In This Article:
Participants
Patrick Flaherty; Vice President, Investor Relations; Olaplex Holdings Inc
Amanda Baldwin; Chief Executive Officer, Director; Olaplex Holdings Inc
Catherine Dunleavy; Chief Operating Officer and Chief Financial Officer; Olaplex Holdings Inc
Ashley Helgans; Analyst; Jefferies Financial Group Inc.
Korinne Wolfmeyer; Analyst; Piper Sandler
Shabana Choudhury; Analyst; JP Morgan
Lauren Lieberman; Analyst; Barclays
Olivia Tong; Analyst; Raymond James
Rob Epstein; Analyst; Evercore ISI
Presentation
Operator
Greetings and welcome to the Olaplex Holdings Incorporated Third Quarter, 2024 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce Patrick Flaherty, Vice President of Investor relations. Thank you. You may begin.
Patrick Flaherty
Thank you and good morning joining me today are Amanda Baldwin, Chief Executive Officer and Catherine Dunleavy, Chief Operating Officer and Chief Financial Officer.
Before we start, I would like to remind you that management will make certain statements today which are forward-looking, including statements about the outlook of Olaplex's business and other matters referenced in the company's earnings release issued today.
Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in or implied by such statements.
Additional information regarding these factors appears under the heading. Cautionary note regarding forward-looking statements in the company's earnings release and the filings the company makes with the securities and exchange commission that are available at www.sec.gov and on the investor relations section of the company's website at ir.olaplex.com.
The forward-looking statements on this call speak only as of the original date of this call and we undertake no obligation to update or revise any of these statements.
Also, during this call management will discuss certain non-GAAP financial measures which management believes can be useful in evaluating the company's performance. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company's earnings release.
A live broadcast of this call is also available on the investor relations section of the company's website at ir.olaplex.com.
Additionally, during this call management will refer to certain data points estimates and forecasts that are based on industry publications or other publicly available information as well as our internal sources. The company has not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information.
Furthermore, this information involves assumptions and limitations and you are cautioned not to give undue weight to these estimates with that.
I'll now I'll turn the call over to Amanda.
Amanda Baldwin
Thank you Patrick. Good morning, everyone and thank you for joining us. This morning, we reported third quarter, net sales of $119.1 million which declined 3.6% compared to a year ago. While this represented sequential improvement from Q2, we did underperform our expectations primarily due to weaker than expected results in our international business as we continue in our efforts to build the right foundation for the future.
Adjusted EBITDA was $44.6 million for an adjusted EBITDA margin of 37.5%. Coupling our third quarter results with our updated learning. We're revising our guidance for fiscal year 2024 and now expect net sales in the range of $405 million to $415 million and an adjusted EBITDA margin in the range of 29.9% to 30.6%.
As we have shared on past earnings calls, we plan for 2024 as a year to begin our transformation, taking a long term view and prioritizing the strategies and initiatives aimed at building a healthier business.
While we now believe it will take longer than originally expected to achieve our goal. We are making great progress and taking the steps we believe are necessary for the long-term health of the business.
Much of this work has been happening behind the scenes. While at the same time, this quarter, we announced three new innovative products. Our No.5 leave in conditioner bond shaper curl, rebuilding, salon treatment and No.10 bond shaper curl defining gel. Although we are disappointed with this revised outlook for the remainder of the year, I remain confident that we have the right strategy and are implementing the right actions to achieve a solid foundation for long term growth.
Olaplex at its core is an innovative science enabled and pro inspired beauty company with demonstrated global appeal as a top brand in the prestige hair care category, Olaplex had four of the five best selling prestige hair care products year-to-date 2024 [purse or con] retail tracking data of the US hair market.
Our research indicates that the Olaplex brand remains strong with positive associations to build upon including innovative reparative, healthy and effective and we possess a healthy balance sheet and strong cash generation which provide flexibility and enable us to invest in future growth. Overall, I continue to believe that the best years lie ahead for this company.
Let me walk you through three key assumptions that drove the revision to our full year outlook.
First, we anticipate weaker performance from our international business as we reset for the future. We conducted a market by market review to better understand our business, evaluate our current structure and partnerships and develop the go forward road map for our global reach.
I personally spent time meeting with many of our key partners and traveling the globe to see the brand in its current presentation on the cloud and better understand the end consumer and unique market from this assessment.
While the enthusiasm and passion for this brand remain incredibly high, we now believe that the issues within our international business are more complex than we originally anticipated. This requires simplifying our international model with fewer distributor partners as well as developing localized direct distribution approaches and brand support that are designed to be appropriate for the unique dynamics across the world. This work will take time, but we believe it will ultimately better position our business for long term success.
We have referenced throughout the year that we are consistently executing an international distributor rationalization program.
This effort has primarily impacted our International Pro Business, where we have closed certain accounts that we believe were the source of diverted product as well as our international DTC channel where we have deprioritized certain international e-commerce customers that we believe do not build equity in our brand.
As the year progressed, we now believe it is appropriate to further realign our distributor network to fewer stronger partners with clear accountabilities for market and brand development. All this activity will reduce net sales in the near term. We believe we're reflecting the right partners. We're excited with where we are taking the brand and we'll prioritize Olaplex better support our transformation and be more integrated into our own internal processes.
Additionally, while we are redefining our international go to market strategy, we have felt it prudent to wait to align our new marketing efforts to coincide with deeper partnerships and our new brand vision in order to position ourselves to maximize the return on the investment as such. We believe the slower investment in international sales and marketing in the near term has contributed to a moderation in demand.
Second, from a sales and marketing perspective, we now believe it will take longer to experience a lift in the overall demand from our brand investment.
Earlier this year, we kicked off the beginning of our marketing evolution, building a stronger go to market engine which includes elevated content creation and a creator led approach, focused investments on launches and our core products. Deeper coordination with our stylists and retail partners and more efficient Roy driven media spend.
We recently started to deploy this new strategy in the US.
We have observed positive early indicators that our new marketing activations are resonating with pros and consumers with improvements in brand engagement and momentum in earned media value metrics in this region. We continue to observe sell through trends at our key accounts that are largely consistent on an absolute dollar basis with what we have seen throughout the year demonstrating continued progress towards stabilization.
However, coming into the year, we did anticipate that these investments would begin to yield growth across the entire business, but we have not yet experienced the overall lift in demand that we were expecting.
We are encouraged by the self root trends of our new products launched during the third quarter. Supporting our belief that powerful innovation, clear messaging and stronger execution can drive better results.
We plan to apply these learnings next year across our entire portfolio. But as mentioned, we now believe it will take longer for this new strategy to yield improved top line performance across the assortment.
Third, the beauty market remains healthy but also highly competitive.
We previously believed that we would be able to pull back on promotional levels during the quarter. But now expect that the overall promotional environment will intensify during the holiday period and that we will need to participate effectively to win over the consumer.
We continue to prioritize strategic promotions that maintain brand health and new customer acquisition, but we anticipate our promotional activity across geographies during Q4 will be higher than originally expected at this stage in our transformation, we continue to believe marketing investment is essential for the long term as we engage with our community and broaden the knowledge of our competitive strengths, making a clear statement that delivers results and stands apart from other brands.
Therefore, we will continue to make such investments in the fourth quarter. An effort to maximize our performance during the important holiday season and bill for the future.
I am proud of the progress we have made so far on our transformation journey as we continue to execute against our three key strategic initiatives for 2024.
As a reminder, these include maximizing the impact of our sales, marketing and education investments to generate demand, strengthening our capabilities and culture to support our future and developing the long term road map and future vision for Olaplex.
As it relates to our first initiative to maximizing the impact of our sales, marketing and education investments to drive demand. One of the most important priorities of our new sales and marketing strategy has been to return to our stylist roots and nurture our connection to the pro community by showing up in salons and listening to stylist feedback, elevating our presence at industry shows and investing in additional educational tools.
We aim to increase our visibility, demonstrate our commitment and deepen our engagement with this key audience as an industry leader, we also recognize the significant role we play in delivering innovation and new services that can help stylists make their business even more successful.
To that end, among our new launches launched during the third quarter were two products for curly hair consumers, which we were, which were developed with the pro in mind. First, our bond shaper curl rebuilding treatment, which is a three step professional curl treatment to repair redefine and lock in the shape of natural waves, curls and coils created with new patented technology.
And second, our No.10 bond shaper curl defining gel, which is at home reparative curl silling gel that revives natural curl pattern. To support these launches, our education team in partnership with our pro ambassadors and members of the Olaplex Pro Collective influencer team educated at more than 50 national and regional trade events and hosted virtual training sessions to educate [Salli] and our distributor partners about our new technology.
We are pleased with the early performance. As early adopter salons across the globe are offering the bond shaper curl building treatment to their clients. And our number 10 bond shaper curl defining gel ranked in the top three with beauty curl subcategory.
Another important initiative for our marketing team during the third quarter was generating excitement and buzz of our consumer-focused new product launch. No.5 leave in conditioner, supported by a holistic marketing plan with social media and experiential pop up during New York Fashion Week and trade activation power of support from our influencers and pro ambassadors.
The campaign generated strong response with more than $2 million social media impressions, people testing the product and touting its efficacy exceeding initial forecast. No.5 leave in conditioner became a top two skew on olaplex.com and a top five [sku] in Sephora's US leave in conditioner subcategory.
As I mentioned earlier, we believe these successful launches are signs of a stronger innovation, engine and improved marketing strategy, delivering enhanced creative partnerships and improved content creation.
On our last earnings call, we highlighted a new marketing campaign launched during the second quarter featuring the transformative benefits of a complete routine of Olaplex. No.4 bond maintenance shampoo and No.5 bond maintenance conditioner.
The campaign drove positive lists and brand favorability above our peer benchmarks and Olaplex brand engagement levels have risen year-to-date across our competitive set.
Also, we believe our strategic participation in our customers tempol marketing events indicates strong consumer interest in our brand. For example, our performance during a key customers promotion in July was very successful. With nearly 70% of customers during that period, identifying as new old plus users and five of our [skus] featured in the event were the number one ranked items in their respective categories.
And lastly, according to data tracked by [Crar IQ], we regained our position as the number one US haircare brand in earned media value in the third quarter with momentum building throughout as we earned the number one spot in both August and September.
Moving to our second priority to strengthen our capabilities and culture to support our future.
We recently strengthened our leadership team with several highly talented appointments who we believe will position for future success.
Over the last several months, we've added a new Chief Operating Officer and Chief Financial Officer, Catherine Dunleavy who is here with me today as well as the Chief Marketing Officer and a senior Vice President of international. Both of whom will be important leaders of our go to market strategies across the globe.
With these new senior leaders in place. We are transforming how we work across the organization to strengthen our foundation, we have implemented and continue to deploy enhancements to new integrated business planning approach that will give us a better global view of the business.
Also, we launched a new strategic planning process, bringing leadership teams across the organization together more frequently working in even greater detail to craft the strategic plans for the future.
As it relates to our marketing processes, we're streamlining and integrating how the entire marketing organization engages with our agency partners. Developing a more disciplined approach that we believe will yield better planning and a higher quality creative content engine.
We also expect this to strengthen each new product introduction. As our new approach allows us to present marketing messages that are better aligned with how consumers interact with brands, we have more to do, but we're deep in this work overall, we believe we are creating a corporate culture that is more collaborative and make informed decisions based on data and business processes that can be applied across the globe is rewarding and exciting to see our team come together to work towards achieving a common goal.
Our business leaders and team members are energized, committed and working hard to move our business forward in a positive way.
Our third priority is developing the long term road map and future vision for Olaplex imported by an in depth brand perception study rooted in pro and consumer insights. We've developed a new and clear brand vision for Olaplex that will start to be visible to the pro and consumer in the coming year. At various stages of this work. We have been in active dialogue with our partners. The feedback from these conversations has been overwhelmingly positive but there are strong support and excitement for this new phase of Olaplex.
We also completely redesigned our new product pipeline development and go to market processes following the creation of our new innovation team to align with our new brand vision.
We rolled out a new commercialization strategy for our product launches with additional enhancement plan for the next year.
Additionally, as we work to reflect the growth, we're continuing to finalize our strategic plan and expect to provide details in early 2025.
In conclusion, this is a truly transformational period for Olaplex that requires thinking and acting for the long term. I remain confident in the brand's strong foundation that we can build upon to return to sustainable growth, truly differentiated science that would deliver superior results, a powerful R&D platform, a passionate community of stylists and consumers who love our products and a unique global footprint and a talented team that is dedicated to position this brand for success with that.
I will now pass it over to Catherine who has been a tremendous partner already and the company and myself are incredibly fortunate to have her with us on this journey.
Catherine Dunleavy
Thank you, Amanda and good morning everyone.
I am pleased to speak with you today on my first earnings call as a Chief Operating Officer and Chief Financial Officer of Olaplex.
Since I've not met or spoken with many of you since I joined the company, I thought it would be helpful to provide you with a short summary of my background. And what I've been focused on during the 1st 12 weeks of my time at ex for the past two decades, I have held senior leadership roles at leading global consumer and media companies, including Away Nike, Comcast, NBCU, Universal and GE.
During this time, I led and executed strategic operational and financial initiatives that help drive profitable growth.
The decision to join Olaplex was an easy one as an everyday user. I'm a loyal fan of Olaplex and have admired how the company disrupted the hair care category with its patented technology.
I also thrive in fast paced environments and see significant opportunity to take part in driving the strategy and elevating the company's financial foundation to provide the framework to maximize the power of our brand.
Olaplex is an innovative company and one of my strengths is managing core functions with discipline, execution and rigor while also leaving room for flexibility to enable creativity.
Having been in the role for almost 90 days, I am very enthusiastic about the potential ahead. Olaplex possesses a strong community of people, partners, stylists and consumers. And I am proud to be in a position to help shape our future.
I recognize there are many opportunities to bring operational best practices to life at Olaplex and I look forward to helping the company to continue to build out an infrastructure that will support future growth for this business.
Now let me share more details about our third quarter results and our updated outlook net sales for the third quarter declined 3.6% year over year to $119.1 million.
Although our Q3 net sales performance improved sequentially from the second quarter. This result was below our expectation with the underperformance largely driven by our international business for the quarter, we continue to observe sellthrough trends at our key accounts in the US that are largely consistent with what have been seen throughout the year on an absolute dollar basis outside the US sell in was negatively impacted by our ongoing efforts to realign our business as well as a moderation in demand trends due to slower investment in international sales and marketing.
As Amanda discussed earlier, we continue to believe that the month on hand of core inventory positions at our major US accounts remain in healthy positions in regards to performance by channel specialty retail sales were little changed down 1.3% year over year to $42.6 million. With her performance reflective of increased competitive intensity on our course use partially offset by the addition of product launches.
Professional channel net sales decreased 12.6% year over year to $42.2 million driven by our international business which decreased due to weaker demand and a focus on prioritizing international distributors and partners that build brand equity which more than offset the slight growth in our North American professional business direct to consumer sales were up 6.8% year over year compared to the third quarter of 2023 to $34.3 million due to strong sell in ahead of a successful major customer promotion in July and growth olaplex.com which increased double digits year over year.
This growth was partially offset by a decline in international Z to Z.
Moving on adjusted gross profit margin was 70.8%. Up 110 basis points from 69.7% in the third quarter of 2023. This expansion was primarily driven by favorability due to lapping higher levels of inventory obsolescence reserves. From last year.
This increase was partially offset by contractions primarily due to an unfavorable product mix driven by the sell in of holiday kits which are highly profitable but lower margin relative to the rest of our assortment, as well as slight deleverage on warehouse and distribution costs adjusted STN A increased to $40.4 million compared to $33.7 million in the third quarter of 2023.
Driven primarily by an increase in sales and marketing expense. During the third quarter of 2024 we spent approximately $16 million in nonpayroll related advertising and marketing expenses compared to approximately the same amount in the second quarter of 2024 bringing the year-to-date total to approximately $43 million. Adjusted EBITDA declined 13.4% to $44.6 million versus $51.5 million in the third quarter of 2023. Adjusted EBITDA margin was 37.5% compared to 41.7% a year ago.
Adjusted net income decreased to $28.7 million or $0.04 per diluted share in the third quarter of 2024 from $33.4 million or $0.05 per diluted share in the third quarter of 2023.
Let me now turn to our balance sheet inventory. At the end of the third quarter of 2024 was $85.9 million. A decrease of $14.3 million from $100.2 million at the end of the second quarter of 2024 the sequential decrease was primarily the result of the selling of our holiday kits and new products during the third quarter.
Moving to cash flow during the first nine months of 2024 we generated $93.4 million of cash from operations. We anticipate that 2024 will be another year of healthy cash flow generation as we continue to drive an asset light bottle and high profitability.
We ended the third quarter with $538.8 million in cash and cash equivalents an increase of $30.9 million from the end of the second quarter of 2024. This cash is generating interest income at an annual rate of about 5% long term debt. Net of current position of deferred fees was $645 million.
Now turning to our financial outlook as disclosed in the press release issued this morning, we are revising our guidance for fiscal year 2024 starting with the top line for fiscal year 2024. We now expect net sales in the range of $405 million to $450 million down from the previous range of $435 million to $463 million.
As Amanda mentioned earlier in the call, the revision can be broken down into three primary buckets.
First, we anticipate weaker performance from our international business.
As Amanda discussed earlier, we have performed a deeper assessment of our international operations and discovered that the issues are more complex than we originally thought. We are now redefining our international go to market strategy.
Second, while we believe we continue to observe sell through trends and our us key accounts that are largely consistent on an absolute dollar basis with what we have seen throughout the year and our key accounts remain in healthy core inventory positions. We are not yet experiencing the anticipated lift in demand from the deployment of new sales and marketing investments.
And third, we anticipate increased promotional activity during the holiday period across geographies. Relative to our previous assumption in the fourth quarter, from the perspective of year, over year net sales growth rate. In order of magnitude, we expect a professional channel to be the most pressured, followed by our direct to consumer and specialty retail.
We now anticipate adjusted growth margin in the range of 70.9% to 71.6%. Compared to our initial assumption in the range of 72.5% to 73.1%.
We expect that the primary driver of this decrease will be additional promotional activity during the fourth quarter and greater deleverage from lower sales volumes on our fixed warehousing costs.
Furthermore, we now expect full year 2024 adjusted SG&A expenses in the range of $167 million to $170 million compared to our previous expectation of $172 million to $179 million.
Specifically, we expect full year non payroll related advertising and marketing expenses in the range of $62 million to $65 million compared to our previous assumption of $66 million to $70 million as we continue to invest through our transformation.
Given the lower net sales forecast against our expectations for continued investment in operating expenses. We now expect more adjusted even deal leverage than our prior assumption for 2024. We expect a just be in the range of $121 million to $127 million or a margin of 29.9% to 30.6%. This compares to our previous range of $143 million to $159 million or a margin of 32.8% to 34.3%.
We expect net interest expense to be $34 million and an adjusted effective tax rate of approximately 19.5% for the year.
In conclusion, Olaplex has significant competitive strikes that we believe we can build upon to deliver consistent and sustained rates of growth. We believe that we have identified key issues that have contributed to recent challenges as well as the appropriate actions to correct them.
Fundamentally, we are working to build a better Olaplex, strengthening operating discipline, improving our business and financial processes and maintaining strong cash generation. I look forward to sharing our progress along the way.
I will now pass it over to Amanda for some closing remarks.
Amanda Baldwin
Thank you, Catherine. Olaplex remains an incredibly powerful brand, a leader in the attractive high growth, prestige hair care category and an important strategic partner for our customers. We're supportive of and excited about the direction we are taking the business.
The trajectory of our transformation may have shifted. We are progressing and making the tough decisions that we believe are necessary to create a healthy business set up for long term success. Ultimately, we believe we're still in the early stages of the history of this company and that old Plus can perform at a higher level. I remain optimistic as ever about the future.
This concludes our prepared remarks. We will now turn the call back over to the operator. Questions, operator.
Question and Answer Session
Operator
Thank you. We will now conduct a question and answer session. (Operator Instructions)
Our first question comes from Jonathan with TD Cowen. Please proceed.
Thank you for taking my question. Just curious on the overall consumer health, what you're seeing at the salon and as well as your DTC and, and on the retail side overall, and you've mentioned higher promotions. Do you think it's more because the consumers are cautious?
I would love any color there and I would love to dig a little bit deeper into what you saw in terms of your international business. What are your, your key assessment there and how you're thinking about the opportunity going forward and what it could be as a percentage of the mix over time. Thank you so much.
Amanda Baldwin
Thank you for the question and thank you everyone for being here today.
You know, first I'll, take the first half of that, which is with respect to kind of what we're seeing around the consumer. And I believe you're asking about those within the salon channel, as well as you know, retail and the consumer more broadly. You know, within the salon channel. I think we've been talking about, you know, earlier on throughout the year, about overall price within the salon category where there's certainly over time has been less frequent visits into the salon that hasn't changed in either direction in particular.
I think it is sort of the way that people are thinking about their salon and certainly part of our focus and our strategy in supporting the stylist and rooted behind the launch of something like bond shaper for re bonding treatment is, is really supporting the stylist and making sure there's more reasons to come back to the salon. So we're excited to really support our stylist in that way with respect to the consumer.
Overall, we did make a very conscious decision as we were thinking about going into this quarter and, and watching what we're seeing out in the marketplace and expecting overall a more promotional environment, making sure we're doing that. So, you know, the typical promotions which, which we do use from a strategic point of view. Around key tent full moments, but also in trade marketing and overall support for our retailer partners, both on the pro side as well as to the consumer. So that is something that we're we're watching carefully.
And I think, we see a lot of the things that that many others have been talking about. As we go into the key holiday season with respect to international, I have spent a lot of time very recently on this topic. The first thing I would say is that the enthusiasm for this brand is incredibly strong. One of the things and one of the reasons why I joined this brand nearly a year ago was because I think it's very rare to find brands that have such global resonance. And that I have now seen on the ground. Having been with consumers, having been with our retailer partners, distributor partners, sitting in salons around the world. This product really resonates and really translate.
I think what we've really learned and what we were talking about today was that in order to ensure that we really maximize that opportunity, we need to be much closer. We, we can't have arms relationships, we need to be much more involved with our distributor partners. We need to be better translating our marketing efforts. All the things that we've started working on here in the United States that we are seeing early signs of, of opportunity around our marketing efforts, we need to be translating those internationally.
And so in order to do that, that does require making sure that we have fewer bigger partnerships that we are. You know, that was part of the rationale of bringing on is going to leave that part of our business so that we, we're just better partners and we can support this brand globally.
Thank you.
Operator
So the next question comes from Ashley Helgans with Jeffries. Please proceed.
Ashley Helgans
Hi, thanks so much for taking our question. So I know you kind of talked about not yet seeing the marketing efforts provide any sort of lift, just any more color on when you expect to start to see a lift and any changes you think you need to make to the strategy. Thanks so much.
Amanda Baldwin
Yes, thanks for the question. I want to make sure that we really pull apart what we are seeing within our new launches and what we want to see across the entire portfolio and to draw a distinction between those two. So if we, if we recall, you know, when marketing sales education, you know, I really believe that brand is the thing that will be along with innovation will drive this business going forward. We spend a lot of time as, as we talked about getting the brand your vision, right? And in the future product pipeline, right? And what we had this fall with the opportunity to have two new launches and to start the process of really building a marketing muscle in this organization.
We've seen a lot of really good things happen out of that. And one of the things that we highlighted in the call was our number five leave in conditioner. I think that's really the first time that this brand just had what I'll call a full 360 approach, a tight partnership with Sephora, the ability to launch an exclusive skew with them to really put the right experiential marketing, the right influencer marketing, the right kind of assets, the right kind of language. And, you know, we've been talking about this really since, since the beginning about it's not just the money we spend, but it's how we spend it.
And that launch is outperforming our expectations. So that's really a exciting to see what we need to see going forward. And the thing that is, is sort of driving our, our guidance today is we need to make sure that we have that across the entire portfolio. And that's really going to be phase two of this. And as we think about going forward and how, you know, we have a brand new CMO Katie Goldman who joined us in July and she's fantastic and I think really helping us take this to the next level.
So these things are work in progress, but I do feel like we're on the right track that we have, you know, again, a brand vision that, that I alluded to and I look forward to sharing more about that as that becomes, you know, out in, out in the world and we have a great product pipeline and so we're going to get better and better at.
Ashley Helgans
Thanks so much.
Operator
The next question comes from Susan Anderson with Canaccord. Please proceed.
Hi, good morning, Alec Legg on for Susan on the fourth quarter. Sales really does take a big step down with the updated guide. How much of that is from the international realignment and expectations for how the US will perform? Thank you.
Amanda Baldwin
Hi, thanks for the question. Yeah, it international is the primary driver of what's what is driving our fourth quarter guidance down while all three are very important, it really is mainly the international and the impacts of attitude on international.
Thanks and then just to follow up, I guess with international being reset and realigned, what are the expectation for sales to start stabilizing? How long do you think it'll take to kind of recreate the brand that you're trying to work with and with the distributors over in Europe? Thank you.
Catherine Dunleavy
Well, if we're still working through our plans for 2025 and beyond, and we're not really providing guidance today, but I can tell you a couple of things. One as Amanda and I mentioned earlier in, in our home market on a week in and week out basis, our selling and are rather heavily consistent. So we started in the US and put in place our actions and that is starting to work. So then we just have to take that playbook and put it in international.
And as, as Amanda described, she spent a lot of time market by market, creating a very detailed strategic plan for how we're going to go to the market. So this is a transformation. It will take some time, but we're confident we've identified the right actions to drive future success. And I'll just add that we are very fortunate to have a strong balance sheet and healthy cash flow that allows us to make the tough decisions and continue to invest for long term future profit profitability.
Operator
The next question comes from Korinne Wolfmeyer with Piper Sandler. Please proceed.
Korinne Wolfmeyer
Hey, good morning. Thanks for taking the question. I'd like to touch a little bit on the the cost structure and how we should be thinking about that for Q4 and heading into 2025. I believe the G&A guidance implies still a meaningful step up in Q4 even though you're pulling back on some of the marketing and ad spend. So, can you touch on, you know what, what's driving that number? And then as we head into 2025 how should we be thinking about your marketing and advertising budget? Relative to the rest of the G&A.
Expense. Thanks.
Amanda Baldwin
So I thank, thanks for the question. I think that, you know, as Katherine alluded to, we, we think it's important to continue to invest behind this brand in the, in the fourth quarter. And so, you know, we'll, we'll continue to make sure that we're building for the future.
We aren't providing guidance for 2025 at this time, but we certainly are learning a lot as we, you know, as we talked about before, we're learning a lot from our marketing efforts that will help drive our planning for next year, spending a lot of time on this international business.
So we really understand what it's going to take to, to set that up for success and as well as really you know, putting a lot of time on the road now with the future brand vision and, and really working with our partners to, to plan for next year.
Operator
The next question comes from Andrea Teixeira with JP Morgan. Please proceed.
Shabana Choudhury
Hi, this is Shabana Choudhury on for Andrea. Thanks for taking our question. Can you give us a little bit more insight on the international competitive landscape and your confidence level in bringing about fruitful results by realigning distribution network and updating the marketing strategy outside the US.
And additionally, if I can take another one, understand that the guidance was lowered mainly due to the international space. But in quarter three, you know, the US market topline also declined by 3.3%. So if you could just tell us a little bit more like what is causing, understand that it has to do with not seeing the lift in demand, but your new launches were doing pretty well as per the commentary. Thank you.
Amanda Baldwin
Well, you know, I can take that that first one as we think about the international competitive landscape. I think what you see is similar to a lot of, a lot of different brands and different categories and beauty. You'll see some global players who will be very similar across the globe and then you obviously see some more local players and, and that's, you know, when I was speaking earlier about kind of really getting on the ground, understanding the dynamics, understanding the different channels.
You being in salons seeing the stores watching what's happening online, really understanding what the consumer is seeing and what they're as, as well as the status and what they're looking for in their respective markets. What I, what I would say is it's more similar than it is different. There are certainly like anything else in global nuances to this to be mindful of. And you know, we do have a business that, that has incredible reach. And I think again, I think there's a lot of appeal for this brand and the fundamental nature of hair, health of hair repair. It's something that is, that is very consistent.
But how you might approach the market and that's actually a big advantage to having a distributor network is that they are on the ground that they do really understand the nuances of their individual markets. So we, again, this is about a closer partnership about how, having much more involvement in how we're going to market in these places and making sure that, that we're kind of taking advantage of both of our suspect reviews.
Our own brand and what it can do that we're translating our marketing, our sales and our education across the globe and that we're, we're leveraging those partnerships to be closer to the consumer, to be closer to the stylist and really have, you know, our, our hands on, you know, arms legs, ears, eyes on the ground for us. So that, that's really how we're thinking about that part of the business.
Catherine Dunleavy
And then I'll try to address your question three. In Q3, our professional sales were down 12.6% and our retail sales were only down about 1.3% and our [DCC] was, was up. And then when I think your question was specifically in the retail channel, what were we seeing there? And you know, it was down 1.3% and we did see some timing with some of our major customers with the selling of holiday kits. And so that might be some of the variants that you're seeing.
Shabana Choudhury
Thank you for the color. I'll pass it on.
Operator
The next question comes from Lauren Lieberman with Barclays. Please proceed.
Lauren Lieberman
Great, thanks. Good morning. And then I missed the beginning of the call. So, apologies if you've kind of directly answered this already. But, you know, I know you talked about it's taking longer to see the list on the new product launches and the, and the new campaigns, but also spoke about the success of the, the leave in conditioner. So I just wanted to see if you could talk a little bit about.
It was like a post mortem on the what's not worked so far and why you know, as contrasted to the what has gone well with that, that leave in conditioner product. And I know you talked about the 360 on the leave in. So maybe it's more about the what wasn't working on the earlier.
Pieces. Thanks.
Amanda Baldwin
Yeah, I mean, I think the places where, and, and as you can imagine, we certainly have done a lot of of our own internal reflections and, and we have, you know, like I said, a brand new CMO who, who joins us with a, with an extraordinary background, she's really dug in on with her team and it is something that we really think is very important as we go forward to make sure we understand what, what works and what doesn't and, and kind of continue to improve over time. That's certainly something I believe strongly in.
Again, I think what we really are seeing is that brand resonate, right? I think that's a very important thing to talk about that as we improve our marketing muscle, that the, that the pro responses of the client response, right? Like that was really what we needed to understand this year. So that we have that information as we go into, you know, future brand vision, as we bring on this team, as we build the muscle. I think we still, you know, again, there's some very important signs of success.
One of the things that, we talked about very early on when I joined was this concept of creator and marketing, the concept. And, and that is something that is, you know, certainly at the, at the helm of a lot of how you know, beauty industry operates. It is and it's something that we really believe that we can do very successfully. It was also the first time with the leave in conditioner that we had an experiential event. So a physical pop up that we did for Fashion Week here in New York. And certainly I had the fun of, of getting to go to that and, you know, lines around the block.
But I think that what was so interesting and exciting about that was that people really, again, they wanted to see the brand, they wanted to experience the brand, but they were also curious about our science. And that is something that we're seeing across the board is that people really do see the power of this product. They are interested in how it works, they're interested in how to use it, they want to know about that and we're getting better and better at explaining that.
And I think that was also something that I called out very early on is that we have this unbelievable technical foundation, we need to get much better at explaining it. And explaining it, whether it's to a stylist to a consumer in social media and influencers leveraging the power of that technology and, and translating it into the, into language that really makes sense for for the broader universe is something that I think, I look at it as a really exciting proof point for what we're seeing today. But, you know, I'll say I'll always be of the mindset, we can do better, we can and that's certainly something that Catie and I share and we'll continue to evolve our processes and the marketing that we put up.
Lauren Lieberman
Okay, great. Thank you so much.
Operator
The next question comes from Olivia Tong with Raymond James. Please proceed.
Olivia Tong
Great, thanks. And with respect to international. Do you have a sense on how much has to come out of it and how long it will take and, and what the business looks like after you have right sized it and, and more importantly, why do you think now is the right time to make the international changes you're planning? Obviously, you, got quite a bit on your to do list already. So where is the incremental manpower coming from to drive more of a clean up in international markets right now? Thanks.
Amanda Baldwin
So I think, yeah, we, we have the good fortune of being able to make the hard choices, right? And to make sure that we're building for the future. And so, you know, I really believe that and we've talked about that the power of marketing, sales, education innovation, those are the things that are going to drive this business forward. We believe that we need to realign that international business in order to take advantage of that.
So I do think it's important either like I said, however, there is a lot of enthusiasm this brand. So we're going to do this in the right way. So at this point, I'm, I'm not going to be able to give a time line. But yeah, we'll do the same thing that we've done with everything else in this business is that we're going to operate with a sense of urgency that's important in a transformation.
But we're also going to take the time to make sure we do the right analysis that we pick the right partners that we do this in the right way and, and, and those will, those will obviously be a balance and we'll, we'll certainly keep people posted as we work through this.
Olivia Tong
Thank you.
Operator
Thank you. The last question will be from Rob Epstein with Evercore. Please proceed.
Rob Epstein
Hi. Thank you. You, you kind of touched on this a couple of times, but I just maybe want to give it another shot and drill down a little bit.
You know, I think, I think all of us, you know, who have been involved were, you know, incredibly impressed with the product, the technology, the efficacy, right? And then something happened and there were social media issues and I think you're largely behind that, correct me if I'm wrong. But I think what may have also happened is, you know, increased competition that may have confused the consumer various different kind of bonding products are trying to play off your claims but in different ways.
So I guess the question is, is consumer confusion part of the problem? And then to the extent that is, and I know you talked about better communication, but can you be maybe even more specific about how to deal with that confusion and, and how you can actually get across, you know, that you're unique in terms of, of the science and the efficacy. And again, I know, I know you touched on it, but it's so important. I was just wondering if you can kind of address it a little bit more. Thank you.
Amanda Baldwin
Yeah, absolutely. And I think it's a great question. I think when you know what I was saying before, a little bit about the importance of our ability to explain our clients that that is approximate, right? How do you take something that is truly world class patented technology? It's complicated stuff, right? And how do you take that and how do you translate that to the consumer?
This is, this is the place that we're really so and again, I think we're seeing some early signs of success and we've made some very material changes in how we're approaching social media, how we're creating content. You certainly if you were to go on our Instagram page and you look at it 12 months ago and you look at it now, it's going to look different.
That I think is a good indicator of how we're approaching science in a different way. And how are we thinking, how we communicate? Because I think you, you are right that we need to make sure that people are clear on what sets us apart. Just because we know that we are, doesn't mean that the consumer knows that and that the stylist knows that. And those are related but not 100% the same thing, right? There's overlap in how they consume information, but there's also unique challenge channels about it. So that's something that we're thinking a lot about as we, as we continue to build our marketing muscle. And it, and then I think it's also the importance of information and the importance of introducing new skews that allow us to continue to push the boundaries of innovation.
And, and I would say that I really believe that this brand is certainly harnessing the power of bond building technology, but it this is way more than a bond brand. This is a prestige haircare brand. I really believe that that's the category that we that we compete in. That it's very important to establish the brand in that way and to communicate that way. Because it, that will, I really believe increase our ability to really be a part of people's daily haircare routines.
Rob Epstein
Thank you.
Operator
Thank you. At this time, I would like to turn the floor back to Amanda Baldwin for closing remarks.
Amanda Baldwin
Well, you know, I'll just say thank you for everyone who joined this morning and please do reach out with any further questions.
Operator
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.