Shares of Beauty Health Co. (SKIN) began August 9 plummeting nearly 30% to a new low of $0.91 after releasing disappointing quarterly results. Q2 net sales dropped 22.9% year-over-year to $90.6 million, missing both the consensus estimate of $98.5 million and the low end of its own $96-102 million guidance. Adjusted EBITDA was a loss of $5.2 million, a significant decline from the $12.4 million gain in the prior-year quarter, and far below the expected $6.2 million profit. Worse, SKIN’s Q3 outlook for $70-80 million in net sales and an adjusted EBITDA loss of $1-6 million falls well short of consensus estimates of $100.4 million and a positive $13.8 million. The company also slashed its full-year guidance and is now projecting net sales of $325-345 million, down from its prior view of at least $398 million, and an adjusted EBITDA loss of $0-10 million, a stark contrast to the $40 million gain it had forecast just three months ago.

Despite SKIN’s ongoing struggles, the market reaction seems overly punitive. While the slower-than-expected recovery in device sales—which has been driven by provider caution amid macroeconomic uncertainty and tight credit conditions—is concerning, it’s important to note that SKIN incurred $17 million in unanticipated inventory-related write-offs last quarter. Excluding this, adjusted EBITDA would have been positive and well above the company’s guidance for $4-7 million, supported by steady growth in consumables sales and successful cost management. This is also evidenced by its much better performance on a cash basis, with SKIN able to generate positive free cash flow of $4.2 million in Q2.

To combat the softness in equipment sales, SKIN has implemented several strategic actions aimed at turning the business around. In particular, the company has broadened its product offerings by reintroducing the more affordable Elite and Allegro models alongside the higher-priced Syndeo system, which I expect to allow it to better cater to smaller providers who are sensitive to pricing and financing constraints. Additionally, SKIN has engaged an external consulting firm to help restructure its sales strategy, focusing on improving lead targeting, segmentation, and pipeline forecasting. The company is also enhancing its financing options to lower the upfront costs for new and smaller providers, making it easier for them to invest in Hydrafacial systems.

Although these initiatives, along with ongoing investments in supply chain management and controls, may weigh on near-term results, they are expected to drive improved performance in the coming quarters. That’s why even the low end of the company’s revised forecast suggests a return to at least a breakeven adjusted EBITDA performance in Q4, whereas the high end even leaves the door open for profitable year-over-year sales growth to finish the year. Thus, I’m not surprised to see the stock quickly bouncing more than 20% off its initial low and believe the potential for a much greater recovery remains.

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