Olaplex Holdings, Inc. (OLPX) Earnings Call Transcript & Summary

Okay, great. We're going to get started. So to wrap up the day, we have Olaplex and we have the company's new CEO, Amanda Baldwin. Amanda, it's so great to have you here. Happy to finally meet you in person.

Likewise.

So, I'd love to spend the next kind of 30 minutes or so to talk about your impressions of the company. You've been there now about 7 months, I think.

I think we decided today was 9, but give or take.

Okay. 9 months. And ultimately, kind of what you think it'll take to return to sustainable, consistent growth.

So maybe let's start with your background. I mean, we took the bold leap of writing about what we thought were some parallels between your prior experience at Supergoop and Olaplex. But I thought it'd be maybe better to hear what you think the parallels are.

Yes.

Yes. And kind of what drew you to Olaplex and based on your prior experience?

Yes. I appreciate that. And I did appreciate that note, and thank you for having me here. So I think that for me, the journey always begins with product and distinctive products. And that was certainly the story at Supergoop and it's certainly the story at Olaplex is the power of differentiated products. And what do I mean by that, right? So it's about innovation that truly moves the industry forward. There's certainly in our industry lots of products that are launched every year, but everybody that I talk to remembers when Olaplex launched, because it just fundamentally changed how Pro's and they are the heart and the soul and the muse of this brand could do their jobs, and also how the consumer felt about his or her hair. And that's a pretty profound thing. So I always start there. I think you can build anything off of a great product. The second thing and my background and really the place that kind of gets me up every morning is the love of brand. And I think in both Olaplex as well as Supergoop, there was the beginnings of something special, but a lot to be built. And that really comes with connecting with the consumer on an emotional level, in our case also connecting with the Pro and figuring out not just how to build a marketing engine, but how to build the story that, that marketing engine is telling, that's pretty new muscle for Olaplex. That is a big and exciting new thing that we've been talking a lot about and a lot more to come and something that I've certainly spent a lot of time on. And I think that also one of the things that I saw in Olaplex that was quite different was the power of scale. So I started at Supergoop at the very beginning of the business had actually been around for 15 years when I joined it, but it was -- yes, we could all sit in one row here, that team at that scale. And I think there's something really interesting about getting to build off of already a global brand that's in 100 countries that has this unbelievable channel mix behind it. So if you layer your brand and your product on top of that, that gets to be really interesting. And that was something that was really exciting for me. And it's all going to come down to building a great team -- I mean, every story, it's always about the people that you surround yourself with and the people that make it real every day.

Okay, great. You've been pretty clear in the webcast or phone call so far about your 3 priorities for 2024. So I wanted to start with the first one, maximizing the impact of your sales, marketing, education investments to generate demand. So maybe first, how much of the work that you've been following through on this year or executing this year was a continuation of things that were already put in the works versus newer platforms and programs?

So one of the first things I did was to slow us down. So that I could have an impact and that we could put the right people and the right strategy in place. So we certainly talked about how in the first half of the year, we slowed down in order to -- now we're speeding up a little bit more in terms of having new innovation on the market and really putting marketing into place that I think is living up to what this brand deserves. So there certainly are my fingerprints on things and the team's fingerprints. We have a new CMO and a great team behind her who's really starting to the beginning of hitting their stride. Again, I think it's still early days. So I tried to make sure that when we were spending money that we were spending it well. So that was certainly something we put into place. With respect to sales and education, those are things where we're certainly putting the basics in place now. So having a field sales force, having the right educational materials, being in the right places for the Pro, being in their salons, being at the right events, like these are things that one of the things that I've always admired about this brand is that it got to a place pretty special without a lot of the things that we now get to go back and build. So that to me is also a really interesting set of circumstances that we're excited to take advantage of.

Okay. The go-to market engine that you've been building, can you talk about kind of what that has meant? What have you -- you've needed to do and maybe some early successes you've had with these activations? And how are they there in U.S. versus international?

So building marketing engine is a constant evolution, right? Because the consumer changes, the Pro changes, the tools that you can use can change, but some of the principles really always hold consistent. So first is what am I trying to say and making sure that I really have the right and I've talked a lot about content creation. So am I clear on what the communication is? I think this brand has always had a product that really speaks for itself. Now, we've got to speak a little bit more crisply about what makes it different and how do I actually use it every day and a lot of things that are kind of again basics in this industry. Do I have the right imagery and aesthetics? And am I communicating that message in a way that I think you were just showing me can of Coke that I was like that visually appeals to me? The way humans interact with content is very visual and auditory as well if you're on TikTok. And so making sure you're connecting with the consumer in a way that's very visceral. That's, I would say, like kind of squishy stuff that doesn't fit so well into a spreadsheet, but it definitely separates the great brands are the ones that really understand that. So what are we trying to say? Do we know how to say it? And then there's an engine of do I have the right money in the right place at the right time? So all of those had to be looked at. Again, I think we're at the beginning as we put a couple of launches out into the market in the last couple of days. I'm like, okay, this starting to feel like the kind of thing that I know is really great marketing, but we're just getting started.

Okay. And then, returning to the stylist root. I mean, you've mentioned the profession already a couple of times, and we've been talking for 5 minutes. So it's clear that this is a much bigger focus in returning to that than have been the case in the last couple of years. What are you starting to hear from the professional community? What do they want to see more of from Olaplex? And I think also you have the new Pro collective, so you can talk a little bit about that entails.

Yes. I mean, I think the way forward is often written in something in the origin story of a brand. And so as thinking about strategy and where do we need to go, really has sort of distilled it down to the power of the science and the product, what happens in the lab, and then that science becomes real in the chair. And by that, I mean the Pro. And so one of the first things I did was just listen, just sort of say, and I've done this both like literally sitting in chairs and then kind of experiencing what it's like to be a consumer in a salon, but also through we did do quantitative research and make sure we put some real rigor behind what does the pro need to hear from us. And I think what came back loud and clear was the power of this brand, the receptivity to it, the excitement to see what we would do next, but the importance of doing something. The importance of like we were saying, showing up, being in the right places, being in the salon. There's all these incredible events where the community gets together, like being a part and participating in that, also delivering new innovation. So Bond Shaper, which is one of our 2 new launches that has just come to market, is an in-salon service. So if you're going to support the Pro, you've got to support their business. And their business happens in that salon. And so giving them more reasons to attract a consumer to coming to them in a way that only they can do, to me is also really critical. With respect to the Pro Collective, that's how we really talk about the Pro when it comes to their ability to create content. And there's lots of complexity to different types of ambassadors that we have around our brands. So one of the ones that's really exciting is to work with people who really have a voice on social media. They have a voice directly to the consumer as well as to their fellow Pro's. I've met every single one of them, and sat down and gotten ideas from them. But also they can be a really important communicator for us, because they can explain to you a lot better how our product works and what the answer a question from a consumer about, well, how do I use this or what which one should I pick way better than we ever could. And I think giving them the microphone is really important.

Okay. And the Bond Shaper or the in-salon treatment, correct me if I'm wrong, it's the first product that's like dedicated for curly hair also, right?

Yes. Yes, really incredible science. It's brand new science, something that I feel very lucky to have had as our first launch. It's many years in the making. But getting it to market and getting it to market first was very important to me because I think it is a really important statement of 2 things. One is that Pro first mentality of saying we will deliver innovation that really is thinking about the Pro and what can we do for them. But also how do we service the breadth of hair types? And it is not one size fits all. It's really important and I have certainly geeked out in our lab trying to understand, well, what's different about curly hair? And why are its bonds weaker? And why does it have more of them? And like that actually deserves different treatment. But the real magic has been watching this be put on somebody's head and the before and after and the pride with which they walk out of that salon and how they feel. That's really what we're in the business to do.

You're making me consider embracing the natural curliness.

If you want to, we'd love to have you.

We'll see. I'm not missing anything for next year. Okay. Let's move on to the second priority, which is strengthening capabilities. I'm sure you've mentioned talent and the team a couple of times also already. But how would you say, where do you sit now? Culture, morale, where are things today versus, let's say, 9 months ago when you first arrived and what still needs work?

It's everything. People is everything. I think I talked about it in the first thing. It's sort of everything else is a PowerPoint. It's not real. It's got to be it's made real by people and a team. It's the thing that I think about 1st, 2nd, 3rd every single day. And so that's about both bringing in new talent that has new capabilities that the business requires going forward and also unleashing the talent that was already in there, and there's been both that's happened in the organization. I think that's appropriate, right? It's appropriate for a business going through a transformation. But I think my most important job is to set a big goal, set a very clear strategy and help everybody get to the place they've sort of almost never dreamed they could get to. And that was certainly the story of Supergoop. Was to hire great people and set them on their way, and that I'm sure will be the story here too.

Okay. And you've made some key senior leadership appointments in the last 6 months. So where do you stand on filling out the bench? I mean, how much more is there to do in terms of like…

We're getting there. So feeling really good about it. And look, change takes time. Transformation takes time. I think I've been very upfront with everybody from the very beginning that there's not a magic wand or a light switch that you get to flip. So I judge ourselves and myself every day by like, are we on pace? Was the to-do list at the beginning of the year, how many of those have I checked off? But we're September, I still got a few months to go before I get through what was this year's new list and there'll be another one for next year.

Okay. All right, great. And I forgot one more question, sorry, on innovation related to the bond shaper because that's a big new platform, a new idea. So what's the right balance between like core innovation, the more I don't know if you call them flankers, but the sort of big breakthrough kind of product versus newness to keep engagement?

It is a balance, I think, when you look at a full calendar and a full innovation calendar. And we stood up an innovation team day 2 or so of my joining because it is a balance between those things, right? How do you take the incredible capability in R&D and in science and how do you put that into a calendar and hold the timelines and hold the strategy? That's what an innovation team really does. And part of the role of a team like that is to find the right balance, right? Are we delivering things that are going to continue to harness our core? Maybe you've got to evolve it, you've got to change it, you've got to have better products. That's very critical. And then how do you have those breakthrough innovations? And there's always going to be a balance in that. But I think newness and innovation is the heart and soul of this company. It's a critical lever in how you drive a beauty business. Certainly, it was a story and something that I've been a part of in my whole career and started off in product development when I was really early on. So been looking at a lot of goop and a lot of drawers over time and always trying to find the next thing that's going to really move the needle.

Okay. Okay, great. The final strategic priority, so defining and developing a long-term road map, right, and the future vision for Olaplex. So -- and there's a lot going on behind the scenes. I'm guessing you're again, that checklist, I fear what it would look like. But maybe you can give us an update on kind of where you stand on the process of building out this road map and this longer-term future vision?

Yes. I think when you come into a business, you always are thinking a little bit about decisions I'm making today are going to influence the long run, right? So you kind of had to have a hunch coming in about what the long-term plan was, right? So in order to develop that checklist for the year, where are we going to focus, what are we going to launch? There's already a kernel of where you're going to take a business, right, starting day 1. But making sure that, that is rigorously sort of road tested and the numbers all add up and you put all the real strategic rigor into something, that takes time. So you're right, there's a lot going on behind the scenes. One of the things we talked about before was that we did put a lot of consumer and Pro research behind our thinking, making sure that where I believe that this brand should go is aligned with where the consumer is going. You need those -- you want to have a little wind at your back when you're doing these things. So I think that was really important, having the right financial framework and making sure we're thinking through that and that we really are putting something out there. And I have taken time to make sure that when we do put something out there, and we talked about early 2025, that it's something we can stand behind.

Okay. And I know, Olaplex recently undertook a perception study of the brand. So anything within that, that kind of stood out to you was surprising in a good or bad way?

I was really pleased to see the level of passion for this brand and the level of interest in what we would do next. I also saw the things that I thought were the disconnects probably are, right, that we had a lot of opportunity in brand and what's the emotional resonance of the product relative to the brand and the connection between those 2. But the thing that excited me the most was the receptivity to sort of saying, I've always -- I've known this brand. I know it does great things. Show me what you've got.

Okay. Okay. Because one of the things that I remember that really struck me back at the time of the IPO, and you started at mid-scale, right, was just the sort of moment you step back and said, wait a second, Olaplex at the time of IPO, right, the forecast for the revenue to be the same size as Estee Lauder's entire hair care business, right, with 2 really Aveda and Bumble that had been around for a very long time. And at the time, that really struck me as unhealthy, right? But it was just the explosive growth and how quickly Olaplex scaled. So as you thought about and you talked about needing to slow down, what's the potential, right? I feel like a lot of the, let's say, the core the brand is very well distributed in the U.S. It's very well known among the Pro community and was attached. So as you think about that future growth runway, we used to have conversations on the TAM. Like how could this brand be bigger than $500 million, right? That was at the time of the IPO. What's the TAM? I don't know if you have any thoughts on that broadly -- without that.

Yes, exactly. Well, what I would say broadly is that we're in an incredible category. And it was something that I was really excited about because I believe we're at the beginning of growth for Prestige Hair Care. And if you think about kind of how penetrated hair is relative to its skin and makeup counterparts, fragrance within the there's a lot of room. So I think we have a lot of reason that if we can deliver better product, the consumer and the Pro should be excited about that. So I think that's a really important thing to recognize as we think about what the size of the prize is. And this is a business that has created its own category, that has sort of set its own path, that has -- continues to lead its category and has a lot of opportunity to sort of drive growth beyond just sort of what the existing TAM is, but really sort of have people reframe and rethink, what the potential sizes of the category.

Okay. Because it also -- it's effectively defining or let's call reawakening Prestige Beauty, I mean Prestige Hair.

Prestige hair, yes. Because it existed, but there's for example, you walk into a Sephora, it was like tucked in the back corner, right? And around the time of the IPO, you would walk into the Sephora, that's right where it is in the 50s in Manhattan. And the entire front section of the store was hair, which is a huge change from where it has been.

So when you think about all the competition that has kind of come into Prestige Hair Care and you've been, again, Prestige hair care and you've been again closer and closer to the Olaplex brand, the points of differentiation versus all the other activity that's been there in Prestige hair care, how does Olaplex keep it? What is the lane and how much can that lane be expanded?

I think it's about this mix of the power of the lab and the chair coming together. I think there is something really special in that. And again, I think the path forward always lies in that. I think it will come down to continuing to drive incredible innovation and really being focused on that and having the resources and the strategic focus on that and also really harnessing our salon heritage. I think that's a very unique point of difference. But the reality of beauty is that it is competitive, right? This is part of the normal way of being. So you just kind of have to out-innovate and out-market everybody else.

Yes. Okay. And I think also there have been conversations about Olaplex moving into other categories, right? There was the lash builders, so little bits. Do you have a view on that on the shoulders of the brand and how far it can go? Are you more comfortable?

I think the brand has incredible stretch, but I also think we've got a lot of opportunity just within the space that we operate now and really heads down focused on that.

Okay. Okay. And then distribution. So also thinking about Prestige Hair Care. What do you think are the right distribution channels? Does Olaplex -- should there be let me give you it's Prestige Hair. Should Prestige Hair Care be in mass market channels? Or does it need to be the way that Prestige Beauty has been historically, which is sort of a more focused distribution around hair care?

Yes. Look, I think channels evolve constantly in this category, right? And I'm now, I think, 20 years into this and have watched department stores and Sephora come on the scene and Sephora come on the scene and Ulta come on the scene and Amazon show up, and it's constantly changing. So I think it's important to acknowledge that there's no finite answer to that question, right? That will always evolve. But I think we have a really appropriate mix for where we are today, right, and where the consumer is today. And I think it's one of the things that I thought about the scale of the business was really exciting was to actually have that omnichannel approach and to have the brand resonating in so many different places. But we need to make sure that we're focusing on the strength of each one of them, right? And that we really are leaning into the Pro for the power of the Pro that we understand Sephora versus Ulta and their unique reasons for being that we're thinking about our website, that we're thinking about 3rd party sites in different ways, right? So I think a lot of it has to do with how you do it, not just where you are.

Okay. And I guess part of the conversations you've been having with the professional community broadly, you're managing the idea of channel conflict. I feel like that was sort of a burgeoning issue. Does the Pro feel like it's they're being abandoned or…

If all you focus on are the -- is the retail and the e-commerce, I think you can feel that way. But that's certainly not the case of where we are now.

Okay. Okay. Last question in this sort of chain of thought. Pricing, Olaplex has been pretty interesting in that it's had this approach of line pricing. Yes. Does that feel like an area of opportunity for differentiation? Do you think it's -- is it among the consumer perception work that you've done? If you touched on this, is that almost as a hallmark of the brand? Or do -- are consumers not even that aware?

I don't think they're that aware. But I look, I think as we look at the long-range plan, we'll look at everything, right? We're looking at innovation. And obviously, with innovation comes price point. It's certainly a part of the history of the brand, so I'm really trying to make sure we respect that as well. So we'll see where we go.

Okay. Okay. Let's talk about international. So on the earnings call last month, you talked about the cleanup being work being done as sort of a multilevel layered effort. So what does that mean? Let's start there.

Yes. I think that really understanding where is the product being sold in international, that has to do with both the distributor partners that we have as well as where they're eventually selling the product. The cleanup work that we are in the process of doing is making sure that where they are selling the product is the place we want to be and really watching that and making sure that we have a strategy and a plan to get out of relationships that don't make sense for this brand. And I do think it to your earlier question, I do think it matters where you sell a product and the pricing integrity around where you sell the product. So you have to be in business with people that you really are aligned with their -- with in terms of their own strategy of how they're going to build the brand. So that's where we're getting out of relationships that don't make sense for us.

Okay. And so how should we think of that timeline on that? I mean, so for example, you intentionally slowed down some activity, but it sounds like cleaning up distribution internationally. I mean, it's really short-term. It usually takes a long time in my experience.

I mean, look, we have to make the decisions, and then it will take a while for the decisions to fully flesh through the system, right? So I think I can't put a timeline on that, but I would say the overarching philosophy of how we're thinking about life now is make the right long-term decisions, make them as quickly as you can to make sure, but do them with good information and in a way that you can really you're going to want to live with them for the long run. So we're definitely moving as quickly as we can. But yes, we have to take our time to make sure we're making the right calls on these things.

Sure. And is it parallel path like that you can be cleaning up distribution and also investing in the product?

100%.

Okay. So you're still developing the business?

Yes, yes.

Following the plan as you're cleaning up.

Yes. Okay. Okay, great.

Let's touch -- yes, absolutely, Will.

[indiscernible] feel better -- I mean, you mentioned you wanted distinctive products or differentiated products. The core proposition is for the professional, I'm going to treat my clients' hair and it's going to look better and feel better and be healthier. Is that sort of…

Yes. So the Olaplex 1 and 2, what that really allows a pro to do is to color hair without damaging in the way that color typically does, right? So basically, when you color hair, you're breaking it open and putting color in it. That is my non-scientifically improved analogy, but it feels it's about my level of how to explain it. Olaplex, when you're using that while you're doing a coloring service, is reconnecting the hair and its disulfide bond so that the hair is actually strong and healthy after that coloring service. So that's a pretty big breakthrough from a Pro point of view. And I've sat and talked to enough of them to know that they will tell you they can do their job better and they can do things creatively and artistically. And this is a sort of a wildly fantastically creative community that thinks about coloring hair the way you someone else might think about painting a canvas. So to enable that creativity is why people remember where they were when they first tried Olaplex. So that's the now the consumer just wants their hair to look great at the end. But when you talk to a Pro, you can really understand why this is so revolutionary.

That's awesome. And the Pro still feels really good about the brand.

Yes. There's a lot of enthusiasm for it.

Okay. So I'm going to switch to near-term for okay. Okay. So, the revenue outlook encompasses a pretty wide range. So what would have to happen to get to kind of the high end at this point versus the low end? And would you say there's still some risk of falling below the low end?

I think what we've really been focused on for this year is making sure we leave the year better than we started it, right? That's really important. And giving ourselves enough sort of bandwidth to make sure we're making those right long-term choices. We need these products to be successful, the new ones that we just put out there, and that's a very critical piece of that. And we have to make sure that we're making the right long-term decisions and working through that, as I was talking about with the international and kind of how that all shakes out in the timeline of that. We're going to just continue to make the right choices for this business. And that's really the range that we're talking about.

Okay. Maybe just given Will's question, it'd be helpful. So you talked about the Bond Shaper. Can you just share the other innovations that you recently launched that people…

So Bond Shaper is an in-salon service. There is number 10, which is a take-home curl-defining gel, which is a complement to that service. So again, a really exciting thing for us to talk what happens in the salon and what happens at home and how those are so interconnected. The other product is a consumer-facing product that is a leave-in conditioner that helps sort of seal and mend the split ends, which is definitely a very high on the list of consumer concerns. And that one is really leaning into it has a Sephora exclusivity as well as in Pro because we're always going to make sure we're Pro first in our thinking. So that's kind of how that one is operating. They happen to be launching at the same time.

Okay. Lauren, do you sort of say, Lauren, you look like a 7. I don't know. You're really, you're a 10. Yes. But like -- as you do your job as salesperson as well as CEO, it's just you got to try this. It's unbelievable.

Yes. I would say what we have is we have an in-salon service, which is 1 and 2 and now Bond shaper as well. We have the core hero SKU and from a consumer side is number 3, which is taking the essence of that service and letting you bring it home. We have a shampoo and conditioner and a few ranges around that. And then number 6 through 10 are things that you're going to use out of the shower, to get the best possible effect. So are you trying to look for smooth? Are you looking for shine? There's 5 different signs of healthy hair, and each one of those is going to amplify that in different ways. So probably would start with the question of Lauren, what's important to you? So that's definitely what they teach you when you go to that to learn kind of how to is really connect with the consumer is to understand what benefits are they looking for. But we're always going to be the thing that's going to drive us from a product development point of view is not just to make something look better, but to fundamentally make it better and healthier and that's really something I think is quite distinctive and it will really drive our innovation.

If you, this is a follow-on actually one of the questions, the quiz. I remember I'll admit I haven't done the quiz in a while, so I don't know if it's changed. But when I did the quiz, the quiz told me to buy everything. Not really. So has the quiz evolved in terms of is it more of an educational tool?

I think the quiz will have an opportunity to evolve. I think one of the things that is important to me as we think about something, and this is sort of linked to that marketing sales and education as clarity about what do I use, when do I use it, how do I use it, which one's right for me, that's a big opportunity for this brand. So more to come.

Okay. Okay, great. And then just also sticking with the near term, just competitive environment, there's been a lot of talk this week or this week -- it's been a day, a lot of talk today, just about the consumer environment, the macro. So you have a lot on your plate that even to be related to that. But to the degree you were seeing change consumer behavior or conversations with your retailers, I'm curious what the read is on the consumer and how it is or isn't impacting Prestige Hair. We can talk about it broadly.

Yes. And I think you hit on it in the first phrase, which is like we have a lot on our plate. And so we've been really heads down and focused on what are the things that we need to control within this business and how do we change those, right? So I think for where we are relative to maybe some other folks that have sat on this stage, it's less about consumer macro trends and percentage changes in those kinds of things in terms of what's going to determine our business. I think the good news is that prestige beauty and the consumer that, that tends to attract is probably more insulated from any other macro trend that might be affecting somebody else. But I'm really focused on just like where are we in our journey and we're several steps before that becomes the big driver for us.

Okay. And nothing that you're seeing in terms of the promotional environment that would be impacting your business at this point?

Not any different than it is on any other week, right?

Okay. Great. I know you'd mentioned in the second quarter that sell-through trends in the second quarter were consistent with the first question. I guess, just anything you're seeing still in this vein on less regimen usage or stretching out per again, I know you have so much going on, but it was something I'd been curious about with the brand anyway before you arrived on sensitivity on…

It's not something that is on my radar at the point.

Okay. So maybe just to wrap it up, I just realized the time it is. Is there anything else you'd like to share kind of with the audience, those on webcast about what you think is maybe misunderstood about Olaplex in the story today?

Yes. I think a lot about reframing the question about what this business is today versus what it was 18 months ago. And I think to understand why I took this on and why I think many people come and join me on this journey is to reframe it around that and to say you have a business that's, call it, $0.5 billion business, right, growth from sales. And then you have strong balance sheet and you have a lot of flexibility and you have a brand that people love and product that really stands out and you have this distribution around the world with a lot of the top players. Now, what are you going to do? And I think reframing the question around that versus what may or may not have been 18 months ago is probably something if I could wave a magic wand. I think it's pretty powerful.

Okay. So when we're sitting here, hopefully, a year from now you're joining us again, right here.

My hair is curling.

My hair is curling. The world is my oyster. What would success look like, again, 12 months from now, what would you hope we can be talking about?

I think we will have shared a plan and we'll be well marching our way towards it. So I think we owe that to everybody and we'll just take it 1 day at a time as we get after it.

Okay, great. So good to have you here. Thank you so much. Please join me in thanking Amanda and Olaplex for being at the conference. Thank you.