Q4 2023 Olaplex Holdings Inc Earnings Call
[music].
Operator: Greetings and welcome to the Olaplex Holdings, Inc., 4th Quarter and Fiscal Year 2023 Earnings Results Conference Call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Old Flex Holdings, Inc, fourth quarter and fiscal year 2023 earnings results Conference call.
At this time all participants are in a listen only mode.
Operator: A brief question and answer session will follow the formal presentation. If anyone should 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.
A brief question and answer session will follow the formal presentation.
If anyone should 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. Please go ahead.
Patrick Flaherty: Thank you and good morning. Joining me today are Amanda Baldwin, Chief Executive Officer, and Eric Tiziani, Chief Financial Officer. 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 for Olaplex's 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 filings the company makes with the Securities and Exchange Commission, which are available at www.sec.gov, and on the investor relations section of the company's website at ir.olaplex.com.
Thank you and good morning, joining me today are Amanda Baldwin, Chief Executive Officer, and Eric Tiziana, Chief Financial Officer.
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 all apply to this 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 the filings the company makes with the Securities and Exchange Commission that are available at Www Dot FCC Dot Gov.
And on the Investor Relations section of the company's website at IR Dot all the Plex dotcom.
Patrick Flaherty: The forward-looking statements on this call speak only of the original date of this call, and we undertake 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. However, the presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
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.
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 or as a substitute for results prepared in accordance with GAAP.
Patrick Flaherty: You will 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.olaplex.com. Additionally, during this call, management will refer to certain data points, estimates, and forecasts that are based on industry publications or other publicly available information, as well as our internal sources. However, the company has not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. Furthermore, this information involves assumptions and limitations, and you are cautioned not to give undue weight to these efforts.
You will find additional information regarding these non-GAAP financial measures.
And a reconciliation of these non-GAAP financial measures 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 that all blacks dotcom.
Additionally, during this call management will refer to certain data points estimates and forecasts.
That are based on industry publications or other publically available information as.
As well as our internal sources.
The company has not independently verified the accuracy or completeness of the data contained in its industry publications.
And other publicly available information.
Furthermore, this information involves assumptions and limitations and you are cautioned not to get undue weight to these estimates.
Patrick Flaherty: With that, I will now turn the call over to Amanda. Thank you, Patrick. Good morning, everyone.
With that I will now turn the call over to Amanda.
Thank you Patrick good morning, everyone and thank you for joining us.
Amanda G. Baldwin: And thank you for joining us. It's a pleasure to speak with you today on my first earnings call as CEO of Olaplex, and I am honored to lead this extraordinary business at a pivotal point in its evolution. I firmly believe that Olaplex has a bright future, and I'm excited to develop and execute a strategy that harnesses the company's unique strengths and builds upon its foundation to achieve its true potential. While it is important to acknowledge that this journey will take some time, I am confident that we have the brand strength, differentiated products, global relevance, and the innovative mindset required to get there. I'd like to thank JP and the entire board for their confidence and support, and I look forward to collaborating with them as we build upon the important work done to date to achieve our goal of delivering sustained long-term growth in top-tier industry EBITDA markets. During today's call, I will provide a bit of background on myself and share some of my early observations on the business.
Pleasure to speak with you today on my first earnings call as CEO of old blocks and I'm honored to lead this extraordinary business at a pivotal point in its evolution.
I firmly believe that all of us has a bright future.
I need to develop and execute a strategy that harnesses the company's unique strengths and build upon its foundation to achieve its true potential.
Oh it is important to acknowledge that this journey will take some time and confidence that we have the brand strength differentiated products global relevance and the innovative mindset required to get there.
I'd like to thank J P and the entire board for their confidence and support and look forward to collaborating with them as they build upon the important work done to date to achieve our goal of delivering sustained long term growth and top tier industry EBITDA margins for <unk>.
Today's call I will provide a bit of background on myself and share some of my early observations on the business.
Amanda G. Baldwin: Following this, I will discuss our priorities for the year ahead. I will then pass the call over to Eric, who will cover our fourth quarter results and financial outlook for 2020. [inaudible] and I have had the opportunity for nearly two decades to build and lead some of the best brands in our industry at varying stages of their growth trajectory, including Super Hoop, Dior Beauty, and Clinique.
Following this I will discuss our priorities for the year ahead I will then pass the call over to Eric who will cover our fourth quarter results and financial outlook for 2024.
Yeah.
My personal passions, our brand strategy product innovation, and leading teams and I've had the opportunity for nearly two decades to build and lead some of the best brands in our industry at varying stages of their growth trajectory, including Super whom do your beauty and clinique.
Amanda G. Baldwin: From my time leading emerging organizations, I experienced the advantages that come with speed and agility, the excitement of building new categories and establishing culture, and the importance of laying the groundwork for the long run from day one. Meanwhile, while working with established global brands, I came to appreciate what it takes to create enduring brand equity, achieve seamless execution, and develop the operational infrastructure required to support a much larger business. I also understand that creating a brand and a business is not always linear.
For my time, leading emerging organizations experience the advantages that come with speed and agility excitement building, new category and establishing a culture and the importance of laying the groundwork for the long run from day one.
By working with established global brands I came to appreciate what it takes to create enduring brand equity to achieve seamless execution and to develop the operational infrastructure required to support a much larger business.
I also understand that creating a brand and the business is not always linear there was a need to continuously innovate and rise above new challenges, while staying true to what makes our brand unique lastly, I'd become a true believer in the power of an extraordinary team and culture uniquely built for the business of tariffs.
Amanda G. Baldwin: There is a need to continuously innovate and rise above new challenges while staying true to what makes a brand unique. Lastly, I've become a true believer in the power of an extraordinary team and culture uniquely built for the business it serves. Since joining Olaplex in mid-December, I have done a deep dive on nearly every aspect of our business, meeting with and learning from the people who are integral to the future of the company, Olaplex team members, stylists, consumers, and our customers and business partners. I wanted to understand what made the brand so revolutionary from day one and then harness that to transform Olaplex for the future. I've been incredibly energized by these conversations and by the potential that lies within.
Since joining old classic mid December I've done a deep dive on nearly every aspect of our business meeting with and learning from the people who are integral to the future of the company all blacks team members stylus consumers and our customers and business partners.
Wanted to understand what made the brand so revolutionary from day, one and then harnessed thought to transform for the future.
Been incredibly energized by these conversations at the potential that lies within.
Amanda G. Baldwin: At the core of the Olaplex brand is an extraordinary technical foundation: Truly differentiated science that delivers superior product performance and a company with the ability to deliver impactful innovation. Since the beginning, Olaplex has attracted and cultivated a passionate community of stylists and consumers who have formed deep connections with the product they love. The result is that this company is a category leader. Olaplex had five of the top six best selling prestige hair products in 2023, per Circona's retail tracking data of the U.S. hair market.
At the core of the old Fox branches and extraordinary technical foundation with truly differentiated science that deliver superior product performance and a company with the ability to deliver impactful innovation.
Since the beginning all taxes attracted and cultivated a passionate community of stylus and consumers well formed deep connections with the product they love.
The result is that this company as a category leader all packs had five of the top six best selling prestige hair products in 2023 person or corners retail tracking data out of the U S hair market consistently ranked as a top brand in key accounts across our three distribution channels and in 2023 brought into most new households.
Amanda G. Baldwin: Consistently ranked as a top brand in key accounts across our three distribution channels and, in 2023, brought in the most new households to premium hair care of any premium hair brand, according to numerator projections. The unique global footprint and reach of this business is an advantage that can be capitalized on, as Olaplex has proven performance across geographies and channels of distribution, and our strategies can be deployed internationally and have impact at scale. Importantly, we have a talented and dedicated team who are ready to take this brand to the next level. Taken together, the brand has a strong foundation, and we believe we are positioned to benefit from the attractive, high-growth prestige hair care category and the long-term industry trends of scientifically-driven innovation and premiumization of hair care. I'm incredibly excited about where we can take the business. Although Olaplex has experienced remarkable growth over many years, the past 18 months have been challenging.
The premium hair care of any premium hair brand according to Numerate our projections.
<unk> global footprint and reach of this business is an advantage that can be capitalized on as old boxes proven performance across geographies and channels of distribution and our strategies can be deployed internationally and have impact on scale.
Importantly, we have a talented and dedicated team are ready to take this brand to the next level.
Taken together the brand has a strong foundation and we believe we are positioned to benefit from the attractive high growth prestige hair care category and a long term industry trends are scientifically driven innovation and premium position of hair care.
I'm incredibly excited about where we can take the business.
Although all of our parks experienced remarkable growth for many years the past 18 months have been challenging.
Amanda G. Baldwin: I believe the headwinds were the result of the business growing too quickly, suffering from execution errors, and not appropriately investing in the resources needed to best support the professional stylist community, develop the right capabilities in brand marketing, and prepare for the reality that often happens to a category creator, increasing competition. In the year ahead, we plan to develop and implement a strategy to build this brand and business for the long run and get back to positive, sustainable sales and profit growth with an advantage business model that harnesses our top-tier profitability. To accomplish this, we will do the following. First, return to our roots in the stylist community as the inspiration for and connection to everything that we do.
I believe the headwinds were the result of the business growing too quickly suffering from execution errors and not appropriately investing in the resources needed to best support the professional stylist community developed the right capabilities in brand marketing and prepare for the reality that often happens to a category creator increasing competition in.
In the year ahead, we plan to develop and implement a strategy to build this brand and business for the long run and get back to positive and sustainable sales and profit growth with an advantage business model that harnesses are top tier profitability to accomplish this we will do the following.
First returned to our roots in the Dallas community as the inspiration for our connectivity to everything that we do.
Amanda G. Baldwin: We will focus on bringing Olaplex back to the forefront of product innovation and earn true brand love by elevating our product development and marketing capabilities across all markets. Lastly, we will seek to improve our execution to better ensure our strategy drives intended results through enhanced processes and data-driven insights. At the same time, we'll be focused on operational agility and nurturing the entrepreneurial mindset that puts us in the leadership position we are in today. As you saw from our earnings release, we reported fourth-quarter and fiscal 2023 results in line with guidance. Eric will share the details on our performance momentarily, but ahead of that, I would like to provide insight into our priorities and plan for 2020. Overall, 2024 will continue the transformational journey that began last year.
Well focus on bringing old box back to the forefront of product innovation and earn food brand loved by elevating our product development and marketing capabilities across all markets.
Lastly, we will seek to improve our execution to better ensure our strategy drives intended result for enhanced processes and data driven insights.
At the same time, we focus on operational agility and nurturing their entrepreneurial mindset that puts us in a leadership position we are in today.
As you saw from our earnings release, we reported fourth quarter and fiscal 2023 results in line with guidance.
Eric will share the details on our performance momentarily how does this I would like to provide insight into our priorities and plan for 2024.
Overall 'twenty 'twenty four will continue the transformational journey that began last year, we're taking a long term view and are prioritizing the strategies and actions that will build a healthier business that is better positioned for long term success. This year. Our initiatives are focused on three key priorities which include <unk>.
Amanda G. Baldwin: We're taking a long-term view and are prioritizing the strategies and actions that will build a healthier business that is better positioned for long-term success. This year, our initiatives are focused on three key priorities, which include First, maximizing the impact of our sales, marketing, and education investments to generate demand. Second, strengthening our capabilities and culture to support the future. And third, developing the long-term roadmap and future vision for Olaplex. Now, let me walk you through these three priorities.
First maximizing the impact of our sales marketing and education investments to generate demand.
Strengthening our capabilities and culture to support the future and third developing a long term roadmap and future vision for all of the box.
Now let me walk you through these three priorities.
Amanda G. Baldwin: First, with regard to maximizing the impact of sales, marketing, and education investments to generate demand, we'll focus on elevating our capabilities as brand builders and innovators dedicated to excellence and execution of those activities that drive brand desire, conversion, and self-care. A critical pillar within this priority is recreating meaningful connections with the pro community, ensuring they see Olaplex as a preferred brand that supports them and can help them succeed. I've had a wonderful time spending many hours with the stylist community since I joined two months ago.
First with regard to maximizing the impact of sales marketing and education of investments to generate demand, we will focus on elevating our capabilities as brand builders and innovators dedicated to excellence and execution of those activities that drive brand desire conversion and sell through.
A critical pillar within this priority is recreating meaningfully meaningful connections with the pro community, ensuring they see old box as a preferred brand that supports them I can help them succeed.
I've had a wonderful time spending many hours with the stylist community since I joined two months ago I'm encouraged by their enthusiasm and now have a better sense of what they need to be successful to that end, we intend to deliver new educational tools increase our participation in person trade show events and hosts in Salon support gauge with our education and sales team.
Amanda G. Baldwin: I'm encouraged by their enthusiasm and now have a better sense of what they need to be successful. To that end, we intend to deliver new educational tools, increase our participation at in-person trade show events, and host in-salon support days with our education and sales teams. With our pro-distribution partners, we're taking a more strategic approach to account management, tailoring our activations to what makes each distributor unique. Additionally, we are sustaining a more balanced, full-funnel marketing approach that we implemented in 2023 while we seek to optimize channel and asset strategy based on learning from prior campaigns and deliver clear education and messaging about the strength of Olaplex science. Our goal is to strike the appropriate balance as we prioritize our marketing efforts behind our core best-selling products, while also investing in our new product introductions to ensure a successful launch.
With our pro distributor partners are taking a more strategic approach to account management.
Our activations to what makes each distributor unique.
Additionally, we are sustaining our more balanced full funnel marketing approach that we implemented in 2023, Oh, we seek to optimize channel and asset strategy based on learnings from prior campaigns and deliver a clearer education and messaging about the strength of old Black science.
Our goal is to strike the appropriate balance and prioritize our marketing efforts behind our core best selling products, while also investing in our new product introductions to ensure successful launches.
Amanda G. Baldwin: As we do this, we will be mindful of always being data and ROI driven to maximize the impact of our marketing investment. We're focusing on proven brick and mortar and digital activations across all three of our channels and across the globe, which includes further rolling out our internal field sales team across pro and specialty retail, upgrading visual merchandising, conducting Additional Sampling Programming, and Enhancing Paid Media at the Retailer Partner Level.
As we do that we will be mindful of always being data in ROI driven to maximize the impact of our marketing investments.
We're focusing on proven brick and mortar and digital activations across all three of our channels and across the globe, which include further rolling out our internal field sales team across pro and specialty retail upgrading visual merchandising.
Conducting additional sample bring programming and enhancing paid media at the retailer partner level.
Amanda G. Baldwin: While we are intently focused on driving sales, we also recognize that we must take the appropriate actions to build and maintain the long-term health of the business. These include pausing on certain initiatives and pulling back on some partnerships in an effort to build long-term equity in the brand and allow us to execute with excellence within our current team resources. With this in mind, we intend to focus on our existing customers and strengthen our core products and current channels of distribution while limiting new distribution and combating the diversion of our products by closing some accounts where we find evidence that distributors were the source of diverted products. Our next priority is to strengthen our capabilities and culture to support the future and improve upon the foundational infrastructure across our organization. Much of this work began last year and is already in progress.
Well, we are intently focused on driving sell through we also recognize that we must take the appropriate actions to build and maintain the long term health of the business.
These include pausing on certain initiatives and pulling back on some partnerships in an effort to build a long term equity of the brand and allow us to execute with excellence within our current team resources with this in mind, we intend to focus on our existing customers and strengthen our core products and current channels of distribution, while limiting new distribution this year and come back.
The diversion of our products by closing some accounts, where we find evidence that distributor with a source of diverted product.
Our next priority is to strengthen our capabilities and culture to support the future and improve upon the foundational infrastructure across our organization.
Much of this work began last year and it's already in flight.
Evolving our integrated business planning capabilities to improve forecasting and overall business performance management, enriching our insights and analytics.
To build on our strong corporate culture, we plan to bring our team together in person more frequently to facilitate even better collaborations taking care to enable our people is the architects and drivers of our business.
Amanda G. Baldwin: It includes evolving our integrated business planning capabilities to improve forecasting and overall business performance management and enriching our insights and analytics. To build on our strong corporate culture, we plan to bring our team together in person more frequently to facilitate even better collaboration, taking care to enable our people as the architects and drivers of our business. Our final priority is to develop the roadmap and vision for Olaplex, which will impact the business in 2025 and beyond.
Our final priority is to develop the roadmap and vision for all of us, which will impact the business in 2025 and beyond critical components of this work stream are designed to define our market opportunity refine our brand identity wooden stylus consumer customer and category insights and surely win with innovation and by enhancing the new product development process.
<unk> strengthened the way, we leverage our omnichannel business in front of them pursue global expansion opportunities.
The goal is to establish a long range strategic plan and financial framework and I look forward to sharing more at the appropriate time.
Amanda G. Baldwin: Critical components of this work stream are designed to define our market opportunity, refine our brand identity, rooted in stylist, consumer, customer, and category insights, ensure we win with innovation by enhancing the new product development process, and Strengthen the Way We Leverage Our Omnichannel Business and Further Pursue Global Expansion Opportunities. The goal is to establish a long-range strategic plan and financial framework, and we look forward to sharing more at the appropriate time. In summary, Olaplex is a powerful business with differentiated technology and a developed global reach that we believe is still early in its growth trajectory. We recognize the current challenges and are facing them head on, making investments to deliver on our long-term goals and the tough decisions that are necessary to set ourselves up for the future. Executional excellence and getting the details right will be a top priority.
In summary old flex is a powerful business with differentiated technology and developed a global reach and we believe its still early in its growth trajectory. We recognize the current challenges facing them head on making investments to deliver on our long term goals and the tough decisions that are necessary to set ourselves up for the future.
Execution excellence and getting the details right will be top priority.
We remain incredibly excited about the potential for the business I look forward to sharing updates on our progress towards returning our company to sustained long term profitable growth.
With that I will now pass it over to Eric to report on our fourth quarter results and our outlook for 2024.
Thank you Amanda and good morning, everyone.
On behalf of all of the employees at all of the Plex I'd like to say that we are thrilled to have Amanda leading this team.
Joining the company less than three months ago. Amanda has made a significant impact and we are excited about the direction that she is taking the business.
To start I will say that our Q4 2023 results were in line with our expectations, which landed in the upper end of our latest guidance on all metrics.
Amanda G. Baldwin: We remain incredibly excited about the potential for the business and look forward to sharing updates on our progress towards returning our company to sustained long-term profitable growth. With that, I will now pass it over to Eric to report on our fourth quarter results and our outlook. Thank you, Amanda, and good morning, everyone.
We believe that these results were another positive step forward and showing a stabilized demand trend.
Similar to last quarter I'd like to provide an update on several metrics that we're tracking to measure progress on the demand trends.
First.
All through in Q4 2023 at key accounts was down 27% versus last year.
Eric Tiziani: On behalf of all of the employees at Olaplex, I'd like to say that we are thrilled to have Amanda leading this team. Since joining the company less than three months ago, Amanda has made a significant impact, and we are excited about the direction that she is taking the business. To start, I'll say that our Q4 2023 results were in line with our expectations, which landed on the upper end of our latest guidance on all metrics. We believe that these results were another positive step forward in showing a stabilized demand trend.
Comparable with Q3, 2023 also down 27% versus last year.
And full year 2023 down 28% versus last year.
Notably our Q4 net sales or sell in decline of 14, 5% versus last year was better than the sell through trend as we are beginning to lap inventory rebalancing from certain pro and specialty retail customers from a year ago.
Eric Tiziani: Similar to last quarter, I'd like to provide an update on several metrics that we're tracking to measure progress on the demand trend. First, fall through in Q4 2023 at key accounts was down 27% versus last year, comparable with Q3 2023 also being down 27% versus last year and full year 2023 being down 28% versus last year. Notably, our Q4 net sales or sell-in decline of 14.5% versus last year was better than the sell-through trend as we are beginning to lap inventory rebalancing from certain pro and specialty retail customers from a year ago. As we shared last quarter, we believe that the months-on-hand inventory position at our major accounts on our core items remains in a healthy position, and there is no inventory building in our channel. Second, aggregated sellout sales dollars at key accounts on an absolute dollar basis grew sequentially in Q4 2023 versus Q3 2023 by 21%. This was in line with our expectation, given what we've seen historically during the holiday season, including the sell-through of our holiday kits. Next,
As we shared last quarter, we believe that the months on hand inventory position at our major accounts on our core items remain in a healthy position and there's not inventory building in our channels.
Second aggregated sellout sales dollars are key accounts on an absolute dollar basis grew sequentially in Q4, 2023 versus Q3 2023 by 21%.
This was in line with our expectation given what we've seen historically during the holiday season, including the sell through of our holiday kits.
Next <unk>.
Performance from old Plex, Dotcom remains strong growing year over year for the third consecutive quarter and up double digits in Q4 compared to the fourth quarter of 2022 as we believe this business continues to build off of the momentum generated by our increased marketing investments.
And finally, consistent with previous quarters, our brand health metrics, among prestige hair care consumers remains strong and industry leading.
Eric Tiziani: Performance from Olaplex.com remains strong, growing year over year for the third consecutive quarter and up double digits in Q4 compared to the fourth quarter of 2022, as we believe this business continues to build off of the momentum generated by our increased marketing investment. And finally, consistent with previous quarters, our brand health metrics among prestige hair care consumers remain strong and industry leading. According to our external brand tracker, Olaplex is ranked number one or tied for number one for 13 of the top 17 premium hair care equipment brands, up from 10 in Q3 2023, which include Best for My Hair, Highest Quality Products, and Brand I Am Excited to Talk About.
According to our external brand tracker Ola Plex is ranked number one or tied for number one for 13 of the top 17 premium hair care equities up from 10 in Q3 2023.
Which include best for my hair highest quality products and brand I'm excited to talk about.
Now turning to our financial results for the fourth quarter.
Net sales declined 14, 5% year over year to $111 7 million in line with our expectations.
By channel as compared to the fourth quarter of 2022.
Our professional channel sales declined 22, 7% to $42 5 million.
The direct to consumer channel decreased two 8% to $42 million.
Eric Tiziani: Now, turning to our financial results for the fourth quarter. Net sales declined 14.5% year-over-year to $111.7 million, in line with our expectations, by channel, as compared to the fourth quarter of 2022. Our professional channel sales declined 22.7% to $42.5 million. The direct-to-consumer channel decreased 2.8% to $42 million, and specialty retail sales were down 16.3% to $27.3 million. By geography, in the fourth quarter, the U.S. declined 27.9 percent compared to a year ago, and international was flat year over year.
And.
Retail sales were down 16, 3% to $27 3 million.
By geography in the fourth quarter. The U S declined 27, 9% compared to a year ago and international was flat year over year.
Adjusted gross profit margin was 76% down 190 basis points from 72, 5% in the fourth quarter of 2022.
Approximately 320 basis points of this decline is related to higher inventory obsolescence reserve.
Eric Tiziani: Adjusted gross profit margin was 70.6%, down 190 basis points from 72.5% in the fourth quarter of 2020. Approximately 320 basis points of this decline are related to higher inventory obsolescence reserves. 140 basis points from promotional allowance and 50 basis points from inflation on product costs. These more than offset the 300 basis point benefit, primarily from lower warehouse and distribution costs, and 140 basis points from a more favorable product mix. Adjusted SG&A grew 54.4% to $44.5 million from $28.8 million in the fourth quarter of 2022. The $16 million increase in adjusted SG&A from the prior year is primarily the result of an $11 million increase in sales and marketing expense, as well as an increase in payroll attributable to workforce expansion and other related expenses. Adjusted EBITDA declined 46.8% to $36 million versus $67.6 million in the fourth quarter of 2022. Adjusted EBITDA margin was 32.2% compared to 51.7% a year ago. Adjusted net income decreased 53.9% year-over-year to $22.3 million, or $0.03 per diluted share, from $48.3 million, or $0.07 per diluted share, in the fourth quarter of 2022.
140 basis points from promotional allowance.
And 50 basis points from inflation on product costs.
These more than offset the 300 basis point benefit primarily from lower warehouse and distribution costs and 140 basis points from more favorable product mix.
Adjusted SG&A grew 54, 4% to $44 5 million from $28 8 million in the fourth quarter of 2022.
The $16 million increase in adjusted SG&A from prior year is primarily the result of an $11 million increase in sales and marketing expense.
As well as an increase in payroll attributable to workforce expansion and other related expenses.
Adjusted EBITDA declined 46, 8% to 36 million versus $67 6 million in the fourth quarter of 2022.
Adjusted EBITDA margin was 32, 2% compared to 51, 7% a year ago.
Adjusted net income decreased 53, 9% year over year, $22 3 million or three cents per diluted share.
From.
$48 3 million or seven cents per diluted share in the fourth quarter of 2022.
Eric Tiziani: Turning to our balance sheet, inventory at the end of the fourth quarter was $95.9 million, down from $112.8 million at the end of the third quarter as we continue to make progress against our goal to lower our inventory to target levels of months on hand. Turning to cash flow, during fiscal year 2023, we generated $177.5 million in cash from operations.
Turning to our balance sheet.
Inventory at the end of the fourth quarter was $95 9 million.
Down from $112 8 million at the end of the third quarter as we continue to make progress against our goal to lower our inventory to target levels of months on hand.
Turning to cash flow during.
During fiscal year 2023, we generated $177 5 million in cash from operations.
Eric Tiziani: We remain a healthy cash flow-generating business due to our asset-light model, high profitability, and continuous improvement in our working capital position. We ended the year with $466.4 million in cash and equivalents, up $36.8 million from the end of Q3 and an increase of $143.6 million from the end of 2022. This cash is generating interest income at an annual rate above 5%. Long-term debt, net of the current portion and deferred fees, was $649 million.
We remain a healthy cash flow generating business due to our asset light model by profitability and continuous improvement in our working capital position.
We ended the year with $466 4 million in cash and equivalents.
$36 8 million from the end of Q3, and an increase of $143 6 million from the end of 2022.
This cash is generating interest income at an annual rate above 5%.
Long term debt net of current portion and deferred fees was $649 million.
Eric Tiziani: Now, turning to our financial results. As disclosed in our earnings release issued this morning, for fiscal year 2024, we expect net sales in the range of $435 million to $463 million, adjusted EBITDA in the range of $143 million to $159 million, and adjusted net income in the range of $87 million to $100 million.
Now turning to our financial outlook.
As disclosed in our earnings release issued this morning for fiscal year 'twenty 'twenty four we expect.
Net sales in the range of 435 million to $463 million.
Adjusted EBITDA in the range of $143 million to $159 million.
And adjust.
Adjusted net income in the range of 87 million to $100 million.
Eric Tiziani: Now, let me walk you through our assumptions for fiscal year 2024, beginning with NetSale. For fiscal year 2024, our plan assumes, generally, that the absolute dollar sell-through trend that we experienced in the second half of 2023, adjusted for seasonality, represents our normalized base level of sell-through for the year. From there, we build in all expected volume drivers on a product and account level. I'll now elaborate on three of those major volume drops. First,
Now, let me walk you through our assumptions for fiscal year 'twenty 'twenty four.
Beginning with net sales for fiscal year 'twenty 'twenty four our plan assumes generally but the absolute dollar sell through trends that we experienced in the second half of 2020 three.
Adjusted for seasonality.
Representing our normalized base level of sell through for the year.
From there we build in all expected volume drivers on a product and account level basis.
Now I'll elaborate on three of those major volume drivers.
First we anticipate incremental sales contribution from new product launches this year, but expect the contribution from new products in 2024 to be lower than in 2023, given the timing of key launches starting later this year.
Eric Tiziani: We anticipate incremental sales contribution from new product launches this year but expect the contribution from new products in 2024 to be lower than in 2023 given the timing of key launches starting later this year. We are continuing with our recent cadence of two to four launches per year. Second, on the distribution front, we're taking several actions that are focused on our long-term success but have a negative short-term impact. For example, we've decided to limit opening up new accounts in 2024, as we focus on improving awareness and penetration among our current key customers. In addition, we plan to rationalize certain distributors and accounts that do not build brand equity, either due to off-strategy pricing or sub-distribution into unauthorized resellers. We are using various methods, including our track-and-trace technology, third-party experts, and other anti-diversion and anti-counterfeiting measures to specifically target the distributor rationalization.
We are continuing with our recent cadence of two to four launches per year.
Second on the distribution front, we're taking several actions that are focused on our long term success have a negative short term impact.
Decided to constrain opening up new accounts in 'twenty 'twenty four as we focus on improving awareness and penetration in our current key customers.
In addition, we plan to rationalize certain distributors in accounts that do not build brand equity either due to off strategy pricing for sub distribution into unauthorized resellers.
We are using various methods, including our track and trace technology third party experts and other anti diversion in anti counterfeiting measures to specifically target the distributor rationalization.
Eric Tiziani: We've already made good progress here in the second half of 2023, so we're planning to continue those efforts. Lastly, we expect a year-over-year net sales growth tailwind as we mitigate the effects of customer inventory rebalancing in 2023, which had the impact of depressing our 2023 net sales base. Geographically, we expect the U.S. to benefit the most in 2024 from lapping customer inventory rebalancing in 2020 in our international business. We expect continued growth in our emerging growth regions of APAC and Latin America, where we expanded our distribution in 2023. This will include our recent small-scale launch into mainland China, which we're able to do while still adhering to our commitment to be a cruelty-free brand.
Already made good progress here in the second half of 2023, So we're planning to continue those efforts.
Lastly, we expect our year over year net sales growth tailwind as we lap the effects of customer inventory rebalancing in 2023, which had the impact of depressing our 2023 net sales base.
Geographically, we expect the U S to benefit the most in 2024 from lapping customer inventory rebalancing in 2023.
In our international business, we expect continued growth in our emerging growth regions of APAC, and Latin America, where we expanded our distribution in 2023.
This will include our recent small scale launch into mainland, China, which we were able to execute both still adhering to our commitment to be a cruelty free brand.
Eric Tiziani: We also note that the aforementioned distributor rationalization is expected to have a short-term negative volume impact, particularly in Europe. On a channel basis, we expect year-over-year net sales performance to be balanced and similar across channels for fiscal year 2024. Now, let me provide additional commentary on how we expect net sales trends to develop from a phasing perspective in 2020. In short, we expect momentum to build over the course of the year as our investments and initiatives land in the market. First, we have a more difficult underlying sell-through comparator in the first half of the year, particularly in Q1, than we do in the second half of 2024.
We also know that the aforementioned distributor rationalization is expected to be a short term negative volume impact, particularly in Europe.
On a channel basis, we expect year over year net sales performance to be balanced and similar across channels for fiscal year 2024.
Now let me provide additional commentary on how we expect net sales trends to develop from a phasing perspective in 2024.
In short, we expect momentum to build over the course of the year as our investments and initiatives land in the market.
First we have a more difficult underlying sell through comparator in the first half of the year, particularly in Q1 than we do in the second half of 2024.
Eric Tiziani: Second, we will be lapping the pipeline impact from our Q1 2023 new product launches and expect a more significant positive impact from our new product launches in the second half of 2024, given the timing of those launches. Lastly, we expect the year-over-year tailwind of lapping customer inventory rebalancing in the prior year to benefit us primarily in the first half of the year. This will be partially offset, however, with the aforementioned distributor rationalization, which is phased in. With all of this in mind, specifically for Q1, we expect net sales in a range of $92 and $97 million. When looking at year-over-year channel performance in Q1, we expect our DTC business will outperform relative to the professional and specialty retail channels. Moving down the P&L.
Second we will be lapping the pipeline impact from our Q1 2023, new product launches and expect a more significant positive impact from our new product launches in second half 2024, given the timing of those launches.
Lastly, we expect the year over year tailwind of lapping customer inventory rebalancing in the prior year the benefit us primarily in the first half of this year.
This will be partially offset however by the aforementioned distributor rationalization, which is phased across the year.
With all this in mind, specifically for Q1, we expect net sales in a range of $90 million to $97 million.
When looking at year over year channel performance in Q1, we.
We expect our DTC business will outperform relative to the professional and specialty retail channels.
Eric Tiziani: For the full year 2024, we assume adjusted gross margin in the range of 72.5 to 73.1 percent, representing an expansion of 110 to 170 basis points. This is the result of lapping high levels of inventory obsolescence from last year and the expectation of normalized promotional levels this year as we lap promotions to move excess customer inventory last year. In addition, we expect to benefit from a dedicated internal cost savings program, which we expect will more than offset some inflationary pressures on product. Furthermore, we expect full year 2024 adjusted SG&A expenses in the range of $172 to $179 million, an increase of $19 million to $26 million versus 2023.
Moving down the P&L for.
For the full year 2024, we assume adjusted gross margin in the range of 72.5 to 73, 1% representing expansion of 110 to 170 basis points.
This is the result of lapping high levels of inventory obsolescence from last year and the expectation of normalized promotional levels. This year as we lap promotions to move excess customer inventory last year.
In addition, we expect to benefit from a dedicated internal cost savings program, which we expect will more than offset some inflationary pressures in product cost.
Furthermore, we expect full year 2024, adjusted SG&A expenses in the range of $172 million to $179 million, an increase of 19 million to 26 million versus 2023.
Eric Tiziani: Roughly half of that increase is expected in organization costs, primarily from annualizing the cost of headcount additions made during 2023 and from the accrual for a normalized bonus payout in 2024. We believe that this puts our organization costs as a percentage of sales at a level that we expect to maintain for the foreseeable future. The other half of the increase is expected in our sales and marketing expenses, as we invest at levels we believe are required to return to long-term growth. Specifically, we expect full-year, non-payroll-related marketing and advertising expenses to be in the range of $66 to $70 million, an increase from $60.5 million in 2023. Taken all together, we anticipate continuing to achieve top-tier industry profitability with a just EBITDA margin in the range of 32.8 to 34.3%. We assume net interest expense to be approximately $32 to $34 million and an adjusted effective tax rate of approximately 19.5 to 20.5% for the year.
Roughly half of that increase is expected and organization costs.
Primarily from Annualizing the cost of head count additions made during 2023.
And from the accrual for a normalized bonus payout in 2024.
We believe that this puts our organization costs as a percentage of sales at a level that we expect to maintain for the foreseeable future.
The other half of the increase is expected in our sales and marketing expenses as we invest at levels. We believe are required to return to long term growth.
Specifically, we expect full year non payroll related marketing and advertising expenses to be in the range of $66 million to $70 million, an increase from $65 million in 2023.
Taken altogether, we anticipate continuing to achieve top tier industry profitability with adjusted EBITDA margin in the range of 32.8 to 34, 3%.
We assume net interest expense to be approximately $32 million to $34 million and an adjusted effective tax rate of approximately $19, 5% to 25% for the year.
Eric Tiziani: In conclusion, we are confident in the progress that we are making to support the long-term health and growth of the Olaplex business. We expect momentum to continue to build as we execute against our strategy and the priorities that Amanda has outlined for the business in 2020. This concludes our prepared remarks. We will now turn the call back over to the operator for questions. Operator.
In conclusion, we are confident in the progress that we're making to support the long term health and growth of the old flex business.
We expect momentum to continue to build as we execute against our strategy and the priorities that Amanda has outlined for the business in 2024.
This concludes our prepared remarks, we will now turn the call back over to the operator for questions operator.
Operator: Ladies and gentlemen, the floor is now open to questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may remove yourself from the queue by pressing star two.
Ladies and gentlemen, the floor is now opened for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time I'll confirmation tone will indicate your line is in the question queue.
You may remove yourself from the queue by pressing star two.
Operator: We do ask that you please limit yourself to one question and one follow-up. Again, that is star one to register a question at this time. Today's first question is coming from Ashley Huggins of Jeffries. Please go ahead. Hi, this is Sydney on behalf of Ashley.
Do ask that you. Please limit yourself to one question and one follow up again that is star one to register a question at this time. Today's first question is coming from Ashley Higgins of Jefferies. Please go ahead.
Hi, This is sidney on for Ashley. So we saw you hired a new VP of innovation and it seems like a really exciting higher any color you can give kind of an innovation outlook. It seems like definitely a focus into 'twenty 'twenty four.
Amanda G. Baldwin: So we saw you hired a new VP of innovation. It's a really exciting hire. Any color you can give kind of on innovation outlook, it seems like definitely a focus into 2024. And then our second question is: just hair care and fragrance have been the categories in beauty that have taken the most price since 2019. I'm wondering if you can give any kind of further color on price elasticity that you're seeing from consumers in hair care and maybe in bonding more specifically.
And then our second question is just a hair care and fragrance have been the categories in beauty that I've taken the most price in 2019 wondering if you can give any kind of further color on price elasticity that you're seeing from consumers in hair care and maybe in bonding more specifically thank you.
Amanda G. Baldwin: Thank you. Hi Sydney, this is Amanda. Very nice to meet you. Great question about innovation. It's certainly something that I'm very passionate about, and I think it's really at the origin story of this brand, doing something that the world had never seen before. And the person who is taking over for innovation is really all about the strategy that I referenced about really revving up that innovation engine. I'm a big believer that putting talent in place to lead an initiative is the best way you can do that.
Ah Hi, Sidney This is Amanda was very nice to meet you great question about our innovation, that's certainly something that I'm very passionate about and I think it's really at the at the origin story of this brand with doing something that the world has never seen before and the person who is taking over for innovation is really all about.
I'm the strategy that I referenced about really wrapping up that innovation engine I'm, a big believer that putting talent in place to lead an initiative that the it's the best way you can do that one thing that we do have is that there's a long history in R&D a lot of terrific.
Amanda G. Baldwin: One thing that we do have is a long history in R&D, a lot of terrific relationships, and really harnessing that and driving the innovation going forward. So I'm very excited about what will come next. With respect to pricing, you know, we do have a line pricing strategy. As we look forward to our business over the course of the coming years, we'll certainly be taking a look at what makes sense going forward. It is a place, as you say, where people have made some changes.
Relationship and really harnessing that and driving that innovation going forward. So I'm very excited about what will come next.
With respect to pricing I, Yeah, we do have a line pricing strategy.
As we look forward for our business over the course of the coming years will certainly be taking a look at what what makes sense going forward and it is a place that I can say that people have I've made some changes and I do believe profoundly in the prestige hair care industry and the consumer continues to trade up and really understand that if they.
Amanda G. Baldwin: I do believe profoundly in the prestige hair care industry, and the consumer continues to trade up and really understand that if they buy a more powerful product, that does drive results. And that's very exciting for us going forward. Thank you so much. Excited to work with you as well. Bye-bye
I am more powerful product that does drive resolve them and that's very exciting for us going forward.
Thank you so much excited to work with you as well in the future.
Eric Tiziani: Thank you. The next question is coming from Jonah Kim of Cowan. Please go ahead. Hi, it's Tom on Perjona in terms of what you're seeing across the line. [inaudible] Hey, Tom, this is Patrick.
Thank you. The next question is coming from Jonna Kim of Cowen. Please go ahead.
Hi, it's Tom on for Jon.
Sure.
Where you see.
For so long.
Quarter to date, maybe.
Actually for the rest of the year do your consumer demand.
Hum.
Patrick Flaherty: Your line was breaking up there a bit. Would you mind repeating the question? We couldn't quite hear you.
So as we lap easier comparison.
Hey, Tom This is Patrick your line was breaking up there, but would you mind repeating the question we couldn't quite hear you.
Operator: Yes, just asking about the salon style and your expectations for the year. Thomas, it's Amanda. I just want to make sure we still can't quite hear you. But I think I know what you're asking. So I think you're asking about overall demand trends within the salon category. Is that correct? That's correct. And where's the census data?
So just asking about you still on that style connect which to date and your expectations.
Sure.
Tom It's it's Amanda I, just want to make sure we still can't quite hear you, but I think I know, what you're asking so I think you're asking about overall demand trends within the salon category is that correct.
That's correct.
So where do they tend to do as well.
Amanda G. Baldwin: and Consumer Sentiment. Okay. Yeah, well, I think that there certainly have been shifts in how the end client is using the salon, how frequently they're going, as well as where they're purchasing their items at the front of the salon versus in retail. However, what I would say is that, you know, the salon and the stylist, like innovation, are very much at the core of what this brand is. It's been a huge focus of mine in the first 60 days or so, really understanding how to continue to unlock the potential of that channel. So I'm still, you know, I'm very optimistic about what we can do there. But certainly, you know, that channel is changing, but certainly, I think it still has tremendous potential.
And and consumer sentiment, okay, yeah, well, so I think that there certainly have been shifts in how on the end client is using the salon, how frequently they're going as well as where they're purchasing there their items at the front of the salon versus in retail are however, what I would say is that you know the salon and stylists like.
Asian is very much at the core of what the brand is it's been a huge focus of mine in the first 60 days or so is really understanding on how to continue to unlock the potential of that channel. So I. So you know I'm very optimistic about about what we can do there, but it's certainly you know that that channel is changing but certainly.
I think still has tremendous potential and with the consumer overall I think that the beauty of the beauty industry is that it is a you know it continues to grow it continues to have a lot of consumer enthusiasm certainly something that I'm hearing across all of our retail partners are it is really the that the consumer is strong with and again our category in particular are really more.
Amanda G. Baldwin: With the consumer overall, I think that the beauty of the beauty industry is that it is, you know, it continues to grow, it continues to have a lot of consumer enthusiasm. Certainly, something that I'm hearing across all of our retail partners is really that the consumer is strong within, again, our category, and beauty more broadly. So, you know, that certainly works to our advantage.
Broadly so you know that certainly works to our advantage.
Eric Tiziani: Thank you. A follow-up on promotion sampling. How are you thinking about balancing it with what key promotional strategies do you expect to employ? Yeah, I'll take that one. It's Eric here.
Thank you and a follow up on promotion.
Sampling how are you thinking about balancing the two what key promotional strategy.
Do you expect to employ this year.
I think Arizona, Yeah, I'll take that one it's erick here.
Eric Tiziani: So we've talked about this in the past. You know, Olaplex is not an overly promotional brand, but we do participate in key customer events that we think are strategic and can provide some incrementality to the business. We continue to do that. You know, as we look back at the last quarter, we shifted our promotional strategy to focus on that, you know, kind of key moment around Cyber Monday and Black Friday, and that worked well for us. Just to give you an example, you know, there's another key promotional event in October that we decided not to participate in because we had participated in it the year before and, just based on our analysis, didn't see the incrementality.
So we've talked about this in the past Oh Plex is not an overly promotional brand, but we do participate in key customer events that we think are strategic and could provide some incremental at each of the business.
We continue to do that you know.
As we look back at the last quarter.
We shifted our promotional strategy to focus on that kind of a key moment around cyber Monday, Black Friday and that worked well for US just to give you. An example, there was another key promotional event in October that we decided not to participate in because we had participated in it.
The year before and just based on our analysis didn't see the Incrementals. So we're going to continue to do those analyses and make decisions on that basis I think we're still having a hard time hearing you I think.
Amanda G. Baldwin: So we're going to continue to do those analyses and make decisions on that basis. And we continue to see the conversion of our sampling into, you know, purchasing full size and new to brand ahead of the benchmarks in the category. So that continues to be a part of our investment plan for 2024. Thank you. The next question is coming from Lauren Lieberman of Barclays. Please go ahead. Great, thanks. Good morning. I have two questions.
The other part of your question is around our sampling program and I would say that is an area of our investment that we continue to believe is working well for us we have a data and analytics from programs. We've run with key retail partners and we continue to see the.
Conversion on our sampling into you know purchasing full size and new to brand as ahead of the benchmarks in the category. So that continues to be a part of our investment plan for 2024.
Yes.
Thank you. The next question is coming from Lauren Lieberman of Barclays. Please go ahead.
Great. Thanks, and good morning, I have two questions. The first one is just international sales were more or less flat. This quarter. So just curious.
Eric Tiziani: The first was just international sales were more or less flat this quarter. So just curious where the strength was in particular and then anything additionally you can share with us on the impact going forward of rationalizing distributors in Europe. And then the second question, which is unrelated, is just what if the demand building activities last year, you know, some of the turnaround work that already started in 2023, what would you say has really worked versus what needs more fine tuning? Thanks. Lauren, good to hear from you. Thanks for the questions. I'll start with the international question.
Where the strength was in particular and then anything. Additionally, you can share with us on the impact going forward of rationalizing distributors in Europe.
And then the second which is unrelated is just what is the demand building activities last year, you know some of that turnaround work. That's already started in 2023, what would you say, it's really worked versus what needs more fine tuning.
Lauren a good to hear from you. Thanks for the questions I'll start on the international question.
Eric Tiziani: And the answer to the relative strength that we saw in the fourth quarter of 2023 is similar to, you know, the comments we made around our outlook for 2024, which is continued strength in APAC, in Latin America, and in the Middle East. We know that these are markets that we have really just seeded in a lot of ways. We had some additional distribution that we added in Southeast Asia and in the Middle East, for example, in 2023.
And the answer for the relative strength that we saw in the fourth quarter of 2023 is similar to the comments, we made around our outlook for 'twenty 'twenty four which is.
Continued strength in APAC, and Latin America, and the Middle East, where we know that these are markets that we are really just seen it in a lot of ways. We had some additional distribution that we added in South East Asia and the Middle East for example in 2023 and those continue.
Eric Tiziani: And those continue to be growth drivers for us. You asked about the impacts of the distributor rationalization that we talked about in 2024. And yes, part of that is in Europe.
We need to be.
Growth drivers for us are.
You asked about the impacts of the <unk>.
Distributor rationalization that we talked about in 2024.
And yes, a part of that is in Europe. So we expect you know some depressed sales in 2024 are in our European region as we.
Eric Tiziani: So we expect, you know, some depressed sales in 2024 in our European region as we... We really use all the tools available to us. We talked about our track and trace technology. Where we've seen any evidence of a distributor as a potential source of diverted product, for example, we want to take the right actions, working with that distributor, to remove that volume from the system. And then your second question was around demand drivers that worked for us in 2023. You know, we talked about our test and learn approach, and that's absolutely what we implemented. You know, I already mentioned sampling.
We really use all the tools available to us we talked about our track and trace technology, where we've seen any evidence of a distributor as a potential source of diverted product. For example, you know we want to take the right actions are working with that distributor to to room and remove that volume from the system.
And then your second question was around demand drivers that worked for us in 2023, Yeah, we talked about our test and learn approach and that's absolutely what we deployed.
I already mentioned sampling.
Eric Tiziani: You know that we increased our investment in upper funnel activities. You know, we continue to optimize our spend based on analytics and learning. And so, to give you two examples.
Know that we increased our investment in upper funnel activities. You know, we we continue to optimize our spend based on the analytics and learning and so to give you two examples.
Eric Tiziani: We saw a nice lift in the fourth quarter from the upper funnel marketing that we're putting against our holiday program. That helped us to have the number one selling holiday kit in the U.S. in the fourth quarter of last year. So we're going to take that learning and apply it forward. We also saw that when we got the right assets into the right channels, it was also lowering the cost of acquisition in our, in the upper funnel, that is, lowering the cost of acquisition even for our own olaplex.com. So that was a good lesson on how, you know, our marketing investment across the funnel could really work the best for us. Hi Lauren. It's Amanda.
We saw a nice lift in the fourth quarter from the upper funnel marketing that we're putting against our holiday programming.
That helped us to have the number one selling holiday cat are in the U S. A in the fourth quarter of last year.
So I'm going to take that learning and apply a forward.
We also saw that when we got the right assets into the right channels. It was also lowering the cost of acquisition in our in the upper funnel that is lowering the cost of acquisition even for our own old flex Dot com. So that was a good learning on how our marketing investment across the funnel can really work.
All the best for Us.
Hi, Laurie.
Amanda G. Baldwin: I can build on that as well a little bit as we go forward and give you a sense of kind of how we're approaching things. I think with respect to international, again, one of the things that I referenced was just that I think the power of this brand globally is something very unique and something I was very excited about. To know that it's selling in 100 countries around the world and that there's receptivity to the technology and the brand globally is certainly very exciting.
Man I can build on that as well a little bit as they go forward and give you a sense of kind of how we're approaching things I think with respect to international again, one of the things that I referenced was just sort of I think the power of this brand globally is something very unique and and you know something I was very excited about them to know that it's selling in 100 countries.
Around the world and their receptivity to the technology and the brand globally is certainly very exciting I think taking a measured approach about how we go after each market and I think that remains a tremendous amount of opportunity.
Amanda G. Baldwin: I think taking a measured approach about how we go after each market, I think there remains a tremendous amount of opportunity. With respect to demand building activities, I think we have learned a lot. There'll be a lot of focus going forward on not just every detail about what you say, when you say it, where you say it. This is where the execution and the details really do matter.
With respect to demand building activities I think we have learned a lot and there'll be a lot of focus going forward about them not just you know every detail about what you say when you say, where you say it and this is where the execution and the details really do matter. So I've been spending a lot.
Amanda G. Baldwin: I've been spending a lot of time with the team on that and making sure we're putting the money in the right places but also with the right messaging and with the right creative. Also, over the long term, certainly, innovation plays into this as well in terms of what you're spending against as well as a longer-term brand halo and really working to build that. Okay, great. Thanks so much, and I look forward to meeting in person. Bye.
Of time with the team.
On that and making sure we're putting the money in the right places, but also with the right messaging and with the right Creatives and also over the long term certainly the innovation plays into this as well in terms of what you're spending against as well as the longer term brand halo and sort of really working to build that.
Okay, great. Thanks, Thanks, so much and look forward to meeting in person.
Right.
Eric Tiziani: Thank you. The next question is coming from Andrea Teixeira of J.P. Morgan. Please go ahead. Thank you. Good morning.
Thank you. The next question is coming from Andrea <unk> of J P. Morgan. Please go ahead.
Thank you good morning, and Amanda welcome and looking forward to working with you. So can you comment on your consumption trends you you'd talked about sell through.
Eric Tiziani: And Amanda, welcome, and I'm looking forward to working with you. So can you comment on your consumption trends? You talked about sell-through, but I'm curious about the pretty much like the consumer takeaway, given some of the comments that you made and asking the core and what are you assuming for 2024 in your guide? And as we think about the cadence of the year, you mentioned being more selective with customer shoes. Does that also include some selective departures from some U.S. retailers?
But I'm curious about the pretty much like the consumer take away.
Given what some of the comments that you made and exiting the quarter and what's your what are you assuming for 'twenty 'twenty four and your guide.
And as we think about the cadence of the year, you mentioned being more selective customers Schuh does that also include some.
Selective departures from from some of the U S retailers and anything you can comment regarding the cadence as well for starting in our first quarter, where you're looking at Oh lower them.
Eric Tiziani: And anything you can comment regarding the cadence as well as starting in the first quarter where you're looking at a lower sales trend relative to the full year guidance. So how can you rethink the spring resets and think about how it's gonna build into the balance of the year for you to meet the guidance? Thank you. Andrea.
So those trends relative to the full year guidance. So how can you we think about the spring resets and thinking about how it's going to build into the balance of the year for you to meet the guidance. Thank you.
Andre I'll I'll take that one.
Eric Tiziani: First, on the consumer trends that we saw exiting 2023, you know, earlier we talked about the year over year, you know, we talked about a number of data points that we believe support our view on the progress that we've been making on just stabilizing the demand trend. We thought Q4 was another good data point there. One, the sell-through, that is, the consumer takeaway trend year over year, was minus 27%, which was consistent with the previous quarter.
First on the consumer trends that we saw exiting 2023.
Earlier, we talked about the year over year.
We talked about a number of data points that we believe support our view on the progress that we've been making on just stabilizing the demand trends. We saw in Q4 was another good data point there one the sell through that is the consumer takeaway trend year over year was minus 27%.
Sent which was consistent with the previous quarter.
Eric Tiziani: It was actually up 21% in Q4 2023 versus the previous quarter, so versus Q3 2023. And that was consistent with our expectation because of what we historically see around the holidays and the success of the Olaplex brand around the holidays as well. And so that becomes really, you know, the base assumption that we go into 2024 with. We saw stabilized demand trends and sell-through trends in the back half of 2023, and that becomes the base that we intend to build from in 2024. Your second question was around distributor rationalization and kind of selective expansion. We see less likely distributor rationalization or customers that we're looking to rationalize in the US; that's not a major factor for us. And then your last question was about just the cadence.
It was actually.
Up 21% in Q4 2023 versus the previous quarter, So versus Q3, 2023 and that was consistent with our expectation because of what we historically see around the holiday and the success of the old flex brand around the holidays as well.
And so that becomes really the base assumption that we go into 2024 with we saw stabilized demand trends sell through trends in the back half of 2023 that becomes the base that we intend to build Trump in 2024.
Your second question was around the distributor rationalization and kind of selective expansion we.
We see less likely.
Likely distributor rationalization or are customers that you know, we're looking to rationalize in the U S. That's not a major factor for us.
And then your last question was around just the cadence with the phasing of this this plan that we've guided to.
Eric Tiziani: What's the phasing of this plan that we've guided to? You know, I'll just take a step back and say that this guidance that we've provided for 2024 is really consistent with the objectives that we've laid out. One, a stabilized demand trend. Two, strengthening the brand for the long term, and three, you know, returning to net sales growth. This guidance implies that that's going to happen, you know, in the balance of the year. It is a built, we've given a specific guide for Q1 that is lower than other quarters, but we believe it is for good reason and fully consistent with the full year guide that we've given. So why does it build from Q1 forward?
Yeah, I'll, just take a step back and say that that this guidance that we provided for 'twenty 'twenty four is really consistent with the objectives that we've laid out one stabilize demand trend to strengthening the brand for the long term.
And three returning to net sales growth and.
This guidance implies that that's going to happen.
You know in the in the balance of the year. It is a bills. We've given a specific guide for Q1 that is lower than other quarters, but we believe for good reason and fully consistent with the full year guide that we've given so why does it build from Q1 forward. It builds are related to our new.
Eric Tiziani: It builds with the investments and initiatives that we're deploying this year that go for everything from, you know, our key marketing initiatives, our key customer events. And even, of course, in the back half, you see higher net sales around holiday again. And then there's also just the prior year comparator, you know; we've got a tougher prior year sell-through comparator in the first half, particularly in the first quarter, and that eases and helps the growth rate as we go through the year.
Launches, which are more back weighted in 2024.
It builds with the investments and initiatives that we're deploying in the year that goes for everything from you know our key marketing initiatives, our key customer events.
And even of course in the back half do you see higher net sales around the holiday again.
And then there's also just the prior year comparator.
We've got a tougher prior year sell through comparator in the first half, particularly in the first quarter and that eases and helps the growth rate as we traverse.
Amanda G. Baldwin: And specifically for Q1, I'd just say, You know, when you adjust for the customer inventory rebalancing that we experienced in the first quarter of last year, really, what our guide is saying is that we're expecting a similar sell-through decline as what we saw in the back half of 2023. And we build from there as the comps get easier and our initiatives take hold. And Andrea, nice to meet you.
Through the year.
And specifically for Q1 I would just say.
You know when you adjust for the customer inventory rebalancing that we experienced in the first quarter of last year really what our guide is saying is that we're expecting a similar sell through decline is what we saw in the back half of 2023, and we build from there as the <unk>.
Comps get easier and our initiatives take hold.
And Andrea out nice to meet you I look forward to working together and just to give you a little bit of some of the philosophical approach as well as I think but I defer to have extraordinary amount of optimism for what this brand can be as well as a tremendous sense of urgency about getting better at what we do every day, but I think for this year.
Amanda G. Baldwin: I look forward to working together and just giving you a little bit of some of the philosophical approach as well. As I think, as you've heard, I have an extraordinary amount of optimism for what this brand can be, as well as a tremendous sense of urgency about getting better at what we do every day. But I think for this year, you know, it really is about taking a measured and methodical approach to getting all the details right. And that does take time.
It really is about taking a measured and methodical approach to getting all the details right and that does take time and I think I didn't say that it is getting and really its something for me. It's important to acknowledge that we're working as quickly as possible, but we do it does take a little bit of time for all the initiatives to fully hit.
Amanda G. Baldwin: I think I did say that at the beginning, and it really is something for me. It's important to acknowledge that we're working as quickly as possible, but we are. It does take a little bit of time for all the initiatives to fully take hold.
Eric Tiziani: Thank you. Thank you. Once again, that is star number one if you would like to register a question at this time. The next question is coming from Susan Anderson of Canaccord Genuity. Please go ahead.
Thank you.
Thank you once again that is star one if he would like to register a question at this time.
The next question is coming from Susan Anderson of Canaccord Genuity. Please go ahead.
Amanda G. Baldwin: Hi, good morning, and welcome Amanda. We look forward to working with you as well. I wanted to ask maybe on the marketing front, it sounds like you will be investing more in marketing this year. And I think it also increased last year.
Hi, good morning, and welcome them and we look forward to working with you as well.
I wanted to ask maybe on the marketing front. It sounds like you will be investing more in marketing this year and I think also it was increased last year. So maybe if you could just talk about how we should think about the magnitude of the increase and also if you could give some color at where you're at in terms of sales and also I guess should we think about this is continues.
Amanda G. Baldwin: So maybe if you could just talk about how we should think about the magnitude of the increase and also if you could give some color on where you are in terms of sales. Then also, I guess, should we think about this as continued social media marketing and store marketing, or would you do any traditional marketing? And then finally, I guess if you could maybe talk about the promotions that you are seeing in the channel. It seemed like it was heightened in the prestige hair care category over the holidays.
She'll media marketing in store marketing or would you do in a traditional marketing and then finally I guess, if you could maybe talk about the promotions that you're seeing in the channel. It seemed like it was heightened in the prestige hair care category for holiday. So I'm curious kind of what you're seeing as we start the year. Thanks.
Eric Tiziani: So I'm curious about kind of what you are seeing as we start the year. Thanks. And I'll start. Nice to meet you, Susan. So I think, you know, from a philosophical point of view around marketing, I think that I have certainly spent a lot of time with the team as we're lining up our initiatives for this year, really making sure that, first and foremost, we have a balanced funnel approach where we're really hitting the upper mid as well as the lower funnel. And we're getting that mix right.
And I'll I'll I'll start nice to meet you Susan So I think you know from a from a philosophical point of view around marketing I think that I have certainly spent a lot of time with the team has worked lining up our initiatives for this year really making sure that we first and foremost have a balanced funnel approach that we're really heading up our met as well as the lower.
Leno, and we're getting that mix right and the second is that we're getting the mix right around product and that we're really balancing both our hero skus that continue to be I think we mentioned five of the.
Amanda G. Baldwin: The second is that we're getting the mix right around product and that we're really balancing both our hero skews, which continue to be, as I think we mentioned, five of the six top skews in the category continuing to support those, as well as making sure that we have the ammunition to get our new launches off the ground in the back half. And the third is really around what we are saying about education around our product. One thing that I've spent a lot of time on is really understanding the science and the differentiators around what we do. So I think it's not just about spending the money, but it's literally how do we do it? And what do we say?
Top skus in the category doing to support those as well as making sure that we have the ammunition to get our new watches off the ground in the back half.
And the third is really around what are we saying education around our product one thing that I've spent a lot of time on is really understanding the science and the differentiators around what we do so I think it's not just about spending the money, but it's literally how do we do it and what do we say so theres been a lot of effort around that and I think that will be continuous improvement.
Amanda G. Baldwin: So there's been a lot of effort around that, and I think that will be continuous improvement that we'll see throughout the year. Maybe Eric, you want to take the promotional question? Yeah, two pieces.
That we'll see throughout the year, maybe Eric when I think my question just two pieces Hi, Susan you also asked about just the magnitude of spend.
Eric Tiziani: Hi Susan. You also asked about just the magnitude of the spend. So, we mentioned earlier that we expect to be spending non-payroll-related marketing and advertising in the range of $66 to $70 million in our 2024 plan, and that's an increase from $60.5 million in 2023. We believe that's a healthy amount to support the plan that we've put forward. And then the second part just on promotionality, I spoke a little bit about it earlier, just what we saw in the fourth quarter. We expect a normal level of promotionality in the category again in 2024 for us. We actually expect a little bit less promotional intensity as in 2023; we had some promotional activity to help work through, you know, excess customer inventory that doesn't repeat in 2024.
So we mentioned earlier.
We expect to be spending non payroll related marketing and advertising in the range of $66 million to $70 million in our 2024 plan.
That's an increase from $60 5 million in 2023, we believe that that's a healthy amount to support the plan that we've put forward.
And then the second part just on promotion Ality I spoke a little bit about it earlier, just what we saw in the fourth quarter.
We expect.
Normal level of promotion Ality in the category again in 2020 for for.
For us.
We actually expect a little bit less promotional intensity as in 2023, we had some promotional activity to help work through.
Excess customer inventory that that doesn't repeat in 2024.
Eric Tiziani: Okay, great. Thanks. That's very helpful. If I could just add one follow-up. I was curious, just in the first quarter, based on the guidance for sales, how should we think about the trends by channel? Should we think about them as being similar to what we saw in the fourth quarter?
Okay. Great. Thanks, that's very helpful. If I could just add one follow up I was curious just in the first quarter.
Based on the guidance for sales I guess, how should we think about the trends by channel should we think about it as being similar to what we saw in the fourth quarter.
Eric Tiziani: Yeah, we mentioned that we expect direct to consumer to perform better relative to professional and specialty retail, which is consistent with the trends that we've seen in the past few quarters. Okay, great. Thanks so much. Good luck for the rest of the year.
Yeah, we mentioned that we expect direct to consumer to perform relatively better relative to professional and specialty retail which is consistent with the trends that we've seen in the past few quarters.
Okay, great. Thanks, so much good luck with the rest of the year.
Amanda G. Baldwin: Thank you. Thank you. Our final question today is coming from Dana Telsey of Telsey Advisory Group. Please go ahead. Hi, good morning, everyone. And hello, Amanda.
Thank you.
Thank you. Our final question today is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.
Hi, good morning, everyone and Hello, Amanda welcome and given your given your extensive experience amended many different brands. What's most similar indifferent about all of plaques and then as you think about <unk>.
Amanda G. Baldwin: Welcome. Thank you. Given your experience, Amanda, with many different brands, what's most similar and different about Olaplex? And then, as you think about, not just this year, but going forward, what should the product assortment look like? How do you see the direction of the product assortment, the pricing profile, maybe category enhancement or extension?
Even just this year, but the go forward what should the product assortment look like how do you see the direction of the product assortment the pricing profile baby category enhancement or extension, what do you see it becoming thank you.
Amanda G. Baldwin: What do you see it becoming? Thank you. Thanks for the question. Certainly some of my favorite topics. So, you know, look, I think with respect to, you know, it's hard to draw every comparison possible, but I'll try to start.
Hi, Thanks, Thanks for the question and certainly some of my favorite topics.
So yeah look I think with respect to you know it's hard to draw a.
Every comparison possible, but I'll I'll I'll try to start I think that you know one of the things that I love about this brand is that truly is a category creator I think those are very unique and rare in our industry and I think having that kind of DNA is something that that is very special and I also think that you know the the innovation and connection.
Amanda G. Baldwin: I think that, you know, one of the things that I love about this brand is that it truly is a category creator. I think that those are very unique and rare in our industry. And I think having that kind of DNA is something that is very special. I also think that, you know, the innovation and connection to science is something that you don't see every day. And the third is this heritage in the stylist community. I think this concept of kind of enabling the stylist to really, and I have spent many hours in the chair, learning about their craft and what they do, and being able to enable that. So I think it is actually a very rare and unique combination of things, something that I truly haven't seen before. And I'm excited to really dig in as a marketer and as a brand builder. But I certainly am familiar with the concept of what happens when you create a category and there is increasing competition. That's not foreign territory to me. And really, how do you think about continuing with your point?
Science, and it's something that you don't see every day and the third is the heritage and the tireless community I think the concept of kind of enabling the silos to really and I have spent many hours in the chair learning about their craft and and what they do and being able to enable that so I think it is actually a.
Rare and unique combination of things somebody that I truly haven't seen before and I am excited to really dig into as a marketer and as a brand builder, but I certainly I'm familiar with the concept of what happens when you create a category and there are there is increasing competition, that's not foreign territory to me and really how do you think about.
Continuing you know to your point, how do you think about the product and the innovation going forward that is something that certainly has also been a lot of time and as we are able to sort of share things about that strategy going forward will certainly be doing that.
Amanda G. Baldwin: How do you think about the product and the innovation going forward? That is something that certainly has taken a lot of time. And as we are able to sort of share things about that strategy going forward, we'll certainly be doing that.
Amanda G. Baldwin: Thank you. Thank you. At this time, I'd like to turn the floor back over to Ms. Baldwin for closing comments. Thank you, everyone, for joining us today. It's terrific to be here. Before we end the call, I just want to take a moment to thank the entire Olaplex team. They've been tremendously warm in their welcome, and their dedication to moving this business forward is truly tremendous. So thank you, everyone, again, and we look forward to speaking with you soon. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Thank you.
Thank you at this time I'd like to turn the floor back over to MS. Baldwin for closing comments.
Thank you everyone for joining us today is terrific to be here before we end the call I'd just like to take a moment to thank the entire <unk> team.
They've been tremendously warm and they're welcome them and their dedication to moving that business for us is truly tremendous so thank you everyone again, and we look forward to speaking with you soon.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
[music].
Yeah.
Yeah.
Yeah.
Okay.
[music].
Okay.
Yeah.
[music].
Yeah.
[music].