Waldencast (WALD) Q1 2025: Milk Makeup US Retail Climbs 9% Despite 15% Brand Revenue Drop
Waldencast’s Q1 revealed a sharp split between domestic and international performance, with Milk Makeup’s US retail sell-through up 9% while total brand revenue fell 15% due to tough comparisons and inventory shifts abroad. Obagi Medical posted growth despite supply chain friction, and both brands saw digital gains and innovation traction. Management’s confidence in mid-teens annual growth rests on supply chain fixes, new distribution, and further marketing investment, but near-term volatility in tariffs and inventory remains a watchpoint.
Summary
- US Retail Outperformance: Milk Makeup’s domestic sales outpaced category trends even as global revenues contracted.
- Supply Chain and Inventory Hurdles: Obagi Medical’s growth was hampered by out-of-stocks, with both brands facing inventory timing headwinds.
- Platform Expansion Focus: Management signals readiness to scale with disciplined channel growth and new marketing models.
Performance Analysis
Waldencast’s Q1 headline was a revenue dip of 4.1% year over year, with net sales at $65.4 million. The top-line softness was driven by a 15.1% decline at Milk Makeup, offset by a 7.1% gain at Obagi Medical. Yet, beneath the surface, the US retail channel for Milk Makeup grew at a high single-digit pace, outperforming a slowing prestige beauty market and demonstrating the brand’s resonance with Gen Z and Millennials. International drag came from lapping last year’s distribution expansions and delayed product launches, compounded by inventory reductions at retail partners. Obagi Medical’s growth was constrained by supply chain restructuring that led to key out-of-stocks, but digital and professional channels remained robust.
Margin performance held up: consolidated adjusted gross margin was 76.4%, up modestly year over year, while EBITDA margin landed at 6.7% as the company continued to invest in sales drivers and marketing. Milk Makeup’s margin was pressured by Ulta launch costs, but the brand maintained a healthy 14.9% EBITDA margin. Obagi Medical delivered 16.3% EBITDA margin despite higher supply chain costs and elevated marketing spend. Cash consumption ticked up due to inventory build and refinancing, but management expects improved cash conversion as supply chain and working capital stabilize.
- Channel Divergence: US retail sell-through for Milk Makeup rose 9% while global sell-in fell, highlighting inventory and timing effects.
- Innovation Drives Sell-Out: HydroGrip Gel Skin Tint’s viral launch generated $18 million in earned media and drove rapid sell-outs.
- Obagi Medical Out-of-Stocks: Supply chain transition limited revenue upside, but digital and physician channels remained resilient.
Underlying demand signals remain positive, but inventory and supply chain volatility will be critical to watch in coming quarters as Waldencast pursues its growth targets.
Executive Commentary
"We're building a unique and 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 brand's footprints so we can reach more and more consumers around the world."
Michelle Broussette, Founder and Chief Executive Officer
"The quarters saw us build significant positive momentum across both brands that we believe position us for accelerated growth going forward... 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... Second, the expansion of our digital channels... Third, the continued growth in our retail footprint... And finally, we expect to significantly improve product availability by the end of the second quarter."
Manuel Manfredi, Chief Financial Officer
Strategic Positioning
1. Milk Makeup: Channel Discipline and Viral Product Innovation
Milk Makeup’s US channel discipline is central to its strategy, with a measured expansion into 600 Ulta Beauty stores selected for incrementality and productivity. Management is resisting the temptation to overextend distribution, prioritizing brand equity and consumer pull over rapid footprint growth. The HydroGrip Gel Skin Tint launch, rooted in the brand’s “Hydro” franchise, targeted the high-replenishment complexion category and achieved viral status, signaling the brand’s ability to drive both trial and loyalty in a competitive segment.
2. Obagi Medical: Supply Chain Overhaul and Physician Channel Strength
Obagi Medical is executing a supply chain transformation, consolidating third-party logistics and optimizing its distribution network to address inflexibility and long lead times. While this transition led to Q1 out-of-stocks and muted growth, management expects improved fulfillment and responsiveness to unlock further gains, especially as the brand doubles down on physician partnerships and science-backed innovation. Digital channel conversion and earned media value are up sharply, supporting a flywheel effect that drives patients to practices.
3. Platform Model and Brand Acquisition Readiness
Waldencast positions itself as a pure-play beauty platform, emphasizing its ability to acquire, incubate, and scale brands across prestige and professional beauty. The company’s asset-light, agile structure and central cost discipline are designed to create operational leverage as it adds brands and expands internationally. Management’s long-term incentive alignment and focus on operational scalability signal readiness for further M&A or organic brand launches.
4. Marketing Evolution and Consumer Community Building
Marketing investments are shifting from organic and influencer-led to top-of-funnel awareness campaigns, particularly for Milk Makeup as it reaches critical mass. Obagi Medical is also expanding consumer-facing marketing beyond the physician channel, aiming to drive patient demand into practices and digital channels. These changes are intended to broaden reach and deepen brand loyalty as competition intensifies.
Key Considerations
This quarter’s results reflect both the promise and the growing pains of a platform beauty model in transition. Investors must weigh the durability of domestic demand against the risks of execution in supply chain and inventory management.
Key Considerations:
- Channel Strategy Restraint: Milk Makeup’s measured Ulta rollout demonstrates a commitment to incremental growth over sheer scale, reducing the risk of brand dilution.
- Supply Chain as a Bottleneck: Both brands’ growth was limited by inventory and fulfillment constraints, but management is prioritizing agility and reliability enhancements.
- Tariff Impact Limited, but Not Zero: Exposure to China is now just 10% of cost of goods, but tariff-driven COGS increases are being managed through supply chain shifts and potential low single-digit pricing actions.
- Marketing Model Shift: Higher investment in top-of-funnel and consumer marketing is expected to drive awareness and trial, but will require careful measurement of ROI as spend rises.
- Balance Sheet Flexibility: $22.5 million in revolving credit and extended debt maturities provide some breathing room, but net debt has increased and cash conversion will be closely watched.
Risks
Key risks include continued supply chain disruption, particularly if inventory normalization or fulfillment improvements take longer than expected. Tariff volatility and macroeconomic headwinds could pressure margins and consumer demand. Additionally, overexpansion or misjudged marketing spend could erode brand equity or dilute returns if not tightly managed.
Forward Outlook
For Q2 and the full year, Waldencast guided to:
- Mid-teens net revenue growth
- Adjusted EBITDA margin in the mid to high teens
Management highlighted several factors that underpin this outlook:
- Improved product availability as supply chain upgrades are completed
- Continued expansion at Ulta and in digital channels
- Rollout of new blockbuster innovations and increased marketing returns
Takeaways
Waldencast’s Q1 signals that underlying brand strength can power through macro and operational headwinds, but execution on supply chain and inventory will dictate the pace of recovery and growth.
- Domestic Demand Holds: Milk Makeup’s US retail momentum and Obagi Medical’s digital growth provide a foundation for reacceleration as inventory stabilizes.
- Supply Chain Execution Is Critical: The pace of fulfillment improvements will determine whether the company can capture pent-up demand and deliver on its mid-teens growth target.
- Marketing and Distribution Levers: Success in evolving marketing models and disciplined channel expansion will be key watchpoints for sustainable share gains.
Conclusion
Waldencast is navigating a period of operational reset, with strong brand equity offset by short-term supply chain and inventory friction. If management delivers on its supply chain promises and leverages disciplined marketing and channel expansion, the business is well positioned for profitable growth, but near-term volatility remains a risk.
Industry Read-Through
Waldencast’s quarter underscores the importance of supply chain agility and channel discipline in prestige beauty, especially as macro and inventory normalization pressures persist. Brands that balance innovation with operational execution and measured distribution expansion are best positioned to outperform in a market where consumer demand is shifting and retailer inventory strategies are more conservative. Tariff mitigation and marketing model evolution are likely to be recurring themes across the beauty sector in 2025.