Q2 2024 Olaplex Holdings Inc Earnings Call

Patrick Flaherty: The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. 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 gap measures in the companies they're in. 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 internal staff.

Interim measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

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

And a reconciliation of these non-GAAP financial measures.

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 <unk> Dot com.

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

As well as our internal sources.

Patrick Flaherty: The company has not independently verified the accuracy or completeness of the data contained in these industry publications or other publicly available information. Furthermore, this information involves assumptions and limitations, and your caution is not to give undue weight to the evidence. With that, I will now turn the call over to Amanda.

The company has not independently verify the accuracy or completeness of the data contained in these industry publications or other publicly available information.

Furthermore, this information about assumptions and limitations and you are cautioned not to get on new ways to be in it.

With that I'll now turn the call over to Amanda.

Amanda Baldwin: Thank you, Patrick. Good morning, everyone, and thank you for joining us. Today, we reported second quarter results in line with our expectations and reiterated our full year outlook as we achieved continued progress on our transformation plan. As shared on recent earnings calls, we are on a journey to build a world-class brand and a business that is well-positioned for long-term success. We are investing in and prioritizing brand and product innovation strategies that are designed to deliver sustainable, consistent growth, while also taking actions to align our global distribution and infrastructure with the goals we have for the system. All this work is supported by the strong foundation of Olaplex, truly differentiated science that delivers superior results, and a powerful R&D platform that drives impactful innovation.

Amanda: Thank you Patrick good morning, everyone and thank you for joining us today.

Amanda: We reported second quarter results in line with our expectation and reiterated our full year outlook as we achieved continued progress on our transformation plan.

Speaker Change: Third on recent earnings call. We are on a journey to build a world class brand and a business that is well positioned for long term success.

Amanda: We are investing in and prioritizing the brand and product innovation strategies that are designed to deliver sustainable consistent growth. While also taking actions to align our global distribution and infrastructure, but the goals we have for this business.

Amanda: All of this work is supported by the strong foundation of all of our.

Amanda: Truly differentiated science that deliver superior results.

Amanda: A powerful R&D platform that drives impactful innovation.

Amanda Baldwin: A passionate community of stylists and consumers who love our products. A unique global footprint with proven performance across geographies and channels, and a talented team that is eager and prepared to execute on our mission to improve the hair health of millions of consumers around the world. While we know that this journey will take some time and that the path to creating a global and enduring brand is not always linear, we remain on track with the expectations we've set, delivering on our goals for the first half of the year and now shifting our focus in the back half of 2024 to executing on our product launches and key holiday periods, along with continued planning for 2025 and beyond.

Amanda: Passionate community of stylists, and consumers, who love our products.

Amanda: A unique global footprint with proven performance across geographies and channel.

Amanda: And a talented team that is eager and prepared to execute on our mission to improve the hair health of millions of consumers around the world.

Amanda: While we know that this journey will take some time and that the path to creating a global and enduring brand is not always linear.

Amanda: We remain on track with the expectations, we've set delivering on our goals for the first half of the year and now shifting our focus in the back half of 2024 to executing on our product launches and key holiday period.

Amanda: Along with continued planning for 2025 and beyond.

Amanda Baldwin: We recognize that there is more work ahead to bring Olaplex to its true potential, but I am incredibly proud of how our team has come together, confident in the direction we are taking, and enthusiastic about what the future can be. Turning to the highlights for the second quarter, net sales were $103.9 million, representing sequential improvement from Q1.

Amanda: We recognize that there is more work ahead to bring all effects to its true potential, but I am incredibly proud of how our team has come together.

Amanda: And the direction, we're taking and enthusiastic about what the future can be.

Speaker Change: Turning to the highlights for the second quarter net sales were $103 9 million representing sequential improvement from Q1.

Amanda Baldwin: Encouragingly, the aggregated sell-through trend at our key account on an absolute dollar basis in Q2 was largely consistent with the sell-through trend that we experienced in Q1, demonstrating continued progress towards stabilization in the business. Adjusted EBITDA was $32 million, reflecting incremental investment in trade and marketing spend as we began to introduce new marketing activations, yielding top-tier industry profitability for an adjusted EBITDA margin of 30.8%. Importantly, we believe we are retaining our strong standing in the industry throughout this transformation.

Amanda: Encouragingly the aggregated sell through trend at our key accounts on an absolute dollar basis in Q2 was largely consistent with the sell through trends that we experienced in Q1 demonstrating.

Amanda: Demonstrating continued progress towards stabilization in the business.

Amanda: Adjusted EBITDA was $32 million, reflecting incremental investments in trade and marketing spend as we began to introduce new marketing activation.

Amanda: Adding top tier industry profitability for an adjusted EBITDA margin of 38%.

Amanda: Importantly, we believe we are retaining our strong standing in the industry throughout this transformation.

Amanda Baldwin: According to our external brand tracker, during the quarter, Olaplex continued to rank number one or number two for 17 of the top 18 premium hair care equities among prestige hair care consumers, including ranking number one in the brand I'm excited to talk about and makes hair healthier, and with notable strength in I trust Olaplex to do what is right. We remain a category leader as we consistently rank as a top brand in the key accounts across our three distribution channels and continue to be among the most followed prestige hair care brands on social media, with 2.5 million Instagram followers. In addition, Olaplex was one of the five best-selling prestige hair products in the first half of 2024. Here is Cercana's retail tracking data for the U.S. hair market.

Amanda: According to our external brand tracker during the quarter <unk> continued to rank number one or number two for 17 of the top 18 premium hair care equities, among prestige hair care consumers, including ranking number one in brand I'm excited to talk about and makes her a healthier and with notable strength.

Amanda: And I Trust <unk> to do what is right.

Amanda: We remain a category leader as we consistently ranked as a top brand in the key accounts across our three distribution channels and continue to be among the most followed prestige hair care brands on social media with $2 5 million Instagram followers.

Amanda: In addition, all parks had four of the five best selling prestige hair products in the first half of 2024 first or corners retail tracking data of the U S carrier market.

Amanda Baldwin: As we build upon our strong foundation, our three key initiatives for this year have been, 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 a long-term roadmap and future vision for Olaplex. I'll now walk you through the progress we have made on these priorities during the second quarter.

Amanda: As we build upon our strong foundation, our three key initiatives for this year have been.

Amanda: First maximizing the impact of our sales marketing and education investments to generate demand.

Amanda: Second strengthening our capabilities and culture to support the future and third developing a long term roadmap and future vision for all apart.

Amanda Baldwin: Beginning with our efforts to maximize the impact of our sales, marketing, and education investments to generate demand, we're focused on evolving critical capabilities and supporting improved marketing execution to drive sell-through. After slowing certain of our sales and marketing initiatives in the first quarter in order to carefully assess our strategy, adjust creative assets, and plan for the rest of the year, we invested more heavily behind the brand during the second quarter. We increased our investment in non-payroll-related marketing and advertising expenses by approximately 33% quarter-over-quarter to $16 million in Q2, bringing the year-to-date total to approximately $28 million.

Amanda Baldwin: With this renewed strategy, we are focused on building a stronger go-to-market engine, which includes elevated content creation and a creator-led approach, focused investments in our core products, deeper coordination with our stylists and retail partners, and more efficient, ROI-driven media spend. This is just the beginning of our marketing evolution, and we have already seen some early wins with this approach. First, there's been an increase in our talent and influencer community social posts by nearly 20% year-to-date compared to the same period last year, with a 30% increase in engagement rate since the same period last year.

Amanda Baldwin: Next, we have grown our pro-influencer community by close to 10% this year through improved engagement and outreach strategies, leading to noteworthy lifts in pro-social impressions. And thirdly, our enhanced marketing efforts have resulted in new full-funnel content creation processes, higher quality creative content, and improved brand consistency and visual identity across channels in the U.S. We will continue to develop this brand vision and our marketing ability and translate them across the globe as we build a brand for the long haul.

Amanda Baldwin: A critical pillar of our first priority is returning to our stylist roots and recreating meaningful connections with the pros. One of the key opportunities I saw when joining Olaplex was to rebuild our strong connection with the professional community, which has been at the center of our brand since our inception. Professional stylists hold a special relationship to consumers and are strong sources of education and inspiration. So they are a priority audience and partner for us.

Amanda Baldwin: We've been amplifying our supportive pros this year because they are the heart of Olaplex, from expanding the coverage of our internal field sales team to launching new educational tools, increasing our participation in virtual and in-person events, and developing our new Bond Shaper Curl Rebuilding Treat. In honor of our 10th anniversary as a brand, we dedicated the entire month of June to celebrating the stylist community and all that they do for us, their customers, and the industry overall.

Amanda Baldwin: These pro-focused activations included the introduction of a new content series for our social channels that highlighted stories about the unique human connections that Olaplex stylists form with their clients. We hosted events in key global markets, which I personally attended, inviting hair professionals, brand ambassadors, and other local members of the beauty community to come together for special celebrations. We also launched the Olaplex Pro Collective, which is a dedicated group of top performing stylists and colorists who have a strong social media presence and industry influence around the world.

Amanda Baldwin: We'll serve as Olaplex brand representatives. Pro Collective aims to enhance our presence within the hairstylist community by sharing Olaplex content on their social media channels, attending industry shows, and hosting masterclass educational events and training. Another noteworthy activation this quarter was our new marketing campaign featuring Olaplex No. 4 Bond Maintenance Shampoo and No. 5 Bond Maintenance Conditioner. Designed to enhance the positioning of No. 4 and No.

Amanda Baldwin: 5 within the Prestige Hair Daily Care category, the full final campaign showcased the transformative benefits of a complete Olaplex routine and included refreshed creative assets and messaging for pro and consumer audiences, influencer testimonials, praise support, in-store visual merchandising updates, and organic social and paid media. The campaign launched towards the end of the second quarter, and we're pleased with the initial results and performance to date, with strong impressions and increased engagement rates, which are the first step in building brand affinity and ultimately sales conversion.

Amanda: We highlighted the marketing campaign of our best selling number seven bonding oil which launched during Q1.

Amanda: Since the launch of the campaign.

Amanda: Observed increased engagement rates social content related to the campaign.

Amanda: Relative to our total assortment number seven has experienced outperformance and sell through at our key account clothing year over year growth in the second quarter.

Amanda Baldwin: Also, according to data tracked by CreatorIQ, we regained the position in the second quarter as the number two U.S. haircare brand by earned media value. And also, in Q2, Olaplex was among the strongest performers in year-over-year growth rate by EMV among U.S. haircare brands.

Speaker Change: Also according to data talks by greater IQ, we regained our position in the second quarter as the number two U S hair care brand by earned media value and also in Q2 Oclock was among the strongest performers and year over year growth rate by ANV among U S hair care brand.

Amanda: <unk>.

Amanda: Moving to our second priority to strengthen our capabilities and culture to support our future.

Amanda: This work is designed to improve the foundational infrastructure across our organization and has included ongoing implementation of our enhanced integrated business planning processes designed to improve forecasting and overall business performance management. Additionally.

Amanda: Additionally, we created a strategic internal centralized work stream overseeing marketing investments across channels.

Amanda: Militate more strategic spending and optimization.

Amanda: In addition, we are also continuing to enhance our new product development process to maximize our R&D capabilities and fuel future innovation.

Amanda: With the support of our new innovation team, which was formed to lead the creation of our new product pipeline and our enhanced commercialization strategies. We are beginning to rollout improved go to market processes for our new product launches this year, including the upcoming launch of a brand new patented technology, all blacks bond shaping technology.

Amanda: Marking our next wave of scientific innovation, all flex bond shaping technology was created to support curly hair of all types and textures are parents internal hair structure to strengthen and reshape pro forming bomb locking them into place to rebuild natural curl patterns.

Amanda: Crow care is a large and growing category as curly haired consumers report spending the most on Salon services. Among all her typed and cross services are among the top 10 fastest growing services in the U S.

Speaker Change: Curly hair has more disulfide bonds it could be more susceptible to damage approach often requesting more information on how to address the unique and important needs of this consumer.

Speaker Change: As an innovative category leader, we believe that <unk> is uniquely positioned to offer a new solution and we saw an opportunity to expand into this segment.

Amanda: Led by our two core beliefs scientific innovation and a pro first point of view.

Speaker Change: Our new old Flex bond shaping technology contains a unique peptide composed of 23 amino acids and allows for cortex deeper penetration to help reconnect and strengthen multiple points, but disulfide bond within curly hair.

Amanda: This launch demonstrates our continued desire to provide pros with the tools they need to run successful growing salon businesses and showcases our commitment to broadening our innovation portfolio with new technologies that support all consumers.

Amanda: We're launching two new products in the bond shape, our product offerings, one being a pro service in Salon treatment and the second a complementary take home formula.

Amanda: These two innovations exemplify how our products build off of one another and showcase the cycle between insulin treatments and home care for ongoing maintenance.

Speaker Change: First the bond shaper curl rebuilding treatment is that three staff professional world treatment to repair redefine and market shape of natural waves crows in coil.

Amanda: And second the number 10 bond shaper, Carl defining gel is an at home repair to curl defining styling gel that revives natural call pattern.

Speaker Change: With the launch of our bond Schafer product offerings, we're bringing old flex back to the forefront of product innovation elevating our product development capabilities delivering on a pro for squamous and enhancing processes and coordination among our sales marketing and education teams to enable successful launch it.

Speaker Change: Central to any transformation is cultivating a strong passionate team and culture and building a business, it's all about execution and the talent that drives it with.

Amanda: With this in mind, we are excited to strengthen our senior leadership with two new talented addition.

Speaker Change: First Katherine Dunn Levy will join <unk> as Chief operating Officer, and Chief Financial Officer effective August 13th most.

Amanda: Most recently Kathryn served as president and prior to that as Chief Financial Officer at away following tenures at Nike, Comcast NBC Universal and GE.

Speaker Change: She has a strong track record of executing high impact strategic operational and financial initiatives at scale and our mix of experiences at large public companies and a smaller high growth organization makes her a great fit for all of us.

Speaker Change: Second hitting Goldman joined the company as Chief Marketing Officer on July 15th.

Hitting Goldman: He most recently served as the Chief marketing officer of Marc Jacobs, overseeing the strategic and creative vision for the brand and spent the first half of her career at L'oreal.

Speaker Change: She held senior marketing roles for various company brands, including Lancome and killed.

Speaker Change: Kati brings significant experience nurturing growing successfully shaping marketing strategies and creative visions prestige retail and beauty brand.

Speaker Change: Catherine and Katie will be located at our New York Office, and I look forward to working with both of them as we develop and execute on our future vision.

Speaker Change: Our third priority is developing a long term roadmap and future vision for all attacks.

Speaker Change: Since day, one of joining this organization I've been focused on amplifying our current execution alongside planning and preparing for the future as both are critical to our success.

Speaker Change: As I have stated before design the future path requires understanding what made Olympics. So revolutionary from day, one and then harnessing that insight for our transformation.

Speaker Change: I've been continuously struck by the level of passion and commitment from stylists and consumers for all of us as I have engaged with so many directly and I also wanted to ensure that our future strategy was grounded in concrete research on the needs and belief of these critical partners to our brand.

Speaker Change: As such we undertook a perception study that will influence the direction and evolution of old blocks. The insights of the studies show that there is considerable enthusiasm at four and openness to our brand with strong interest in what <unk> is today and the innovation, we can bring to market in the future.

Speaker Change: We believe that the <unk> brand is still very strong with positive association to build upon including innovative reparative healthy and effective that does not mean, however that there are not key opportunities to broaden our reach upgrade our messaging improve our education and usage clarity and foster deeper emotional connections with our audiences.

Speaker Change: Much more to come on this important initiative as we develop and share our new brand strategy.

Speaker Change: To that end during the quarter, we've made meaningful progress towards establishing a long range strategic plan and financial framework for the future.

Speaker Change: We look forward to sharing our long term roadmap and future vision for <unk> and expect to provide details in early 2025.

Speaker Change: In summary, we are pleased with our progress year to date <unk> remains an industry, leading brand professionals consumers and all of our partners as we deliver on our unique promise and capability to improve her health.

Patrick: We're executing on our plan with intense focus and discipline I believe our strategies have us on track to return <unk> to achieving sustained long term growth a top tier profitability and with that I will now pass it over to Patrick.

Patrick: Thank you Amanda I will cover our second quarter results and our outlook for the remainder of 2024.

Patrick: Net sales for the second quarter declined four 8% year over year to $103 9 million, which is in line with our expectations.

Patrick: As a reminder, our Q2 net sales or sell in decline versus last year was better than the Q2 sell through declined versus last year key accounts as.

Speaker Change: <unk> benefited from a weaker prior year net sales compare to to certain customer inventory rebalancing in Q2 of 2023, which depressed our 2023 net sales base.

Speaker Change: As we have previously discussed in recent earnings calls we continue to believe that the months on hand inventory position at our major accounts and our.

Speaker Change: Core items remain in a healthy position.

Speaker Change: From a selling perspective this was partially offset by negative net sales impact in Q2 234.

Speaker Change: So our previously announced decision to rationalize our business with certain distributors that we believe are the source of diverted product in the marketplace.

Speaker Change: We do not build equity and the older Flex brands.

Speaker Change: Yeah.

Speaker Change: Turning to performance by channel specialty retail net sales were up 22, 4% compared to the second quarter of 2023 to $36 4 million due to the weaker prior year net sales compare to related to customer inventory rebalancing.

Speaker Change: Our professional channel net sales of $33 4 million declined 18, 4% versus a year ago, partly due to the aforementioned distributed rationalization, which primarily affects our professionals business in Europe.

Speaker Change: This more than offset a modest increase in our North America professional business, which benefited from lapping the impacts from customer inventory rebalancing in Q2 2023.

Speaker Change: The direct to consumer channel net sales decreased 11, 5% to $34 1 million driven by our focus to prioritize partners that build brand equity.

Speaker Change: This negatively impacted international e-commerce shipments in the quarter.

Speaker Change: By geography.

Speaker Change: In the second quarter U S. Net sales increased seven 3% year over year, primarily due to lapping customer inventory rebalancing from a year ago.

Speaker Change: Our international net sales declined 15, 1% versus a year ago due in part to the impacts of the distributor rationalization, which we believe has resulted in a short term negative impact on our volume primarily in Europe.

Speaker Change: Yeah.

Speaker Change: Moving down the P&L adjusted gross profit margin was 71, 9% down.

Amanda Baldwin: down 80 basis points from 72.7% in the second quarter of 2022. The sequential increase was primarily the result of building inventory in advance of the sell-in of our holiday kits and new products during the third quarter.

Speaker Change: 80 basis points from 72, 7% in the second quarter of 2023.

Speaker Change: While we saw 190 basis points of favorability, mainly driven by lapping higher levels of inventory obsolescence reserves taken last year.

Speaker Change: And to a lesser extent from lower warehouse and distribution costs year over year.

Speaker Change: This was more than offset by a combined 270 basis points of contraction from increased sampling efforts unfavorable channel and product mix and other allowances.

Speaker Change: Second quarter, adjusted SG&A was roughly flat year over year at $42 6 million compared to $42 3 million in the second quarter of 2023.

Speaker Change: As an increase in payroll costs, which was primarily driven by workforce expansion made during the prior year.

Speaker Change: Was mostly offset by a decrease in sales and marketing expense.

Speaker Change: As Matt mentioned earlier during the second quarter of 2024, we spent approximately $16 million non payroll related marketing and advertising expenses and.

Matt: An increase of approximately $12 million in the first quarter.

Matt: The year to date total to approximately $28 million.

Speaker Change: Q2, adjusted EBITDA declined 12, 7% to $32 1 million versus $36 7 million in the second quarter of 2023.

Speaker Change: Adjusted EBITDA margin was 38% compared to 33, 6% a year ago.

Speaker Change: Adjusted net income decreased to $18 8 million or <unk> <unk> per diluted share in the second quarter of 2024.

Speaker Change: From $21 2 million or <unk> <unk> per diluted share in the second quarter of 2023.

Speaker Change: Yeah.

Speaker Change: Moving onto our balance sheet.

Speaker Change: Inventory at the end of the second quarter of 2024 was $102 million, an increase of $5 6 million from $94 6 million at the end of the first quarter of 2024.

Speaker Change: And down $28 4 million from the second quarter of 2023.

Speaker Change: The sequential decrease was primarily the result of building inventory in advance of the sell in of our holiday kits.

Speaker Change: New products during the third quarter.

Speaker Change: While the inventory position of our core Skus was largely consistent with Q1.

Speaker Change: Turning to cash flow during the first six months of 2024, we generated $59 9 million in cash from operations.

Speaker Change: We anticipate that 2024 will be another year of healthy cash flow generation as we continue to drive an asset light model high profitability and continuous improvements in our working capital position.

Speaker Change: We ended the second quarter with $507 9 million in cash and cash equivalents essentially flat from the end of the first quarter of 2024, and an increase of $129 5 million from the second quarter of 2023.

Speaker Change: This cash is generating interest income at an annual rate of about 5%.

Speaker Change: Long term debt net of current portion of deferred fees were $646 4 million.

Speaker Change: Now turning to our financial outlook.

Speaker Change: As disclosed in our earnings release issued this morning, we are reiterating our sales and earnings outlook for fiscal year 2024.

Speaker Change: And expect net sales in the range of 435 million to $463 million.

Speaker Change: Adjusted EBITDA in the range of $143 million to $159 million.

Speaker Change: And adjusted net income in the range of $87 million to $100 million.

Speaker Change: Yeah.

Speaker Change: The assumptions in our plan for the year are consistent with the details we shared on our last earnings call.

Speaker Change: Past incorporates reasonably expected volume drivers on our product and account level basis.

Speaker Change: We continue to assume the impact of our sales and marketing investments and.

Speaker Change: And our second half initiatives build on the level of demand that we've seen in the past several quarters.

Speaker Change: We expect improvement in the second half of the year.

Speaker Change: As our sales and marketing investments and initiatives land in the market.

Speaker Change: We expect to benefit from the settlement of holiday kits during the third quarter, and our professional and specialty retail channels.

Speaker Change: We expect a positive impact from the settlement of our new products during the third quarter, including our bond shape, our offering and the launch of another new product, which will be announced soon.

Speaker Change: And we expect to experience a seasonal lift we've historically seen in the fourth quarter, particularly in our DTC channel.

Speaker Change: Yeah.

Speaker Change: As a reminder, and as discussed on past earnings calls on the distribution front. We have been taking actions that are focused on our long term success and are expected to have a negative short term impact.

Speaker Change: This includes the decision to constraint opening up new accounts in 2024, as we focused on current key customers and rationalized certain distributors in accounts that do not build brand equity from us strategy pricing or sub distribution into unauthorized resellers.

Speaker Change: Yeah.

Speaker Change: Moving down the P&L for the full year of 2024, we assume adjusted gross profit margin in the range of 72, 5% to 73, 1% representing expansion of 110 to 170 basis points.

Speaker Change: This is a result of lapping higher 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.

Speaker Change: In addition, we expect to benefit from a dedicated internal cost savings program, which we expect will more than offset some inflationary pressures and product costs.

Speaker Change: Furthermore, we expect full year 2024, adjusted SG&A expenses in the range of $172 million to $179 million in.

Speaker Change: An increase of 19 million to $26 million versus 2023.

Speaker Change: Roughly half of that increase versus last year is expected to organization boss.

Speaker Change: Primarily from annualized in the costs with head count additions made during 2023.

Speaker Change: And from the accrual of a normalized bonus payout in 2024.

Speaker Change: The other half of the increase as expected in our sales and marketing expenses.

Speaker Change: Best at levels, we believe are required to return to long term growth.

Speaker Change: Specifically, we continue to expect full year non payroll related in my opinion and advertising expenses in the range of $66 million to $70 million, an increase from $50 5 million in 2023.

Speaker Change: Taken altogether, we anticipate continuing to achieve top tier industry public Doherty with adjusted EBITDA margin in the range of 32, 8% to 34, 3%.

Speaker Change: We assume net interest expense to be approximately $32 million to $34 million.

Speaker Change: And adjusted effective tax rate of approximately 19, 5% to 25% for the year.

Speaker Change: In conclusion, we are encouraged by the progress, we're making on our transformation journey, while maintaining strong profitability and cash flow generation.

Speaker Change: We remain incredibly excited about the power behind the <unk> brand in the long term potential for this business.

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

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

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press star two if you'd like to remove your question from the queue.

Speaker Change: In the interest of time, we ask that participants limit themselves to one question and one follow up and re queue for any additional questions for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker Change: Okay.

Dara <unk>: Thank you. Our first question is from Dara <unk> with Morgan Stanley investments. Please proceed with your question.

Dara <unk>: Hey, good morning.

Speaker Change: So Amanda maybe just to start with you mentioned the conclusions.

Dara: From your consumer survey showing the Olympics brand has extend ability.

Speaker Change: Is that more an innovations you are currently exposed to expansion into other consumer subcategories youre not exposed to today.

Speaker Change: No not expecting full details, but conceptually make it maybe help us understand the opportunities going forward on that front and then second just related to that it sounds like you are comfortable with the pay off from higher investment based on your prepared comments brand equity scores et cetera, maybe can you just.

Speaker Change: Flash out a bit more detail on the payback from higher spend versus what you originally expected when you put your plans into place.

Speaker Change: And with some of that exciting innovation that you mentioned today are still to come as I mentioned earlier.

Dara: And the new management additions, leaving this year at the right investment levels in terms of what's implied in your full year guidance or might you continue to boost investments significantly overtime versus this year's base. Thanks.

Speaker Change: Yeah.

Speaker Change: Good morning, Thank you for the questions.

Speaker Change: Take each one in turn.

Speaker Change: First of all with respect to the perception study that we did again that were really focused on making sure that we had data to back up some things that we're hearing.

Speaker Change: We're talking a lot to consumers through our partners to pros it was a broader base.

Speaker Change: I've researched and really focused on what what is the equity that is any of that brand and what is the interest level and kind of innovation more broadly from the brand.

Speaker Change: I would say it was much more about making sure that we had the ears and eyes open and interest in the brand going forward and that we understood kind of where where our degrees of freedom where within not so.

Speaker Change: Certainly without innovation, but also about brand, but that's been more generally in kind of the places that we need to take.

Speaker Change: Go back to sort of even our own priorities for this year really thinking about tightening up our marketing message and tightening up our education. So that we had a lot more.

Speaker Change: City around some of the things that were I would say early hunches that we had coming in so a lot more to come on that as we talk about some of our longer term roadmap and what we expect that to be with.

Speaker Change: With respect to marketing spend both currently is as well as the future I think you'll look where we are on a journey right and I think that it's very important for me to make sure that as we are putting increased dollar amount into the market that we're doing it in the right way and to.

Speaker Change: Airplanes that we're measuring the impressions.

Speaker Change: The expectations of the consumer has and as well as the pro around what they are hearing from our brands.

Speaker Change: Not an overnight switch so I think we're sort of really thinking about making sure, especially with <unk> coming on that were taking and learning and iterating on things as we move through the rest of the year.

Speaker Change: Not making any proclamations about what we'll do going forward, yet, but I think we're going to learn a lot, but very important to our business in the next couple of quarters as we continue to improve on our marketing execution.

Speaker Change: Great. Thanks.

Speaker Change: Mhm.

Speaker Change: Uh huh.

Speaker Change: Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Dana Telsey: Hi, Good morning, everyone can you unpack a little bit about the channels. The changes that you saw in specialty retail and DTC, where I understand the internationally commerce shipments on DTC. What did you see as you went through the quarter how did it differ by region and then on the gross margin with a 190 basis.

Speaker Change: Since if they've the ability with the in store obsolescence.

Speaker Change: Can you unpack the gross margin what what are the puts and takes going forward of what youre expecting it to look like thank you.

Speaker Change: I'll take the first half of that and then I'll turn it over to Eric on the gross margin I think that the important thing for us to really make sure that we're sharing is that we're seeing what I would say stabilization around consumer demand right. There. There are certainly things that used to be in the sell in.

Eric: Versus the sell through but really from a sell through baseline demand for this business, that's where we're seeing consistency both in terms of volume at both split within channel everything else is really related to inventory rebalancing is as we've been talking about for the last couple of quarters, absolutely driving the uptick in retail.

Speaker Change: And then within professional there's movement in international really around again that distribution clean up work that we're doing so I think that's really what I'm pleased to see the consumer demand the real demand for the brand in both the consumer and the pro.

Dana Telsey: You know in a good place and then we're moving through some different rebalancing from from a selling point of view.

Patrik: Hey, Dan This is patrik yeah. So to cover your question on the gross margin so in Q2.

Dan: We came a little bit softer than what we expected we were expecting some nice expansion in Q2.

Speaker Change: We contracted about 80 basis points for the quarter.

Speaker Change: Mainly driven by two factors first we mentioned that we shipped some samples to certain strategic customers. We know the sampling is a really a conversion tool so deploy.

Speaker Change: <unk> deployed more of those samples in the second quarter, which had an impact.

Dana Telsey: Also had a little bit more of it.

Speaker Change: Inventory obsolescence charges that we were originally expecting.

Dana Telsey: Lapping inventory obsolescence from a year ago was still a tailwind but relative to what you had expected that had a negative impact to the quarter.

Speaker Change: We think about the back half of the year.

Speaker Change: In Q3, specifically, we would expect to see adjusted gross margin take a little bit of a dip from the second quarter, just because of the sell in of our holiday kits.

Speaker Change: Which are still highly profitable for us, but a little bit lower gross margin relative to the rest of the portfolio.

Speaker Change: And we expect that to see from in the Q4, we'd expect nice gross margin expansion, what do we see gross margin.

Speaker Change: Uptick from Q4, but really for the back half of the year in Q3, and Q4, we're expecting gross margin expansion year over year.

Speaker Change: Primarily from the tailwind that we've been speaking about for the last couple of quarters, which is <unk>.

Speaker Change: Continuing to lap over.

Speaker Change: Inventory obsolescence from a year ago and benefited from lower warehouse and distribution costs.

Speaker Change: Got it thank you and just overall on the category Amanda what are you seeing in the category. How do you see the promotional environment and with your new product introductions that are coming.

Amanda: How are they being launched this year that would be different.

Amanda: Weren't there at the time and how new products were launched last year from what you know thank you.

Amanda: So overall, what we see and the data is the prestige hair care category remains healthy and growing and I think that that's very important to us.

Speaker Change: Obviously and I think we're also.

Speaker Change: As category leaders about our responsibility to continue to make sure that that happened. So we have not seen any changes in the data overall category throughout the year as we've been talking about it I think it remains healthy and overall consumer macro trends that we're certainly well positioned to take advantage of so so no change.

Speaker Change: Are there from what we've been talking about for the last couple of quarter.

Dana Telsey: With respect to marketing and how we're approaching launches I think this really goes back again to some of the things that we've talked about with respect to our sales and marketing education investments to really make sure that.

Speaker Change: For something like bond shaping technology that we're being very clear about how the technology works.

Speaker Change: The thing that I'm very excited about is that it is an insulin treatment.

Speaker Change: So we're spending a lot of time, making sure that we're communicating effectively to the pros how to use this product and also how much of their business I would actually allows them to speak to a brand new consumer.

Speaker Change: It's a huge consumer unmet need around curl and a particular need within the pro salon channels, but there are certain things that that is a great example of a launch it really has approached <unk> point of view that has a scientific innovation point of view and making sure that our marketing and our education support.

Speaker Change: Thank you.

Speaker Change: Oh.

Speaker Change: Thank you. Our next question is from Susan Anderson with Canaccord Genuity. Please proceed with your question.

Susan Anderson: Hi, good morning, and thanks for taking my question.

Susan Anderson: I was wondering maybe just to get your thoughts on the different channels. It looks like maybe there's a preference shift plus shopping more in specialty retail and DTC versus the pro channel. So just curious if you could maybe talk about the dynamics there or is it you know visits or conversion issues and then I'll.

Susan Anderson: Also you know is if there is some sort of shopping preference change does that change how you're thinking about your strategy around partnering with the pro channel. Thanks.

Speaker Change: And so we have discussed and again this remains relatively consistent that there are some macro shifts and the pro channel more broadly one is around frequency of visit that and there has been a threat I would say its public coming out of Covid.

Speaker Change: Well as certain trends and hair color.

Speaker Change: <unk> increased the time between visits so that impact either the back bar business.

Speaker Change: And then within retail as you referenced there certainly are more auctions of places to buy pro first product like that.

Speaker Change: And that is not unique to us that's something that exist across pretty much any brand within the Salon channel. So those are things that are certainly.

Speaker Change: Putting pressure on the professional channel writ large however that does not change our point of view about the importance of the problem.

Speaker Change: If anything it makes me more enthusiastic about it because.

Speaker Change: The role that the pro has.

Speaker Change: Put it in our history, we certainly would be nowhere without them I think we referenced on our prepared remarks out really spent the month of June really.

Speaker Change: With that community and making sure that we're understanding and thanking them for everything that they've done. So I think as we think about it. There's certainly again look I think that bond shaping is is a great example of how do we provide additional ways in which you can build the pro business.

Speaker Change: And a brand new treatment and that's certainly something that's very evolutionary and unique to all blacks is very exciting for us. So it hasn't it doesn't decrease the importance of them, but they are there are certainly macro trends that we need to be aware.

Speaker Change: Okay, Great and then maybe if you could give some color just on kind of how sales trended throughout the quarter and maybe kind of how you exited the quarter.

Speaker Change: Definitely it seems like you guys are at an inflection now and trending towards hopefully positive growth in the back half based on the guidance I guess should we think about that starting to happen in third quarter or how should we think about that trend line.

Patrik: Yeah. Susan this is patrik I can take that I think there's so many different moving parts. When you think about a sell in perspective from a year ago, where we're lapping the customer inventory rebalancing in our proteins specialty retail channels. There is a lot of noise. So really as we think about stabilization of the business as we talked about in the past couple of quarters, we're really looking to.

Speaker Change: Sell through to really be an indicator of stabilization in the business. Then we've really throughout the quarter saw kind of consistent stable sell through throughout the quarter and all three of our channels. So that certainly is encouraging.

Speaker Change: As you think about the back half of the year.

Speaker Change: As a reminder, we're up against a I'd say a better underlying demand comparator.

Speaker Change: In the first half of last year, we are still experiencing some headwinds related to misinformation, where the underlying trends in the business a year ago in the back half of 2023 were relatively stable. So we feel like being on a better underlying comparator was certainly.

Speaker Change: Benefit the back half of the year. In addition to the sell in of our holiday kits and our new product launches.

Speaker Change: Okay, great. Thanks, so much for the details good luck the rest of year.

Speaker Change: Thank you.

Operator: Thank you. Our next question is from Olivia Tong with Raymond James. Please proceed with your question.

Speaker Change: Thank you. Our next question is from Olivia Tong with Raymond James. Please proceed with your question.

Olivia Tong: Great, thanks. Good morning.

Olivia Tong: Great. Thanks, Good morning, I wanted to dive into your gross margin outlook, a little bit more which is unchanged for the full year.

Olivia Tong: And that implies a pretty big step up in second half despite Q2 coming in weaker than expected.

Olivia Tong: As you decided to obviously be more proactive on sampling. So can you help us understand your second half plans, a little bit, especially if sampling drove the lower gross margin in Q2, and you have launches coming in second half, which I assume you want to be.

Amanda Baldwin: I wanted to dive into your gross margin outlook a little bit more, which is unchanged for the full year. And that implies a pretty big step up in the second half, despite Q2 coming in weaker than expected, as you decide to obviously be more proactive on sampling. So can you help us understand your second half plans a little bit, especially if sampling drove the lower gross margin in Q2, and you have launches coming in the second half, which I assume you want to be aggressive in terms of supporting. So a little bit more detail on your views on sampling and other trial-building investments in the second half for the new products would be great. Thank you.

Speaker Change: Our aggressive and in terms of supporting so you know a little bit more detail on your views on sampling and other trial building investments in second half of the new products would be great. Thank you.

Speaker Change: Okay.

Speaker Change: Yes, Olivia this is Patrick I would say, we typically have seen.

Speaker Change: A sequential step down from Q2 into Q3 for adjusted gross margin, but now that we're coming off of a lower base in Q2, we're not going to see as much of a dip as we have seen historically.

Speaker Change: But we do again expect a nice rebound move.

Speaker Change: Moving into the fourth quarter.

Speaker Change: As we move past sort of the seasonality of selling in those holiday kits during Q3.

Speaker Change: So your Q3 and Q4 gross margin expectations relative to the start of the year I assume haven't haven't changed very much or or they're they're higher than you had previously anticipated.

Speaker Change: So again for the back half of the year really largely consistent with what we had expected.

Speaker Change: As expected gross margin expansion in the back half of the year and we continue to.

Speaker Change: Got it and then just following up on on the Pro channel, we talked a little bit about that already but what's your view in terms of the underlying demand amongst.

Speaker Change: Amongst professionals, obviously separating out the work youre doing in terms of diversion and the impact with that topic.

Speaker Change: I'll I'll take that one I think what you're asking is is demand from the pro specifically with respect to the back bar retail just if you can just help me understand your question a little bit better.

Speaker Change: Yes, more in the pro channel just I mean, it's hard to figure out exactly how the pro channel is doing because so much of that is some of the.

Speaker Change: The declines as you mentioned are very much a have a lot to do with controlling diversion. So if you ex out that divers and what is the what does the demand look like in CRO.

Speaker Change: I think largely consistent with everything else that we're seeing in the business, where we're seeing a movement towards stabilization and a consistent level of demand.

Speaker Change: Again, as we get into the back half you have a new product launch new innovation, New focus I think we've been certainly making the pro a priority for the first half putting more and more initiatives in place expanding our sales team, making sure that we're communicating with them in new and exciting ways.

Speaker Change: Time to build so I feel.

Speaker Change: We are on the right path in terms of how we're focusing on this channel and it's really we need to drive demand right, we need to ensure that we are.

Speaker Change: Bringing people to the Salon for incremental incremental reason I think we also have the benefit of a product that is.

Speaker Change: One and two are universal across all other brands and that's something that we can also take advantage of.

Speaker Change: Okay.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question is from Kate perhaps too with Barclays. Please proceed with your question.

Kate: Thanks, just a question on the distributor rationalization work that Youre doing in Europe, and how far along are you in this process and what gives you comfort that the same thing doesn't have to be done in other international markets. And then just also wondering if you're starting to see an improvement in diverted product in the U S.

Speaker Change: Yeah.

Speaker Change: Yes, I think we're right on track with this process and obviously it takes a lot of detailed work and there is two elements of it one is our own internal operational processes around ensuring that we have the right track and trace.

Speaker Change: We're right on track and rolling that out and making sure that it is in the market.

Speaker Change: With future issues that way as well as making sure that we have line of sight into the partners that we believe are the right partners for the future and the ones that we don't believe ads for our brands, we're really working through that at the pace that I would expect to be at this point in time.

Speaker Change: Yeah.

Speaker Change: Thank you. Our final question is from Javier Escalante with Evercore. Please proceed with your question.

Javier Escalante: Hello, Good morning, everyone I wanted to just kind of like a repetition from a permitting <unk> from the prior questions is it.

Speaker Change: How much of the improvement in the second half is dependent upon.

Speaker Change: And then the diversion issue.

Speaker Change: Is it already done.

Speaker Change: Do you expect to continue.

Speaker Change: <unk>.

Speaker Change: We're drawing inventories for withdrawing shipments too bad actors so to speak do you have visibility of that.

Speaker Change: Is that quantifiable did you have it you know.

Speaker Change: What is going to happen.

Speaker Change: The second half.

Speaker Change: Irrespective of what you are doing on the consumer side.

Speaker Change: A follow up thank you.

Speaker Change: Happy to take that one so the work is still in progress.

Speaker Change: We are not done yet, but I think we are working through it again at a pace that I would expect too.

Speaker Change: We had our multilayered as you can imagine so there is more to come.

Speaker Change: I think at this point, we haven't quantified that.

Speaker Change: Typically, but I think we have line of sight into what we need to do I've spent a lot of time personally making sure that I understand what the decisions are that need to be made.

Speaker Change: And how we're going to do them. So again it was something that are coming in that I knew we needed to work on and we put our plans and expect to be continuing on the journey that we started earlier this year.

Speaker Change: Understood.

Speaker Change: There's always been a problem in professional hair care. The other thing that I wanted to ask you is when you mentioned.

Speaker Change: SW location right on the consumer side.

Speaker Change: Is that how you measured the study decision do you think.

Speaker Change: It has to do with a baseline of market share that you are.

Speaker Change: Holding up too.

Speaker Change: Or is it.

Speaker Change: You are.

Speaker Change: Flat in retail what exactly is stabilization means when it comes to retail I mean, if you kind of speak of the.

Speaker Change: Separately from.

Speaker Change: Europe that will be very very helpful.

Speaker Change: Helpful.

Speaker Change: Yeah, I think the way that I think about.

Amanda Baldwin: Stabilization and demand are the power of this product and its innovation and the, quite frankly, professional and consumer natural demand for what we do. And it is really quite extraordinary when you think about it, you know, the product is effective, it works, it has a lot of people who continue to use it, and that's really what I think of as the baseline demand, right? Day in, day out.

Speaker Change: Stabilization in demand.

Speaker Change: The power of this product and its innovation and then quite frankly, the pro and the consumer natural demand for what we do and it is really quite extraordinary when you think about the product.

Speaker Change: Effective at work that a lot of people, who continue to do that and absolutely what I think of as a baseline demands right. The day in day out and.

Amanda Baldwin: And again, this is something that was definitely confirmed in some of that consumer and professional research, that there are a lot of people who rely on Olaplex as a part of their salon routine, as a part of their daily routine. And that is really testament to the power of the science and the power of the product and the underlying consumer and professional demand that exists in the business. So that's what I really think of as kind of stabilization, finding that.

Speaker Change: And again this is something that will definitely confirmed and from that demand for our research is that there's a lot of people who rely on our flex as a part of their colon routine as a part of their daily routine and that is all a testament to the power of the science and the power of the product and the underlying consumer and pro demand.

Speaker Change: So that's what I really think of it as kind of a stabilization that finding with finding not.

Speaker Change: Building upon that require new innovation, new marketing to draw and new consumers, who maybe didn't have the product that was the right fit for them before or didn't know about or Blackbird wasn't sure about why they wanted to do it that's where and why quite frankly, we spent so much time on innovation pipeline, ensuring that we have the right market.

Speaker Change: And because we have to drive incremental demand right. So that's sort of how I think about what exists and what we see band out is quite frankly, a testament to the power of the product and then what we need to build off of that I would say, it's very similar in the U S versus international and the U S.

Speaker Change: The difference of having distributor partners in international and at versus a more direct relationship in the U S. But the underlying things that we're seeing and the underlying demand that we're seeing in both our sell through and as well as our sell in at this point, it's really driven by <unk>.

Speaker Change: Tumors, and who are using the product and they are quite loyal to us.

Speaker Change: So is it fair to say that essentially you think.

Speaker Change: The current level of sales represent some sort of a loyal user base.

Speaker Change: From these is where you would try to start building them.

Speaker Change: Bobbing back these lapsed users that for whatever reason our bonds on the equity because of misinformation.

Speaker Change: I think that would definitely have a base of which off of which we're continuing to build and I think that's the important thing that we've been looking for and the business is really to make sure that we find that that base.

Speaker Change: This line of demand and off of which we are able to again, bringing new consumers through innovation through marketing that we are.

Speaker Change: Making sure that we have the right product for them and that they understand why <unk> is different and unique.

Speaker Change: Well, thank you very much.

Speaker Change: Thank you.

Speaker Change: Thank you. This concludes our question and answer session I would like to hand, the floor back over to Amanda Baldwin for any closing remarks.

Amanda Baldwin: Thank you everyone for joining us today, we very much appreciate your interest in <unk> and I just wanted to take a moment to thank all of our <unk> team, our pros our clients and our business partners for their continued commitment to moving this company forward.

Amanda Baldwin: As always if you have any questions. Please reach out and thank you again, we look forward to speaking with you soon.

Amanda Baldwin: Okay.

Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.