Olaplex shares plummet after company cuts guidance
Shares of Montecito-based Olaplex dropped more than 50% on Oct. 19 after the hair care products company slashed its revenue guidance for the full 2022 fiscal year fiscal.
Olaplex shares closed at $4.24 on Oct. 19, down 56.7% from the previous day’s close.
The company released preliminary third quarter earnings on Oct. 18, with executives announcing that net sales are expected to be in the range of $704 million to $711 million, a big cutback from the company’s original $796 to $826 million guidance.
Adjusted earnings were also slashed by nearly $100 million, from a range of $504 million to $526 million to $425 millon to $431 million.
Olaplex said the reduction was due to a “slowdown in sales momentum that it attributes to macro-economic pressures, increased competitive activity including discounting, and a moderation in new customer acquisition.”
In a conference call hosted Oct. 18, CEO JuE Wong said stylist customers are “buying less and buying closer to need as they report clients lengthening the time between salon visits and spending less for services and take-home products.”
During the call Olaplex also announced that chief operating officer Tiffany Walden will step down from her post after seven years.
Olaplex shares are now down nearly 80% since the company’s IPO in September 2021, when the stock debuted at $21 per share.
Analysts are also becoming more concerned. On Oct. 18, Andrea Teixeira of J.P. Morgan downgraded Olaplex by two levels to “underweight,” and halved her price target to $8 per share.
“While we can see the silver lining that this guidance reset will rebase expectations, we think it will be a relatively long process given the excess inventory of finished products at the trade and in OLPX’s hands, besides the risk that demand decelerates even further,” Teixeira said in a note to investors.
She added that these struggles could continue into the first half of next year.
Jefferies analyst Ashley Helgans wrote that while she likes Olaplex’s brand, the company’s growth may have peaked and that competition is “significantly intensifying.” She downgraded the stock from “buy” to “hold.”
She noted that Olaplex’s patent for its bis-amino based bonding technology is locked through 2034, but competitors are using alternative molecules and formulations with similar efficacy and have cut into their market share.
Cowen & Co.’s Jonna Kim slashed Olaplex’s price target from $22 to $10 but kept its rating at “outperform,” as she remains optimistic on the company.
“The stock will likely be range-bound until there are clear signs of the business rebounding, but we believe there is a floor to valuation as Olaplex could be an attractive acquisition target in the beauty industry,” she wrote.