e.l.f. Beauty Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 20 speakers on the call.

Operator

Thank you for joining us today to discuss e. L. F. Beauty's Q1 fiscal 'twenty four results. I'm Casey Catton, Vice President of Corporate Development and Investor Relations.

Operator

With me today are Tarang Amin, Chairman and Chief Executive Officer and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com. Since many of our remarks today contain forward looking statements, please refer to our earnings release and reports filed with the SEC where you will find factors that could cause actual results to differ materially from these forward looking statements. President. In addition, the company's presentation today includes information presented on a non GAAP basis.

Operator

Our earnings release contains reconciliations of the differences test between the non GAAP presentation and the most directly comparable GAAP measure. With that, let me turn the webcast over to Tarang.

Speaker 1

President. Thank you, Casey, and good afternoon, everyone. Today, we will discuss the drivers of our Q1 results President and CEO of the Company. I want to start by recognizing the e. L.

Speaker 1

F. Beauty team. President. We're off to an incredibly strong start this fiscal year, delivering Q1 results well ahead of expectations. Q1 marked our 18th consecutive quarter of net sales growth, putting e.

Speaker 1

L. F. Beauty in a select group of consistent High Growth Consumer Companies. We are one of only 5 public consumer companies out of 274 total In Q1, we grew net sales by 76%, increased gross margin by 280 basis points, President and delivered $74,000,000 in adjusted EBITDA, up 135%. Last quarter, We spoke about the 3 areas with significant runway for growth, in color cosmetics, skincare and internationally.

Speaker 1

President. Let me update you on our progress in Q1. In color cosmetics, we continue to outperform category trends. In Q1, e. L.

Speaker 1

F. Grew 48% in tracked channels, well above category growth of 6%. We increased our market share by 260 basis points. Out of nearly 800 cosmetics brands tracked by Nielsen, e. L.

Speaker 1

F. Is the only brand to gain share for 18 consecutive quarters. As great as the share growth has been, We see an opportunity to double our market share over the next few years. Nationally, e. L.

Speaker 1

F. Is the number 3 brand today President of the United States. In Target, our longest standing national retail customer, We are already the number one brand with nearly 18% share. We are focused on replicating our success at Target across other key retailers. In skincare, we also continue to outperform the category.

Speaker 1

In Q1, e. L. F. Skin grew 127% in tracked channels, well above category growth of 10% and was the fastest growing among the top 20 Skincare Brands. We grew our market share by 75 basis points.

Speaker 1

E. L. F. Skin is the number 14 brand today President of the United States. We are now in the midst of a significant runway with the number one brand holding over 15% share.

Speaker 1

Looking outside the U. S, we grew our international net sales 79% in Q1, fueled by strength in both the U. K. And Canada. E.

Speaker 1

L. F. Outpaced category growth by nearly 10x in the U. K. And by over 3x in Canada, fueling market share gains in each.

Speaker 1

E. L. F. Is the number 6 brand in each of these markets with about a 5% share as compared to the number one brand, which has over 17% share. We continue to build our international team as we aim to expand our brands globally.

Speaker 1

Across categories and geographies, The 3 fundamental drivers of our business remain the same. Our value proposition, powerhouse innovation and disruptive marketing engine. Let me walk through how each underpinned our strength in Q1. President. First, we're known for our value proposition.

Speaker 1

We make the best of beauty accessible to every eye, lip, Face and Skin Concern. We have a unique ability to deliver holy grail products, taking inspiration from our community and the best products in prestige And bringing them to market, delivering high quality at an extraordinary value. The average price point for e. L. F.

Speaker 1

Is a little over $6 today as compared to over $9 for the legacy mass cosmetics brands And over $20 for Prestige Brands. Unlike these higher priced brands, our pricing strategy focuses on everyday value President of broad based promotions. We believe our value proposition creates accessibility in the category, allowing more consumers to enjoy the best of beauty. The second driver of our performance is our powerhouse innovation. E.

Speaker 1

L. F. Has a number 1 or 2 position across Steen segments of color cosmetics, which collectively make up over 75% of e. L. F.

Speaker 1

Cosmetics sales. President. We delivered the strongest sales growth and share gains in these segments in Q1. Our innovation approach is to build growing product franchises Instead of 1 and done launches, our 4 largest franchises Camo, Putty, Halo Go and Power Grip have grown year after year. As we launch new innovation within each, the entire franchise has grown.

Speaker 1

President. In Q1, we continue to fuel the putty franchise with the launch of our liquid poreless putty primer, priced at an incredible value of $10 compared to a prestige item at $54

Speaker 2

This is the liquid poreless putty primer from e. L. F. This has been the key to keeping my makeup on all summer while still looking glowy. It gives the most silky glass looking skin finish.

Speaker 2

It's incredible.

Speaker 1

We also launched our Putty Color Correcting Eye Brightener, extending the Putty franchise into the eye category for the first time. We're using this approach to disrupt the skincare category as well. Our latest Suntouchable franchise is a great example. In January, we launched Suntouchable Woah Glow SPF 30. Priced at an incredible value of $14 compared to the Prestige item At $38 wool Glow quickly rose to one of our best selling skincare SKUs.

Speaker 1

We expanded the Suntouchable franchise further in Q1 with the launch of our Invisible Sunscreen SPF 35

Speaker 3

That's not greasy. Great, because this Suntouchable Invisible Sunscreen SPF 35 is only $14 Let me show you guys how awesome it is. It's an invisible sunscreen and when you rub it in, it kind Pass has velvety soft feel to it. Can you see that? It really reminds me of the popular high end sunscreens out there.

Speaker 3

This one also doubles as a makeup primer too. So it blends beautifully under my base makeup.

Speaker 4

What do

Speaker 5

you think?

Speaker 3

Worth a try? I personally love these and I think they're so worth the money. If you want to try the sunscreen out, visit the link in my bio to get your hands on some before it sells out.

Speaker 1

We're excited by how our community is responding with the Suntouchable franchise quickly rising to our skincare bestsellers. The third driver of our performance is our ability to attract and engage consumers with our disruptive marketing engine. We continue to generate buzzworthy moments for our community and reach new audiences with our collaborations. In June, we launched limited edition collaboration with beauty content creator, Mikaela Nagira, in honor of her wedding. With over 17,000,000 followers across our social platforms, Makela has been named one of the top beauty influencers.

Speaker 1

Our limited edition Lip Duo collaboration sold out in 18 minutes on elfcosmetics.com, our fastest ever sell out of a collection. We also saw our highest ever spike in site traffic during the launch hour and nearly 75% of purchasers are new to e. L. F, Our highest new purchaser rate on an innovation product in the last 2 years. This quarter, we lean further into entertainment and short Form Digital Content with the release of 2 new series across our social channels, Makeup Over Makeup and Vanity Table Talk.

Speaker 1

The first episode of Vanity Table Dock featured cultural icon and award winning actress, Jennifer Coolidge, Who inspired the series with her comedic quips while filming our chart topping commercial for the big game earlier this year.

Speaker 6

This is a beautiful lipstick. I really love this one. This one is called dirty talk. I would come up with a shade very similar to this, a little bit lighter, and I'd call it dirty pillows. People always think they need to name a lipstick, you know, like a noun, a noun.

Speaker 6

But I think just adjectives like swollen.

Speaker 1

We at celebrity media buzzing and viewers captivated, Collectively earning over 20,000,000,000 impressions from our 2 new digital content series. I'm proud how we continue to lead with purpose as we strive to create a different kind of beauty company. We recently launched a new purpose driven series named Show Yourself, featuring role models who have overcome adversity to bring more positivity, Inclusivity and Accessibility to the World. The series kicked off with Anastasia Pagonis, a 19 year old blind Paralympic swimmer and world record holder who proves that anything is elfin possible even in the face of the toughest obstacles. To support Anastasia's hope to help lift others, we donated to one of her favorite organizations, The Hidden Opponent, a non profit that raises awareness for student athlete mental health.

Speaker 1

This is part of e. L. F. Beauty's commitment to donate annually 2% of our prior year profits to drive positive impact in our communities. Before I turn the call over to Mandy, I want to spend a moment to talk about our competitive moat.

Speaker 1

While beauty is a category of comparatively low barriers of Entry. Very few brands have been able to scale. For context, of over 1800 cosmetics and skincare brands tracked by Nielsen. Only 58 have surpassed $25,000,000 in annual retail sales President of the U. S.

Speaker 1

And only 28 are greater than $100,000,000 e. L. F. Has been one of the few brands able to scale Through the areas of advantage we bring to the table. With e.

Speaker 1

L. F, consumers can have premium quality beauty products Clean and Fairtrade certified. These superpowers are underpinned by several other areas of competitive advantage. Our supply chain offers the best combination of cost, quality and speed in our industry and is well integrated with our innovation engine to launch franchise building holy grails. Our engagement model gives us the ability to activate millions of consumers against this innovation.

Speaker 1

And perhaps most importantly, we have a talented high performance team and culture. While other beauty brands can try to replicate some of these, we believe the unique combination of our areas of advantage form our competitive moat And fuel our ability to win in fiscal 2024 and beyond. I'll now turn the call over to Mandy.

Speaker 7

Thank you, Tarang. I'm pleased to share the highlights of our Q1 results as well as our raised outlook for fiscal 'twenty four. President. Our Q1 results were outstanding. Q1 net sales grew 76% year over year, driven by broad based strength President of the U.

Speaker 7

S. Retailers as well as Digital Commerce. Higher unit volume President of the Company. Contributed approximately 56 percentage points to net sales growth with mix adding approximately 20 percentage points to growth. President.

Speaker 7

We saw better than expected unit velocities in Q1, supported by robust consumer response to both our spring innovation and core products. Shipments exceeded consumption this quarter as we started to recover on some out of stock items. President. Our digitally led strategy continues to serve us well. Q1 digital consumption trends were up triple digits year over year.

Speaker 7

Digital channels drove 18% of our total consumption in Q1 as compared to 14% a year ago. We see opportunity to increase our digital penetration, particularly as we further enhance our Beauty Squad loyalty program. Beauty Squad now has over 3,900,000 members with enrollment growing over 25% year over year. Our loyalty members drive almost 80% of our sales on elfcosmetics.com and continue to have higher average order values, President. Q1 gross margin of 71% was up approximately 280 basis points compared to prior year.

Speaker 7

President. We saw gross margin benefits from favorable FX rates, margin accretive mix and cost savings, President. Lower inventory adjustments and improved transportation costs, which more than offset costs related to retailer activity and Space Expansion. On an adjusted basis, SG and A as a percentage of sales was 39% in Q1 President of Finance, Inc. And A expenses, primarily as a result of our strong top line trends.

Speaker 7

Marketing and digital investment for the quarter was 16% of net sales and in line with last year. President. This was lower than expected on a percentage basis given our significant top line outperformance. We continue to expect marketing and digital President to be approximately 22% to 24% of net sales in fiscal 'twenty four. President.

Speaker 7

Q1 adjusted EBITDA was $74,000,000 up 135% versus last year

Speaker 8

President and CEO of the company. And adjusted

Speaker 7

EBITDA margin was approximately 34% of net sales. Adjusted net income was $63,000,000 President or $1.10 per diluted share compared to $21,000,000 or $0.39 per diluted share a year ago. G and A expenses. Moving to the balance sheet and cash flow. Our balance sheet remains strong President and CEO of the Board of Directors.

Speaker 7

We ended the quarter with approximately President. $143,000,000 in cash on hand compared to a cash balance of $72,000,000 a year ago. President. Our ending inventory balance was $98,000,000 in line with our expectations and up from $70,000,000 a year ago. President.

Speaker 7

As a reminder, last quarter, we spoke about plans to build back our inventory levels through fiscal 'twenty four to support the strong consumer demand we're Dean. I'm also pleased with the approximately $23,000,000 in free cash flow generated in Q1. President. We ended the quarter with a net cash position and less than 1x leverage in terms of total debt to adjusted EBITDA. President.

Speaker 7

We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions. Some of the initiatives we're focused on this year include investing in our people and infrastructure, our ERP transition to SAP President, as well as increased working capital and distribution capacity to support strong consumer demand. Now let's turn to our raised outlook for fiscal 'twenty four. For the full year, we now expect net sales growth of approximately 37% to 39%, President of the Board of Directors. Up from 22% to 24% previously.

Speaker 7

Adjusted EBITDA between $171,000,000 to $174,000,000 President, up from $144,500,000 to $147,500,000 previously adjusted net income between 125 President, and CEO of the company's Board of Directors, and I'm going to discuss our financial results. I'm Casey Catton, Vice President of the Board of Directors, up from $98,500,000 to $100,500,000 previously President and CEO of $2.19 to $2.22 per diluted share, President, up from $1.73 to $1.76 previously. President. We expect our fiscal 'twenty four adjusted tax rate to be approximately 17% to 18% and a fully diluted average share count President of approximately 57,000,000 shares. Let me provide you with additional color on our planning assumptions for fiscal 'twenty four.

Speaker 7

President. Starting with the top line. Our raised outlook reflects the outperformance in Q1 relative to our expectations President. As well as an improved outlook for the balance of the year as our consumption remains strong both in tracked and untracked channels. President.

Speaker 7

Turning to gross margin. In fiscal 'twenty four, we now expect our gross margin to be up approximately 150 basis points year over year President. As compared to our expectation for up 100 basis points previously, the improved outlook is largely a result of our outperformance in Q1 President, aided by lower inventory adjustments in the quarter and favorable mix. In terms of the key puts and takes for the year, President. We continue to expect gross margin to benefit from lower transportation costs, favorable FX rates, President.

Speaker 7

Margin accretive mix and cost savings, which are expected to more than offset costs related to retailer activity and Base Expansion. Turning now to adjusted EBITDA. Our outlook now implies adjusted EBITDA growth of approximately 46 President and CEO of the Board of Directors. I'm Casey Catton, Vice President of Finance, Vice President of Finance, Vice President of Finance, Inc. Byrd in fiscal 'twenty three.

Speaker 7

Our outlook also implies adjusted EBITDA margin leverage of approximately 150 basis points year over year President of the Board of Directors. As compared to approximately 30 basis points previously, the improved outlook is based on expected strong net sales growth, gross margin expansion President and CEO of the Board of Directors. We are quite pleased to be in a position President and CEO of the Board of Directors. In summary, President. We are off to a strong start in fiscal 'twenty four.

Speaker 7

Our performance over the last 18 quarters, both on an absolute basis President and CEO of the Board of Directors. As great as these results have been, President. We're even more excited for the future. The significant white space we see across color cosmetics, skincare and internationally President. Gives us confidence that we are still in the early innings of unlocking the full potential for our brands.

Speaker 7

With that, operator, you may now open the call to questions.

Speaker 9

President. And our first question here will come from President of Morgan Stanley. Please go ahead.

Speaker 10

Yes. Good afternoon, guys. President. Good afternoon. So, obviously, another really strong quarter in terms of revenue growth in Q1.

Speaker 10

You beat your Soft guidance or consensus by about $30,000,000 but you're raising the full year by an even greater $85,000,000 So President. Can you just give us a bit more detail on your confidence in underlying momentum in the business coming out of Q1 and what that portends in the balance of the year? President. I know Mandy touched on it, but a bit more detail would be helpful there. And then specifically, maybe just given the strength in Q1, Can you help frame how we should think about fiscal Q2 relative to fiscal Q1?

Speaker 10

Thanks.

Speaker 5

All right. Thank you so much. So President. Let's start with your first question on raising the full year guidance and our confidence in that. So we feel that we're in a great position to raise guidance.

Speaker 5

As the first quarter out of the year, raising the top end of our guidance to 39% on the full year and on 49% from an adjusted EBITDA standpoint. So Really underpinned by the momentum that we continue to see in the business. The fundamentals remain strong. And really, we talked the key drivers of our business, our value President and CEO of PowerHouse Innovation and our ability to engage our consumers that continues to drive our business forward. And so we feel really great about President and CEO of

Speaker 8

our full year guidance and

Speaker 5

our ability to continue to see that momentum move forward. In terms of Q2 President and CEO of the New

Speaker 11

York Stock Exchange.

Speaker 5

Specifically and framing around that, so if I look at our Nielsen track channel data, and I know you all get that information, President. Over the last 12 weeks, we have tracked about 60% growth. And so I would say that's probably a President of the Fair Place to anchor for Q2, if we were going to kind of try to frame that a little bit for you.

Speaker 9

And our next question today will come from Olivia Tong with Raymond James. Please go ahead.

Speaker 4

President. Great. Thanks. Congrats as well. I want to talk a

Speaker 5

little bit about some of

Speaker 4

the newer categories that you're entering And expanding in like I am lift versus a face. Could you talk about the margin structure in those? And then also Just the ACV that you have in the newer categories versus what you have as we think about the opportunity to unlock potentially even more incremental shelf space.

Speaker 8

President. So hi, Olivia. We are seeing strength across our entire business. So there are 16 segments where we have the number 1 or 2 position. Those continue to grow extremely strongly.

Speaker 8

We also feel good about some of the areas that we're expanding in. You talked about our Lip innovation, our skincare business in the quarter, President. I think in tracked channels was up 127% relative to the category, it was up 6%. So all of this leads to the strong share gains Catton. We talked about, I think, year over year, we picked up 260 basis points of share.

Speaker 8

And then in terms of the margin structure, we target all of our innovation President. To be margin accretive to our overall margin structure as a company and there isn't really much of a difference between some of those categories, and it's actually been one of the ways we've both improved our margins, but also raised our average unit retails. We've President of the United States. We've also been working with our new products like in our WoglO, some touchables at $14 Still an incredible value relative to prestige item at $38 that certainly mixes up the brand.

Speaker 9

President. And our next question here will come from Linda Bolton Weiser with D. A. Davidson. Please go ahead.

Speaker 12

Yes. Hi. I was just curious about your marketing ROI. As you get bigger, you continue to spend more. President.

Speaker 12

So I'm curious, are you seeing that plateauing or is the ROI still going up? And President. Secondly, I was wondering if you would adopt the notion of spending ahead of sales growth President. Because you keep beating so much on sales expectations that you never really reach your intended ratio. So would you consider spending ahead President and CEO of the Investor Relations Act.

Speaker 8

Yes. Hi, Linda. This Tarang, we continue to see exceptional ROIs on our marketing investment. It's one of the big drivers of our business along with our innovation, President and

Speaker 13

CEO of the Company. And we feel really great about it. And then

Speaker 8

in terms of the spending rate, Q1 marketing rate came in lighter What we would have wanted, it was a 16% of net sales and that really just has to do with the over delivery of the top line in the Q1. So we plan to catch that up President. For the balance of the year, we're still guiding towards 22% to 24% of net sales and marketing, primarily because it's working. We see plenty of opportunity.

Speaker 9

And our next question will come from Andrea Teixeira with JPMorgan. Please go ahead.

Speaker 14

President. Thank you. Good afternoon and congrats. Tarang, Mindy, I think you just called about President. The second quarter being roughly by my math around $195,000,000 So touching $200,000,000 a quarter, that's the new run rate.

Speaker 14

It seems like you just Cattan. So just thinking at the second half, so you get you to the $100,000,000 to $800,000,000 that is the top of your President of the U. S. Range guidance. So I'm thinking more as we look forward to the fall, you're getting additional shelf space.

Speaker 14

President. Should we be thinking of and on top of what you just described on your prepared remarks, both the U. K. And Canada President of Investor Relations. Being a very relevant player now, so should we be thinking of that type of growth continue build even if you lap the Q4.

Speaker 14

I think the Q4 is where you'll get closer to that level of runway. So how we should be thinking of President. The progression for the quarter, it seems like again your guidance in the second half even though you added to a previous question, you're adding President of Investor Relations. $80,000,000 more than you added in the quarter, but obviously the run rate still has room to grow. Thank you.

Speaker 14

Just can I elaborate on that?

Speaker 5

President. Thank you, Andrea, for the question. So as I think about our guidance, again, at 39% on the top end for the year is extremely strong. And how that breaks out across the quarters, as you know, we don't provide quarterly guidance, but we did want to give you some flavor for what we might see for Q2. President.

Speaker 5

And we'd like to take it a quarter at a time, as you know. As I mentioned earlier, the fundamentals of the business remain strong. And to your point, yes, we do have Vice expansion coming in the fall, particularly with Ulta, CVS and Walgreens that we have talked about previously. President. And so really excited to see how that materializes.

Speaker 5

But if I think about building blocks and just what that looks like, President. We've seen really strong unit growth, and we talked about 56 points of unit growth in Q1. And so we continue to believe that Our volume will lead our sales growth, with mix coming in through AUR. And then if I just think about Space gains versus the productivity that we're able to drive. Productivity is still the main driver of the results that we're seeing.

Speaker 5

Space gains are President and CEO of the company. Great complement to that, but with our marketing and digital spend and the innovation that we've launched, that's really helping to drive productivity at shelf. President and CEO of Morgan Stanley. And we can we expect that momentum to continue as indicated by our raised guidance.

Speaker 9

And our next question here will come from Susan Anderson with Canaccord Genuity. Please go ahead.

Speaker 5

President. Hi, good evening. Nice job on the quarter again. I was just looking at the digital growth once again triple digits. I guess I'm curious, President.

Speaker 5

Now the 2nd quarter in a row, what's driving that acceleration? I guess, what are you doing different now? Is it all the marketing? And then Also, are you seeing new consumers online? Are these consumers shopping more online now than they were in stores or both?

Speaker 5

Thanks.

Speaker 8

Hi, Susan. This is Shuang. We're really pleased with our digital business and the progress. As you mentioned, we grew it again by triple digits. Our digital penetration now is 18% relative to 14% last year.

Speaker 8

And I'd say there's 2 main drivers. One is Most of our marketing is digitally oriented through our various social platforms, getting people to our site, and that certainly is Catton, Vice President of the Company's Board of Directors. Working through the ROIs that we're seeing there. But the second big driver of our digital business is our Beauty Squad loyalty program. Beauty Squad loyalty members now account for, I think, President of Investor Relations.

Speaker 8

Over 3,900,000 members growing about 25% a year. And as Mandy highlighted, they are the key driver of our Special Business. So we're seeing really great results there. And then the last thing I'd say is we have really good strength not only on elfcosmetics.com, But our business is Amazon as well as retailer.coms. And so we see a halo benefit of a lot of our digital efforts also helping propel our retail results.

Speaker 9

President. Our next question will come from Bill Chappell with Truist Securities. Please go ahead.

Speaker 15

President. Thanks. Good afternoon and congratulations on the momentum. Just trying to understand, President. Again, as we all are, kind of what's driving the growth in terms of any more color on is there a specific channel, be it skincare Target that's doing better or color or and also kind of is there a way to break out how much is this coming from that kind of Beauty Squad President.

Speaker 15

Existing customer having a bigger basket versus is there a way to track new consumers coming into the market? And just trying to understand the breakdown of how we should look at it going forward. Thanks.

Speaker 5

Hi, Bill. So, I can try to break that down a little bit for you. So from a growth driver standpoint, we're really seeing growth across President of the business. When we think about channels, as Tarang just spoke to, our retailers are strong, our digital channels are strong. Catton.

Speaker 5

We talked about the tracked channel results that we're seeing right now, up 60% in the latest 12 weeks. So that indicates to you the retailer channel continues to be Strong. From a color standpoint, we talked about both our growth in color and skin outpacing the category. President. Even internationally, where we're seeing growth in Canada and the U.

Speaker 5

K. Outpacing the cosmetics category in those areas as well. So When we look across the board, we are seeing growth in nearly every segment of the business across channels, across segments, and so we're really pleased with that. President. In terms of new consumers, we also highlighted, as an example of what we're seeing from a new consumer standpoint, President of the collaboration that we did with Mikaela Nagyra and bringing in 75% new consumers into that collaboration, which was the President and CEO of the Investor Relations team.

Speaker 5

Most that we've seen out of any launch that we've done recently. So it's really a fantastic trend that we're seeing here and really excited to see the growth Not just coming from one place, but really across the business.

Speaker 9

And our next question here will come from Anna Lizzul with Bank of America. Please go ahead.

Speaker 16

Hi, good afternoon. Thanks very much for the question and congratulations on the results, very impressive. President. As we think about your shelf space gains and the increase in demand for your products, do you still feel comfortable with your current model of Third party manufacturing in China. This has been very successful in the past, but I'm wondering if you're looking to diversify the model or working to expand your manufacturing network.

Speaker 16

Thanks.

Speaker 8

Hi, Anna. We feel great about our supply chain and the advantage we have as we talked in terms of the best combination of cost, quality and speed. And that supply chain has been highly resilient through the pandemic, coming out of the pandemic, meeting the very strong consumer demand we have. We also have been doing diversification efforts, really taking that same advantage we have is like minded suppliers With a high degree of control that we have over those suppliers, we started up additional operations in Thailand. We're looking at other geographies as well.

Speaker 8

So over time, really from a business continuity standpoint, we want to be in a position where If anything happened in China, we have the vast majority of our production that could also be sourced elsewhere. But we love what we continue to see in terms of President and CEO of the Investor Relations and Investor Relations.

Speaker 9

Our next question will come from Corrine Wolfmeyer with Piper Sandler. Please go ahead.

Speaker 16

Hey, all. Good afternoon. Thanks for taking the question and congrats on an awesome quarter. I'd like to dive a bit more into the gross margin outlook President and CEO of the remainder of the year and kind of the puts and takes of what's really driving the expansion you saw in Q1 and what in that President. Expansion is really sustainable versus maybe more one time or maybe more front end loaded in the year versus back end.

Speaker 16

And then thinking about President. EBITDA for the remainder of the year and marketing spend, how should we be thinking about the cadence of this increased marketing spend throughout the year? Is that going to probably pick up President. Towards the back half, or is it going to be more equal across the quarters? Thank you.

Speaker 5

Yes. So on the gross margin outlook, we are really pleased to be outlooking gross margin at 150 basis points of improvement year over year. Cattin. It's on top of the 3 20 basis points of improvement in gross margin we delivered in fiscal 2023. And so when you think about the puts and takes, President.

Speaker 5

We talked about for Q1, FX being a driver, a favorable driver to our gross margin. Mix and cost savings, as CEO. We spoke to earlier today, our innovation as we do introduce that, we have higher margin rates. And so, we're getting a benefit from that as well. President.

Speaker 5

Lower transportation costs, as we've talked for the past couple of quarters, are starting to flow through. We started to see that in Q4. And then we also had lower inventory adjustments this quarter. As we look at reserves that we take on a quarterly basis, it came in lower President of Investor Relations this quarter.

Speaker 11

And so if I think about what's

Speaker 5

one time versus not in that sequence, the inventory adjustments that will ebb and flow President. From quarter to quarter, so I think about that as more one time in nature. If I think on the longer arc, FX also will ebb and flow. President. And so we've been really pleased to see that we can continue to push our gross margin forward and happy to take our outlook up President of the Board of Directors, Inc.

Speaker 5

And the cadence of how that looks President and CEO of the Board of Directors. Over the balance of the year, we are still targeting that 22% to 24% range from a marketing standpoint. And so President. I would expect to see a ramped up spend Q2 through Q4. How that comes in by quarter may vary, but we will be targeting Spence, to get to that 22% to 24% range by the end of the year.

Speaker 9

President. Our next question will come from Ashley Helgans with Jefferies. Please go ahead.

Speaker 16

Good afternoon and thank you for Vice

Speaker 5

President of Investor Relations. Thank you for taking our questions and congrats on the quarter. So we're starting to see dupes become super popular in the fragrance category and being the leader in dupes. President of the Year. Curious if you'd ever explore adjacent categories like fragrance and hair care.

Speaker 8

Hi, Ashley. Well, I think our approach is more than dupes. We always put our own e. L. F.

Speaker 8

Twist on Whatever we take inspiration from either Prestige or our community, there's all meaningful differences between what we go after. And I think that formula is Cattin. Really being able to bring that prestige quality at these extraordinary prices. In terms of category adjacencies, we're open to looking at other categories, but I'd say our President and CEO of the United States. Our primary focus right now is color cosmetics and skin care.

Speaker 8

We have so much white space in both of those. And for perspective and color cosmetics, I'm really bullish about the share gains that we've been able to sustain. Philip nationally in the last year, we passed Both CoverGirl and Revlon for the number 3 position in color cosmetics at 9.5% share. But if I look at our President of

Speaker 11

the United States.

Speaker 8

Longest standing national retailer Target, we're the clear number one brand there with an 18% share. So I feel over the next few years, We have an opportunity to double our market share in color cosmetics, skincare, perhaps even more white space. We're now the number 14 brand in skincare. I talked about our growth rates there a little while ago, but we still only have 1.5% share relative to the market leader at 15%. So While we're open to other adjacencies, I think we have plenty to tackle both in color cosmetics and skincare.

Speaker 9

President. Our next question will come from Mark Astrachan with Stifel. Please go ahead.

Speaker 17

Yes, thanks and good afternoon everyone. President. I wanted to ask about skincare and just sort of learning so far as the category becomes a bigger percent of mix. What's the overlap Of the skincare consumers who's buying the e. L.

Speaker 17

F. Skincare product with the legacy business, how much are new users? How do you think about that in terms of being In terms of both user bases, if there are, with driving the growth going forward and sort of related to that, how do you think about the Trade into the e. L. F.

Speaker 17

Skincare franchise versus the trade into of the legacy business.

Speaker 8

So So Mark, if I look at our skincare business, I'd say historically that our skincare consumers are primarily our e. L. F. Cosmetics consumers, Particularly at places like Target where skincare is housed with color cosmetics in the same set. And so I think that has been a really good Skitt Builder as I think of our productivity model and kind of getting skin in, buying additional items.

Speaker 8

More recently, we've seen a lot more new users come in primarily through the innovation. So we talked about our SunTouchables, Woah Woah, the 3 items we launched there. A big portion of the volume President of the E. L. Franchised.

Speaker 8

So I think you're going to see a mix as we go forward and particularly we have very good pipeline on skincare and I think We can use it to attract more new consumers to the overall franchise.

Speaker 9

President. Our next question will come from John Anderson with William Blair. Please go ahead.

Speaker 18

Hey, good afternoon, everybody. Congrats to the great quarter. Quick question on gross margin, a follow-up. I'm just wondering if the transportation costs and the currency benefits, which have been aiding gross margin, Are there additional or incremental benefits on that front going forward? Or have we reached kind of a run rate level for transportation costs, ocean freight and the FX helper.

Speaker 18

Thanks.

Speaker 5

President. Yes. Thanks, John. So from a transportation standpoint, there's still benefit to flow through. As you know, we capitalize Transportation costs and takes time to flow through the P and L, so I would expect those to continue for the balance of the year.

Speaker 5

President. On FX, I also expect that to be a benefit to us from a year over year standpoint through fiscal 2024. As we are President of Investor Relations. Looking at that, that has been favorable for us and remains so on

Speaker 11

a year over year standpoint.

Speaker 9

Our next question will come from Rupesh Parikh with Oppenheimer. Please go ahead.

Speaker 16

President. This is actually Erica Eiler on for Rupesh. Thanks for taking our question. So I actually have sort of a 2 part longer term question here. So I mean you guys are obviously exceeding President.

Speaker 16

You know that longer term top line growth algorithm that you had once set out for mid to high single digit top line growth. Just President. First curious of any new thoughts on what the steady state top line growth could look like for your business? And then second, as we think longer term, I mean, your gross margins are now at 70%. President.

Speaker 16

How are you thinking about the ceiling on gross margins here? And is there still opportunity for expansion over the longer term? Just any thoughts you could share there would be helpful.

Speaker 11

President and

Speaker 10

CEO. So

Speaker 5

in terms of the long term algorithm, we have not revisited that, President. But we feel great about the momentum that we've seen recently. We talked about 18 consecutive quarters of growth, President and CEO of the company. And we are 1 of 5 out of 274 consumer companies that have delivered that consistency of growth and at that level President of the Board of Directors. So over 20% growth on average per quarter over that time.

Speaker 5

And so we feel great about our growth and what we have on the road ahead. We've President and CEO of the Investor Relations team. And in terms of gross margin and any feeling that we see there, we haven't given a long term gross margin target President. Other than to say that we believe as we launch innovation and core to what we do, believe that we can mix President and CEO of Investor Relations. Favorably from a gross margin standpoint, the levels to what that looks like year to year will vary.

Speaker 13

Yes.

Speaker 8

And the only thing I would add to that is there's President. A healthy tension between gross margin and ensuring we're delivering superior value equation. So I think that would be President. While there's plenty of opportunity from gross margin standpoint, as Mandy said, through innovation mix and our cost savings programs, we also want to make sure we're delivering a really great value. And so

Speaker 9

President. And our next question will come from Oliver Chen with TD Cowen. Please go ahead.

Speaker 19

Thank you. This is Joanna on for Oliver. Just curious President. As sort of the ceded loans come back, the payment comes back and lower income consumers remain under pressure, how Catton. Do you think about your positioning and sort of your pricing point at this point?

Speaker 19

And also just curious on your international growth strategy, which markets are you prioritizing now and how your strategy of products might differ in international markets versus the U. S? Thank you.

Speaker 8

President. So we're keeping an eye on the consumer environment and the overall macroeconomic environment. We feel we're very well positioned Of that superior value equation, our average unit retails and color cosmetics are a little bit over $6 compared to $9 for legacy Brands and almost over $20 for Prestige, we feel sets us up well, particularly given as we continue to take our quality ratings up President and CEO of Investor Relations. Year after year after year, we feel really good about that, but we'll be paying close attention to. And then on the pricing point, we've decided not to take Additional pricing in the U.

Speaker 8

S, we may take around internationally to catch up to the pricing we did in March of 2022, But we feel that also will keep us well positioned. We're hearing some rumors of competitors perhaps taking some pricing right now. So we feel our value equation will get perhaps even stronger as we take the stance that we have. And then in terms of our international expansion, we're quite bullish Cattan. In terms of our prospects internationally, we talked about the strength we have in Canada and the U.

Speaker 8

K. The team that we're building out in the U. K. President and CEO of the United States has identified

Speaker 13

a number of other

Speaker 8

countries that we can enter. We tend to make those announcements quarter by quarter depending on kind of where we're entering. But I'd say our first focus Would be Western Europe. We've got kind of proof of concept in the U. K.

Speaker 8

And the momentum we have in the U. K. We feel there are other countries we can enter in, Western Europe. We also feel good about we have a business in India with Nike, an online beauty retailer President. That's done extremely well.

Speaker 8

So we feel there'll be additional markets that we can enter. But first order of business will probably fill out Western Europe President

Speaker 11

of Investor Relations.

Speaker 9

President. And this concludes our question and answer session. I'd like to turn the conference back over to the Chairman and CEO, Tarang Amin, for any closing remarks. President.

Speaker 8

Well, thank you for joining us today. I'm so proud of our incredible team at e. L. F. Beauty for again delivering outstanding results to start fiscal 'twenty four.

Speaker 8

President. We look forward to seeing some of you at our upcoming investor meetings and speaking with you in November when we'll discuss our Q2 results. Thank you and be well.

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Earnings Conference Call
e.l.f. Beauty Q1 2024
00:00 / 00:00