Skincare company BeautyHealth (NASDAQ:SKIN) reported Q4 CY2024 results exceeding the market’s revenue expectations , but sales fell by 13.7% year on year to $83.5 million. On the other hand, next quarter’s revenue guidance of $63.5 million was less impressive, coming in 16.6% below analysts’ estimates. Its GAAP loss of $0.08 per share was 30% above analysts’ consensus estimates.
Is now the time to buy BeautyHealth? Find out in our full research report.
Revenue: $83.5 million vs analyst estimates of $77.28 million (13.7% year-on-year decline, 8% beat)
EPS (GAAP): -$0.08 vs analyst estimates of -$0.11 (30% beat)
Adjusted EBITDA: $9 million vs analyst estimates of -$2.08 million (10.8% margin, significant beat)
Management’s revenue guidance for the upcoming financial year 2025 is $285 million at the midpoint, missing analyst estimates by 14.3% and implying -14.7% growth (vs -15.3% in FY2024)
EBITDA guidance for the upcoming financial year 2025 is $17.5 million at the midpoint, above analyst estimates of $15.04 million
Operating Margin: -8.6%, up from -19% in the same quarter last year
Free Cash Flow was $16.4 million, up from -$7.34 million in the same quarter last year
Market Capitalization: $168.8 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.
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.
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.
With $334.3 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. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.
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As you can see below, BeautyHealth’s 8.7% annualized revenue growth over the last three years was decent. This shows its offerings generated slightly more demand than the average consumer staples company, a useful starting point for our analysis.
BeautyHealth Quarterly Revenue
This quarter, BeautyHealth’s revenue fell by 13.7% year on year to $83.5 million but beat Wall Street’s estimates by 8%. Company management is currently guiding for a 22% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 1.1% over the next 12 months, a deceleration versus the last three years. This projection doesn’t excite us and indicates its products will face some demand challenges.
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Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
BeautyHealth has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.6%, subpar for a consumer staples business.
Taking a step back, we can see that BeautyHealth failed to improve its margin over the last year. Its unexciting margin and trend likely have shareholders hoping for a change.
BeautyHealth’s free cash flow clocked in at $16.4 million in Q4, equivalent to a 19.6% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.
We were impressed by how significantly BeautyHealth blew past analysts’ EPS and EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year revenue guidance missed significantly. Overall, this quarter was mixed but still had some key positives. The market seemed to focus on the negatives, and the stock traded down 2.9% to $1.38 immediately following the results.
So should you invest in BeautyHealth right now? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
