Hair care company Olaplex (NASDAQ:OLPX) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 3.6% year on year to $119.1 million. The company’s full-year revenue guidance of $410 million at the midpoint came in 8.4% below analysts’ estimates. Its non-GAAP profit of $0.04 per share was also 6.8% below analysts’ consensus estimates.

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Amanda Baldwin, OLAPLEX’s Chief Executive Officer, commented: "This year has been dedicated to transformation and we continue to make strides on our plan to prioritize product innovation and the Professional community. While we have seen meaningful progress against our strategic goals, we have revised our outlook for fiscal year 2024 as the trajectory of our transformation has shifted, with a particular focus on the realignment of our international business. We continue to focus on initiatives aimed at building a healthier business, including new sales and marketing investments, and now with a best-in-class executive team at the helm. OLAPLEX remains an incredibly powerful brand, and we are more confident than ever in delivering consistent and sustained growth."

Company Overview

Rising to fame on TikTok because of its “bond building" hair products, Olaplex (NASDAQ:OLPX) offers products and treatments that repair the damage caused by traditional heat and chemical-based styling goods.

Personal Care

While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

Olaplex is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from economies of scale.

As you can see below, Olaplex struggled to generate demand over the last three years. Its sales dropped by 6.2% annually, showing demand was weak. This is a rough starting point for our analysis.

This quarter, Olaplex missed Wall Street’s estimates and reported a rather uninspiring 3.6% year-on-year revenue decline, generating $119.1 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 7.2% over the next 12 months, an acceleration versus the last three years. This projection is above the sector average and shows the market believes its newer products will catalyze higher growth rates.

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Cash Is King

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Olaplex has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging an eye-popping 39.1% over the last two years.

Key Takeaways from Olaplex’s Q3 Results

We struggled to find many strong positives in these results as its revenue, EPS, and EBITDA missed analysts' expectations. It also lowered its full-year revenue and EBITDA guidance. Overall, this was a weaker quarter. The stock traded down 4.5% to $1.70 immediately after reporting.

The latest quarter from Olaplex’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.