Olaplex Crashes 40% on Negative Preannouncement, Multiple Downgrades

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Olaplex Crashes 40% on Negative Preannouncement, Multiple Downgrades
Credit: © Reuters.

By Senad Karaahmetovic 

Shares of Olaplex (NASDAQ: OLPX ) are down over 40% after the company cut its full-year forecasts to reflect slowing sales.

Olaplex reported preliminary Q3 results that see net sales coming at $176.5 million, lower than the consensus of $207.2 million. Adjusted EBITDA is expected between $100 million and $102 million while preliminary adjusted net income was reported at $71.3 million to $73.3 million, much lower than the $91.9 million expected.

On the guidance front, Olaplex now sees full-year revenue between $704 million and $711 million, a cut to the prior guidance of $796 million to $826 million, and lower than the consensus of $814.3 million.

The FY adjust net income forecast is slashed to a range of $303 million to $307 million, down from $363 million to $379 million and lower than the $375.5 million consensus. Similarly, the adjusted Ebitda is now projected at $425 million to $431 million from $504 million to $526 million. Analysts were expecting $518.3 million.

"Company's updated guidance primarily reflects a slowdown in sales momentum that it attributes to macro-economic pressures, increased competitive activity including discounting, and a moderation in new customer acquisition, as well as inventory rebalancing across certain customers," Olaplex stated.

While CEO JuE Wong said she was "disappointed" to lower guidance, she also added that the company has "already identified and put actions in place to accelerate demand."

Moreover, Olaplex announced that Tiffany Walden resigned as COO and board member.

Following the negative preannouncement, at least 3 Wall Street firms cut their ratings on Olaplex stock. Morgan Stanley analysts slashed the rating to Equal Weight from Overweight and cut the price target by 50% to $6.50 per share. They don't believe Olaplex will be able to stage a quick turnaround.

"Previously, despite building macro/competitive risks, we felt like valuation more than reflected these concerns, but clearly with the news today that call was wrong as the magnitude of pressure is much greater than we expected, driven by weaker consumer demand due to both macro weakness and competitive impacts, as well as inventory reductions," the analysts explained in a client note.

Similarly, Evercore ISI analysts cut to In Line from Outperform with a price target slashed by 75% to $10 per share.

"We move to the sidelines, given increased risk of a business model that’s integrated weaker, small businesses like hair salons –we simply do not know how such model would operate under the stress of a recession. Our 2023 estimates reflect these pressures to linger into 1H, and margin pressures," the analysts wrote to clients.

Cowen analysts lowered the price target on OLPX stock but remain Overweight. They noted that while near-term overhang is likely to stay over Olaplex, fundamentally the company still has a solid business.

"We believe the slowdown in sales will likely extend into 2H23, and near-term pressure from competition & macro pressure could keep the stock at bay. However, expectations will likely reset & we remain positive about OLPX's LT opportunities," the analysts wrote.

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