BeautyHealth (SKIN)

Skincare company BeautyHealth (NASDAQ:SKIN) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 14.5% year on year to $69.58 million. On the other hand, next quarter’s revenue guidance of $73.5 million was less impressive, coming in 2.9% below analysts’ estimates. Its GAAP loss of $0.08 per share was 37.6% above analysts’ consensus estimates.

Company Overview

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.

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.

Competitors in the beauty health category that employ medical technology and personal care products include AbbVie (NYSE:ABBV) and Venus Concept (NASDAQ:VERO) as well as private companies Cartessa Aesthetics and DermaSweep.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $322.5 million in revenue over the past 12 months, BeautyHealth is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

As you can see below, BeautyHealth’s sales grew at a sluggish 3.8% compounded annual growth rate over the last three years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

This quarter, BeautyHealth’s revenue fell by 14.5% year on year to $69.58 million but beat Wall Street’s estimates by 8.9%. Company management is currently guiding for a 18.9% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 9.2% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and implies its products will see some demand headwinds.

BeautyHealth has great unit economics for a consumer staples company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 46.4% gross margin over the last two years. That means BeautyHealth only paid its suppliers $53.62 for every $100 in revenue.

In Q1, BeautyHealth produced a 69.8% gross profit margin, up 10.4 percentage points year on year and easily exceeding analysts’ estimates. BeautyHealth’s full-year margin has also been trending up over the past 12 months, increasing by 18.6 percentage points. If this move continues, it could suggest an environment where the company has better pricing power and stable or shrinking input costs (such as raw materials).

Unprofitable public companies are rare in the defensive consumer staples industry. Unfortunately, BeautyHealth was one of them over the last two years as its high expenses contributed to an average operating margin of negative 27%.

On the plus side, BeautyHealth’s operating margin rose by 13.7 percentage points over the last year, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

This quarter, BeautyHealth generated a negative 17.3% operating margin. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although BeautyHealth’s full-year earnings are still negative, it reduced its losses and improved its EPS by 53.4% annually over the last three years. The next few quarters will be critical for assessing its long-term profitability.

In Q1, BeautyHealth reported EPS at negative $0.08, up from negative $0.10 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast BeautyHealth’s full-year EPS of negative $0.31 will reach break even.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

BeautyHealth has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.3% over the last two years, slightly better than the broader consumer staples sector.

Taking a step back, we can see that BeautyHealth’s margin expanded by 7.3 percentage points over the last year. This is encouraging because it gives the company more optionality.

BeautyHealth’s free cash flow clocked in at $1.85 million in Q1, equivalent to a 2.7% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

BeautyHealth’s five-year average ROIC was negative 27.5%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer staples sector.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

BeautyHealth’s $558.1 million of debt exceeds the $373 million of cash on its balance sheet. Furthermore, its 10× net-debt-to-EBITDA ratio (based on its EBITDA of $19.2 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. BeautyHealth could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope BeautyHealth can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by how significantly BeautyHealth blew past analysts’ gross margin expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its EBITDA guidance for next quarter missed and its revenue guidance for next quarter fell slightly short of Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $1.67 immediately following the results.

Updated: June 14, 2025 at 10:49 PM EDT

When considering an investment in BeautyHealth, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

BeautyHealth falls short of our quality standards. To kick things off, its revenue growth was a little slower over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its EPS growth over the last three years has been fantastic, the downside is its brand caters to a niche market. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

BeautyHealth’s EV-to-EBITDA ratio based on the next 12 months is 12.1x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $1.76 on the company (compared to the current share price of $1.53).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.