Q3 2023 Olaplex Holdings Inc Earnings Call

Greetings and welcome to the <unk> Holdings third quarter 2023 earnings results Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Any once you require operator assistance during the conference. Please press Star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Patrick Flaherty Vice President Investor Relations. Thank you Patrick you May go ahead.

Thank you and good morning, joining me today are J P Bilbrey interim Chief Executive Officer, and Eric Giuliani, Chief Financial Officer.

Before we start I'd like to remind you that management will make certain statements today, which are forward looking including statements about the outlook all parts of the business and other matters referenced in the company's earnings release issued today.

Each forward looking statements are 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 filings the company makes with the Securities and Exchange Commission.

They are available at www Dot FCC dot Gov.

And on the Investor Relations section of the company's website at IR at <unk> Dot com.

The forward looking statements on this call speak only as of the original date of this call and under.

Take no obligation to update or revise any of these statements.

Also during this call management will discuss certain non-GAAP financial measures, which management believes can be useful in evaluating the company's performance.

The presentation of non-GAAP financial measures should not be considered in isolation.

Jude tour golf prepared in accordance with GAAP.

You'll find additional information regarding these non-GAAP financial measures.

And a reconciliation of these non-GAAP financial measures 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 IR at all quite the dotcom.

Additionally, during this call management will refer to certain data points estimates and forecasts that are based on industry applications or other publicly available information.

As long as our internal sources.

The company has not independent independently verify the accuracy or completeness of the data contained in these industries applications.

The available information.

Furthermore, this information of all the assumptions and limitations and you are cautioned not to get onto wait exactly.

With that I will now turn the call over to J T.

Thank you Patrick and good morning, everyone. It's a pleasure to be with you today.

I joined <unk> as executive Chair in July 'twenty, 'twenty, three because I saw any innovative company with a special boy Oh.

Leader in the attractive high growth and resilient prestige hair care category offering products differentiated by patented technology that deliver superior performance.

Since joining the company I've been spending my time digging into the business trying to better understand both our strength and our areas of opportunity.

So with this promise that.

A stronger understanding and appreciation for the competitive differentiators that make all the plots unique.

Oh I have conviction in the potential for long term growth and the opportunity to create significant long term value.

The passion of our loyal base of professional stylists and consumers is strong.

I see significant opportunity for consistent sustained growth as we evolve our portfolio with new technology, leading innovation and build our business and attractive geographies.

And I believe our advantage business model will allow us to continue to deliver top tier profitability and cash generation.

That being said the business has faced several headwinds over the past year, including our own execution in the face of increased competition.

I believe we're at a.

Pivotal point in our company's evolution and the next phase of growth for older Blacks. It requires a different level of focus and improvement in brand building capabilities.

My goal is to enable a path to long term profitable growth and make the company stronger ensuring we have the right structure.

Sure.

And operating systems in place to be.

It should give our goals.

To that end I've been focused on at leading three key initiatives since I've joined Domo Plex.

First I've been overseeing the redesign of our integrated business planning processes to improve forecasting.

Innovation delivery and overall business performance management.

Next we're enhancing and investing in our insights and analytics capabilities.

I believe it will give us the tools to invest more thoughtfully and our brand and distribution channels and becoming more customer and consumer focused organization.

And third I've been managing the execution of our Omnichannel strategy seeking to reassert our position with the professional channel and ensure that the stylists are at the center of our brand.

In addition to these initiatives, we reviewed and assessed our organizational capabilities to determine what we need for long term success, and recently announced a leadership transition.

We are very excited that Amanda Baldwin will join all of plaques as our next Chief Executive Officer by mid December.

Bringing significant leadership and expertise in the beauty industry to the company.

Amanda has spent the last seven years as CEO a super good.

Leading S. P. A skin care brand, where she has led the company through significant growth.

Prior to Super good.

And it served as a senior vice President and Cao.

Again, a global consumer focused investment fun.

The library with management teams across the portfolio with a particular focus on the beauty sector.

And she previously led the Omnichannel marketing strategy or do your beauty and held several positions at Clinique.

She's an accomplished beauty executive.

Amanda has deep experience with building prestige brands and her mix of strength across marketing partnering with customers product and team to make her the ideal person to position all of the flex for long term success.

Until Amanda joined the company I have the privilege to serve as interim CEO.

My priority is to ensure that we remain focused on delivering our operating plans, which starts with achieving stabilization in our sales trend in the second half of 2023.

Our third quarter results at our 2023 guidance support our belief that we're making progress on that goal.

And in a moment, Eric will provide more details on those results.

In summary, all of flex, it's driven by Great Science.

We see untapped opportunity for growth as we innovate draw.

Drive our existing channels and expand into new geographies.

We identified and are implementing changes that we believe are more powerfully unlocked the high potential of the automobile.

That's great.

And I'm excited and look forward to partnering with Amanda.

Board and the entire all the flex team to capitalize on these opportunities.

And with that said I'll now pass it over to Eric to report on our progress towards stabilization.

Execution of our priorities, our third quarter results and our outlook for the remainder of 2023.

Eric over to you.

Thanks, J P and good morning, everyone.

Last quarter, we communicated that stabilizing our sales trends in the second half of 2023 with a topical.

We believe our Q3 results delivered solid progress against that goal.

Our demand trends are stabilizing suggesting that our increased investment in the business is yielding positive results.

I'd also like to share the following commentary on the progress we've made.

First aggregated sellout sales dollars remained relatively consistent sequentially in Q3 with Q2 sell out on an absolute dollar basis.

This is a key metric we're tracking in terms of what we mean, when we say stabilizing the demand trend.

So.

There was little difference this quarter between our reported net sales decline of minus 30% versus prior year.

Sell out trends in our key accounts, which was down 28% versus prior year.

We continued the glide path to rightsize customer inventory levels for current levels of demand.

As mentioned last quarter, we believe the months on hand inventory position at our major accounts on our core items remain in a good position.

Next old Flex Dot Com performance remained strong posting a second consecutive quarter of positive year over year growth.

This channel has benefited from our increased marketing investment, particularly in upper funnel Activations and.

In that regard we continue to measure positive impressions of the brand from the strength starts inside campaign with notable campaign lifts and brand awareness consideration and affinity and a more than 3 million dollar increase in earned media value since the start of the campaign.

We believe this is cause for optimism for the broader business.

Additionally, we increased our activations in the professional channel during the third quarter and have already observed positive early indicators from this work.

With a holistic approach to increase our visibility with stylus and demonstrate our commitment to their success, we implemented increased sampling programs.

In person and virtual events.

Trade media placements.

Visual merchandising updates and participation in key promotions.

We recognize that there is more work ahead to further deepen engagement with the pro community.

However in these early days of these efforts we are encouraged that our actions appear to be resonating.

And lastly brand health metrics on old plants, among prestige hair care consumers as tracked by third parties remain strong and consistent with prior months.

According to our external brand tracker, we are ranked number one or tied for number one for 10 of the top 17 premium hair care equities.

<unk>.

That's it for my hair makeup.

It makes her a healthier highest quality products.

And scientifically proven to benefit here.

In support of our stabilization goal for the balance of 2023, we also continued to deliver against the key priorities, we established for our reset.

These include.

Accelerating investment in sales and marketing.

Increasing and evolving our educational assets.

And reasserting, our position with our pro and specialty retail partners.

I mean, I'll walk you through the progress we made on these initiatives during the third quarter.

Starting with sales and marketing year to date, we have invested approximately $54 million and with one quarter remaining in the year. We now expect our marketing investment for 2023 full year inclusive of sampling and certain sales and marketing payroll to be in the range of 80 to 82 million.

Compared to our previous expectation of $80 million to $85 million.

This year, we have deployed a more balanced full funnel marketing strategy with a test learn and optimized approach to our spending.

This quarter, we invested further in our full funnel strength starts inside creative campaign that kicked off in June.

Based on our marketing mix modeling analysis, we were able to shift more of this investment into our best performing content and our best performing marketing channels, mainly digital social and connected TV elements.

We also made the choice to re phase some of this planned investment from the third quarter into the fourth quarter.

We believe it will have a bigger impact around key buying moments for our stylists and consumers.

We have also consistently spoken about the importance of the earned media value metric in our marketing efforts, which we believe provides a multiplier effect on the value of our marketing spend.

We are pleased to report that in the third quarter, we regained our position as the number two earned media value hair care brand in the U S.

And exited the quarter in September has been number one earned media value hair care brand. According to tribe dynamics.

This position was bolstered by the launch of our global Creative Social media campaign designed to reassert old Flexes authority in science and technology.

The campaign generated significant buzz on social channels and immediate coverage with more than 40 million views and impressions of the campaign and nearly 80 million views of the campaigns hashtag on tick tock.

Moving to our education efforts.

We continue to distribute new core education content focused on our science provide more efficient and easier to use education materials for our U S and international business partners.

Actively correct and you mentioned of misinformation on our brand in the market.

In addition, as a reminder.

We established an internal field sales and then the education team.

Resources deployed against our specialty retail and professional channels in the U S.

We believe building this capability in house is both more cost effective.

And provide even better control of training on the old Flex brand.

Feedback from our specialty retail partners has been very positive as we have displayed our commitment to expanding our reach and support of the in store experience.

Another reset priority is reasserting, our position with the professional and specialty retail channels.

In addition to the increased pro Activations that I mentioned earlier we.

We are collaborating with our specialty retail partners by participating in their high profile category marketing events.

Ensuring that we deploy a balanced approach to our promotional strategy and analyze the activities to measure success.

We also leverage the insights and capabilities of our specialty retail customers and executed targeted C. R. M. Activations with one recent campaign delivering millions of impressions very high ROE as it exceeded industry benchmarks and a strong number of new <unk>.

Users to old flex.

And we continued to deliver against our enhanced sampling program this year.

The data revealing that our samples continue to convert at top tier levels in the industry.

Now turning to our financial results for the third quarter.

Net sales declined 30% year over year to $123 6 million in line with our expectations.

By channel as compared to the third quarter of 'twenty to 'twenty two.

Professional channel sales declined 23, 3% to $48 3 million.

Specialty retail sales decreased 41, 8% to $43 2 million.

Our direct to consumer channel sales were down 18, 2% to $32 1 million.

As we had signaled last quarter.

Sequential absolute dollar increase in Q3 net sales of $124 million.

Versus Q2 net sales of $109 million.

Largely driven by the sell in of our 2023 holiday kits and the pro and specialty retail channels.

The sequential absolute dollar decrease for D. P C.

Second quarter.

Third quarter was primarily related to the Q2 sell in for a major customer promotion that occurred in July.

By geography and.

In the third quarter.

The U S declined 39% compared to a year ago.

International was down 29% year over year.

The decline in international was driven by the U K, Canada and Australia.

Partially offset by gains from our growing distribution in South East Asia, The Middle East and Latin America.

Moving down the P&L.

Adjusted gross profit margin was 69, 7% down.

Down 540 basis points from 75, 1% in the third quarter of 2022.

Approximately 320 basis points as it related to promotional allowance.

290 basis points to higher inventory obsolescence reserve and.

70 basis points from inflation on product costs.

More than offset the 160 basis point benefit primarily from lower warehouse and distribution costs.

Adjusted SG&A grew 18, 8% to $33 7 million from $28 4 million a year ago.

The $5 3 million increase in adjusted SG&A from prior year.

Primarily the result of a $3 4 million increase in sales and marketing expense.

As well as an increase in payroll attributable to work force expansion and other related expenses.

Adjusted EBITDA declined 49, 5% to $51 5 million versus $102 million in the third quarter of 2022.

Adjusted EBITDA margin was 41, 7% compared to 57, 8% a year ago.

Adjusted net income decreased 54, 5% year over year to $33 4 million or five cents per diluted share.

From $73 3 million or 11 cents per diluted share in the 2022 third quarter.

Now turning to our balance sheet.

Inventory at the end of the third quarter was $112 8 million.

Down from $128 5 million at the end of the second quarter.

And good progress against our goal to lower our inventory towards our target range for months on hand.

Turning to cash flow.

During the first nine months of 2023, we generated $128 5 million in cash from operations.

We are generating healthy cash flow through our highly profitable business model and as we improve our working capital position primarily through lower inventory.

We ended the quarter with $429 6 million in cash and equivalents.

$51 2 million from the end of Q2.

This cash is generating interest income and annual rate above 5%.

Long term debt.

Current portion of deferred fees.

$654 million.

Now turning to our financial outlook.

For fiscal year 2023, we now expect.

Net sales in the range of 450 million to $460 million.

Versus our previously reported range of 445 million to 465 million.

Adjusted EBITDA.

And the range of 166 million to.

The $174 million.

Compared to our previously reported range of $161 million.

$176 million.

And.

Adjusted net income in the range of 100 million to $108 million.

Versus our previously reported range of 96 million to $108 million.

For the year, we assume adjusted gross margin in the range of 75% to 71%.

In the medium term, we remain confident that we can return closer to our historical adjusted gross margin levels in the mid 70% range.

We continue to assume net interest expense to be approximately $40 million.

And an adjusted effective tax rate.

Of approximately 20% for the year.

In conclusion.

We believe the third quarter represented good progress against our goal to stabilize the demand trend in the second half of 2023.

And we're pleased to update the annual guidance range for this year.

We continue to believe our company will once again achieve consistent profitable growth as we invest in foundational capabilities.

Leverage our patented technology and powerful community of advocates and implement our strategic initiatives.

This concludes our prepared remarks, we will now turn the call back over to the operator for questions.

Operator.

Thank you we will now be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

<unk>.

Thank you our.

Our first question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.

Hi, good morning, it sounds like laying on for Susan.

Just on the sell outs you mentioned it was starting to stabilize that are down 28% compared to 26% in the first half I guess can you talk about the exit rate of the sell off in the quarter.

Just how the retailers are feeling about stocking levels and then maybe any incremental details on a unit basis, just to kind of account for the promotional levels too. Thank you.

Hey, Alex it's Eric here, Thanks for the questions.

So yes for first I would just say again were pleased with Q3 results delivery in line with our expectations. The sharpening of our guidance for the year, which we believe show.

Good progress against this goal of stabilization what do we mean by stabilization are one of the ways in which we've been talking about that is looking at absolute sellout in dollars are trending overtime and stabilizing that trap.

And what we saw in the third quarter with a good progress against that so stabilizing the sell out trend versus Q2 was relatively the same in absolute dollars versus Q2, and a tier you're separate question, we saw sell out and sell in trends.

Very similar so we believe that were passed in through the customer inventory rebalancing our that we've experienced as a headwind earlier this year and that our core cost in our key customers. Our core items are all at healthy levels of inventory in weeks on hand.

So so that's the key you know the stabilization is the absolute dollar trends are.

Being relatively flat in the third quarter versus the second quarter. It happens to be a minus 28% sell out trend in the third quarter.

And on a unit basis that was the last part of your question, we actually saw our average price pick up a bit in the third quarter versus the second quarter as we continue to be less promotional on average than the rest of the category, but we are participating in some promotional events that we think are.

It's important for our customers for our stylists and our consumers, especially when we see an opportunity to do that strategically into acquiring new customers, but not more promotional in the third quarter than previously in less than the category average.

Thanks, and then just on the overall operating or EBITDA margins I guess, how are you thinking about balancing the gross margins or operating cost as you ramp up marketing and then like you said compete with with.

Are there other brands when it comes to promotions.

Sure well, let me start with gross margin, we know and we've stated we've been dealing with some headwinds this year on gross margin, particularly around the actions, we're taking on excess inventory levels on our side and in some cases promoting through.

Some of the slower moving items of excess inventory at our customers that those are the big headwinds we've been dealing with in gross margin. This year, we still believe as we stated that as we get through those headwinds we see gross margin returning to that mid Seventy's range that we've been at historically and you know that.

That will continue to support the investment levels that we want to put elsewhere in the P&L. We talked about you know as a priority this year in 2023, increasing our sales and marketing investments.

Now to get our message out to be proactive about the the old plaques message building awareness building brand equity really building the brand.

And and we've been following through on that priority. This year and we'll continue to do so we were measuring we've talked about this as a test learn and optimize our approach to our sales and marketing.

And we're very much.

Using the data and using the ROI analytics to direct that spend where we think it can perform the best for the brand we see that in the upper funnel with our strengths starts inside campaign, we've been partnering with an analytics firm on looking at the marketing mix modeling around that and as we mention.

And in the call you know, we use that information to redirect some of that spend to the best performing assets in the best performing channels.

And we certainly also see it in our lower funnel marketing spend so some of our performance marketing whether it be an old flex dot com and some of our ecommerce platforms and retailer Dot com, where we get very strong ROI and ROE as metrics as well.

That's very helpful. Thank you so much.

Thank you. Our next question comes from the line of Rob well within Stein with Evercore ISI. Please proceed with your question great.

Great. Thank you very much and appreciate.

Are you doing this call and bringing Amanda on look forward to to meeting her soon so the two questions. One can you give us an update on where the social media Buzz is your ability to monitor it and counter act it and whether you see that still is a drag on the business now.

Or was that dissipating in your view.

And then second perhaps go into a little bit more detail on what's going on at the salons.

You know why this.

Deep decline still.

And whether you have any kind of read out on the sellout and usage are on on the stylist level. Thank you.

Yeah.

Thanks, Robert absolutely thanks for the questions.

First on the social media Buzz I would break this into two parts one just sentiment about the brands right. We've talked about some of the misinformation in the past and that <unk>.

Negative media and some sentiment in the first quarter of the year and we've really seen the sentiment improve and pick up and mentions negative media you know negative mentions in social media dropped pretty significantly as we've traversed through the year and as we've.

<unk> been investing to drive that narrative and.

Correct misinformation in the market. So we've seen good progress there.

And the second part I would use to answer that question is what we talked about it earlier.

Earlier in the call around earned media value.

So this is an area that we've been investing in and we believe is a big multiplier on our own marketing investment we talked about how we've returned to the number two position in earned media value doing the hair care category in the U S. In the third quarter and actually exited the quarter number one on the back of.

A really successful campaign, we had so we're seeing good progress there that's part of what we're talking about when we say, we're making good progress on stabilization.

And your second question was about the pro channel.

Again, our last call we talked about this being an area, where we were going to accelerate our investments and the balance of 2023, we've done that we believe we're seeing.

Green shoots from that and those activities resonate with the stylist community as well the sell out trend in pro has been very similar to the trend we've seen elsewhere in the business, particularly similar to what we've seen in specialty retail.

I think about the third quarter.

And and the stable trend, we've seen frankly as we traverse through the quarter. If anything we saw pro are actually pick up a little sequentially as the quarter went on as those investments take hold so we're quite pleased to see that as well.

Yeah.

[noise], Thank you art.

Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question.

Great. Thanks, Good morning, Thanks for taking my questions.

My first is just around what you're seeing in terms of would be the key drivers of the sequential improvement in dollars in Q3.

And if we back into Q4, it looks like it it doesn't necessarily continuing for Q I imagine that the holiday sell in what part of that if you smooth that out if you could talk about the sequential trends that you are expecting.

And then also in terms of.

Right.

On consumption, if you could talk to October trends, what youre seeing so far and then just generally your view on what stabilization looks like over the next 12 months. Thank you.

Thanks Olivia.

Absolutely.

So I'll start with that.

This question around the progression through Q3, and Q4 and and I'll start by.

Maybe just talking about sell in and in the third quarter, and then I'll talk about sell out so and in terms of our net sales or what we call cell in performance direct to consumer had the strongest performance then followed by pro and retail in the third quarter. When you look at those net sales declines.

From a sell out perspective in the third quarter again direct to consumer was the strongest.

And then pro and retail were actually quite similar in the sellout decline trends. So let me explain why what are the differences there.

First of all in.

Direct to consumer it's worth noting that the sellout was better in the U S. Our <unk> dot com, we talked about that growing again for a second consecutive quarter versus prior year.

And even customers like Amazon.

On the back of the investments we've been putting into that part of the business.

Our DTC.

<unk> business was a little bit weaker internationally as we've held back on some investments to manage some of the market dynamics. There. So just thought it would be helpful to give that additional color on direct to consumer.

In pro as I, just mentioned earlier actually the cadence through the quarter. It was actually a slight improvement as we exited Q3 on the back of the investments we put in place there and in retail.

But.

We sold in less holiday kits into the specialty retail channel in the third quarter of this year versus the third quarter of last year, that's appropriate that's commensurate with the other trends we've seen in the business and that's the reason why the sell in or the net sales decline on specialty retail a little bit worse in.

In the third quarter than the sell out.

So then you asked about what does that what does that mean as we go into Q4, it's actually a very similar trends you know when we say Q3 was within our expectations and good progress on stabilization.

That's exactly what we're saying about the projection we've made for Q4 as implied in this guidance. So yeah, there's a little bit of noise quarter to quarter selling versus sell out, but but absolutely the guidance we provided.

Implies and assumes a similar stable seasonally adjusted trends for the business in the fourth quarter.

And lastly, you asked about Hey, what does stabilization look like for us over the next 12 months.

It's continuing to follow through with all the priorities we've talked about.

We're going to keep on investing against the business, we're going to keep on.

Measuring that learning from it and optimizing that investment in a balanced way not just lower funnel marketing, but the upper funnel marketing that we've been putting in place that's really about the brand building, we want to do here and we know that's going to take time and that takes time to fully have its impact.

On the business.

So so over the next 12 months, we expect to see even more impact from that as those investments have had some time to take root.

With our consumers with our stylists.

So you know, we'll say it again.

Top priority for the back half of this year has been stabilization of the demand trend.

We believe this call in this update shows really good progress against that goal.

And and that's going to set us up to a return to growth our long term profitable growth for this business that we know we can achieve.

[laughter].

Thank you.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Hi, Good morning, everyone. As you think about the expense structure of the business, Eric and obviously the marketing investment this year or next year or the 425, what is the expense structure of the business. How do you look at the puts and takes and what could be seen as a steady state and also on.

<unk> new products, how are you thinking about new products going forward and timing. Thank you.

Yeah.

Thanks, so much Dana absolutely.

Yeah, again, I would just say that our focus has been.

Stabilization of the trend and in the balance of 'twenty, three and are investing in our sales and marketing with this test learn and optimized approach.

Which which we believe is really.

Helping drive that stabilization of the demand trend and setting us up for.

The right Foundation, and the right capabilities and are.

Poised for a return to growth in the future, we're not going to comment here on what that investment level looks like in 2020 for 2025, we intend to come out with our 2020 for guidance.

At the right time that would buy precedent b on our next call. Our Q4 results call and we look forward to sharing more at that time in the meantime, we're going to continue to invest behind the brand wherever we see opportunities.

Yeah.

Got it.

The other part of your question was that with new products, where.

We still believe this is one of the big reasons that we have such.

Yeah. So it's a big opportunity ahead of US we remain and.

And we still have quite a limited assortment.

You know when you compare us to other prestige hair care brands are.

In the category.

We're pleased with the new products that we've been launching even in 2023, our lash brought our dry shampoo. Most recently are.

Purple conditioner.

These are all new segments.

For the old Flex brand and therefore, we believe are adding some incremental the onto the business.

And we're really excited we've always talked about having a strong pipeline our multiyear pipeline and we look to continue launching new highly incremental.

<unk>, driven technology, driven differentiated products to the category for.

For many years to come so that's that's certainly what we expect to be a tailwind for growth in the business in the future.

Thank you.

Okay.

Thank you. Our next question comes from Corrine Wolf Meyer with Piper Sandler. Please proceed with your question.

Hey, good morning, Thanks for taking my questions I guess just to piggyback off of that that last question.

Around the innovation pipeline.

Historically or I guess in the past couple of quarters, you've talked about maybe some slower uptake of those newer products can you discuss what you've seen with those new launches here in this quarter and what you're doing to help the uptake of new product launch will be a little bit stronger and if that's really going to be a key driver going forward. Thank you.

Thank you Kirk and thanks for the question.

Absolutely I can say, we're pleased with the performance of these new products when we look at.

How they are performing within their segments in the category.

They are they are their top five typically in terms of top five selling skus within that segment are now not all of these segments are the same size some are a little bit smaller than than others, but we're happy with how they're performing within those segments and we believe they are also helping to develop the market.

Actually drive further growth in the category and for our customers in those segments.

You know what I would say is.

As the overall <unk> brand has faced the headwinds that we've talked about throughout the year.

Our innovations have also felt that that halo of headwinds across the brands. So.

Performing well and the relative context, but but let's say not as big as as some of our innovations in the prior year just as you know the entire brand as face those headwinds what are we doing.

We're getting.

Better and better.

With each launch at execution.

And with the marketing plans and 360 marketing campaigns, we're putting behind those launches.

Think an important thing to note here is.

Our plans are going to be not to launch and then move on we also want to continue supporting those new products in year two in year three to make sure we see them become law.

Long lasting sustainable parts of the portfolio, that's always been a key element of our innovation strategy and so for that last part of your question I would say hey, it's going to be that year, two support and finding those additional moments to activate against the launches that we've had for example in <unk>.

23, and that's our plan.

Got it very helpful. And then if I could just touch on the DTC segment again I know we.

Touched on this briefly earlier in the Q&A, but you know the D. T C. The old talks dot com. It was positive and it seems like you know where there are some quarterly dynamics that caused the overall DTC weakness as we think about Q4 and then even into the early parts of 2024 is it reasonable to think that that segment could return.

The positive growth of Opec's Dot com is delivering positive growth or is it are there still some other dynamics going on that would cause it to cause there'll be negative. Thank you.

Yeah, I would just say similar to the entire business.

Focus is on stabilization and then returning to growth just as a reminder for everyone. When we talk about our direct to consumer.

Channel, we're talking about <unk> dot com and the U S and around the world as well as pure play e-commerce retailers.

Like an Amazon doesn't include retailer dot com like our support Dot com URL to tough comp that gets captured in our specialty retail.

Sales.

And so I would just say we.

We continue to see.

Relative strength in direct to consumer.

In large part because of the investments we've been putting not only in the lower funnel against that channel.

But also as we think about the upper funnel.

Since we've made the strength starts inside campaign.

That's pointing consumers to learn more about the brand to go to <unk> Dot Com and we really believe this is one of those green shoots we're seeing from the investments. We've made that are driving the stabilization and even an old bikes that commscope is already driving year over year growth again.

So there's a little bit of noise in sell in sell out as as you mentioned and as I talked through earlier.

But we continue to see this channel, having relative strength and not being very very promising for the momentum we're building.

Yeah.

Thank you.

Thank you. Our next question comes from the line of so Vanya Chowdhry with J P. Morgan. Please proceed with your question.

Hi, Thank you for taking our call Oh, sorry.

When Mark had mentioned participating in some promotional events, where you see an opportunity to acquire.

Customers have participation and keep promotion more can you just add more color, especially as we get through the company.

Too keen on promotion and also more on a broader level how has your marketing plans overall changed on that.

The change in management.

Thank you so much for the question so let me tackle that promotional.

Promotion Ality question first.

This is this is very consistent with what we've talked about in the past really in that.

It is not our strategy to over promote the old Flex brand. We don't think that's right for the equity of the business. When you look at the data.

We continue to promote less than the category average.

But we do see important moments and events.

With our customers' stylus and consumers, where we think it's strategically the right thing to do to participate we've been pretty consistent about that throughout the course of the year. We're seeing good results when we participate in those events.

And we're often just looking for the angles, how do we make this as strategic as possible how do we drive new customer acquisition, how do we drive.

Further penetration through the regimen.

To make sure that that we're using that as a way for consumers and Silas to buy deeper into the regimen as well.

And we're pleased with those results so far and we expect to continue that in terms of any changes to our marketing investment or strategy with a change of management.

As J P mentioned earlier Amanda Baldwin, we're so excited that she's going to be joining the company in the middle of December.

She has incredible.

<unk> experience in building brands and in driving marketing capabilities.

We're really excited about what Amanda is going to be bringing to this business as well.

So that's not a change in our marketing strategy quite yet, but I'll just point to the comments I made earlier about testing and learning and optimizing we're using our marketing mix.

Modeling analytics too.

Optimizing shift our spend as we go so.

Our shrink starts inside campaign, we noticed that certain assets were performing better than others in certain channels were performing marketing channels were performing better than others. We were able to take that information and deploy that into how we want to invest that money in the fourth quarter.

Thank you I'll pass it on.

Thank you. Our last question is from Jonna Kim with TD Cowen. Please proceed with your question.

Hi, it's Tom <unk> on for Joel Thanks for the question.

Can you talk a little bit more about the dynamics, you're seeing in market share trends in the competitive landscape and then just how does this play into your expectations for the balance between domestic and international growth head and then lastly, if you could just provide an update on what youre seeing in terms of growth of the overall prestige hair care category.

Okay.

Thanks, Tom Great question, So, let me start with market share trends.

Very consistent.

We talk about stabilization of the sell through trend.

It's quite naturally translates to relative.

A relative stabilization of our market share trends as well that's what we saw in the third quarter versus the second quarter is that market share largely.

Stabilized <unk> steadied out.

And that's the right base right.

The idea as we stabilize the demand trend here.

With a very healthy foundation for the business and then return it to growth, we think there's tremendous opportunity for value creation.

On that path so market shares are stabilizing.

Between domestic and international.

You saw in the third quarter, a similar sales declines between the U S and international.

What we've said in the past is consistent again here in that some of our bigger international markets.

English speaking markets, the UK, Canada, Australia.

I have followed a similar trend and similar headwinds frankly to what we've seen in the U S.

Now that means we're also starting to see similar stabilization trends in those markets. As we've we've also selectively increase our investments in those markets, whether it being and PR or in.

Some of the upper funnel marketing investments that we've made in the UK and Canada specifically.

Aside from that what we're seeing is growth and and really promising green shoots in some other international markets that we've talked about previously.

Southeast Asia, the Middle East Cross border E Commerce in China.

And <unk>.

France and the Nordics.

Europe as well these are all markets that are smaller for us today, but we believe we're seeing some really promising.

Momentum that is going to certainly pay dividends for us in the future.

And lastly, last but not least.

Asked about the category, we continue to see prestige hair care globally as.

A very attractive and resilient category and it's continued to grow its continued to grow strongly in the U S. We expect that to continue frankly.

In the fourth quarter and into 2024 and beyond as well.

Yes, theres, a little bit of a segmentation there front of Salon. So the pro channel has been a little bit more challenged with macro pressures.

But retail and direct to consumers have fared quite resilient in 2023, and we expect that to continue so we are in a very attractive category.

We're focused on stabilization and.

And doing all the right things to put the right Foundation in place to return this business to profitable.

Very profitable growth.

Thank you we have reached the end of Q&A session I'll turn the call back over to Eric <unk> for closing remarks.

Thank you very much.

Thank you everyone for joining us today on the call. We appreciate your continued interest in the flex business.

Please reach out if you have any questions and we look forward to speaking to all of you again very soon thanks again have a great day.

Yes.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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