Release Date: November 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Waldencast PLC (WALD, Financial) reported a strong 34.6% increase in net revenue for Q3 2024, driven by robust growth in its Obagi Medical and Milk Makeup brands.
- Adjusted EBITDA rose by 134% to 16.3% of net revenue, showcasing significant profitability improvements.
- The company achieved a best-in-class adjusted gross margin of 74.8% for the first nine months of 2024, indicating strong operational efficiency.
- Milk Makeup expanded its global presence with new partnerships in Europe and launched successful new products, contributing to a 23.5% revenue growth.
- Obagi Medical saw a 45.5% growth in Q3, driven by successful product launches and improved inventory levels, reinforcing its position as a leading medical-grade skincare brand.
Negative Points
- Despite improvements, Waldencast PLC (WALD) still faces inventory challenges, particularly with Obagi Medical, which may impact growth into Q1 2025.
- The company is dealing with non-recurring costs related to an ongoing regulatory investigation, affecting its cash flow.
- Milk Makeup's adjusted gross profit margin declined due to a shift in product mix and timing of off-price sales.
- There is increased caution among retailers regarding inventory levels, which could affect future sales.
- The company anticipates less gross margin expansion in the future as it reaches its long-term targets, potentially limiting profitability growth.
Q & A Highlights
Q: How are you planning to sustain growth and innovation across both brands next year?
A: Michel Brousset, CEO: We remain optimistic about next year, focusing on increasing brand awareness, strong innovation plans, and expanding our footprint. While gross margin expansion may slow as we reach target levels, we see immense top-line opportunities, particularly with upcoming innovations for Obagi and Milk.
Q: How will potential tariffs impact gross margins next year?
A: Michel Brousset, CEO: Tariffs are not expected to significantly impact our business. Obagi sources little from China, and Milk has 10-15% of costs from China, which can be shifted if necessary. We have ample room within gross margins to manage any modest impact.
Q: Can you discuss the trends in Milk's gross margin and the beauty industry's performance?
A: Michel Brousset, CEO: Milk's gross margin fluctuations are due to phasing of off-price sales and holiday kits, not structural issues. The beauty market remains strong, with prestige market growth at 7% year-to-date. Our growth is driven by execution and compelling consumer propositions, not solely market trends.
Q: What is the status of Obagi's inventory levels and international expansion for both brands?
A: Michel Brousset, CEO: Obagi's inventory levels have improved since Q2, but full normalization is expected by Q1 next year. Both brands are at the beginning of their international expansion, with strong demand and brand equity supporting efficient market entries.
Q: How are you approaching holiday promotions and retailer inventory levels?
A: Michel Brousset, CEO: Our holiday plans are consistent with previous years, with beauty becoming a staple gift. Retailers show caution in inventory management, especially outside North America, but we see increased beauty purchase intentions for the holidays.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
