Hair care company Olaplex (NASDAQ:OLPX) reported Q4 FY2023 results topping analysts' expectations, with revenue down 14.5% year on year to $111.7 million. On the other hand, the company's full-year revenue guidance of $449 million at the midpoint came in 6.6% below analysts' estimates. It made a non-GAAP profit of $0.03 per share, down from its profit of $0.07 per share in the same quarter last year.

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Amanda Baldwin, Olaplex’s Chief Executive Officer, commented: "Our fourth quarter results were in line with our expectations and represent another positive step towards stabilizing our demand trend. I am confident in the strong foundation of the OLAPLEX brand and believe that our priorities for the year ahead will position the company to return to consistent sales and profit growth."

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

Olaplex is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.

As you can see below, the company's annualized revenue growth rate of 17.5% over the last three years was impressive for a consumer staples business.

This quarter, Olaplex's revenue fell 14.5% year on year to $111.7 million but beat Wall Street's estimates by 2.8%. Looking ahead, Wall Street expects sales to grow 3.9% over the next 12 months, an acceleration from this quarter.

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Operating Margin

Operating margin is a key profitability metric for companies because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

This quarter, Olaplex generated an operating profit margin of 15.4%, down 20.6 percentage points year on year. Because Olaplex's operating margin decreased more than its gross margin, we can infer the company was less efficient and increased spending in discretionary areas like corporate overhead and advertising.

Zooming out, Olaplex has been a well-oiled machine over the last two years. It's demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 40.7%. However, Olaplex's margin has declined by 28.1 percentage points on average over the last year. Although this isn't the end of the world, investors are likely hoping for better results in the future.

Key Takeaways from Olaplex's Q4 Results

We enjoyed seeing Olaplex exceed analysts' gross margin expectations this quarter. We were also excited its revenue, despite dropping year on year, outperformed Wall Street's estimates as its Direct-to-Consumer segment posted strong results. On the other hand, its full-year revenue and EBITDA guidance missed analysts' expectations, and this quarter's operating margin fell short. Overall, the results could have been better. The company is down 1.3% on the results and currently trades at $1.9 per share.

Olaplex may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.