Olaplex sales plunge as the trendy hair care brand faces growing competition and a lawsuit

• Olaplex's fourth-quarter sales fell nearly 22%, and the company expects the declines to continue into 2023.
• CEO JuE Wong said greater competition and "negative PR" hit the brand.

Shares of direct-to-consumer brand Olaplex fell Tuesday after the company reported a quarterly sales decline and a worse-than-expected outlook for 2023.

Net sales at the hair care brand fell nearly 22% to $130.7 million during the fourth quarter of 2022. The decline occurred across online sales directly to consumers, sales through stylists, as well as at retailers. Adjusted net income was down 32% for the quarter.

The company projects the declines to continue into 2023. Olaplex expects its sales to drop 15% for the year and adjusted net income to tumble 36%.

Shares of Olaplex were down nearly 20% as the stock market opened on Tuesday, before regaining some ground. The company's stock is down 76% since its September 2021 IPO.

Olaplex faced competition from new bond-building hair care brands during the quarter, CEO JuE Wong said during the company's earnings call on Tuesday. "We see the need to reset and stabilize our core business with a long-term view," Wong said, adding that the results were disappointing.

Wong pointed to several areas that she said Olaplex needs to improve its strategy, including combatting "negative PR and misinformation" about the brand.

Olaplex is defending itself against a lawsuit that claims its products have damaged users' hair. Several Olaplex customers told Insider that their hair broke or fell out after they started using Olaplex.

In response, Olaplex has posted test results showing that its products are safe to use. "To anyone experiencing hair loss and hair breakage, we understand the emotional toll it has," Wong said during the company's earnings call.

"However, Olaplex products do not cause hair loss or breakage," she added.

Consumers are visiting the salon less frequently, hurting Olaplex's sales

Meanwhile, the company is facing another challenge: Salons and retailers are ordering fewer products from Olaplex as customer spending habits change.

Consumers are spending less on hair care at salons, for example, Wong said during the company's earnings call. "We are seeing U.S. professional stylists buying less and buying closer to need as they report clients lengthening the time between salon visits," Wong said.

"Consumers have been price sensitive," Wong said later, adding that "certain Pro and Specialty Retail customers have lowered inventory levels to adjust to those trends while global supply chain constraints have eased."

In response, Olaplex is focusing on promoting its No. 3 Hair Perfector as its "hero product."

The theory is that customers will buy Olaplex's other products if they try the flagship product, which contains its patented bond-building technology, Wong said.