BeautyHealth (NASDAQ:SKIN) Beats Q4 Sales Targets, Stock Jumps 19.6%

Anthony Lee /
2024/03/12 4:32 pm EDT

Skincare company BeautyHealth (NASDAQ:SKIN) reported results ahead of analysts' expectations in Q4 FY2023, with revenue down 1.4% year on year to $96.8 million. On the other hand, next quarter's revenue guidance of $80 million was less impressive, coming in 6.4% below analysts' estimates. It made a GAAP loss of $0.07 per share, down from its loss of $0.02 per share in the same quarter last year.

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BeautyHealth (SKIN) Q4 FY2023 Highlights:

  • Revenue: $96.8 million vs analyst estimates of $87.61 million (10.5% beat)
  • EPS: -$0.07 vs analyst estimates of -$0.10 (28% beat)
  • Revenue Guidance for Q1 2024 is $80 million at the midpoint, below analyst estimates of $85.51 million
  • Gross Margin (GAAP): 47.2%, down from 66.4% in the same quarter last year
  • Market Capitalization: $477.8 million

Operating in the emerging beauty health category, the appropriately named BeautyHealth (NASDAQ:SKIN) is a skincare company best known for its Hydrafacial product that cleanses and hydrates skin.

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

BeautyHealth is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.

As you can see below, the company's annualized revenue growth rate of 49.5% over the last three years was incredible for a consumer staples business.

BeautyHealth Total Revenue

This quarter, BeautyHealth's revenue fell 1.4% year on year to $96.8 million but beat Wall Street's estimates by 10.5%. The company is guiding for a 7.3% year-on-year revenue decline next quarter to $80 million, a reversal from the 14.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.

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Operating Margin

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

This quarter, BeautyHealth generated an operating profit margin of negative 19%, down 15.2 percentage points year on year. Because BeautyHealth's gross margin decreased more than its operating margin, we can infer the company had weaker pricing power and higher raw materials/transportation costs.

BeautyHealth Operating Margin (GAAP)

There are few unprofitable publicly traded consumer staples companies, and over the last two years, BeautyHealth has been one of them. Its high expenses have contributed to an average operating margin of negative 20.7%. On top of that, BeautyHealth's margin has declined by 25.5 percentage points on average over the last year. This shows the company is heading in the wrong direction, and investors are likely hoping for better results in the future.

Key Takeaways from BeautyHealth's Q4 Results

We were impressed by how significantly BeautyHealth blew past analysts' revenue expectations this quarter, driven by outperformance in "Americas consumables net sales and strong device placement in Asia-Pacific". This also enabled the company to beat Wall Street's EPS estimates. On the other hand, its gross margin missed analysts' expectations as it had "higher inventory related charges and higher product and warranty costs". Lastly, its full-year revenue and EBITDA guidance aligned with analysts' forecasts. We think this was a great quarter because of the top-line beat, and the stock is up 19.6% after reporting. It currently trades at $4.28 per share.

So should you invest in BeautyHealth 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.