Olaplex’s sales woes continue as the bond-building company reported its second-quarter fiscal year 2023 earnings on Tuesday.
Olaplex is revising its 2023 fiscal year earnings, anticipating a decline of $144 million. The company is now forecasting net sales in the range of $445 million to $465 million. Net sales for the second quarter were $109.2 million, a decline of 48.2% year-over-year. By channel, the professional channel experienced a sales decline of 61.2% to $40.9 million, direct-to-consumer experienced a 6.4% decline to $38.5 million, and specialty retail declined 53.7% to $29.8 million. Total net sales decreased 58.7% in the U.S. and 34% internationally.
Overall, Olaplex has had a tough last four quarters since the third quarter of 2022. Competition, product misinformation and a higher promotional environment were cited on the earnings call as the root causes. Olaplex’s stock price fell at the start of the day by approximately 11%. At the time of this reporting, it was sitting at $3.18 per share, representing a 38% decline since the beginning of the year. The company previously its fiscal year 2022 earnings in Nov. 2022 to a decline of 12-15%.
During the second quarter of 2023, Olaplex stated in its earnings report that it experienced a continued lower level of demand for its products. Plus, inventory rebalancing in the professional and specialty retail channels resulted in fewer or smaller purchase orders. Additionally, Olaplex experienced a negative year-over-year net sales impact from two sales-surge events last year. The first was a boost of approximately $22 million from introducing 1-liter size offerings of certain products. There was also a spike of approximately $10 million in sales before the company’s price increases, which went into effect on July 1, 2022. During the first half of fiscal 2023, Olaplex focused on normalizing inventory levels with its retail and professional customers. Net sales declined 44% year-over-year for the first six months of 2023, while known sales of Olaplex products by retailers and distributors to end consumers and stylists at key accounts declined approximately 26%. In a call with Glossy, JuE Wong, CEO of Olaplex, framed this as an improvement in inventory levels as retail and professional purchase orders level out and continue to shrink.
“You can already see [specialty retail and professional] are buying less than what they’re selling through, so normalization is taking place,” she said. “At some point, [if partners] buy less but sell-out is higher, they will start to have a lack of inventory issue.”
Olaplex launched a new full-funnel campaign at the end of May to amplify its scientific qualities and generate an emotional connection with professionals and consumers. The campaign encompasses digital, social and OOH channels. The digital ads have calls to action for customers that direct them to Olaplex.com. As a result, June website traffic was up 54% year-over-year and had a strong 4.32% sales conversion rate, said Wong. Additionally, email marketing has been effective at reactivating lapsed customers. The direct-to-consumer channel performed better than expected, including sales to third-party e-commerce platforms and sales directly to end consumers.
“We are now going to [focus on] re-invigorated [marketing] messaging — still around [hair] strength, but now with a focus on technology. With technology, we believe we will build trust. And with trust, we can build rituals with a consumer,” said Wong to Glossy.
Olaplex has stepped up its discounting via participation in retailer sales events, said Wong, but she added that Olaplex is keeping its discounting practices tight. Olaplex’s use of discounting is to entice first-time customers to purchase and to woo existing customers to purchase additional products from the brand.
“Olaplex is the driver of new people coming into the category; you have a lot of people who are not familiar with the prestige hair category who are exploring and treasure hunting,” said Wong on the earnings call. “We believe, through our increased [marketing] investment, … that as this category grows, we are leading it. And we can participate in it, despite the current headwinds from increased competition and misinformation.”
In its revised fiscal year earnings statement, Olaplex said that, compared to the prior fiscal year 2023 guidance, the company is no longer assuming baseline demand improvement from the planned increases in sales and marketing investments in the second half of fiscal year 2023. Olaplex now believes these increased investments will first deliver sales and stabilization in the second half of fiscal year 2023. Olaplex earmarked $70 million for marketing in fiscal year 2023 but has now revised that expenditure to between $80 million to $85 million. Other causes for the new full-year earnings guidance include a combination of the weaker-than-expected results in the second quarter and the expected lower baseline sales demand for the second half of fiscal year 2023.