Hair care company Olaplex (NASDAQ:OLPX) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue down 13.1% year on year to $98.91 million. The company expects the full year's revenue to be around $449 million, in line with analysts' estimates. It made a non-GAAP profit of $0.03 per share, down from its profit of $0.05 per share in the same quarter last year.

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Amanda Baldwin, OLAPLEX’s Chief Executive Officer, commented: "Our first quarter results represent progress on the business transformation plan that we outlined earlier this year. I am encouraged with our performance to date and believe we are well-positioned to achieve our goals for 2024."

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.

As you can see below, the company's annualized revenue growth rate of 7.6% over the last three years was decent for a consumer staples business.

This quarter, Olaplex's revenue fell 13.1% year on year to $98.91 million but beat Wall Street's estimates by 3.9%. Looking ahead, Wall Street expects sales to grow 2.6% 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.

In Q1, Olaplex generated an operating profit margin of 19.8%, down 11.4 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 35.7%. However, Olaplex's margin has declined by 25.3 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 Q1 Results

We enjoyed seeing Olaplex exceed analysts' revenue and adjusted expectations this quarter. The company maintained its previous guidance, showing that things are on track and that the operating environment is roughly unchanged from three months ago. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 2.9% after reporting and currently trades at $1.44 per share.

So should you invest in Olaplex 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.