- BofA Securities Analyst Jonathan Keypour downgraded the shares from Olaplex Holdings Inc OLPX from Buy to Underperform and lowered the price target from $15 to $5.
- The analyst said Olaplex issued Q3 FY22 preliminary results shows Q3 sales and adjusted values. EBITDA would underperform consensus by -15% and -22%, respectively.
- For FY22, Olaplex lowered revenue guidance to $704 million to $711 million (previous guidance was $796 million to $826 million) from Street View’s guidance of $815.74 million.
- The analyst pointed out that downward revisions to forecasts imply fourth-quarter sales and EBITDA trailing consensus even more sharply by -37% and -50% at midpoint.
- The major overhaul was driven by a significant change in Olaplex’s mid-term trajectory driven by factors such as discretionary consumption due to macro pressures slowing customer acquisition, increasing competitive products at a discount versus OLPX, and a shortage of retailer inventories.
- Keypour believes consumer sensitivity to Olaplex as a discretionary product is the most significant change from where the company was a year ago, which is a key impediment to revenue growth.
- Competition has been an acute concern for investors since day one, exacerbated by the K18 sale in Sephora and the recent launch of Epres by Olaplex’s original creator, which the analyst expects will further prolong the recovery becomes.
- With a recession looming and a preference to avoid rebates, the analyst doesn’t expect inventories to normalize by the end of FY23. Trigger a downgrade to Underperform.
- The analyst noted that management has laid out its strategy to reinvigorate customer acquisition, leaning on its current advertising formats to drive awareness, with additional spending in the fourth quarter.
- With a lower sales base and higher inventories, margins should come under significant pressure going into 2023, Keypour said.
- The analyst examines consumer reactions to these investments in top-line and new European…
