Waldencast Q1 2025 Earnings Report

Waldencast EPS Results

• Actual EPS: N/A
• Consensus EPS: -$0.11
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Waldencast Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $68.27 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Waldencast Announcement Details

• Quarter: Q1 2025
• Date: 5/13/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 14, 2025
• Conference Call Time: 8:30AM ET

Waldencast (NASDAQ:WALD) operates in the beauty and wellness business. The company engages in developing, acquiring, accelerating, and scaling various brands. It provides cosmetic, over-the-counter, and prescription products under the Obagi Medical, Obagi Clinical, and Obagi Professional brands; and a Skintrinsiq device for use in facial treatments that is used by physicians' offices, spas, and aestheticians. The company also offers clean makeup products under the Milk Makeup brand. It sells its products to dermatologists, plastic surgeons, and other physicians who focuses on aesthetic and therapeutic skincare, including physicians on site at medical spas, through its direct sales force, as well as through distribution partners. The company is headquartered in White Plains, New York.

Waldencast Q1 2025 Earnings Call Transcript

Key Takeaways

• In Q1, net revenue was $65.4 million (–4.1% YoY), with a 76.4% adjusted gross margin (+10 bps) and $4.4 million of adjusted EBITDA (6.7%), reflecting ongoing investment in sales support.
• Milk Makeup revenue fell 15.1% YoY, but U.S. retail sales grew high-single digits thanks to the viral Hydro Grip Gel Skin Tint launch and early momentum in 600 Ulta doors, while international performance was weighed down by tough comps and a later Skin Tint rollout.
• Obagi Medical net revenue rose 7.1% to $36.2 million, with an 82% gross margin and $5.9 million of adjusted EBITDA (16.3%), despite temporary out-of-stock issues now being addressed through supply-chain upgrades.
• Management is consolidating third-party logistics and optimizing distribution centers to boost supply-chain flexibility and fulfillment rates, expecting to be in a stronger inventory position by the end of Q2.
• For fiscal 2025, the company targets mid-teens net revenue growth and a mid-to-high-teens adjusted EBITDA margin, with a low-single-digit COGS increase from tariffs already factored into guidance.

Presentation

[Operator]

Good day, and welcome to the Waldencast First Quarter twenty twenty five Earnings Call. All participants will be in listen only mode. A question and answer session will follow the formal presentation. Please note that this event is being recorded. I will now hand you over to Alison Malkin, Partner ICR. You may proceed.

[Allison Malkin, Partner at ICR]

Thank you and welcome to the Weldon Cast plc first quarter fiscal twenty twenty five earnings call. Here with me today are Michelle Broussette, founder and chief executive officer and Manuel Manfredi, chief financial officer. For today's call, Michelle will begin with an update on our business and vision. Manuel will follow with a review of the first quarter and provide our fiscal twenty twenty five outlook. Following this, Michelle will share the strategic growth initiative for our Milk Makeup and Obagi Medical brand.

[Allison Malkin, Partner at ICR]

After the prepared remarks, the operator will open the call to take questions. Before we start, I would like to remind you that management will make certain statements today which are forward looking in nature, including statements regarding the outlook of the Waldencast business and other matters referenced in the company's earnings release that was issued yesterday. 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 statements appears under the heading cautionary note regarding forward looking statements in the company's earnings release and in the company's filings that it makes with the Securities and Exchange Commission, which are available at www.sec.gov and on the Investor Relations section of the company's website at ir.waldencast.com and should be read in conjunction with this section entitled Risk Factors in the company's annual report for 2024 on Form 20 F filed with the Securities and Exchange Commission on 03/20/2025. 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.

[Allison Malkin, Partner at ICR]

Also, during this call, will discuss certain non GAAP financial measures, which management believes can be useful in evaluating the company's performance. The presentation of non GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. You will find additional information regarding the definition of these non GAAP financial measures and a reconciliation of these non GAAP to the most directly comparable GAAP measures in the company's earnings release. With that, let me now turn the call over to Michel Brissette.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Thank you, Allison, and good morning everyone. I am pleased to speak with you today and share our first quarter performance and outlook for the year. During the quarter, we made a strong progress against our growth strategy, elevating our powerful brands, launching breakthrough innovation, expanding points of distribution, and increasing community engagement and love while investing in support for our future. As anticipated, Q1 presented some challenges as we had to anniversary strong growth and launches from a year ago, a decelerating beauty market, and a fluid macro and retail environment. We're encouraged, however, by the end of the quarter performance, which gives us confidence that our brands and businesses are poised to achieve our annual growth and profitability goals.

[Michel Brousset, Founder, CEO & Director at Waldencast]

As we have discussed in previous calls, it is important to highlight that while we have a strong focus on quarterly, monthly, and even daily performance, we manage our business against our annual targets in order to maximize value creation. We're building a unique and a strong platform for growth and profitability that creates, acquires, accelerates, and scales the next generation of beauty and wellness brands. Our strategies are working very well. We're strengthening our brands, driving industry leading innovation, and expanding our brands footprints so we can reach more and more consumers around the world. However, we're only at the beginning of our journey, and much remains for us to do.

[Michel Brousset, Founder, CEO & Director at Waldencast]

One key area of operational focus in the coming quarters is to continue to strengthen our supply chain. We have achieved or are close to achieving our cost efficiency objectives, but we need to now work more on improving the need and flexibility of our supply chain to drive even greater reactivity, even increasing levels of demand for our brands and innovation. Today, we have two powerful brands that have garnered critical mass while still having substantial runway for multi year growth. With Milk Makeup and Obagi Medical, we have a solid foundation in prestige and skin color. We have a core business in The US and a growing presence internationally.

[Michel Brousset, Founder, CEO & Director at Waldencast]

We're achieving a strong growth in attractive channels, including professional, specialty, retail, and online. And expect this momentum to continue as we drive awareness of both fronts beyond our core communities, continue to introduce more blockbuster innovations, and expand into other regions and categories. Our increasing success with both brands and the power of our unique pure play beauty ecosystem, an industry that requires a deep and expertise expertise, give us a distinctive competitive strength in attracting other brands and founders into our platform. Let me now turn the call over to Anuel to go over our financial results in more detail.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Thank you, Michel. It is a pleasure to be here today to discuss our first quarter performance and also the continued progress of our strategy. So, let's begin with a review of our financial performance. For the first quarter we have reported a net revenue of $65,400,000 representing a decline of 4.1% from the first quarter of last year. Our adjusted gross profit margin remained strong, 76.4%, an increase of 10 basis points year over year.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Our adjusted EBITDA was 4,400,000.0 or a margin of 6.7% which reflects our continuous focus on investment in sales drivers in support of our growth. Now, let's look at each brand specific performance. Starting with mid makeup, we saw revenue decline 15.1%. However, we saw solid domestic performance despite a broader slowdown in the prestige beauty category. With mid makeup ending the quarter in a strong note, fueled by the highly successful launch of Hydro Grip Gel, in tint, which sold out quickly due to demand greatly exceeding our forecast.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

We're also very pleased with the brand's launch into Ulta, which has beginning in late February. Both initiatives contributed to the brand's high single digit growth in The US retail sets. Now, this solid domestic performance was offset by the construction of international sales, which faced a difficult comparison against last year Q1 distribution expansion, as well as inventory adjustment by retail partners. Additionally, the international launch of Skin Tint occurred later than in The US resulting in minimal impact on our Q1 international performance. As I will share shortly, we anticipate our growth drivers to accelerate strongly going forward.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Adjusted gross profit margin of 69.5% represents a sequential increase of four sixty basis points from Q4, but 180 basis points decrease from Q1 last year reflecting added setup costs from our launch into Alta Beauty. Adjusted EBITDA totaled $4,400,000 and the brand maintained a healthy adjusted EBITDA margin of 14.9% of net revenue. Moving to Obagi Medical. So, we achieved net revenue of $36,200,000 increasing 7.1% from the first quarter of twenty twenty four. This growth was tempered by out of stock issues in key SKUs.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

We're actively advancing our supply chain transformation, including consolidation of our third party logistic providers and the optimization of the distribution center network. These strategic changes are designed to enhance operational efficiency and support long term scalable growth. Adjusted gross profit margin remained strong, increasing 60 basis points to 82%. And adjusted EBITDA totaled $5,900,000 or 16.3% of net revenue reflecting increased marketing investment and higher supply chain costs in support of our future growth. Now, let me turn to our review of our revenue drivers for the quarters.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

The quarters saw significant positive momentum across both brands that we believe position us for accelerated growth going forward. Starting with meal makeup, innovation continued to be a major driver. The launch of Hydro Grip gel skin tint which was another standout success for the brand and in a more strategic completion category than last year Coolie Water Gelatin success. One category that has high levels of repeat and loyalty and that help us drive our trust metrics on the brand. Digitally, both Mailman Gap and Obagi Medical saw continued growth driven by our successful consumer acquisition and retention efforts.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

We were especially pleased with Obalu's performance which reflect the increasing desire for the brand as we have now fully lapped the transition to our first party model with our primary e commerce distributor. Milk makeup also entered Ulta Beauty representing a major new US distribution for the brand. The launch saw high consumer demand with a strong initial sellout and contributed to the delivery of the high single digit growth in U. S. Retail sales in the quarter.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

We're very pleased with the strong partnership with the Ulta Beauty team. Now, despite these wins, there were three main headwinds that impacted our results and we're actively addressing this one. First, product availability. At the Value Medical our ongoing restructuring led to some supply chain disruptions causing lower fulfillment rates and out stocks on certain key products. We have accelerated our supply chain transformation to fix this, consolidating third party logistic partners, redesigning our network and boosting our operational capabilities to drive better fulfillment, retail reliability, and long term growth.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Meal makeup also experienced stock out with demands for Hydro Grip Skin Gel tint, far outpacing expectations. We expect to be in a stronger inventory position by the end of Q2. Second, mid makeup's international performance faced a tough comparison to Q1 last year when the brand launched in several international markets. In addition, the international launch of Skin Tint of course later in The U. S.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

And therefore did not contribute meaningfully to the Q1 results. And third, as expected, we saw some adjustment in inventory levels at certain retail partners compared to Q1 last year. Overall, when we look at the fundamentals of our brand we remain optimistic about the road ahead and expect our net revenue growth to accelerate going forward. Now, our confidence is grounded in several key growth drivers. First, we continue to benefit from the introduction of breakthrough innovation fueled by a robust pipeline of category defining products that include both strengthening our core offerings and expanding into new categories.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Second, the expansion of our digital channels. Here we're seeing a strong momentum supported by continued progress in acquiring and retaining high value consumers that are incremental to our brands. Third, the continued growth in our retail footprint. These makeups launched at Ulta Beauty is off to a stronger start, which is allowing us to reach incremental consumers to the brand. And finally, we expect to significantly improve product availability by the end of the second quarter.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

While these growth drivers give us confidence, we remain mindful of the broader macroeconomic environment. We are expecting some pressure from softer consumer sentiment and spending, particularly if tariffs and other factors continue to impact the broader macroeconomic environment. When it comes to tariffs, the majority of the impact for us falls within our cost of goods. And we believe it is quite manageable. The good news is that over two thirds of our cost of goods originate right here in The US.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Thanks to the proactive work of our team over the past years, our exposure to China is now quite limited, representing only about 10 of our total cost of goods, mainly in packaging components. Taking this into account and assuming the current tariffs remain in place for the whole of 2025, including the latest news in China tariffs, we expect a low single digit percent increase in cost of goods sold for fiscal twenty twenty five. And that is already reflected in our guidance. That said, we're actively working to mitigate the impact of ties through three key actions. First, we're optimizing our supply chain flows to further reduce our exposure to China.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Second, we're preparing to implement selective pricing action likely in the low single digit range where needed. And third, we are deepening our collaboration with supplier partners to unlock additional efficiencies. So now let's take a look at our balance sheet position. At the end of the first quarter our cash position was $10,800,000 and we had an additional 22,500,000.0 available on our new revolving credit facility. Our net debt totaled $172,100,000 compared to $154,200,000 at the end of twenty twenty four.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

The increase coming primarily from the cost related to the refinancing of our debt that extended our maturity profile to March 2030. Cash consumption in Q1 reflects a low adjusted EBITDA and an increase in inventory levels in both brands to support expected sales growth in future quarters. Looking ahead to the full year, we expect a strong positive adjusted EBITDA to cash conversion, supported by disciplined working capital management and low capital expenditure. In addition, we're very pleased to report a substantial reduction in our non recurring legal cost. Based on our current forecast, we expect this cost to continue declining versus prior year.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

We had little changes in our share count and as of 04/30/2025 we had 123,000,000 shares outstanding. Now turning to our outlook, while we remain mindful of the broader microeconomic environment and assuming no further material change to current tariffs, we continue to believe that the successful execution of our growth strategy along with ongoing enhancement to our internal capabilities position us well to deliver on our full year guidance. We are targeting net revenue growth in the mid teens and at an adjusted EBITDA margin in the mid to high teens. The key drivers behind this expectation as mentioned earlier include the expansion of meal makeup across both brick and mortar and e commerce channels in The US. The improvement in fulfillment rates at Obagi Medical as we complete our operational initiatives.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

And the continued rollout of blockbuster innovation on both brands, along with growing returns from ongoing marketing investment, which are driving brand awareness, trial, and long term loyalty. And with that now, I will turn the call back over to Michel to take you through our brand accomplishments in more detail.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Thank you, Manuel. Now, let's look at our performance by brand starting with Milk Makeup. Our vision for Milk Makeup is to be the number one next generation beauty brand. It is already a cold beauty brand among Gen C, increasing millennials, and following to Gen Alpha. In recognition that the next generation see themselves under values represented in the brands they use, our brand mantra to lift your look is a celebration of individuality and self expression.

[Michel Brousset, Founder, CEO & Director at Waldencast]

It is not how consumers wear their makeup. It is what they do in it that matters. We have maintained a disciplined focus on three growth pillars. First, continue to launch market disrupting beauty innovation while expanding into high replenishment categories such as complexion. Second, expand our brand and community reach by broadening awareness through strategic brand partnerships, strengthening our core loyal Gen C audience and welcoming new audiences where our brand mantra, beauty point of view, and products resonate strongly such as millennials and Gen X.

[Michel Brousset, Founder, CEO & Director at Waldencast]

And third, broaden our footprint by expanding the brand's presence online and offline, both in The US and international. In March, makeup made us both enter us into a large and highly competitive complexion category with the launch of Hydro Grip's Gel Skin Tint. Building on the insight that most existing skin tins or tinted moisturizers don't last, thereby causing dissatisfaction with consumers. Milk Makeup launched the first gel skin tint that is longer for up to twelve hours. Rooted in the brand's cult favorite hydro franchise, the product is strategically positioned to attract new consumers in a category known for strong loyalty and high repurchase rate, particularly among millennials, a key incremental audience for the brand. This marks the first step in unlocking the complexion opportunity. The largest category in prestige makeup representing 47 of the face segment and a staple in consumers makeup. It is a critical category to win and position the brand to the next level. Resonating strongly with our community and beauty enthusiasts, it has become a viral success story, generating already $18,000,000 in earned media value and over 245,000,000 impressions since its launch in March.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Solting in a sold out launch shortly after release with an average one unit sold per minute in q one, and has already been recognized with a 2,025 Cosmopolitan Holy Grail Beauty Award winner for the best skin tint category and 2025 Well and Good Beauty Award for the best tinted moisturizer. Now, broadening our brand and community, I am excited to announce that Milk Makeup has partnered with the iconic Nike brand. This is the first step in our partnership is the Nike Dark Tour in Los Angeles, bringing sport and self expression together. The makeup partnership kicked off at Milt Studios in March and continues through race weekend in June, and there is much more to come. Also, our strong March launch in Ulta Beauty's top 600 productivity doors presents a compelling potential opportunity for future expansion.

[Michel Brousset, Founder, CEO & Director at Waldencast]

As all this broader footprint includes over 1,400 stores nationwide and 500 plus Ulta Beauty at target locations, reaching an incremental consumer that we're not previously capturing. We're very excited about the early results. And we're already achieving top rankings in the prime and set, lush, and skin tint categories. Now, moving to the world of high performance skincare with Obagi Medical. Our vision for Obagi Medical is to be the number one physician dispenser dermatological brand in the world.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Today, we are the leading U. S. Physician recommended brand for the top three skin concerns, pigmentation, fine lines and wrinkles, and sagging skin or loss of elasticity, which together account for two thirds of in office skincare sales. We are now very proud to be the fastest growing top 10 professional skincare brand in 2024 by a very low margin. Showing the potential and ability to still grow domestically as we expand internationally.

[Michel Brousset, Founder, CEO & Director at Waldencast]

We have maintained a disciplined focus on three strategic growth peers. First, drive cutting edge science backed innovation that delivers transformative results supported by market leading clinical data. Second, double down on our dermatological brand DNA, re anchoring in our medical heritage from modern lens with impactful clinical testing, acceleration of open development, and deeper physician partnerships. And lastly, growing brand awareness and expanding our footprint by increasing consumer recognition for Vagi Medical both domestically and internationally, fueling our physician center ecosystem. Our two blockbuster innovations, Elastiderm Lift Up and Sculpt facial moisturizer and Elastiderm Advanced Filler Concentrate compete in one of the top skincare segments within the physician channel, delivering visible clinically proven results.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Both have earned significant editorial recognition with a Lift Up and Sculpt facial moisturizer, a world of best moisturizer for fine lines by New Beauty in 2025. In Q1, we also expanded the Susan Obagi MD collection with two new products, including the super antioxidant serum and the moisture restore hydration replenishing cream. These clinically backed innovations are inspired by in office patient needs identified by Doctor. Susan Ovalle and designed to be incremental and complementary to existing portfolio. Looking ahead to Q2, we just launched the Retinal and DHA Refining Nitrate, a super exciting advanced dual action formula, clinically proven to deliver smoother, more even looking skin in just four weeks.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Designed for consumers with lower lead retinal tolerance, this high performance gentle product offers an effective alternative. As an incremental addition to a nighttime routine, it attracts a new consumer while expanding usage within our existing base. We showcase our dermatological brand DNA in two major physician center conferences, the American Academy of Dermatology Annual Meeting in The US and the INCAS World Congress in Paris. Today, these events welcome over 38,000 professional attendees, further strengthening our presence and leadership in the global medical aesthetic space as we continue to see convergence of health, beauty, and aesthetics worldwide. Driving our dermatological brand DNA is growing all of our channels, including the digital world of wagyu.com.

[Michel Brousset, Founder, CEO & Director at Waldencast]

This strategy has driven a 30% increase in homepage conversion following the implementation of updated brightening elements, whilst also broadening awareness directly with consumers with a Q1 year over year earning the value growth of 61%, building a flywheel to drive consumers to practices. To conclude, we're very pleased to share another quarter of a strong progress towards our ambition. With a strong visor ability for our brands globally and initiatives in place to accelerate our growth, we're confident in our ability to deliver our 2025 outlook and continue to drive sustainable, profitable growth well into the future. Let me share why. First, we begin with the operational scale to manage a multi brand platform with only two brands today and more to come into the future.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Second, we possess a highly talented team with an expertise in managing global beauty brands at scale with significant growth opportunities in both geographic and category expansion. In addition, our portfolio is balanced in structurally attractive segments of the beauty category. And all of these is supported by an asset light, agile, and efficient structure that unlocks speed at scale. And finally, management incentives that are strongly aligned to drive long term value creation. Now, with that, that concludes our prepared remarks.

[Michel Brousset, Founder, CEO & Director at Waldencast]

And let me now turn the call over to the operator to bring the question and answer portion of the call. Thank you.

[Operator]

Thank you. Ladies and gentlemen, we will now be conducting the question and answer session. You may press and then 2 to leave the question queue. We request that you limit yourselves to one question and one follow-up question. You are welcome to requeue for any additional questions.

[Operator]

For participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will pause a moment to assemble the question queue. Thank you. Our first question comes from Aaron Grey of Alliance Global Partners. Please go ahead.

[Analyst]

Good morning. This is John Chapman on for Aaron Grey. Thank you for the questions. So on Obagi, you referenced supply chain restructuring for Obagi in the PR. Could you expand upon that initiative and how you plan to improve operations?

[Analyst]

And does that also potentially allow for greater success from the innovation you alluded to given streamlined operations?

[Michel Brousset, Founder, CEO & Director at Waldencast]

Yeah. Of course. Thanks, Laurent. I really appreciate the question. So I think we are, as I indicated in the prepared remarks, I think there is part of we're just at the beginning of setting up what we think is a very successful and into the future platform.

[Michel Brousset, Founder, CEO & Director at Waldencast]

An area we have to work on and really strengthen is the flexibility of our responsiveness of our supply chain. I think we have, in the case of specific level value, we've dialed the cost of that supply chain quite well. I mean, given the gross margins that we have, but the reliability and speed of the supply chain is not where we want it to be. Meaning is lead times are quite long. It's relatively inflexible still, and does not allow us to respond to the increased levels of demand that we're generating through our marketing and selling activities.

[Michel Brousset, Founder, CEO & Director at Waldencast]

As a consequence, what we've done is with a streamline the flow of goods going from two steps on our warehousing capability to one step, which will make us more responsive and integrating that also with our online warehousing capability at the same time. And that transition is taking a little bit of time. And frankly, Q1 generated a little bit of disruption as we moved inventory from one place to the next. Now, on a go forward basis, what we believe is that will allow us to be, as you well pointed out, much more responsive in our ability to when demand peaks to respond to that demand, which in Q1, in the specific case of Hawaii, hurt us a bit. We were out of stock in three or four key items that dampen our growth.

[Operator]

Thank you. Our next question comes from Ashley Helgrens of Jefferies. Please go ahead.

[Sydney Wagner, Equity Research Senior Associate - Beauty & Personal Care at Jefferies]

Hi, this is Sydney on for Ashley. Just wondering, can you discuss a little more the slowdown you saw in the physician channel? Wondering if that's fewer visits to providers or maybe just seeing less basket add ons to appointments. Thank you.

[Michel Brousset, Founder, CEO & Director at Waldencast]

I don't believe we saw, per se, a slowdown in the physician channel. I think what is driving more the slowdown on the budget relative to prior years is more we don't have the tailwinds that we had on our Amazon business that we had last year. And Amazon last year, should remember we had a conversion of the model of Amazon into a new model. And we still are generating quite a bit of growth in Amazon in the high 20 low 20s to high 20s on a monthly basis. But that is less than what we're generating last year because we have a tailwind of this distributor conversion.

[Michel Brousset, Founder, CEO & Director at Waldencast]

So that's the main reason of the drive that's slow on Obagi. I don't necessarily believe we are seeing a slowdown in demand or visits from physician channel. Still we think the channel is robust. I think the channel is still substantial and we expect this to be a source of growth this year.

[Sydney Wagner, Equity Research Senior Associate - Beauty & Personal Care at Jefferies]

Great. Thank you.

[Operator]

Our next question comes from Jonah Kim of TD Cohen. Please go ahead.

[Jonna Kim, Director at TD Cowen]

Thank you, Michelle Emanuel for taking my question. Could you provide more color around the sell through trend versus sell in just on Obagi and milk? And also would love to hear your perspectives on how you're thinking about pricing strategy given the tariff dynamics and where the category is. Would love any additional color there. Thank you very much.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Well, thank you, Jonah. Thanks for the question. I'll start with milk, which is obviously where we have the biggest swing between sell out and sell in. As we indicated in the call, The U. S.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Retail sales or sell out was in the high single digits, was actually plus 9% with substantial acceleration month over month as we launched Skin Tint and Ulta came into line. So we have quite a big difference between linacillao that is mechanical in terms of how goods flow between Q4, Q1, what we have in the base and so on and so forth. We believe that the levels of inventory we have across our retail partners today across The U. S. And Europe are at a healthy level.

[Michel Brousset, Founder, CEO & Director at Waldencast]

And what we see is just simply a dynamic of timing of sell in, sell out and timing of initiatives. At a global level where we're seeing a bit more pressure from a retail sales standpoint is in two areas. One is in The EU for MIG, not our international business, but specifically in The EU where we're seeing more pressure both on the retail side as well as selling side as retailers, our main retail partners transition inventory and so on and so forth. And in The US, in our makemakeup.com as well as our online business at Sephora, kind of our digital channels, where we had last year, the Jellies launch had a disproportionate level of volume in our digital channels. So anniversarying that from a retail standpoint on Jellies, on digital channels in The US was a bit more complicated.

[Michel Brousset, Founder, CEO & Director at Waldencast]

So that is an unmet unmet between selling and sell through. In the case of Obagi, there's not a real there's no real differences between our send and send through, even our model is fundamentally a physician dispense model in which we book our net sales once we sell the product physicians on a sell through basis. And in the case and the rest of our business, large big chunk of our business are digital channels in which we there's no real substantial difference between selling and sell through. In terms of price increases, I mean, we're monitoring tariffs like everybody else is. It's been as it's been for everybody with a bit of instability and what exactly the direction is.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Even at the highest rates, even if for some reason we went back to the extremely high rates that we saw at the beginning of the announcements on tariffs, we believe that that is quite manageable given our relatively low exposure to China. And in the rest, we can manage physical flows and financial flows in a way that is quite moderate. In the worst case scenario, if we did nothing, which obviously we're not gonna not do anything, we can cover any large tariffs with a low to mid single price increase, which we are evaluating and monitoring depending on how tariff this whole tariff situation shakes up. So, we net on a tariff standpoint, we don't think it's at least material or non manageable, at least from what we understand at the moment.

[Jonna Kim, Director at TD Cowen]

Thank you very much.

[Operator]

Our next question comes from Susan Anderson of Canaccord. Please go ahead.

[Alec Legg, Vice President , Equity Research at Canaccord Genuity - Global Capital Markets]

Hi, good morning. Alec Lake on for Susan. Question on Ulta, the displays look really nice. I guess any early reads there? Are you bringing in a new customer base that may not up shop the brand at Sephora or online?

[Alec Legg, Vice President , Equity Research at Canaccord Genuity - Global Capital Markets]

And then I think in your presentation, you indicated door count increase. Are you getting more than the 600 doors at Ulta or maybe even to get a new retail partner for milk? Thank you.

[Michel Brousset, Founder, CEO & Director at Waldencast]

No. Thank you for the question. We are very pleased with the early results at Ulta. I mean, the we was this launch was very carefully crafted with our Ulta partners to try to deliver against two important objectives. The first one is incrementality to the brand.

[Michel Brousset, Founder, CEO & Director at Waldencast]

And as you know, we are in only 600 doors at Ulta, and these 600 doors were selected, with two objectives. One is incrementality, as I've said, and the second one is productivity. So we're in highly incremental, I. E. Distance to other Sephora.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Vocations, of course, is not perfect. Not all of them are distant to Sephora locations for most part. Incremental productivity, increment incrementality on the business, and then high productivity. As I said before, in the case of MIG, we we're having a very disciplined posture to our distribution expansion. One of the best ways to ruin a makeup brand is to expand distribution too fast and ahead of brand awareness and brand trial and consumer pool.

[Michel Brousset, Founder, CEO & Director at Waldencast]

So being very disciplined in the way we consider these solutions expansions. So we are today in those 600 doors. What we are highlighting and evaluating even the success is potential further expansion inside the ALTA network, or perhaps even within ALTA target, but this is just at this moment purely evaluating as we read the initial results of ALTA, which so far we're pleased with that outcome. We believe, again, it's quite incremental, quite productive. So we'll continue to monitor. Thanks.

[Alec Legg, Vice President , Equity Research at Canaccord Genuity - Global Capital Markets]

And then just a quick follow-up clarification question on the tariff impact. So you said low single digit increase in COGS. Is that before or after any potential action could be taken to minimize that? Thanks.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Yes, I'll get Manuel to answer that. Manuel, go ahead.

[Manuel Manfredi, Chief Financial Officer at Waldencast]

Thank you. That impact will be with the latest news on the China tariffs with 30%. And in any case, as we mentioned, our exposure to China is relatively low. It's around 10% of our cost of goods. So even if the studies were to go back to the 145%, the increase will still be not material for us.

[Operator]

Thank you. Our next question comes from Olivia Tong of Raymond James. Please go ahead.

[Lillian Moffett, Equity Research Associate at Raymond James]

Good morning. This is Lillian on for Olivia. So I just wanted to ask about SG and A. Can we expect that as you grow sales that you can keep SG and A as a percentage of sales flattish, or will it grow with sales? And just on that, you also discussed increasing investments in marketing.

[Lillian Moffett, Equity Research Associate at Raymond James]

Are you doing anything differently, and how are you thinking about allocating the additional spend? Thank you.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Yeah. Thank you. So SG and A, what we expect, and this is something that we've indicated and is an important part of our model is that while we are going to grow SG and A and absolute value to build our business, We expect this substantial operational leverage with G and A growing substantially high in sales. On our and there's two components to us, to G and A. I'm gonna talk specifically G and A, not SG and A.

[Michel Brousset, Founder, CEO & Director at Waldencast]

G and A is we have one at the brand level and the second one at the central level. And we are at the central level. We believe that the costs are going to be relatively flat year over year, even though we're building more and more capability in central costs, through cost savings in other areas of central costs. And we will continue to increase G and A to support particularly international expansion of our brands in at the brand level. But again, with these growth coming substantially behind sales, creating operational leverage.

[Michel Brousset, Founder, CEO & Director at Waldencast]

And I'm sorry, you had a second question that I missed.

[Lillian Moffett, Equity Research Associate at Raymond James]

Yeah. Just on increasing investments in marketing. You doing anything in the yeah.

[Michel Brousset, Founder, CEO & Director at Waldencast]

No. Of course. We we will forgive me. I will we will always continue.

[Michel Brousset, Founder, CEO & Director at Waldencast]

We said as part of our model as we drive growth and operational and gross margin efficiency, we expect to invest more and more in our brands, both in terms of dollars and percent of sales. In the case in terms of doing things different, probably the places where we you will see more difference on a going on a go forward basis in milk. Milk is now a brand that is reaching a certain level of critical mass in which we need and we expect to invest more in top of funnel and, top of funnel advertising to continue to reach more and more consumers and invite them into into a mini community. So we are evolving our model from what it was very originally on MYC, a very organic model to what has been most recently, a more user generated social influencer model and to that model in which all those things will be complemented with more top of funnel media that we'll be we're starting to deploy now and continue to deploy into the future. In the case of Ovali, we continue to increase our investment.

[Michel Brousset, Founder, CEO & Director at Waldencast]

And I think one fundamental shift we made on Ovali since we bought the brand is that beyond what historically the brand had done, which is advertised to professionals, to physicians, and so on and so forth. We are now, as you see, reaching out to consumers outside of medical practices to have them discover Obagi and come to physician practices asking for Obagi. And we're seeing that as a big driver of business, both in practices, as well as our digital channels. So there's still a lot of room for us to to go in terms of evolution of marketing and as the market changes evolves. But our priority is and will always be to continue to increase the investment into marketing and in our brands, which are ultimately the sources of long term competitive advantage for the company.

[Operator]

Thank you, sir. Ladies and gentlemen, we have reached the end of the question and answer session. I will now hand you back to Mike Michel for closing remarks. Thank you.

[Michel Brousset, Founder, CEO & Director at Waldencast]

Thank you very much for everybody attending the call. We are, as you may have gathered, Q1 was a quarter that had its challenges, anticipated challenges for the most part, but we remain very confident in our ability to deliver a full year outlook. And we're more excited than ever about the prospects of our brand, the strengths of our brand, the programs we're having on both milk and Obagi. So we are, I believe very well set up for creating long term value creation for our shareholders. Thank you very much.

[Operator]

Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your lines.

Participants

Executives

• Michel Brousset, Founder, CEO & Director
• Manuel Manfredi, Chief Financial Officer

Analysts

• Allison Malkin, Partner at ICR
• Analyst
• Sydney Wagner, Equity Research Senior Associate - Beauty & Personal Care at Jefferies
• Jonna Kim, Director at TD Cowen
• Alec Legg, Vice President , Equity Research at Canaccord Genuity - Global Capital Markets
• Lillian Moffett, Equity Research Associate at Raymond James