Shares in hair care products company Olaplex (NASDAQ:OLPX) dropped more than 40% in pre-market trading today after the company cut sales projections. A press release estimates 2022 sales of $704 million to $711 million, and adjusted net income of $303 million to $307 million. Estimates released with its August quarter earnings were for sales of $796 million to $826 million. The biggest fall is in the specialty retail channel, with overall sales estimates falling 19%.
OLPX stock was trading at $5.40 each pre-market with a market capitalization of $3.5 billion. The stock closed Oct. 18 at $9.79 with a market cap of $6.35 billion. Olaplex went public in September 2021 at $21 per share.
A Hairy Ride
While analysts were still touting Olaplex as recently as Oct. 2, investors should have been suspicious when its products were discounted as much as 30% through Amazon (NASDAQ:AMZN) in mid-month.
Eric Pressly, a co-founder of Olaplex who produced some of the first batches of the product in his garage, has also introduced his own line called Epres.
Olaplex was launched in 2014 and quickly became a favorite of celebrities, who said it let them bleach their hair without risking breakage. The company introduced home care products in 2018. CEO JuE Wong said recently no other products can claim to be “bond building” without infringing on its patents.
The company’s marketing makes heavy use of word of mouth and social media videos. This has proven a double-edged sword; videos claimed early this year an ingredient used for its smell, called lilial, was linked to infertility and banned by the European Union. The company promptly reformulated the product and destroyed $4.3 million in inventory.
What Happens Now for OLPX Stock?
In the wake of the press release, Raymond James downgraded OLPX stock to “market perform.”
But the story could be bigger. If consumers are cutting back on luxury beauty products and treatments, it could be early proof that the long-predicted recession is here.
On the date of publication, Dana Blankenhorn held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.