Summary of Olaplex Conference Call Company Overview - **Company**: Olaplex - **Industry**: Beauty and Hair Care Key Points and Arguments Business Transformation and Leadership - CEO Amanda Baldwin emphasized the unique product and science behind Olaplex, highlighting its differentiation in the beauty industry [2] - The company has reached significant scale in its 11 years, which is rare for beauty brands [2] - Olaplex is transitioning from a narrowly defined damage repair brand to a broader health and beauty business [4][5] Innovation and Product Development - Olaplex launched three products in the first half of the year compared to one in the previous year, aiming for two to three meaningful launches annually [10] - The company has entered the scalp care category, recognizing its importance for hair health [11] - There is a focus on balancing core products with innovation, as the company has under 30 SKUs compared to competitors with larger counts [16] Marketing Strategy - Marketing spend has increased, with a focus on building a brand that resonates emotionally with consumers [20][21] - A three-pronged marketing strategy includes brand building, a brand platform, and a content engine to produce targeted marketing materials [22] - The brand's image has been revamped to enhance consumer engagement [24] Professional Channel Importance - The professional channel is crucial for Olaplex, as it was initially popularized by stylists using the product on high-profile clients [27] - The company aims to maintain strong relationships with professionals, despite challenges in the salon industry [29] Omnichannel Strategy - Olaplex is balancing its retail, direct-to-consumer (DTC), and professional channels, recognizing the importance of each in driving sales [33][36] - The company operates in over 60 countries, with a focus on optimizing its international business strategy [38] Competitive Landscape - The prestige hair care category is still growing, with opportunities for further penetration as consumer purchasing in this area is lower compared to other beauty segments [42][46] - The competitive environment has seen an influx of new brands, but Olaplex aims to differentiate through innovation and brand authority [47] Consumer Behavior - The beauty industry remains resilient, with consumers willing to spend on beauty products, although there has been some slowdown in prestige beauty [48][50] - Olaplex's focus on efficacy-driven products positions it well to capitalize on ongoing consumer interest [50] Financial Health and Margins - Olaplex maintains strong EBITDA margins despite increased marketing expenditures, with a focus on long-term growth [53][56] - The company has a healthy cash position, allowing for strategic investments in innovation and marketing [56] Long-term Strategy - The company has set a long-term strategy focused on generating brand demand, harnessing innovation, and executing with excellence [58] - Continuous improvement in these areas is seen as essential for future success [58] Additional Important Insights - The company is minimally exposed to tariffs, with 95% of products made domestically [52] - Olaplex is committed to making strategic decisions that may impact short-term performance but are expected to yield long-term benefits [56]

Financial Data and Key Metrics Changes - In Q1 2026, net sales grew by 9% following a 50% growth in Q1 2025, reaching $354 million [4][34] - Adjusted EBITDA increased by 12% to $87 million, with adjusted net income at $51 million or $0.89 per diluted share, down from $64 million or $1.10 per diluted share a year ago [34][37] - Gross margin for Q1 was 69%, down approximately 215 basis points year-over-year due to tariff costs [35] Business Line Data and Key Metrics Changes - In color cosmetics, e.l.f. holds a 15% unit share, making it the number one brand, with significant growth in market share over the past three years [6][13] - Skincare now accounts for nearly 20% of global consumption, more than double from previous years, with e.l.f. Skin and Naturium being the fastest-growing brands [16][20] - The Halo Glow Skin Tint was the top-selling product in Q1, showcasing the success of innovation strategies [10][13] Market Data and Key Metrics Changes - International net sales grew by 30% in Q1, with significant growth in the UK, where e.l.f. outpaced category growth by three times [26][28] - The company has expanded its presence in new markets, including a successful launch in over 1,200 stores in the Netherlands and Belgium [27][28] - International sales now represent 20% of total sales, up from 10% six years ago, indicating strong growth potential [28] Company Strategy and Development Direction - The acquisition of Rhode is expected to enhance e.l.f.'s position in the beauty market, with plans to accelerate brand awareness and expand distribution [5][30] - The company aims to double its business over the coming years by capitalizing on opportunities in color cosmetics, skincare, and international markets [5][29] - E.l.f. continues to focus on innovation and disruptive marketing to maintain its competitive edge in the beauty industry [14][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to gain market share despite challenges from tariffs and a competitive landscape [29][41] - The company is monitoring consumer response to recent price increases and expects to see continued growth in the first half of the year [41][80] - Future guidance will depend on clarity regarding tariffs, with expectations for net sales growth above 9% in the first half of the year [41][43] Other Important Information - The company ended Q1 with $170 million in cash, up from $109 million a year ago, and generated $20 million in free cash flow [37][39] - E.l.f. is transitioning to SAP for its ERP system, which is expected to enhance operational efficiency [39][40] Q&A Session Summary Question: Can you talk about how much inventory might be trapped in at the 170% rate versus the 50% rate? - Management indicated that inventory consists of a mix of tariff rates, with expectations for more 170% inventory to flow through in Q2, leading to lower gross margins [46][48] Question: Can you expand on the greater than 9% sales growth for the first half? - Management confirmed that the addition of Rhode will contribute to higher sales growth in Q2, and they are optimistic about the e.l.f. business performance [54][56] Question: What channels or partners have been stronger or weaker in the U.S. market? - Management noted growth across brick-and-mortar and e-commerce channels, but did not provide specific details on weaker channels [90][92] Question: How is the company managing the Road acquisition and its impact on margins? - Management stated that while Road is expected to be accretive in the long term, there will be initial dilution in Q2 margins due to the lack of sell-in to Sephora [124][125] Question: Can you provide context on the gross margin expectations for Q2? - Management acknowledged that Q2 gross margins will be impacted by higher tariff costs, but pricing benefits from recent increases are expected to help offset some of this pressure [130][131]