unk> with Bank of America. Your line is open.
Hi, good morning, everybody.
I just had two questions one about.
Signification of hair care that you mentioned in the prepared remarks I was just wondering how that may or may not influence.
Innovation planning for the next few years and then in terms of advertising I was just wondering if the mix of that advertising.
And promotion.
The expenditures you guys are planning is that going to be more of the same kind of social media.
Weighted Facebook groups and towards the professional channel or is there going to be a little bit more traditional.
In digital advertising and maybe some more influencer type sponsor.
Sponsorships and things like that.
Great question, and let me take that one of the things is that we are a very data driven company just as we lead with our.
<unk> enabled and technology driven innovation pipe when we look at data data is telling us and our transformation team is the one to go out there and do all this independent research from independent with independent houses.
<unk> data shows that 67% of customers tells us that the first source of truth. Its recommendation from the hedge assets, we are definitely going to doubleclick and double down on supporting that community.
Helping us message, what all of Texas, how the products are doing so that we get the credibility to REIT to REIT.
Interest into specialty retail and direct to consumer we have data to show that 35% of our customers are recommended by the silos when they buy at brick and mortar online and that 50% of our online customers actually bought at brick and mortar asphalt.
<unk>.
So with that said, we are confident that Keith.
We continue to let data help drive us into making that connection to engagement and ultimately the conversion we will always win but as you have heard me said we have also brought on.
Solid Watson our CMO.
<unk> has a lot of years of experience behind her on board.
Traditional as well as <unk>.
Relevant marketing tactics that we are going to explore and what is important is that we want to make sure that our communication and our marketing continue to resonate.
With our end consumers at retail and online as well as with our clients who are professional stylists and cohort.
Great. Thank you. Thank you.
Thank you.
Our next question comes from the line of Olivia Tong your.
Your line is open.
Great. Thanks, good morning.
In terms of the retail expansion into alternate do you have a sense of what.
What percent of consumers are new to the brand and is there any difference in the trends and see it also versus any of your other retailers and then also.
And just a quick question on sort of quarterly cadence.
And whether you expect growth to be relatively similar by quarter in 'twenty, two or there are some puts and takes to consider because of launches in the base for launch is expected this year.
And just any impact that you saw in <unk> from <unk>.
Bounce back yet thanks.
Yes.
Eric do you want to take the question on the financial piece and then the.
The trends, yes, yeah.
Yeah, exactly I'll I'll take your second question Olivia Hi.
So let me talk about the quarters for 2022 on our prepared remarks.
You will have heard me make a statement that we actually expect Q1 of 2022 to have net sales growth higher than the full year 2022 guidance and in particular that will be led by specialty retail and professional we expect professional to have a strong Q1 as well.
More so than direct to consumer because direct to consumer is lapping in Q1 of 2021 that was especially high around.
Certain certain consumer behavior related to Covid at this time.
And all of that is it as expected.
Q1 growth is going to be higher we believe than the full year guidance.
Because last year's new product launches and distribution gains were largely introduced after Q1. So it has a little bit to do with what we're lapping.
After Q1, we expect that growth to be.
We're not giving quarterly guidance, but stable along the lines of our full year growth guidance theres always going to be some quarterly volatility.
Timing of new product launches year over year et cetera, but but we see the full year growth guidance and thats, what we want to have that really focus on a very strong very healthy and.
And a number that we believe is going to be well ahead of the market.
And then you also asked I'll take the other part of that as well, let me ask about omicron.
We saw very slight impact, particularly in our Salon channel in January .
Related to.
Yeah.
Cancellations lack of workers, but by February that was completely back to normal so that was a very small blip.
Thanks, Alright, and then on the auto trends as we ship. The fact that we continue to be the number one hair, Brian at Sephora and the number one volume driving Brent at ultra out of the gate in January when we launched with them and continue to do so is an indication that the trends are very positive for us because we.
Our survey.
Customers that do not overly overlap.
As you can appreciate ultra serves the professional customer to mass masstige and prestige. So all classes of trade and <unk> products are represented there and <unk> has been one of the brands. That's a lot of customers have been asking for asphalt sales salon professionals. So all of this really point to the fact that the.
<unk> opportunity is there and Thats why we continue to be so positive in so and suggesting about how we can grow this business and when we say we are just at the infancy, we really mean it because there's too many customers who have yet to experience total plants.
Thanks, that's helpful and then in terms of a mark on the margin. Your EBITDA margin guide would assume something around a 500 basis point decline. So can you just help parse that out a little bit for us in terms of your your views on how much of that is logistics versus incremental sales and marketing versus expenditures on building out.
Additional partnerships, whether retelling geographies and other capabilities.
Yes, Olivia I'll take that.
The bridge from the 2021 adjusted EBITDA margin to what you see in our guidance Hasnt really changed in the way that we've been talking about it up until this point.
From an SG&A perspective.
Priorities are the same we're going to double down on the sales and marketing model. That's been working so well for US even ahead of sales. So thats an increase as a percentage of sales.
Going to increase our investment in R&D behind our science backed innovation and we will see.
Increases in.
Hiring people into the organization and building up capabilities.
To measure it with our growth.
Also including the cost of being a public company for a full year versus only a quarter of 2021. So those priorities are exactly the same as what we've talked about and one other factor in there is an adjusted gross margin that we expect to be moderately lower than 2022 versus 2021.
With the cost inflation impacts, we're seeing entirely made up by our mitigation efforts.
Thank you.
Thank you as a reminder, ladies and gentlemen, we ask that you limit yourself to one question. Please.
Our next question comes from the line of Robert Aten Stein with Evercore. Your line is open.
Great. Thank you very much.
I was wondering if we can go back to Q4 and then looking at Q1, just in terms of how the.
The channel growth developed if you could give us a little bit more detail on that retail was much better than expected pro was better DTC was a little bit less.
And then you also just noted that you expect <unk> to be very strong in Q1, So maybe maybe just discussing a little bit more detail.
What's going on between the different channels compared to your <unk>.
Why you're thinking as well as any impact that may have in terms of your margins given the fact that our DTC, obviously has much higher margins.
And that was a little bit weaker thank you.
Yes.
Thanks, Robert I'll take that one.
No.
If we look first at the fourth quarter of 2021, we came in ahead of the guidance that we had given with our Q3 results and that beat was broad based actually.
We'd like to mention that it was actually a little bit of a beat on each of the three sales channels. So it was largely as we expected and then the beat was broad based.
We already talked about professional in the in the in the call script.
Which is really about what we're lapping in the prior year, we expect Q1 2022 and professional to be strong.
The biggest beat we had by channel in Q4 was actually indirect to consumer where we just saw.
Really fantastic results in both our flex dot com and with our ecommerce partners.
As you then extend forward to Q1 2022 like I said pro.
Retail strong you know, we're adding significant distribution points in retail.
As well as having a very strong core and healthy base of existing distribution and direct to consumer while still very healthy and we expect the growth to be a little bit lower and direct to consumer in Q1, again really because what we're lapping in Q1 of 2021, so I wouldn't focus too much on that volatility by channel on a quarterly basis.
<unk> and point to all three channels being important for us all three channels growing nicely.
We assumed in our full year 2022 guidance.
Yes direct to consumer comes at a higher margin for us so that does provide a little bit of a.
Margin tailwind when you look at the longer arc of the time horizon full year versus just one quarter.
And is there is there a big difference in those trends between the U S and.
Europe .
Not particularly.
Hi.
<unk>.
Particularly again, if you look at the full year basis.
Get away from sort of the quarterly noise, we see consistent trends by channel in both the U S and international.
Great. Thank you very much.
Thank you.
Our next question comes from the line of Cory <unk> with Piper Sandler Your line is open.
Hi, good morning, and thanks for taking the question and congrats on the quarter just wanted to touch on you mentioned in your prepared remarks that potential for inorganic growth opportunity just curious what kinds of things you'll be looking at here is this eventually a way for you to expand more out of hair care.
Would you be targeting larger assets or smaller just any color here would be helpful.
Thank you for the question I'll take that basically when we say organic and inorganic.
Want to be able to be open.
Opportunities that come to us as you can appreciate we have a really strong cash flow and we have the ability to assess what it would mean for our business. So we will leave no doors close so to speak and we will look at opportunities.
Right.
Thank you.
Okay.
Thank you.
Our next question comes from the line of.
Lauren Lieberman with Barclays. Your line is open.
Great. Thanks, Hi, everyone. This call has gone on a long time and we've covered a lot of ground. So I'm just going to leave it and we can follow up offline. Thanks.
Operator, if you could please turn the call back over to Julie one for closing remarks. Thank you.
I would now like to turn the call back over to Julie for closing remarks.
Well. Thank you again for joining US today, we look forward to speaking with all of you at an upcoming the.
At upcoming Investor conferences, or when we report first quarter results in May have a great day everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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