Warpaint London Sees Revenue Climb But Cuts Full Year Outlook Amidst Headwinds

Warpaint London, the beauty specialist behind popular colour cosmetics brands like W7, Technic, Super Facialist, and the recently acquired Brand Architekts portfolio, has presented its first-half figures for the period ending June. While initial glances revealed a revenue increase, the market reacted with caution, seeing the company's shares drop over 20% at one point as it revised its full-year guidance downwards due to emerging business headwinds. Investors carefully analysed the numbers, which indicated that much of the reported sales growth was attributable to the newly acquired Brand Architekts business, suggesting a less robust organic performance.

For the six months to the end of June, Warpaint London reported an 8% increase in revenue, reaching £49.3 million. However, this figure fell short of its earlier forecast, which had projected sales between £50 million and £52 million. Positively, the gross profit margin saw an improvement, rising from 42.5% to 45%. Despite this, adjusted EBITDA experienced a 5% decline, settling at £10.8 million, and profit before tax saw a significant drop of 41%, coming in at £6.4 million.

The substantial decrease in profit before tax was largely influenced by several non-operational factors. These included £4.6 million of non-cash losses on foreign exchange forward contracts, of which £2.7 million were unrealised as of June 30. Additionally, a £3.9 million gain was recognised from the "bargain purchase" (negative goodwill) of Brand Architekts, partially offset by £1.3 million of exceptional costs associated with the acquisition, which was completed in February. The reported increase in gross profit, however, was attributed to successful new product launches, strategic sourcing initiatives, and volume-related savings.

The acquisition of Brand Architekts played a pivotal role in the group's performance during the period. The acquired business contributed £6.1 million in sales, accounting for 12% of the overall group revenue. This contribution was instrumental in driving UK revenue up by 15.9% to £18 million, while international revenue saw a more modest increase of 3.2% to £31.3 million. Warpaint London noted that it is already leveraging the Brand Architekts acquisition by expanding its brands into a number of existing group customers, highlighting the synergy benefits. However, it was also acknowledged that without the sales boost from the acquired brands, the group's overall sales performance would have been lower than in the previous year.

Operational highlights for the first half included the successful implementation of inflationary price increases across all customer accounts, with the full impact of these changes expected to be more pronounced in the second half of the year. Sales in the Rest of World category saw impressive growth, soaring by 144% to £3.6 million, significantly boosted by the launch of an expanded product range with a key Australian customer. Direct online sales also experienced robust growth, climbing 48% to £3.4 million, representing 6.8% of total group sales, with £1.3 million of this figure derived from Brand Architekts brands.

Looking ahead, Warpaint London has secured significant store rollouts planned for the second half of the year across various key markets. In the UK, Superdrug began rolling out W7 products into 140 new stores in June, a process that is still ongoing. Tesco is set to expand the group's W7 impulse offering into 150 stores. Furthermore, Boots will introduce a gifting offering into 350 stores for Christmas, alongside an expansion of accessories into an additional 250 stores. In Europe, Tigota in Italy is launching a range of products in 200 stores, with a capsule collection appearing in a further 400. Etos in the Netherlands is also expected to expand its product assortment in all 546 stores with a permanent fixture and an enhanced range in selected locations. The US market will see an expansion of the W7 range into an additional 399 CVS stores, which commenced in August. Group sales for the eight months to August 31 reached £67 million, up from £63.5 million a year ago, with Brand Architekts contributing £7.7 million to this figure.

Despite these growth initiatives, the business faces notable challenges. A significant hurdle arose from the administration filing of UK-based Bodycare chain, a long-term customer for the group's Technic products. Amounts due from Bodycare at the end of the first half, totalling £0.5 million, have been fully provided for. However, an additional £0.3 million is due from trading after the period end, and the future revenue prospects from this customer are understandably uncertain. Compounding these issues are an increasingly weak UK consumer environment and an uncertain US market, particularly in light of recent tariff disruptions.

As a result of these factors, the board has revised its financial guidance for the full year 2025. The company now expects to achieve revenues between £107 million and £112 million, and adjusted EBITDA in the range of £23.5 million to £25.5 million. This updated outlook reflects the impact of the challenges and the adjustments needed to navigate the current market conditions.