Q1 2025 Waldencast PLC Earnings Call
Operator: Good day and welcome to the Waldencast First Quarter 2025 earnings call. All participants will be in listen-only mode. The question and answer session will follow the formal presentation.
Good day and welcome to the Walton cost culture pretty creative part earnings call.
All participants will be in listen only mode.
A question and answer session will follow the formal presentation.
Operator: If you should require assistance during the conference, please press the star key and then zero on your telephone keypad. Please note that this event is being recorded.
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Please note that this event is being recorded.
Alison Malkin: I will now hand you over to Alison Malkin, partner ICR. You may proceed.
Speaker Change: I will now hand, you over to Allison Malkin ICR.
Oh I see our you May proceed.
Alison Malkin: Thank you and welcome to the Waldencast PLC first quarter fiscal 2025 earnings call. Here with me today are Michel Brousset, Founder and Chief Executive Officer, and Manuel Manfredi, Chief Financial Officer. For today's call, Michel will begin with an update on our business and vision. Manuel will follow with a review of the first quarter and provide our fiscal 2025 outlook. Following this, Michel will share the strategic growth initiative for our Milk Makeup and Obagi Medical brand.
Speaker Change: Thank you and welcome to the Wildcats plc first quarter fiscal 2025 earnings call here with me today are Michelle Berrey sat founder and Chief Executive Officer, and then well, Matt Reddy, Chief Financial Officer for today's call Michelle will begin with an update on our business ambition Manuel will follow with the review.
Speaker Change: You are the first quarter and provide our fiscal 'twenty twenty-five outlook following that Michelle will share the strategic growth initiatives for our milk makeup N O Bashi medical brand.
Operator: After the prepared remarks, the operator will open the call to take questions.
Speaker Change: After the prepared remarks, the operator will open the call to take questions.
Alison Malkin: Before we start, I would like to remind you that management will make certain statements today which are forward-looking in nature, including statements regarding the outlook of the Waldencast business and other matters referenced in the company's earnings release that was issued yesterday. Each forward-looking statement is subject to risks and uncertainties that could actually result to differ materially from those projected in or implied by such statements. Additional information regarding these statements appears under the heading, Cautionary Notes Regarding Forward-Looking Statements in the company's earnings release and in the company's filings that it makes with the Securities and Exchange Commission, which are available at www.fuc.gov and on the industry relations section of the company's website at ir.waldencast.com and should be read in conjunction with this section entitled, Risk Factors in the Company's Annual Report for 2024 on Form 20-F filed with the Securities and Exchange Commission on March 20, 2025.
Speaker Change: Before we start I would like to remind you that management will make certain statements today, which are forward looking in nature, including statements regarding the outlook of the Walden Caf business and other matters referenced in the company's earnings release that was issued yesterday. Each forward looking statement is subject to risks and then.
Speaker Change: Certainties that could cause actual results to differ materially from those projected in or implied by such statements. Additional information regarding these statements appears under the heading cautionary note regarding forward looking statements in the company's earnings release and in the company's filings that it makes it a bit.
Speaker Change: Securities and Exchange Commission, which are available at Www Dot FCC Docker and on the Investor Relations section of the company's website at IR that Walton cast dotcom and should be read in conjunction with the section entitled risk factors in the company's annual report for 2024.
Speaker Change: Sure on form 20-F filed with the Securities and Exchange Commission on March 20th 2025. 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.
Alison Malkin: 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 measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Speaker Change: So during this call management will discuss certain non-GAAP financial measures, which management believes can be useful in evaluating the company's performance.
Speaker Change: The presentation of non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP you will find additional information regarding the definition of these non-GAAP financial measures and a reconciliation of these non-GAAP to the most.
Alison Malkin: You will find additional information regarding the definition of these non-GAAP financial measures and a reconciliation of these non-GAAP to the most directly comparable GAAP measures in the company's earnings release.
Speaker Change: The directly comparable GAAP measures in the company's earnings release with that let me now turn the call over to Ms shelf reset.
Michel Brousset: With that, let me now turn the call over to Michelle Brissett. Thank you, Alison, and good morning, everyone. I am pleased to speak with you today and share our first quarter performance and outlook for the year. During the quarter, we made strong progress against our growth strategy, elevating our powerful brands, launching breakthrough innovation, expanding points of distribution, and increasing community engagement and love, while investing in support for our future. As anticipated, Q1 presented some challenges as we head to anniversaries, strong growth and launches from a year ago, a decelerating beauty market, and a fluid macro and retail environment.
Speaker Change: Thank you Alisha and good morning, everyone.
Speaker Change: Today, I'll share, our first quarter performance and outlook for the year.
Speaker Change: During the quarter, we made a strong progress against our growth strategy and if anything our powerful brands launching breakthrough innovation expanding distribution.
Speaker Change: <unk> community engagement Anglo Wally.
Speaker Change: Best thing that support for our future.
Speaker Change: So anticipated two 1% this will challenge us, we got plenty of or sorry strong growth in launches from a year ago.
Speaker Change: Decelerating Gucci market on a suezmax on retail environment.
Michel Brousset: We're encouraged, however, by the end of the quarter performance, which gives us confidence that our brands and businesses are poised to achieve our annual growth and profitability goals. As we have discussed in previous calls, it is important to highlight that while we have a strong focus on quarterly, monthly, and even daily performance, we manage our business against our annual targets in order to maximize value creation. We're building a unique and strong platform for growth and profitability that creates, acquires, accelerates and scales the next generation of beauty and wellness brands. Our strategies are working very well.
Speaker Change: We're encouraged however by the end of the quarter performance, which gives us confidence that our brands and businesses are poised to achieve onward growth and profitability goals.
Speaker Change: As we have discussed in previous calls it is important to highlight that while we have a strong focus on quarter three monthly or even daily performance, we monitor our business I guess, our annual targets in order to maximize value creation.
Speaker Change: We're building a unique and a strong platform for growth and profitability that creates acquires accelerates our scales. The next generation of beauty and wellness lunch.
Speaker Change: Our strategies are working very well.
Michel Brousset: We're strengthening our brands, driving industry-leading innovation, and expanding our brand's footprints so we can reach more and more consumers around the world. However, we're only at the beginning of our journey, and much remains for us to do.
Speaker Change: We're strengthening our brush driving industry, leading innovation and expanding our branch footprint. So we can reach more and more consumers around the world.
Speaker Change: However, we're only at the beginning of our journey and much remains for us to do.
Michel Brousset: One key area of operational focus in the coming quarters is to continue to strengthen our supply chain. We have achieved or are close to achieving our cost efficiency objectives, but we need to now work more on improving the need and flexibility of our supply chain to drive even greater reactivity, even increasing levels of demand for our brands and innovation. Today, we have two powerful brands that have garnered critical mass while still having substantial runway for multi-year growth. With Milk Makeup and Obagi Medical, we have a solid foundation in prestige and skin color. We have a core business in the U.S.
Speaker Change: One key area of operational focus in the coming quarters is to continue to strengthen our supply chain.
Speaker Change: <unk> achieved our kill switch, even our cost efficiency objectives, but we need to now work more on improving the meat and flexibility of our supply chain to drive greater reactivity, even increasing levels of demand for our brands.
Speaker Change: Today, we have two powerful brands garnered critical mass while the Steve having substantial Guan wasteful multiyear growth with milk makeup on my budget medical we have a solid foundation of prestige skin color.
Speaker Change: Our core business in the U S and a growing presence internationally.
Michel Brousset: and a growing presence internationally. We're achieving a strong growth in attractive channels, including professional, specialty, retail, and online, and expect this momentum to continue as we drive awareness of both fronts beyond our core communities, continue to introduce more blockbuster innovations, and expand into other regions and categories. Our increasing success with both brands and the power of our unique pure play beauty ecosystem, an industry that requires a deep and expertise expertise, give us a distinctive competitive strength in attracting other brands and founders into our platform.
Speaker Change: We're achieving strong growth in attractive channels, including professional specialty retail and online.
Speaker Change: And expect this momentum to continue unless we drive awareness on both fronts beyond our core communities.
Speaker Change: Continue to introduce more blockbuster inhalation unexpired into other regions and categories.
Speaker Change: Our increasing success with both brown southern power of our unique pure play beauty ecosystem and industry that requires deep expertise expertise give us a distinctive competitive strengths and attracting older bras and foundations are capsule.
Manuel Manfredi: Let me now turn the call over to Manuel to go over our financial results in more detail. Thank you, Michel. It is a pleasure to be here today to discuss our first quarter performance and also the continued progress of our strategy. So let's begin with a review of our financial performance. For the first quarter, we have reported a net revenue of $65.4 million, representing a decline of 4.1% from the first quarter of last year. Our adjusted gross profit margin remains strong, 76.4%, and increases 10 basis points year-over-year. Our adjusted EBITDA was $4.4 billion, or a margin of 6.7%, which reflects our continuous focus on investment in sales drivers in support of our growth.
Speaker Change: Let me now turn the call over to one way to go over our financial results in more detail.
Michelle Berrey: Thank you Michelle.
Speaker Change: It is a pleasure to be here today to discuss our first quarter per phone launch and also the continued progress of our strategy.
Michelle Berrey: So let's begin with a review of our financial performance.
Michelle Berrey: For the first quarter, we have reported net revenue of 65 $4 million.
Michelle Berrey: Representing a decline of 441% from the first quarter of last year.
Michelle Berrey: Yes, the gross profit margin remained a strong 76, 4%.
Michelle Berrey: We sustained basis point.
Michelle Berrey: Yeah.
Michelle Berrey: Alright, yes at the EBITDA was $4 4 million for a margin of six 7%, which reflects our continuous focus on investment he says or I guess his support will follow great.
Michelle Berrey: Great.
Manuel Manfredi: Now, let's look at each brand's specific performance. Starting with mid-May cut, we saw revenue decline 15.1%. However, we saw solid domestic performance despite a broader slowdown in the prestige beauty category. With Mint Makeup ending the quarter on a strong note, fueled by the highly successful launch of Hydro Grip Gel in tint, which sold out quickly due to demand greatly exceeding self-forecast. We're also very pleased with the brand's launch into Octa, which starts beginning in late February. Both initiatives contributed to the brand's high single-digit growth in the U.S. retail set. Now, this solid domestic performance was offset by the construction of international sales, which faced a difficult comparison against last year's Q1 distribution expansion, as well as inventory adjustment by retail partners.
Michelle Berrey: Now, let's look at each brand specific performance.
Michelle Berrey: With me it may come with some revenue declined 16, 1%.
Michelle Berrey: However, we saw solid domestic before Monday bite abroad, and a slowdown in the prestige beauty category.
Michelle Berrey: With me to make up in the quarter in the Sunbelt.
Michelle Berrey: By the highly successful launch of Hydro group, Jennifer <unk> with Suntrust decreased due to the mine greatly exceeded our forecast.
Michelle Berrey: We're also very pleased with it Brian launching to alter which says beginning in late February.
Michelle Berrey: Boston initiatives contributed to the brand's high single digit growth in the U S retail sites.
Michelle Berrey: This solid domestic performance.
Michelle Berrey: By the construction of international sales, which faced a difficult comparison against last year Q1 distribution expansion as well as inventory adjustment by retail partners.
Manuel Manfredi: Additionally, the international launch of a skin tint occurred later than in the U.S., resulting in minimal impact on RQ1 international performance.
Michelle Berrey: Additionally, the international launch of our skilled team.
Michelle Berrey: Of course later than in the U S, resulting in minimal impact on our Q1 international performance.
Manuel Manfredi: As I will share shortly, we anticipate our growth drivers to accelerate strongly going forward. Adjusted gross profit margin of 69.5% represents a sequential increase of 460 basis points from Q4, but 180 basis points decreased from Q1 last year, reflecting added set-up costs from our launch into all WTAs. adjusted with that total $4.4 million, and the brand maintained a healthy adjusted EBITDA margin of 14.9% of net revenue.
Michelle Berrey: A simulcast shortly we anticipate our growth drivers to accelerate as Charlie going forward.
Michelle Berrey: Adjusted gross profit margin of 69 five.
Michelle Berrey: 5% represents a sequential increase of 460 basis points from Q4, but 80.
Michelle Berrey: A few basis points decrease from Q1 last year, reflecting the set up cost from our launch into Ulta beauty.
Michelle Berrey: Adjusted EBITDAX totaled $4 4 million and then Brian maintain a healthy adjusted EBITDA margin of 14, 9% of net revenue.
Manuel Manfredi: Moving to Obagi Medical. So we achieved net revenue of $36.2 million, increasing 7.1% from the first quarter of 2024. This growth was tempered by out-of-stock issues in TSKU.
Michelle Berrey: Moving to about humanity.
Michelle Berrey: So we achieved net revenue of $36 2 million, increasing seven 1% from the first quarter of 'twenty four.
Michelle Berrey: This girl this western part by out of stock issues Cts Skus.
Manuel Manfredi: We're actively advancing our supply chain transformation, including consolidation of our third-party logistic providers and the optimization of the distribution center network. These strategic changes are designed to enhance operational efficiency and support long-term scalable growth. Adjusted gross profit margins remain strong, increasing 60 basis points to 82%. And I just debited that total $5.9 million, or 16.3% of net revenue, reflecting increased marketing investment and higher supply chain costs in support of our future growth.
Michelle Berrey: We're actively advancing our supply chain transformation, including consolidation of our third party logistic providers.
Michelle Berrey: <unk> mutation of the distribution system.
Michelle Berrey: This is stuff that exchanges are designed to enhance operational efficiency and support long term scalable growth.
Michelle Berrey: Adjusted gross profit margin remained strong increasing 60 basis points to 82%.
Michelle Berrey: And I guess, if they did that totaled $5 9 million or 63% of net revenue.
Michelle Berrey: Selecting increased marketing investment and higher supply chain costs in support of our future growth.
Manuel Manfredi: Now, let me turn to a review of our revenues right before the quarter. The quarter saw significant positive momentum across both brands that we believe position us for accelerated growth going forward. Starting with meal make-up, innovation continues to be a major driver. The launch of Hydro-Grip Gel Skin Tint, which was another standout success for the brand, and in a more strategic completion category than last year's Cooling Water Gel Tint success. One category that has high levels of repeat and loyalty and that help us drive our trust metrics on the brand. Digitally, both Millman Cup and Obagi Medical saw continued growth driven by our successful consumer acquisition and retention efforts.
Michelle Berrey: Now, let me turn to a review of our revenues for the quarters.
Michelle Berrey: The quarter saw as being significant positive momentum across both brands that we believe position us for accelerated growth going forward.
Michelle Berrey: Starting with mail makeup.
Michelle Berrey: Asia continued to be a major driver.
Michelle Berrey: The launch of Hydro <unk> T, which was another standout success for the branch.
Michelle Berrey: In a more strategic compression categories, largely equally <unk> success.
Michelle Berrey: One category that has high elevens suffered Pete.
Michelle Berrey: And that helped US drive our trust metrics on the block.
Michelle Berrey: Digitally Ballston mail makeup I know about your medical show continued growth driven by our successful consumer acquisition.
Michelle Berrey: Retention efforts.
Manuel Manfredi: We were especially pleased with Ovalge's performance, which reflects the increasing desire for the brand, as we have now fully lapped the transition to a first-party model with our primary e-commerce distributor. Milne Cup also entered Ulta Beauty, representing a major new U.S. distribution for the brand. The launch saw high consumer demand with a strong initial sellout and contributed to the delivery of the high single-digit growth in U.S. retail sales in the quarter. We're very pleased with the strong partnership with the UBTA Beauty Team.
Michelle Berrey: We were especially pleased with the performance, which reflects the increasing the size of the Brian as we have now fully lapped the transition to a first party model, we have primary ecommerce distributor.
Michelle Berrey: MS makeup also enter on WT represented in my ear.
Michelle Berrey: U S distribution for the broad.
Michelle Berrey: The launch saw high consumer demand with a strong initial sell out.
Michelle Berrey: Tribute that to the delivery of the high single digit growth in U S retail sales in the quarter.
Michelle Berrey: We're very pleased with the strong partnership with Abu Dhabi beauty.
Manuel Manfredi: Now, despite these wins, there were three main headwinds that impacted our results and were actively addressed in each one. First, product availability. At the value medical, our ongoing restructuring led to some supply chain disruptions, causing lower fulfillment rates and outstocks on certain key products. We have accelerated our supply chain transformation to fix this, consolidating third-party logistic partners, redesigning our network, and boosting our operational capabilities to drive better fulfillment, greater reliability, and long-term growth. Mild makeup also experienced talkouts, with demands for hydrogrip skin gel tints are outpacing expectations. We expect to be in a stronger inventory position by the end of Q2.
Michelle Berrey: Now despite this week there were three main headwinds that impacted our results.
Michelle Berrey: Actively address each one.
Michelle Berrey: Cash availability.
Michelle Berrey: Biomedical ironbound, just actually led to some supply chain disruptions because in law, one fulfillment rates out stocks on certain key products.
Michelle Berrey: We have accelerated our supply chain transformation difficulties.
Michelle Berrey: Oh, sorry that the third party logistic partners redesigning, our network and boosting our operation our capabilities to drive greater fulfillment, where it is.
Michelle Berrey: Reliability and long term growth.
Speaker Change: Neil makeup also experienced top out with demand for hydro group of skin gelatin.
Michelle Berrey: Outpacing expectations.
Michelle Berrey: Thanks to be next from their inventory position by the end of Q2.
Manuel Manfredi: Second, Meal Maker's international performance faced a tough comparison to Q1 last year, when the brand launched in several international markets. In addition, the international launch of skin tints occurred later in the U.S. and therefore did not contribute meaningfully to the Q1 results. And third, as expected, we saw so much as many inventory levels at certain retail partners compared to Q1 last year.
Speaker Change: Second make ups international four months face a tough comparison to Q1 last year when did Brian launched in several international markets.
Speaker Change: NRT has shown the international launch of <unk> later in the U S and therefore did not contribute meaningfully to the Q1 results.
Speaker Change: And third I suspect test we saw so much asked many of the inventory levels at certain.
Speaker Change: Retail partners compared to Q1 last year.
Manuel Manfredi: Overall, when we look at the fundamentals of our branch, we remain optimistic about the road ahead and expect our net revenue growth to accelerate going forward. Now, our confidence is grounded in several key growth drivers. First, we continue to benefit from the introduction of breakthrough innovation, fueled by a robust pipeline of category-defining products that include both strengthening our core offerings and expanding into new categories. Second, the expansion of our digital channels. Here, we're seeing a strong momentum supported by continued progress in acquiring and retaining high-value consumers that are incremental to our brand. Third, the continued growth in our retail footprint.
Speaker Change: Well when we look at the same time, if that's what Brian we remain optimistic about the rollout.
Speaker Change: We expect our net revenue growth to accelerate going forward.
Speaker Change: Our confidence is grounded in several key growth driver.
Speaker Change: We continue to benefit from the introduction of breakthrough innovation.
Speaker Change: Anybody got a robust pipeline of category defining products that includes both strengthening our core offerings and expanding into new categories.
Speaker Change: Next on the expansion of our digital channels.
Speaker Change: Here, we're seeing a strong momentum supported by continued progress in acquiring and retaining high value consumers that that incremental blog Bronx.
Speaker Change: Third the continued growth in our retail footprint.
Manuel Manfredi: MissMakeup's launch at Ulta Beauty is off to a strong start, which is allowing us to reach incremental consumers to the brand. And finally, we expect to significantly improve product availability by the end of the second quarter.
Speaker Change: <unk> launched at Ulta beauty is off to a strong start which is allowing us to reach incremental question Mr. Bryan.
Speaker Change: And finally <unk>.
Back to significantly improve product availability by the end of the second quarter.
Manuel Manfredi: While these growth drivers give us confidence, we remain mindful of the broader macroeconomic environment. We are expecting some pressure from software consumer sentiment and spending, particularly if tariffs and other factors continue to impact the broader macroeconomic environment. When it comes to tariffs, the majority of the impact for us falls within our cost of goods, and we believe it is quite manageable. The good news is that over two-thirds of our cost of goods originate right here in the U.S. Thanks to the proactive work of our team over the past years, our exposure to China is now quite limited, representing only about 10% of our total cost of goods, mainly in packaging components.
Speaker Change: One disgruntled drivers give us confidence.
Speaker Change: We remain mindful of the broader macroeconomic environment.
Speaker Change: We had expected some pressure from softer consumer sentiment and spending, particularly if studies on all of those factors continue to impact the broader macroeconomic environment.
Speaker Change: When it comes to tariffs.
Speaker Change: The impact for Us falls within our cost of goods and we believe it is quite manageable.
The good news is that over two thirds of our cost of goods originated right here in the U S.
Speaker Change: Thanks to the proactive spoke of RFP most of their past yes.
Speaker Change: Pleasure to Shanghai is now quite limited represented only about 10% of our total cost of goods mainly in packaging components.
Manuel Manfredi: Taking this into account and assuming the current tariffs remain in place for the whole of 2025, including the latest news on China tariffs, we expect a low single-digit percent increase in cost of goods sold for fiscal 2025. And that is already reflected in our guidance.
Speaker Change: Taking this into account and assuming the current tariffs remain in place for the Hollister until 'twenty five.
Speaker Change: The latest news from China factories, we expect a low single digit percent increase in cost of goods sold for fiscal 2025.
Speaker Change: That is already perfect guidance.
Manuel Manfredi: That said, we're actively working to mitigate the impacts of ties through three key actions. First, we're optimizing our supply chain flows to further reduce our exposure to China. Second, we're preparing to implement selective pricing action, likely in the low single-digit range, where needed. And third, we are depending on collaboration with supplier partners to unlock additional efficiency.
Speaker Change: That said, we're actively working to mitigate the impact of ties through three key actions.
Speaker Change: We're optimizing our supply chain flows to further reduce our exposure to China.
Speaker Change: Second we are preparing to implement selective pricing action.
Speaker Change: In the low single digit range.
Speaker Change: Yes.
Speaker Change: Third we are deepening our collaboration with partners to unlock additional efficiencies.
Manuel Manfredi: So now, let's take a look at our balance sheet position. At the end of the first quarter, our cash position was $10.8 million, and we had an additional $22.5 million available on our new revolving credit facility. Our net debt totaled $172.1 million compared to $154.2 million at the end of 2024, the increase coming primarily from the cost related to the refinancing of our debt that extended our maturity profile to March 21st.
Speaker Change: So now let's take a look at our balance sheet position.
Speaker Change: I'd be in the first quarter, our cash position was $10 8 million and we had an additional $22 5 million available on our new revolving credit facility.
Speaker Change: Our net debt totaled $172 1 million.
Speaker Change: Compared to $154 $2 million had DNS 2024.
Speaker Change: Increase coming primarily from the cost related to the refinancing of our debt that they still little musty profile to March 'twenty thirsty.
Manuel Manfredi: Cash consumption in Q1 reflects a low adjusted bid-debt and an increase in inventory levels in both brands to support expected sell-loss in future quarters. Looking ahead to the full year, we expect a strong, positive adjusted dividend-to-cash conversion, supported by disciplined working capital management and low capital expenditures. In addition, we are very pleased to report a substantial reduction in our non-recurring legal costs. Based on our current forecast, we expect this cost to continue declining versus prior year.
Speaker Change: Cash consumption in Q1 reflect a lower adjusted EBITDA and an increase in inventory levels in both brands to support expected sales velocity of future quarters.
Speaker Change: Looking ahead to the full yes, we expect strong positive adjusted EBITDA to cash conversion supported by disciplined working capital management.
Speaker Change: Capital expenditure.
Speaker Change: In addition were very pleased to report a substantial but actually not nonrecurring legal cost.
Speaker Change: Based on our current forecast, we expect these costs to continue declining versus prior year.
Manuel Manfredi: We had little changes in our share count, and as of April 30, 2025, we had 123 million shares outstanding.
Speaker Change: We had little changes in our share count and as a fitbit started gifts 'twenty to 'twenty five we had 123 million shares outstanding.
Manuel Manfredi: Now, turning to our Outlook. While we remain mindful of the broader microeconomic environment and assuming no further material change to current tariffs, we continue to believe that the successful execution of our growth strategy, along with ongoing enhancement to our internal capabilities, position us well to deliver on our four-year guidance. We are targeting net revenue growth in the mid-teens and at an adjusted EBITDA margin in the mid to high teens.
Speaker Change: Now turning to our outlook.
Speaker Change: While we remain mindful of the broader macroeconomic environment.
Speaker Change: Assuming no further changes to current theories, we continue to believe that the successful execution of fibrosis strategy, along with ongoing interest in <unk>.
Speaker Change: A lot of capabilities position us well to deliver on our full year guidance.
Speaker Change: We are targeting net revenue growths indemnities and ethanol yesterday that'd be dumb RV in the mid to high teens.
Manuel Manfredi: The key drivers behind this expectation, as mentioned earlier, include the expansion of mid-makeup across both brick and mortar and e-commerce channels in the U.S. The improvement in fulfillment rates at Obagi Medical as we complete our operational initiatives and the continued rollout of blockbuster innovation on both brands, along with growing returns from ongoing marketing investments, which are driving brand awareness, trial, and long-term loyalty.
Speaker Change: The key drivers behind this expectation as I mentioned earlier includes the expansion of makeup across both brick and mortar and e-commerce channels in the U S.
Speaker Change: But as many fulfillment rates that's I'm glad you made it that as we complete our operational initiatives.
Speaker Change: The continued rollout of blockbuster innovation on both brought along with grow into it sounds from ongoing marketing investments, which are driving brand awareness trial and definitely USD.
Michel Brousset: And with that now, I will turn the call back over to Michel to take you through our brand accomplishments in more detail.
Michelle Berrey: And with that now I will turn the call back over to Michelle to take you through our brand accomplishments in more detail.
Michel Brousset: Thank you, Manuel. Now let's look at our performance by Brian starting with Milk Makeup. Our vision for Milk Makeup is to be the number one next-generation beauty brand. It is already a cult beauty brand among Gen Z, increasingly millennials, and following to Gen O. In recognition that the next generation see themselves and their values represented in the brand they use, our brand mantra to lift your look is a celebration of individuality and self-expression. It is not how consumers wear their makeup. It is what they do in it that matters. We have maintained a disciplined focus on three growth pillars.
Speaker Change: Thank you Manuel now, let's look at our pro forma side, Brian is starting with milk makeup.
Michelle Berrey: Our vision for milk makeup is to be the number one next generation beauty brand.
Michelle Berrey: Already a cold beauty brand among Gen C increasingly millennials and following two generals.
Michelle Berrey: And recognition by the next generational see themselves on their values, representing the brands to use a brown line start to lift your look is a celebration of individuality self expression.
Michelle Berrey: It's not how consumers what.
Michelle Berrey: It is what they do in it that matters.
Michelle Berrey: We have maintained a disciplined focus on three growth pillars.
Michel Brousset: First, continue to launch market-disrupting beauty innovation while expanding into high replenishment categories such as complexion. Second, expand our brand and community reach by broadening awareness through strategic brand partnerships, strengthening our core, loyal Gen Z audience and welcoming new audiences where our brand mantra, beauty point of view and products resonate strongly, such as millennials and Gen X. And third, broaden our footprint by expanding the brand's presence online and offline, both in the U.S. and internationally. In March, Mood Makeup made its bold entrance into a large and highly competitive complexion category with the launch of Hydro Grip's Gel Skin Tint.
Michelle Berrey: First continue to launch market disrupting beauty innovation, while expanding into high replenishment categories such as complexion.
Michelle Berrey: Second expand our brand and community reach by broadening awareness to a strategic brand partnerships are strengthening our core loyal GNC audience on welcoming new audience, that's where our brand mantra beauty point of view on products resonate strongly such as millennials and Gen X.
Michelle Berrey: A third broaden our footprint by expanding the brand's presence online and offline both in the U S and internationally.
Michelle Berrey: March look makeup, maybe bolt and trust into a large and highly competitive complex category with the launch of hydro grips gel skincare.
Michel Brousset: Building on the insight that most existing skin tints, or tinted moisturizers, don't last, thereby causing dissatisfaction with consumers, Milk Makeup launched the first gel skin tint that is longer for up to 12 hours. Rooted in the brand's cult favorite hydro franchise, the product is strategically positioned to attract new consumers in a category known for strong loyalty and high repurchase rate, particularly among millennials, a key incremental audience for the brand. This marks the first step in unlocking the complexion opportunity, the largest category in prestige makeup, representing 47% of the face segment and a staple in consumer's makeup.
Michelle Berrey: Building on the insight that most existing skin thinks or tinted moisturizers dong lust, thereby causing dissatisfaction with consumers. No makeup launch the first Joe Skinflint that is long work for up to 12 hours.
Michelle Berrey: Rooted in the Bronx called favorites Hydro franchise, the product is strategically positioned to attract new consumers in our category known for strong loyalty and high repurchase rate.
Michelle Berrey: Among millennials are key incremental audience for the brands.
Michelle Berrey: This marks the first step in unlocking the complex transport authority the largest category in prestige makeup representing 47% of our face it meant on a staple in consumers makeup is a critical category to win a position the brand to the next level.
Michel Brousset: It is a critical category to win and position the brand to the next level. Resonating strongly with our community and beauty enthusiasts, it has become a viral success story, generating already $18 million in earning value and over 245 million impressions since its launch in March. Salting in a sold-out launch shortly after release with an average one unit sold per minute in Q1 and has already been recognized with the 2025 Cosmopolitan Holy Grail Beauty Award winner for the Best Skin Tint category and 2025 Well and Good Beauty Award for the Best Tinted Moisturizer.
Michelle Berrey: Resonating strongly with our community on beauty enthusiasts has become a viral success of stores generating already $18 million in the army they value our 245 million impressions since its launch in March.
Michelle Berrey: Salting in a sold out launch shortly after release with an average one units sold per minute in Q1 and has already been recognized with a 2021st Cosmopolitan Holy Grail Beauty Award winner for the best skin category on 2025, well in good beauty a war for the best tinted moisturizers.
Michel Brousset: Now broadening our brand and community, I am excited to announce that Milk Makeup has partnered with the iconic Nike brand. This is the first step in our partnership with the Nike Dark Tour in Los Angeles, bringing sport and self-expression together. The Makeup Partnership kicked off at Milk Studios in March and continues through Race Weekend in June.
Speaker Change: Now broadening our brand and community I am excited to announce that milk makeup has partnered with the iconic Nike brand. This is the first step in our partnership is the night dark pool in Los Angeles, bringing sport and self expression together. The makeup partnership kicked off I know studios in March and continues through rates.
Michel Brousset: And there is much more to come.
Michelle Berrey: We came in June and there is much more to come.
Michel Brousset: Also, our strong March launch in Ulta's Beauty's top 600 productivity doors presents a compelling potential opportunity for future expansion, as Ulta's broader footprint includes over 1,400 stores nationwide and 500-plus Ulta Beauty at target locations, reaching an incremental consumer that we were not previously capturing. We're very excited about the early results. We're already achieving top rankings in the prime and set, blush, and skin tint categories.
Michelle Berrey: Also our strong March launch all task beauty stop 600 productivity doors presents a compelling potential opportunity for future expansion as the oldest broader footprint includes over 1400 stores nationwide and a 500 plus all study with your targeted locations, reaching an incremental consumer that were not previously cat.
Michelle Berrey: Sorry.
Michelle Berrey: We're very excited about the early results and we're already achieving top rankings in the planet set lush a skin care categories.
Michel Brousset: Now, moving to the world of high-performance skincare with Obagi Medica.
Michelle Berrey: Now moving to the world of hyper Formosa skincare with a larger medical.
Michel Brousset: Our vision for Ovaggio Medical is to be the number one physician-dispensed dermatological brand in the world. Today, we are the leading U.S. physician-recommended brand for the top three skin concerns—pigmentation, fine lines and wrinkles, and sagging skin or loss of elasticity—which together account for two-thirds of in-office skincare sales. We are now very proud to be the fastest growing top 10 professional skincare brand in 2024 by a very long margin, showing the potential and ability to still grow domestically as we expand internationally.
Michelle Berrey: Our vision for what you may recall is to the number one sufficiently Spanish dermatological brining. The world today, we are the leading U S decision recommended Bryan for the top three ischemic ulcers gravitation fine lines and wrinkles on <unk> gain or loss of elasticity, which together account for two thirds of in office skincare sales.
Michelle Berrey: We are now very proud to be the fastest growing top 10 professional skincare brand in 2024 by a very low margin showing the potential and ability to school girl domestically as we expand internationally.
Michel Brousset: We have maintained a disciplined focus on three strategic growth pillars. First, drive cutting-edge, science-backed innovation that delivers transformative results supported by market-leading clinical data. Second, double down on our dermatological brand DNA, re-anchoring in our medical heritage through a modern lens, with impactful clinical testing, acceleration of open development, and deeper physician partnerships. And lastly, growing brand awareness and expanding our footprint by increasing consumer recognition for Vagimedical, both domestically and internationally, fueling our physician-centered ecosystem. Our two blockbuster innovations, Elastiderm Lift Up and Sculpt Facial Moisturizer and Elastiderm Advanced Filler Concentrate, compete in one of the top skincare segments within the physician channel, delivering visible, clinically proven results.
Michelle Berrey: We have maintained a disciplined focus on three strategic growth pillars.
Michelle Berrey: First drive cutting edge science backed innovation that delivers transformative results supported by market leading clinical data.
Michelle Berrey: Second double down on our metallurgical brand DNA re anchoring in our medical heritage from Moldering less impactful clinical testing acceleration of <unk> development and deeper physician partnerships.
Michelle Berrey: And lastly, growing brand awareness and expanding our footprint by increasing consumer recognition for biomedical both domestically and internationally fueling a physician center ecosystem.
Michelle Berrey: Our two blockbuster innovations and lastly, the lift and sculpt facial moisturizer and Alaska them advanced sooner concentrate compete in one of the top skincare segments within the physician channel.
Michelle Berrey: Levering vicinal clinically proven results both earn significant editorial recognition with a lift up on scope facial moisturizer awarded best Moisturizer fuss or fine lines by <unk> in 2025.
Michel Brousset: Both have earned significant editorial recognition with the Lift Up and Sculpt Facial Moisturizer awarded Best Moisturizer for Fine Lines by New in 2025. In Q1, we also expanded the Susan Obagi MD collection with two new products, including the Super Antioxidant Serum and the Moisture Restore Hydration Replenishing Cream. These clinically-backed innovations are inspired by in-office patient needs identified by Dr. Susan Obagi and designed to be incremental and complementary to existing portfolios. Looking ahead to Q2, we just launched the Retinol and PHA Refining Nitrile, a super exciting, advanced, dual-action formula clinically proven to deliver smoother, more even-looking skin in just four weeks.
Michelle Berrey: In Q1, we also expanded the Susana <unk> MD collection with two new products, including the Super antioxidant serum and the moisture restore hydration replenishing cream.
Michelle Berrey: Clinically back innovations as Fireeye in office patient needs identified by a doctor Susana boggy and designed to be incremental and complementary to existing portfolio.
Michelle Berrey: Looking ahead to Q2, we just launched the retinal th a refining night, a super exciting advanced dual arch on formula clinically proven to deliver smoother more even looking skiing in just four weeks.
Michel Brousset: Designed for consumers with lower lead retinol tolerance, this high-performance yet gentle product offers an effective alternative. As an incremental addition to a nighttime routine, it attracts a new consumer while expanding usage within our existing base.
Michelle Berrey: Besides for consumers with lower lids retinal tolerance. These high performance jet gentle product offers an effective alternative.
Michelle Berrey: Incremental addition to the nighttime routine it attracts a new consumer what expanding usage within our existing base.
Michel Brousset: We've showcased our dermatological brand DNA in two major physician-centered conferences, the American Academy of Dermatology Annual Meeting in the U.S. and the INCAS World Congress in Paris. Today, these events welcome over 38,000 professional attendees, further strengthening our presence and leadership in the global medical aesthetics space as we continue to see convergence of health, beauty, and aesthetics worldwide.
Michelle Berrey: We'll showcase our there months illogical brand DNA to me, you'll see south central conferences, the American Italian Nozomi I totally unlike anything in the U S and the intestinal wall contract in Paris today, Lisa welcome over 38000 professional attendees further strengthening our presence and leadership in the global medical aesthetics.
Michelle Berrey: Space as we continue to see convergence of health beauty anesthetics worldwide.
Michel Brousset: Driving our dermatological brand DNA is growing all of our channels, including the digital world of YG.com. This strategy has driven a 30% increase in homepage conversions following the implementation of updated brightening elements. while also broadening awareness directly with consumers with a Q1 year-over-year earned media value growth of 61 percent, building a flywheel to drive consumers to practice it.
Michelle Berrey: Driving our metallurgical brand DNA and growing all of our channels, including the digital world the whole idea of those call.
Michelle Berrey: These are strategy, because we have 30% increasing homepage conversion following the implementation of updated brightening elements.
Michelle Berrey: While also broadening awareness directly with consumers with our Q1 year or year earned media value growth of 61% building a flywheel to drive consumers to practices.
Michel Brousset: To conclude, we're very pleased to share another quarter of a strong progress towards our ambition. With a strong desirability for our branch globally and initiatives in place to accelerate our growth, we are confident in our ability to deliver our 2025 outlook and continue to drive sustainable, profitable growth well into the future.
Michelle Berrey: To conclude we're very pleased to share another quarter of a strong progress towards our ambition with a strong desirability for our brands globally and initiatives in place to accelerate our growth. We are confident in our ability to deliver our 2025 outlook and continue to drive sustainable profitable growth well into the future.
Michel Brousset: Let me share why. First, we begin with the operational scale to manage a multi-brand platform with only two brands today. and more to come into the future. Second, we possess a highly talented team with an expertise in managing global beauty brands at scale with significant growth opportunities in both geographic and category expansion. In addition, our portfolio is balanced in structurally attractive segments of the beauty category. And all of this is supported by an asset-light, agile, and efficient structure that unlocks speed at scale. And finally, management incentives that are strongly aligned to drive long-term value creation.
Speaker Change: Let me share why.
Speaker Change: First we begin with the operational scale to manage a multi brand platform with only two runs today.
Speaker Change: And more to come into the future second we process a highly talented team with an expertise in managing global beauty brands at scale with significant growth opportunities in both geographic and category expansion.
Speaker Change: In addition, our portfolio balance in structurally attractive segments of the beauty category.
Speaker Change: And all of this is supported by an asset light agile and efficient structure that unlocks speed at scale.
Speaker Change: And finally management incentives that are strongly aligned to drive long term value creation.
Operator: Now with that, that concludes our prepared remarks and let me now turn the call over to the operator to bring the question and answer portion of the call. Thank you.
Speaker Change: Now without that concludes our prepared remarks, let me now turn the call over to the operator to bring into question and answer portion of ethical. Thank you.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, we will now be conducting the question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate that Yvonne is in the question queue. You may press star and then 2 to leave the question queue. We request that you limit yourselves to one question and one follow-up question. You're welcome to recue for any additional questions. For participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the start button. We will pause a moment to assemble the question queue.
Speaker Change: Ladies and gentlemen, we will now be conducting the question and answer session.
Speaker Change: If you would like to ask Christian Please press Star and then one on the telephone keypad.
Speaker Change: A confirmation tone will indicate that demand is in the question queue.
Speaker Change: You May press Star and then two to leave the question queue.
Chris: Thank you Chris that you limit yourself to one question and one follow up question.
Speaker Change: You're welcome to re queue for any additional questions.
Speaker Change: For participants, making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: We propose amendments to assemble the question queue.
Operator: Thank you.
Speaker Change: Thank you.
John Chapman: Our first question comes from Erin Gray of Alliance Global Partners. Please go ahead.
Speaker Change: Next question comes from Aaron Grey of Alliance Global Partners. Please go ahead.
John Chapman: This is John Chapman on for Aaron Gray. Thank you for the question. So, on Obagi, you referenced supply chain restructuring for Obagi and the PR. Could you expand upon that initiative and how you plan to improve? operations, and does that also potentially allow for greater success from the innovation you alluded to given streamlined operations?
John Chapman: Good morning. This is John Chapman on for Aaron Gray. Thank you for the question.
John Chapman: So on a bacci you referenced supply chain restructuring for a boggy in the PR.
John Chapman: Could you expand upon that initiative and how you plan.
John Chapman: To improve.
John Chapman: Operations and does that also potentially allow for greater success from the innovation you alluded to given the streamlined operations.
Michel Brousset: Of course, I really appreciate the question. So I think we are, as I indicated in the previous remarks, I think there is part of, we're just at the beginning of setting up what we think is a very successful and into the future platform. An area we have to work on and really strengthen is the flexibility of our, and responsiveness of our supply chain. I think we have, in the case of specific global value, we've dialed the cost of that supply chain quite well, I mean, given the gross margins that we have, but the reliability and speed of the supply chain is not where we want it to be.
John Chapman: Hello, a question really.
John Chapman: Really appreciate it.
John Chapman: The question. So I think we are as I, let me get it in the prepared remarks I think there is part of we're just at the beginning of offsetting off when we think is a very successful and into the future platform an area, we have to work on and and really strengthen is the.
John Chapman: Flexibility of our responsiveness of our supply chain I think we are I think this is the physical the whole value. We've dialed the cost of that supply chain quite quite well I mean, given the gross margins that we have.
John Chapman: But the reliability and speed of our supply chain is not where we wanted to be meaning is.
Michel Brousset: Meaning is the lead times are quite long, it's relatively inflexible still, and does not allow us to respond to the increased levels of demand that we're generating through our marketing and selling activities. As a consequence, what we've done is we've streamlined the flow of goods. from two steps on our warehousing capability to one step, which will make us more responsive and integrating that also with our online warehousing capability at the same time. And that transition is taking a little bit of time, and frankly, in Q1, generated a little bit of disruption as we moved inventory from one place.
John Chapman: The lead times are quite long is relatively in flexible steel and does not allow us to respond to the increased levels of demand that we're generating so our marketing on setting up teams.
John Chapman: That's a constant with what we've done is we have streamlined the flow of goods.
John Chapman: Going from a.
John Chapman: Two steps on our warehousing capability to one step.
John Chapman: And which will make us more responsive on integrating that also with our online our warehousing capability at the same time.
John Chapman: That transition is taking a little bit of time and frankly in Q1 generated a little bit of disruption as we move inventory one from one place close to the next now on a go forward basis. What we believe is that will allow us to be as you well pointed pointed out much more responsive in our ability to to win Olympic.
Michel Brousset: When I go forward-based, what we believe is that could allow us to be, as you pointed out, much more responsive in our ability to when demand peaks, to respond to that demand. Which in Q1, in the specific case of Hawaii, hurt us a bit. We were out of stock in our sales. three or four key items that dampen our growth. Thank you.
John Chapman: One piece to respond to have them on which index in Q1 in this specific case of Hawaii hurts us a bit we.
John Chapman: We were out of stock.
John Chapman: C O four key items.
John Chapman: That dumping or our growth.
John Chapman: Thank you our next.
Sydney Wagner: Our next question comes from Ashley Helgans of Jefferies. Please go ahead.
Speaker Change: <unk> comes from Ashley Hiltons of Jefferies. Please go ahead.
Sydney Wagner: Hi, this is Sydney on for Ashley. Just wondering, can you discuss a little more the slowdown you saw in the Physician Channel, wondering if that's fewer visits to providers or maybe just seeing less basket add-ons to appointments? Thank you.
Speaker Change: Hi, This is Stephanie on for Ashley just wondering can you discuss a little more at the slowdown you saw in the physician channel wondering if that's fewer visits to providers or maybe just seeing less basket add on two appointments. Thank you.
Michel Brousset: So I don't believe we saw, per se, a slowdown in the decision channel. I think what is driving more the slowdown on the budget relative to prior years is more a we don't have the tailwinds that we had on our Amazon. Thank you very much. in the low 20s to high 20s on a monthly basis, but there is less than we were generating last year because we have the tailwind of this CO2 conversion. So that's the main reason that drives the slowdown.
Speaker Change:
Speaker Change: I don't believe we sold and assist us say a slowdown in the in the physician channel as you're seeing what he's driving more of the.
Speaker Change: <unk> just rolled out on a budget relative to prior years as more we don't have the tailwind that we had on our Amazon.
Speaker Change: Business that we had last year and almost all of last year, which remember we had a conversion of them albano swung into a new modality and we still are generating quite a bit of girls and.
Speaker Change: Mustang anyway.
Speaker Change: Hi, 20, low 20, so high twenties on a monthly basis, but there is less that we were generating last year, because we'll have a tailwind of use distributor conversions. So that's the main reason that drives a slowdown on.
Michel Brousset: on Obagi. I don't necessarily believe we are seeing a slowdown in the in Demand or Visits from Physicians, Physician Channel. It's... is still we think the channel is robust I think the channel is is still substantial and and we expect this to be our source of growth this year. Great, thank you.
Speaker Change: Nobody is don't necessarily believe we are seeing a slowdown in the.
In demand revisits offices shuttles physician channel it is.
Speaker Change: And this is still we think that channel is robust that seem to channel. These is substantial.
Speaker Change: And we expect used to be a social growth this year.
Speaker Change: Great. Thank you.
Jonah Kim: Our next question comes from Jonah Kim of TD Cohen. Please go ahead. Thank you, Michel and Manuel, for taking my question.
Speaker Change: Our next question comes from Jonna Kim of TD Cowen Pease go ahead.
Jonna Kim: Thank you gentlemen for taking my question could you provide more color around the sell through trend versus selling just an adviser and milk and also would love to hear your perspectives on how you're thinking about pricing.
Jonah Kim: Could you provide more color around the sell-through trend versus sell-in just on Obagi and Milk? And also would love to hear your perspectives on how you're thinking about pricing strategy, given the tariff dynamics and where the category is. Would love any additional color there. Thank you very much. Thank you, Jonah. Thanks for the question.
Speaker Change: Strategy, given the tariff dynamics.
Speaker Change: And where the category is would love any additional color there. Thank you very much.
Speaker Change: Well. Thank you Jonathan Thanks for the question also with Belk.
Manuel Manfredi: I'll start with milk, which is obviously where we have the biggest swing between sell-out and sell-in. As we indicated in the call, our U.S. retail sales or sell-out was in the high single digits, was actually plus 9%, with substantial acceleration month over month as we launched Skin Tint and Ulta came into line. So we have quite a big difference between… Lina Selau, that is mechanical in terms of how goods flow between Q4, Q1, what we have in the base, and so on and so forth. And we believe that the levels of inventory we have across our retail partners today, across the U.S.
Speaker Change: As far as his or her.
Speaker Change: The biggest swing between sell out and sell in as we indicate in the call.
Speaker Change: U S retail sales of sellout loss in the high single digits was actually plus plus 9% with substantial acceleration month over month as we are.
Speaker Change: Launches contained an old Tom King came in July so we have quite a big difference routine.
Speaker Change: Hello, ladies mechanic that other counsel how goods flow do you think Q4 Q1, where we have in the basin and so on and so forth.
Speaker Change: And we believe that the levels of inventory, we have across our retail partners today across the U S and Europe are at a healthy level.
Manuel Manfredi: and Europe, are at a healthy level. And what we see is just simply a dynamic of timing of selling sales and timing of initiatives.
Speaker Change: And what we see is just simply a dynamic of timing of selling us allows on timing of.
Speaker Change: Initiatives.
Manuel Manfredi: At a global level, where we're seeing a bit more pressure from a retail sales standpoint is in two areas. One is in the EU for milk, not our international business, but specifically in the EU, where we're seeing more pressure both on the retail side as well as selling side as retailers, our main retail partners, transition inventory, and so on and so forth. And in the US, in our milkmakeup.com, as well as our online business at Sephora, kind of our digital channels, where we had last year, the Jelly's launch had a disproportionate level of volume in our digital channel.
Speaker Change: At our global live and where we're seeing a bit more.
Speaker Change: Pressure from a retail sales standpoint is in two areas one is in the EU.
Speaker Change: For <unk>, not our international business, specifically in the EU.
Speaker Change: Where we're seeing more pressure both on the retail side as well as selling side.
Speaker Change: Our retailers our main retail partners transition inventory, so on and so forth.
Speaker Change: In the U S a.
Speaker Change: In our make makeup those com as well as our online business at Sephora God, either channels, where we had last year, the jealous launch or at least proportionate level of volume in our digital channels on Humira stream that from a retail standpoint on anjali from digital channels in the U S.
Manuel Manfredi: So anniversary in that, from a retail standpoint on Jelly's on digital channels in the US was a bit more complicated. So That is a dynamic unmet between selling and sell-through.
Speaker Change: It was a bit more complicated so.
Speaker Change: And that is other than I'll make a marriage between selling and sell through in the case of <unk>. There isn't a real there's no real differences between our selling I said through evens out a mall that is fundamentally FCC Shang.
Manuel Manfredi: In the case of Obagi, there's no real differences between our selling and sell-through, even though our model is fundamentally a physician. Dispense model in which we book our net sales once we sell the product to physicians on a sell-through basis. and in the case and the rest of our business, a large, big chunk of our business are digital channels in which we, there's no real substantial difference between selling on self-pay. In terms of price increases, we are monitoring tariffs like everybody else is. It's been, as it's been for everybody, with a bit of instability on what exactly the direction is.
Speaker Change: First of all it which we book our net sales once we sell the product to two two visits shuffle assets through basis.
Speaker Change: And in the case and the rest of our business a big chunk of our base, our digital channels in which we theres no real substantial difference between selling assets.
Speaker Change: In terms of price increases.
Speaker Change: I mean, we're monitoring tariffs like everybody else is.
Speaker Change: It's being.
Speaker Change: Zane for everybody with a video pheno stability and what exactly the direction is.
Manuel Manfredi: Even at the highest rates, even if for some reason we went back to the extremely high rates that we saw at the beginning of the announcements on tariffs, we believe that that is quite manageable, given our relatively low exposure to China. And in the rest, we can manage physical flows and financial flows in a way that is quite moderate. In the worst case scenario, if we did nothing, which obviously we're not going to do anything, we can cover any large tariffs with a low to mid-single price increase, which we are evaluating and monitoring, depending on how this whole tariff situation shakes up.
Speaker Change: Even at the highest rates even if for some reason we went back to the extremely high rates that we saw at the beginning of the announcements on cars. We believe that that is quite manageable.
Speaker Change: Given our relatively low exposure to China and in the rest we can manage.
Speaker Change: Physical flows and financial flows in a way that.
Speaker Change: It's it's quite motive in the worst case scenario, if we did nothing which obviously, we're not going to not do anything or saying, Hey, we can cover any large salaries with a low to mid single price increase which.
Speaker Change: Which we are evaluating and monitoring depending on hold salaries. This whole tariff situation shakes up.
Manuel Manfredi: So we net, on a tariff standpoint, we don't think it's... is at least material or non-manageable, at least from what we understand of it. All right, thank you very much.
Speaker Change: So net on a tariff standpoint, we don't think is is is this material or non manageable at least from what we understand at the moment.
Speaker Change: Alright, Thank you very much.
Susan Anderson: Our next question comes from Susan Anderson of Canaccord. Please go ahead. Hi, good morning.
Our next question comes from Susan Anderson of Canaccord. Please go ahead.
Speaker Change: Hi, Good morning, Alex <unk> on for Susan a question on Alta displays look really nice I guess any early reads. There are you, bringing in a new customer base that may not have shopped the brand at Sephora or online and then I think in your presentation. You indicated door count increase are you getting more of in the 600 doors in ulta or maybe even if you get a new <unk>.
Alec Lake: Alec Lake, I'm for Susan. Question on Ulta, the displays look really nice. I guess any early reads there? Are you bringing in a new customer base that may not have shopped the brand at Sephora or online? And then I think in your presentation, you indicated door count increase. Are you getting more than the 600 doors at Ulta or maybe even hinting at a new retail partner for Milk? Thank you.
Speaker Change: Retail partner for milk. Thank you.
Speaker Change: Okay well. Thank you for the question we are very pleased with the early results at Alta.
Alec Lake: Thank you for the question. We are very pleased with the early results at Ulta. This launch was very carefully crafted with our Ulta partners to try to deliver against two important objectives. The first one is the incrementality to the brand, and as you know, we are in only 600 doors at Ulta, and these 600 doors were selected with two objectives. One is incrementality, as I said, and the second one is product. So we're in highly incremental, i.e. distance to other Sephora locations. Of course, it's not perfect. Not all of them are distant to Sephora locations, for the most part.
Speaker Change: I mean the.
Speaker Change: This launch was very carefully crafted with our wholesale partners to try to deliver against two important objectives. The first one is incrementally each of the brands and as you know we are only 600 doors at Ulta and leased 600 doors were selected with two objects is why do you think for Anthony just they sit and the second one is productivity.
Highly incremental destock.
Speaker Change: This starts to all their sephora.
Speaker Change: Locations of course, it's in a perfect world. All of them are are are distal to support local officials for her most part incremental productivity increments incrementals on the business and then high protein.
Michel Brousset: Incremental productivity, incrementality on the business, and then high productivity.
Michel Brousset: As I said before, in the case of MIG, we are having a very disciplined posture to our distribution expansion. best ways to ruin a make-up brand is to expand distribution too fast and ahead of time. Brand Awareness and Brand Trial and Consumer Pool. So being very disciplined in the way we consider these solutions expansions. So we are today in those 600 doors. What we are highlighting and evaluating, given the success, is potential further expansion inside the Ulta network, or perhaps even within Ulta Target, but this is just at this moment, a purely evaluating as we read the initial results of Ulta, which so far we're pleased with that outcome.
Speaker Change: As I said before.
Speaker Change: In the case of Mig we are.
Speaker Change: So having a very disciplined posture tool our distribution expansion one of the.
Speaker Change: Yes.
Speaker Change: Best ways to ruin a makeup of Rins Thats finally, sue from too fast on a head off.
Speaker Change: Brian awareness and brand trial on consumer pool, So we're being very disciplined in the way we consider Mr yourselves.
Speaker Change: So we are today and those 600 doors, we are highlighting in evaluating even you and their success is potential further expansion inside the.
Speaker Change: Olson at work or perhaps even within old I talking about this is just for this moment.
Speaker Change: A purely.
Speaker Change: Evaluating as we read the initial results of both our wholesale and which so far we are we're pleased with that outcome. We believe again, it's quite incremental quite proactive. So we'll continue to monitor.
Michel Brousset: We believe, again, it's quite incremental, quite productive. So we'll continue to monitor.
Michel Brousset: Thanks.
Speaker Change: Thanks, and then just a quick follow up clarification question on the tariff impact. So you said low single digit increase in Cogs is that before or after any potential action could be taken to minimize that.
Manuel Manfredi: And then just a quick follow up clarification question on the tariff impact. So you said low single digit increase in COGS. Is that before or after any potential action could be taken to minimize? Yeah, I'll get Manuel to answer that. Manuel, go ahead.
Speaker Change: Yes, that's good Illinois tool to answer why don't you go ahead.
Manuel Manfredi: Thank you. That impact will be with the latest news on the China virus, with 30%. In any case, as we mentioned, our exposure to China is relatively low, it's around 10% of our cost of goods. So even if the status were to go back to the 145%, the increase will still be not material. Thank you.
Speaker Change: Thank you and that impact will be with the latest news on the China currency is 30%.
In any case as we mentioned our exposure to Shanghai is relatively low around 10% of our cost are also even he said the studies would draw back to the 145% and the increase will still be mathematically it for us.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, just a reminder if you'd like to ask a question, you're welcome to press star and then 1 on your telephone keypad.
Speaker Change: Ladies and gentlemen, just a reminder, Hollister question Youre welcome to Bristow and then one on your telephone keypad.
Olivia Tong: Our next question comes from Olivia Tong of Raymond James. Please go ahead. Good morning.
Olivia Tong: Our next question comes from Olivia Tong of Raymond James. Please go ahead.
Speaker Change: Good morning. This is Brian on for Olivia I, just wanted to ask about SG&A can we expect that as you grow sales that you can keep SG&A as a percentage of sales flattish brown with sales.
Lillian Moffett: This is Lillian. I'm for Olivia. I just wanted to ask about SG&A. Can we expect that as you grow sales that you can keep SG&A as a percentage of sales flattish or will it grow with sales? And just on that, you also discussed increasing investments in marketing. Are you doing anything differently? And how are you thinking about allocating the additional funds?
Speaker Change: And just on that you also discussed increasing investments in marketing are you doing anything differently and how are you thinking about allocating additional spend thank you.
Manuel Manfredi: Thank you. So, SG&A, what we expect, and this is something that we've indicated and is an important part of our model, is that while we are going to grow SG&A in absolute value to build our business, what we expect is a substantial operational leverage with SG&A growing substantially behind sales. And there's two components to SG&A. I'm going to talk specifically about G&A, not SG&A. We have one at the brand level and the second one at the central level. And we are at the central level. We believe that the costs are going to be relatively flat year over year, even though we're building more and more capability in central costs, through cost savings in other areas of central costs.
Speaker Change: Thank you.
Speaker Change: So SG&A is.
Speaker Change: While we expect them is something that we've.
Speaker Change: We've indicated animals. They are an important part of a mall is that while we're going to grow SG&A in absolute value to to build.
Speaker Change: To build our business, while we expect these substantial operational leverage.
Speaker Change: G&A growing substantially behind sales.
Speaker Change: And there's two components to us to G&A.
Speaker Change: Let me see G&A SG&A G&A.
Speaker Change: If we have one at the brand level and the second one at the central level.
Speaker Change: And we are the central level.
Speaker Change: We believe that the costs are going to be relatively flat year over year, even though we're building more and more capability in central coast to coast citizen Auris elevate yourself central costs, and we will continue to increase G&A to support, particularly international expansion of our brands in other brands.
Manuel Manfredi: And we will continue to increase G&A to support particularly international expansion of our brand at the brand level. But again, with this growth coming substantially behind sales, creating operational leverage. And I'm sorry, you had a second question that I missed.
Speaker Change: But again with these girls coming substantially behind sales, creating creating operational.
Speaker Change: Leverage.
Speaker Change: And I'm sorry, you had a second question that I that I missed.
Manuel Manfredi: Yeah, just on increasing investments in marketing, are you doing anything differently in this? Yeah, no, of course, we will, forgive me, we will obviously continue to set as part of our model as we drive growth and operational. and gross margin efficiency. We expect to invest more and more in our brands, both in terms of dollars and percent of sales. In the case in terms of doing things different, probably the places where you will see more difference on a go-forward basis is in milk. Milk is now a brand that is reaching a certain level of critical mass in which we need and we expect to invest more in top-of-funnel advertising to continue to reach more and more consumers and invite them into a new community.
Yes, just on increasing investment in marketing.
Speaker Change: Yeah No of course, we will forgive me I wish we would obviously continue and we said that's part of our model as we drive growth and operational.
Speaker Change: Gross margin efficiency, we expect to invest more and more in our brands. Both in terms of dollar sum for central sales.
Speaker Change: In the case in pencil doing things different.
Speaker Change: Sure.
Speaker Change: Probably the places, where which you will see more of a difference on a going on a go forward basis in milk and milk is now around has reached a certain level of critical mass in which we.
Speaker Change: We need and we expect to invest more in the top of funnel and a.
Speaker Change: Top of funnel advertising to continue to reach more and more consumers and invite them into a <unk> community. So we are evolving our moly.
Manuel Manfredi: So we are evolving our model. from what it was very originally on milk, a very organic model, to what it's been most recently, a more user-generated, social influencer model, and an add to that model in which all those things will be complemented with more top-of-funnel media that we're starting to deploy now and continue to deploy into the future. In the case of PanoValue, we continue to increase our investment, and I think one fundamental shift we made on PanoValue since we bought the brand is that beyond what historically the brand has done, which is advertise to...
Speaker Change: From what he was very original makeup of your organic mall to what has been most recently or user generated social Influencer Molly and.
Speaker Change: To have mall, which all those things would be.
Speaker Change: Complement it with more.
Speaker Change: Funnel media will be we're starting to approach now and continuing to deploy into the future.
Speaker Change: In the case of whole value will continue to increase our investment and I think once fundamental shifts that we've made on Hawaii. Since we since we bought the wrong is that beyond what historically.
Speaker Change: Don which is advertise to.
Manuel Manfredi: professionals, to physicians, and so on and so forth, we are now, as you see, reaching out to consumers outside of medical practices to have them discover Obagi and come to physician practices asking for Obagi. And we're seeing that as a big driver of our business, both in practices as well as our digital channel. So there's still a lot of room for us to go in terms of evolution of marketing as the market changes and evolves, but our priority is and will always be to continue to increase the investment into marketing and in our brands, which are ultimately the sources of long-term competitive advantage.
Speaker Change: Professionals to physicians and so on and so forth. We are now as you'll see reaching out to consumers outside of medical practices.
Speaker Change: <unk>.
Speaker Change: Half of them discover orebody and Tom to physician practices, asking for Bobby and we're seeing that as a big driver of our offer.
Speaker Change: Well for our business.
Speaker Change: Boston practices as well as our digital channels.
Speaker Change: No.
Speaker Change: There's still a lot of room for us to to to go in terms of evolution of marketing going on as I said yesterday the market changes.
Speaker Change: Evolves, but our priority is and will always be to continue to increase the investments.
Speaker Change: Into marketing and in our brands, which are ultimately the sources of long term competitive advantage for our company.
Operator: Thank you, sir. Ladies and gentlemen, we have reached the end of the question and answer session.
Speaker Change: Thank you, Sir ladies and gentlemen, we have reached the end of the question and answer session. I will now hand, you back to Mike Michelle.
Michel Brousset: I will now hand you back to Michel for closing remarks. Thank you. Well, thank you very much for everybody attending the call. We are, as you may have gathered, Q1 was a quarter that had its challenges, anticipated challenges for the most part, but we remain very confident in our ability to deliver a full-year outlook, and we're more excited than ever about the prospects of our brand, the strengths of our brand, the programs we're having on both Mink and Obagi. So we are, I believe, very well set up for creating long-term value creation for our shareholders.
Mike Michelle: Remarks, thank you.
Speaker Change: Oh, Thank you very much for everybody attending the call. We are as you may have gathered with Q1 of us was.
Speaker Change: What are the challenges.
Speaker Change: TCP the challenges for <unk>.
Speaker Change: For the most part, but we remain very confident in our ability to deliver our full year outlook.
Speaker Change: We're more excited than ever about the prospects of our brown the strengths of our branded programs were having on both of them kind of logic. So we are really very well set up for for creating long term.
Speaker Change: By the creation for our shareholders. Thank you very much.
Operator: Thank you very much.
Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your... and many more. Thank you for watching! and Dana Telsey. Fourth Avenue, Denny's, Sleep Depot, Kay? and Dana Telsey. Thank you.
Speaker Change: Thank you ladies and gentlemen that concludes today's event. Thank you for attending and you may now disconnect your lines.
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