0001600033-25-000040
SEC filingRevenue grew 9% driven by volume, but gross margin fell 215 bps due to tariffs; net income declined 30%.
For the three months ended June 30, 2025, net sales increased 9% to $353.7 million compared to $324.5 million in the prior year quarter. The growth was driven entirely by higher unit volume, with retailer channels contributing $20.4 million (8% increase) and e-commerce channels adding $8.9 million (17% increase). Gross profit rose 6% to $244.5 million, but gross margin contracted by approximately 215 basis points to 69.1% from 71.3%. The margin decline was primarily attributed to tariffs on Chinese imports, partially offset by favorable foreign exchange impacts, cost savings, and product mix. Selling, general and administrative expenses increased 8% to $195.8 million, but as a percentage of net sales decreased from 56% to 55% due to higher sales leverage. Operating income decreased 4% to $48.7 million, and operating margin fell from 15.6% to 13.8%. Net income dropped 30% to $33.3 million, largely due to a $17.8 million income tax provision (34.8% effective rate) compared to a $0.3 million benefit in the prior year, driven by lower discrete tax benefits and higher pre-tax income.
The MD&A does not provide a segment-level breakdown of results. The company operates as a single reportable segment, with all revenue generated from beauty and skincare products sold through retailer and e-commerce channels.
Management highlighted ongoing tariff risks, noting that the majority of products are sourced from China and subject to a 25% tariff since May 2019, with additional tariffs announced in March and April 2025. To mitigate exposure, the company raised prices globally effective August 1, 2025, and is exploring shifting production outside China. On August 5, 2025, subsequent to quarter end, the company completed the acquisition of rhode for $800 million ($600 million cash and $200 million stock), financed through a $600 million incremental term loan and existing cash. The company's liquidity position remains strong with $170.0 million in cash and $243.3 million available under its revolving credit facility as of June 30, 2025. No specific forward guidance was provided in the MD&A.
Operating cash flow of $27.2M was below net income of $33.3M, indicating a use of cash from working capital. Accounts receivable increased by $46.2M and prepaid expenses rose $16.3M, partially offset by a $18.7M inventory reduction. In the prior year, operating cash flow was only $1.3M despite net income of $47.6M, due to even larger working capital outflows (AR +$31.8M, prepaids +$30.5M). CapEx increased sharply from $0.8M to $7.1M, reflecting growth investments. No share repurchases or dividends were paid. Financing cash flow was minimal ($0.1M from stock issuance). The company generated negative free cash flow (CFO - CapEx = $20.1M) but this is not explicitly stated. The high YoY growth in CFO is partly a recovery from an unusually low base.