Q4 2020 Earnings Call
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Good day and welcome to the of course clinics fourth quarter and full year fiscal 2020 conference call.
All participants will be in listen only mode.
Do you need assistance. Please go away conference specialist bypassing the Starkey both euro.
No. This is being recorded I would now like turn the conference over to well Mcmanaman, Vice President of Investor Relations with our cosmetics. Please go ahead.
Thank you for joining us today to discuss Ehealth beauties fourth quarter in fiscal 2020 results.
As a reminder, this call contains forward looking statements that are based on managements expectations, including those relating to the companys efforts to navigate the cobot 19 pandemic category trends and longer term outlook and are subject to known and unknown risks and uncertainties and therefore actual.
Results may differ materially important factors that may cause actual results to differ are detailed in todays press release and the company's SEC filings. In addition, the company's presentation. Today includes information presented on a non-GAAP basis.
We refer you to today's press release for a reconciliation of the differences between the non-GAAP presentation and the most directly comparable GAAP measures.
Comparative net sales figures exclude l. stores. Please note. After the presentation. There is a separate dial in for the Q. A session also noted in the press release.
With me for management today are turning a mean chairman and Chief Executive Officer, Andy Field, Senior Vice President and Chief Financial Officer, Let me turn the webcast over tutoring. Thank you will end gap in every one.
I hope it you're safe and healthy during these challenging times.
Today, we will talk about our fiscal 2020 results. Our response to covert 19 challenges and our long term investment thesis.
2020 was a terrific year for health beauty.
We saw four quarters of net sales expansion, culminating in a 16% increasing year over year sales in the fourth quarter.
For the full year net sales of $283 million were up 11%.
We expanded gross margin to 64%.
300 basis points over last year in up 1700 basis points since 2014.
We also delivered adjusted EBITDA of $63 million, while almost doubling our investment in marketing and digital.
Our consumption was strong all year in L. piece the category as a top five color cosmetics brands in the U.S.. We grew the most market share enough why 20 with 4.8% of the market up 50 basis points.
We also increased our rank in Piper Sandlers teens survey from six favorite brand amongst teens last year to fourth this year, reflecting our growing relevance with gensix.
As I reflect on these results I believe that why 20 was an important here to reassert our multiple areas of competitive advantage.
We did so by investing in our brand recharge and executing on our five strategic imperatives.
We exceeded our key performance indicators and entered covert 19 headwinds with strength relative to the category.
Our mission to make the best of beauty accessible to every I lip and face is more important than ever.
We believe that our fundamental value equation and digital engagement as well as our world class team's ability adopt and l. speed positions us well to weather. The covert 19 storm and continue to gain market share. Let me provide a few highlights of the year. Our first strategic imperative is to drive brand demand.
Else Corey advantage centers around the emotional charge generated by a combination of affordability excellence and accessibility.
In 2020, we kicked off a bold campaign to bring else superpowers to the forefront of the beauty conversation.
Our pride in being a 100% beginning cruelty free.
Our unique ability to deliver first amass Holy Grail products that have premium quality at unbelievable prices and of course, our universal appeal.
We rolled out or anything amazing campaign across key social platforms, highlighting else accessible optimistic in inclusive brand values.
In a fresh energetic and modern way.
The results of the campaign far exceeded our benchmarks, bringing new consumers to health and accelerating brand advocacy within our existing community.
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Riding this momentum in October we launched our groundbreaking eyes lips faced Dick talked hashtag challenge, we started out with an original music track and quickly became the most viral campaigning tick tock U.S. history with over 5.3 billion views in over 3.5 million user generated videos.
Elf became a global music sensation as a song generated over 16 million streams outside of tick tock and a number for spot on spot buys global viral 50 list.
Bans desired more so we partnered with Republic records to produce a full length eyes, the face music video, which garnered over 2.3 million views on Youtube.
In March to further amplifier presence and tick tock, we launched the LCR channel a destination for Gen Zee.
LCR delivers customize daily content featuring personalities products in premium entertainment designed to engage take talks rapidly growing audience.
If he has already amassed over 80000 followers and 1.5 million likes.
Our efforts to drive brand demand delivered impressive results.
And just this week, our eyes UBS face tick Tock campaign, one two prestigious Webby awards, including the People's Voice Award that honor the best content on the Internet.
Year over year, Google search trends were up 6%.
Our Instagram followers growth was up 22%.
And our earned media value was up over 60% for the year.
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We also saw sales spikes in products. They went viral on tick tock.
Including our bite size I Shadow pallets in existing Olympics full leader in gentle peeling experience.
Our second strategic imperative is a major step up in digital.
To do our digitally native routes, we continue to lead with a digital first strategy.
Al cosmetics dot com the number one mass cosmetics ecommerce site powers, our digital ecosystem.
Slide 20, we drove double digit growth in traffic in new consumers to help cosmetics dot com.
Our beauty squad loyalty program grew to 1.8 million members.
We also enabled social shopping to connect consumers tree unified social storefront across retailer Dot coms.
Consumption, our retailer dot com in Amazon was up over 50%.
We're also delivering wow moments transforming social and further breaching the physical and digital rounds.
Last quarter, we discuss the launch of our new Alf mobile App.
Which already has over 60000 downloads.
The App incorporates features such as augmented reality receipt scanning and access to our recently introduced Elf discovery and health Care's content hubs.
These initiatives are timely.
In the past few weeks, we've seen triple digit growth in sales on else cosmetics dot com and a number of our retailer dot coms.
Our third imperative, providing first amass prestige quality products also delivered strong results.
During the year, we further strengthened our leading position in primers brushes and brow gaining significant market share in these core hero segments are poor list Party primary Chemokines Sealers also helped drive our share in complex than.
Our eight dollar Parlous Party primary is the best selling primary in the U.S. and the number one SK you in the face category.
We recently extended these into franchises with the introduction of our modifying and luminous wireless party primers and hydrating CAMMO can sealers and ended the year with share increases in both the primary concealer categories.
Our liquid glitter and bite size I Shadows, we're also well receive first amass introductions later in the year.
We continue to focus on skin care as a strategically important category.
Skincare exemplifies our ability to deliver prestige quality at great value.
Our wholly hydration cannabis achiever and supers lines fueled growth in skincare with sales up 27% Neft My 20.
We launched the first full spectrum CBD line in mass this month and have a strong product pipeline in skin care for this fall our fourth strategic imperative is driving national retailer productivity and centers around project Unicorn, our initiative to improve assortment and navigation that shelf.
We received three patents during the year for Unicorn designs, which allow us to better display our products, while feeding more items on shelf.
Unicorn has enabled us to elevate our brand presentation and expand our position as the most productive branding color cosmetics at target and Walmart.
Our consumption at Ulta beauty and other retailers was also strong for the year.
In terms of space expansion, given the strength of our productivity innovation and consumer engagement.
Walmart in Ulta beauty plan to expand L. space. This fall in a subset of their doors in our international business, we had mixed results.
We then winding down business with certain distributors in favor of shifting to a more direct relationship with key beauty accounts.
This weighed on our results with overall international down 4%.
We remain confident that international represents major white space and that our brand resonates.
We are great year in the UK with strong growth on Elf cosmetics, dotcom superdrug and boots.
We're also excited about expanding our global digital footprint with a particular focus on China in the U.
Our fifth imperative is cost savings to help fuel brand investments.
Our biggest cost savings initiative to date was closing R 22 else stores in February of 2019.
We successfully redeployed to $13.7 million a savings from L. stores tried digital and national retailer business.
In F. Why 20, we also took pricing up an approximately one third of our SK use.
Which along with cost savings and favorable FX more than offset tariffs on China goods.
We're particularly pleased with our pricing execution.
Recall this was the biggest pricing action that we've taken in our 16 year history.
Our approach worked well.
We targeted SK use that we believed offered the strongest value or where the leading header SK you would likely also face tariffs.
Not only did many competitors fall our price increases, but we're able to maintain our value which is more important than ever in an uncertain economy.
Our new liquid filled manufacturing plant in California is set to start up in July.
This is delayed by one quarter due to the impact of covert 19.
Our new U.S. plant provides us further supply diversification, while also significantly reducing lead times.
We also continue to strengthen our China operations advantage using lean techniques.
Particularly proud of our China team.
We will win in the first beauty companies to be fully operational in China. When covert 19 restrictions were lifted.
Thanks to the strict health protocols and dedication of our team in suppliers. Our team has remained healthy.
The progress in our five strategic imperatives has been terrific and we have further opportunity with each.
We're equally excited about our progress on strategic extensions.
We strongly believe there's an opportunity for significant value creation, leveraging the investments we've made in our team and infrastructure for other brands, both acquisitions and brands that we create our first strategic extension was the acquisition three months ago of the pioneering clean beauty brand well people.
This acquisition was strategically important as consumers are becoming increasingly conscious of ingredients in their products and clean is one of the fastest growing segments within beauty.
Our thesis is that we can benefit from the 12 year history, well people has as a pioneering Korean beauty with 40 E.W.G. verified products.
And in turn leverage the investments we've made in our team in infrastructure to scale while people.
We fully integrated this acquisition onto the Elf platform, realizing synergies and making progress and growth initiatives.
We're receiving incredibly positive feedback from our national retail partners. We are well people is more productive than many other clean beauty brands.
Additionally, we have identified supply chain synergies and are working with vendors for efficiencies.
In the coming months, we plan to launch a well people brand recharge as we did for else.
In addition to acquisitions our team has been working to create a new brand for calendar year 2021, They look forward to discussing during our August call.
We believe strategic extensions are key to our long term growth as we evolved from a single brand to a multi brand beauty company.
As I will outline later, we have a number of competitive advantages that we plan to leverage to scale fast growing emerging brands and consumer segments.
No. We are in the early days of this journey, the well people integration and the progress developing a new brand gives me confidence that we have the right road map for growth.
Before I turn the call over to me Andy Let me update you on our response to covert 19.
Similar to other companies in our space, we've seen covert 19 negatively impact consumer behavior and significantly reduce cosmetics and skin care category sales.
So far while our businesses down we are faring better than the categories in which we compete and are taking market share.
We believe we're better positioned than other brands come out of this given our value proposition and digital strength.
Our team has taken a number of decisive actions in response to covert 19, our first priority is a safety and well being of for employees and consumer community.
I am proud of our employees and the resiliency are showing as we navigate this crisis.
I already mentioned the incredible efforts of our China team in suppliers to be one of the first beauty companies fully operational coming out to covert 19 in China.
We've taken many of the same protocols, we used in China for U.S. employees.
We sent safety kits with gloves hand, sanitizers in disinfecting wipes to all employees and provided assistance with other needs.
We have an extremely talented team and we're determined to protect as many jobs as possible. During this time.
Health is also caring for our consumer community.
We reached out to our community through donations to food banks mental health organizations and healthcare workers.
Drawing the success of our original tick Tock hashtag challenge, we remixed eyes UBS phase into a new eyes UBS face safe public service announcement to raise awareness with basic preventive measures. We can all take to help stopped the spread of the virus.
Nearly 10000 videos were created using islip space safe, garnering close to 4 million likes in over 23000 shares on tick tock alone.
We also many factor at hand, sanitizer that we've shared with our team in partners and our shipping for a limited time with every order on Elf cosmetics Dot com.
Our focus will always be on our community and I'm proud of our efforts to get through this together.
We know that strong financial discipline is needed to whether this challenging period.
We amended our credit agreement to provide greater flexibility and access $20 million over $50 million revolver, giving a $65 million in cash on hand.
We're also tightly managing inventory receivables in capital expenditures.
We are reducing expenses and scaling back marketing digital investments in proportion to net sales.
Similarly, we've gone after cost in short term merchandising operational savings.
At the same time, we're keeping the long term in mind investing in our digital footprint across the European Union in China.
We're also continuing to develop well people and a new brand to ensure that we have a healthy portfolio of brands for the future.
In summary, we are moving it else speed to respond to the current retail environment and position ourselves to continue to gain market share.
I believe that our digital strength in core value proposition will enable us to outpace the category in this uncertain economy.
I'll now turn the call over to me Andy to discuss the financials.
Thank you touring and thank you for joining us this afternoon.
Today I'll cover our strong fiscal 2020 results.
Discuss in more detail the financial actions, we're taking in the cobot 19 environment and share what we're currently seeing and our longer term perspective.
I'm quite pleased with our Q4 and overall fiscal 2020 result.
After I mentioned earlier, we drove positive net sales growth in every quarter wrapping up the year with a positive 16% in Q4.
Focus on our strategic imperatives allowed us to invest significantly behind our brands.
Drive topline growth.
And deliver adjusted EBITDA slightly ahead of prior year.
We delivered net sales of 283 million in fiscal 2020.
Up 11% from year ago.
This growth outpaced the large legacy brands in our space and was fueled by disciplined execution against our strategic imperative.
Gross margin of 64% was up 300 basis points compared to prior year.
I'm, particularly proud of the progress we made here.
Recall this time last year, there was concern over gross margin given 25% tariffs being implemented on the majority of our Cogs.
Not only did we overcome tariff headwinds, but we continued our gross margin progression through a combination of cost savings.
Arjun accretive mix.
The price increases we implemented last July and the onetime benefit a favorable FX rates.
On an adjusted basis.
She any as a percentage of sales was 49%.
Compared to 45% last year.
Merely driven by increased investment in our marketing and digital initiative, which increased from 7% in fiscal 19% to 13% in fiscal 20.
The increase in rate was also driven by funding bonus accrual and investment in merchandising programs.
This was partially offset by not operating our stores in fiscal 2020 recall closing our stores was the strategic move to allow us to invest more behind the brand via marketing and digital.
Fiscal 2020, adjusted EBITDA of 63 million came in at 22% of net sales and slightly ahead of last year, even after funding the investments we made throughout the year.
Adjusted net income was 32 million or 63 cents per diluted share compared to 33 million or 66 cents per diluted share a year ago.
Change in adjusted net income was driven by higher depreciation in fiscal 2000.
And a change in adjusted EPS was further driven by increased share count.
In fiscal 2020, we generated 44 million in cash flow from operations driven by our strong operating results.
The increased cash flow enabled us to fund the 26 million dollar acquisition of well people and approximately 8 million in share repurchases.
Even with these investments are March 31st cash balance with 46 million compared to a cash balance a 54 million a year ago.
Fiscal 2020 was a fantastic year overall and provided us with momentum for fiscal 2001.
Until cobot 19 impacted all aspects of our lives consumer behavior and category trends.
Let me talk a bit about what we've seen so far and how we're navigating the cobot environment.
Going into the Cobot 19 crisis, our consumption was strong with Elf tracked channel sales up 13% for the four weeks ending February 20 seconds.
Nielsen data for the initial cobot period for the four weeks ending April 18th showed our consumption declined to 29%.
More recently the four week period through May 2nd showed tracked channel sales down 9%.
We believe the improvement in recent weeks has been driven by the onetime impact of government stimulus checks.
Net consumption data has been all over the map.
Outside of tracked channels, we're seeing strong results on Elf cosmetics, dotcom and through our retailer dotcom.
Ulta beauty store closures and softness internationally has however, almost fully offset the ecommerce benefit.
Over the next several months, we believe there will be volatility in the category and in our sales performance.
Given this volatility we will not provide fiscal 21 guidance today.
It is simply too challenging to predict the entire year with the overhang of cobot 19.
Turing already outlined the principal guiding our corporate 19 response plans I.
I will touch on each of these and the work we've done over the last few weeks.
Protecting our people is at the top of our list as we believe we have built the strongest team and beauty.
We plan to protect as many jobs as possible and are looking at other areas of cost savings, which I will outline shortly.
And caring for our consumers.
We found it most of these efforts out of our fiscal 2020 marketing budget.
We are proud of the charitable donations, we were able to make to help our communities. During this unprecedented time.
On the liquidity front, we have worked with our banks to ensure we have additional financial flexibility.
We have a strong liquidity position with approximately 65 million in cash on hand, and access to an additional 30 million undrawn on our revolving credit facility.
In April we amended our credit agreement modifying our covenant levels to reduce the minimum fixed charge coverage ratio and increase the maximum permitted total net leverage ratio through June of 2021.
This allows us to weather significant declines in adjusted EBITDA without triggering covenants.
Details of our credit agreement Amendment can be found in the 8-K filed on April nine.
Also as Frank mentioned, we are tightly managing inventory receivables and capital expenditures to further fortified our balance sheet.
We've reduced our planned inventory levels by $10 million and our planned capital expenditures by over a million dollars through September.
On the expense front, we're taking steps to reduce where we can while still investing in our long term growth.
In the short term, reducing marketing expenses to better match spend with the sales decline.
Pushing our operation savings holding head count open and scouring the balance of the piano for nonessential spending.
This has been a significant effort with the team cutting over $15 million and expenses from our operating plan for the first half of the year.
Well this does not translate directly to reduction on a year over year basis. It does demonstrate a major effort. The organization has made to ensure where containing cost in this environment.
Given the decline in sales were anticipating for the next several months, we expect adjusted EPS DNA to do you ever versus prior year.
In summary, as we faced headwinds of Cobot 19, we expect net sales trends to be volatile similar to what you may see untracked channels over the next several months.
While we are actively cutting expenses from our operating plan given the timing of cobot 19 restrictions in plans already in motion most of our year over year expense reductions will not begin to take shape until Q2.
We expect our liquidity to remain strong even in its declining sales environment.
Last quarter prior to Cobot 19, I discussed our three year outlook with the expectation for growth.
Recall, we've presented two scenarios.
The first reflects a low to mid single digit net sales cagar, which assumes no significant shelf space or strategic extension.
The second scenario reflects a mid to high single digit net sales cagar that is inclusive of significant shelf space and integrating strategic extensions overtime.
In both cases, we anticipate adjusted EBITDA leverage will be achieved through a mix of topline growth and annual cost savings in Cogs in or SGN a.
While the short term is uncertain and requires us to push the model out we still believe in our long term algorithm once the retail environment return to normalcy.
We believe our value proposition positions to al brand for growth.
With the addition of well people and the new brand, we're developing we anticipate that growth can be further accelerated.
With that I'll turn the presentation back to terrain. Thank you Manny before I open up the call to questions I'd like to underscore that Elf delivered outstanding F. why 20 results and we believe is better positioned than many of our competitors to navigate this challenging time, given our strength in digital and strong value equation.
Our confidence in the long term growth and investment thesis is based on our unique advantages.
We have the right team with an employee base at 70% female 55% millennial and 45% diverse and represents a consumers that we serve.
We hire from Blue Chip Academy beauty in consumer companies with people, who want to move at El speed.
We are one of only 10 public companies with a board that is over 60% female.
Our board is highly experienced in public company governance.
We know our consumers and how to engage them with our number one mass ecommerce site and reach on key digital platforms.
We know how to make products people want with a unique ability to launch Holy Grail first amass products.
We knew that al speed with the ability to bring new products to market in as few as 13 weeks.
We have world class operations, providing as a best combination of cost quality in speed.
We know how to go to market and growth through strong relationships with their national retail partners.
We've expanded our shelf space from 11200 10000 linear feet in the last five years.
We have significant opportunities in both additional space and geographies.
We know how to build brands as we move from a single brand company to a house of brands.
While these are difficult times, we're optimistic in the long term potential of this company.
We believe our digital strength in core value proposition will enable us to gain market share in the short term.
We continue to have a great deal of white space and are confident to be able to return to our long term economic model. Once this crisis is over.
In summary, we are optimistic in the long term potential of this company.
Not only do we deliver an outstanding F. why 20, I believe we're better positioned than most companies in our space to navigate these challenging times.
Our mission to make that that's the beauty accessible to every I lip and face is more important than ever.
I am so grateful to our team our partners and the consumers that we serve.
We look forward to see new virtually at the upcoming William Blair Jefferies Piper and Cowen conferences, where various members of our executive team will provide further color on how we're navigating these times and plan to build upon the advantages that made f. why twentys such a success.
We continue to have a great deal white space and are confident to be able to return to our long term economic model. Once this crisis over.
Thank you.
With that operator, you may open the call to questions.
For those who like to ask a question. Please do so through a separate dial in line at 866 Ito seven.
9684 or 4123175415 internationally.
Those not asking questions can hear the question answer session through the webcast.
With that we'll pause for five minutes for those seeking to ask questions to queue up on the dial in line.
Well now begin the question and answer session to asking question you May Press Star then one on your telephone keypad. If you are using these speakerphone. Please pick up your handset before passing the keys.
Any time your question has been addressed Eva withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble the roster.
First question comes from Andrew at Texas area of JP Morgan. Please go ahead.
Thank you and I hope always well teranga seem congrats on the result, then and the new presentation format the movies rose.
You can help us understand what's happening quarter today, you, you're relatively doing better and and obviously I appreciate menderes analysis of the Nielsen data, but my first question. This the shipments.
Now shaping how their shaping up now quarter today.
If they are less negative being made then in April and if you're sitting inquiry levels at the bricks and mortar now that they are reopening how you're seeing those those inventory levels.
And my second question just for clarification on made this point about the de leveraging our operational de leveraging.
Better commentary just for the first half of the year that fibria efforts to reduce.
50 million I believed was the commentary on that's generally they were still going to see.
Actually the operating the leverage on the EBIT level. Thank you very much.
Hi, Andrea so nice to hear from you.
So on the quarter to date, what we have going on you know as I disclosed on the Nielsen data.
We have seen things.
Pick up a bit since the.
For 18 read through in a for 18 read of Nielsen, we were down 29% in the latest four weeks ending five two we were down 9% and we really feel that that has been driven by the impact of government stimulus checks hitting those consumers and they're out there spending.
And so well I would say is that you know I can't give you any color on our shipments quarter to date, but I can't if you back to the Nielsen data were things and again that the latest four weeks ending five Sue we do think with a one time.
And related to consumers and government stimulus checks.
In terms of the de leveraging so the way that I'm approaching this year given the volatility that we're seeing as I'm really focused on the first half of the year.
And so the 15 million in cost reductions that I spoke about that was versus our operating plan.
I would say on a year over year basis, we are still expecting SGN, a adjusted EPS DNA to de leverage.
Versus year ago, given the magnitude of the sales declines that were thing.
Very helpful. Thank you for my focus it on.
Okay.
The next question comes from Sorry, My son of Morgan Stanley. Please go ahead.
Hey, good morning, guys propose world good morning.
So correct.
I'll be your free significant cosmetics category weakness in the U.S. mass channel recently can you just give us a bit of a conceptual overview as when you might expect to see more sustained rebounds.
In the U.S., Maersk cosmetics trends and and what's the driver behind that is it.
More people returning to work are feeling comfortable shopping the shelves or is it more consumers comfort with their financial situation I'd assume it's more.
The latter, but you didnt mention the temporary Bruce with the stimulus check. So just curious for you know what might be the drivers behind that and then secondly can you just discuss the potential for consumers to trade down into the mass beauty category for more premium products with macro weakness and else ability to potentially capitalize on that thanks.
Yes.
Good afternoon, I would say on the first question in terms of what the outlook would be it's one of the reasons. We suspended 21 guidance things are just too volatile right. Now is me and he said the four weeks ending April 18th we saw a pretty significant declines in the category and you know.
So one of things would really paying close attention to is what we're seeing from a consumer behavior standpoint, certainly in the last few weeks, we've seen a major uptick.
Again, we believe that students stimulus checks and as well as some parts of the country starting to open up.
I would say the things we are focused on is when you turn to some levels normalcy, whether that's people coming back to work ability to go into retail stores once you're done with and I think we're starting to see.
The initial wording on essential products, particularly with the stimulus checks I think we saw those Walmart and target talk about their discretionary spending going up so we paying close attention to what happens to that consumer behavior, but I do believe it will you.
After into both the normalcy of getting people back to their normal lives as well as.
The amount of unemployment that is out there.
On in terms of us and we're seeing in the category. We believe we're well positioned so even in that period in mid April when categories, particularly soft we picked up pretty significant share our share and four weeks ending for 18 was a 5.2 share up 60 basis points versus year ago continually seek good share.
Result is why things that we're really focused on is our relative performance to the category and I would tell you, we're well positioned not only the strength that we haven't digital.
But overall value proposition, we know over the last few years as the economy was booming there certainly was trade up into Christie's we believe our ability to provide prestige quality products that these extraordinary values positions us really well. So we're looking forward to continue to take share as we go for it.
Great. Thanks.
The next question today comes from Oliver Chen Cowen. Please go ahead.
Hi target Mandy our question as about thinking about the crisis and what our permanent changes and or surprises that you see as you approach marketing indoor product development. We'd also love your take on how you're going to prioritize thinking about being multi brand and there's a lot of opportunity.
So what are some of the thoughts around frameworks about what what you should focus on next because you embark on that.
Part of your strategy as well thank you.
Sure Hi, Oliver I would say in terms of core changes, we're seeing our first focus is always on people and I'm incredibly proud of our team and our ability to navigate so far this crisis starts with our China team. We've been dealing this since January as they were impacted by covert 19 in China I'm proud that were.
One of the first beauty companies come out of the crisis. There I think within a week Oliver suppliers are up and running within five weeks were at a 100% capacity and that really went to regimens that our team took from health and hygiene standpoint levels coordination, we have really talks a lot about our advantages we're taking native same tactics here in the.
Last to take care of our employees in our communities first and foremost.
In terms of within particular categories that we take a look at we've had strength really for very long time in primers. We saw that we saw that could even stronger in this past year with our parlous Potty primer, which has now made a franchise with the introduction of our luminous amount is fine.
Primers well as Patti primaries now not only the number one primary in the U.S. with the number one face product. When we've also gotten some anecdotal notes that has been great to see.
From a numbers nurses. He said you know the only thing they could kind of put on their faces as the world them Aston didn't want to soil and was our pointless body primer and really helped save their face and so we can TDC strength. There, we strengthened can sealers and particularly in skincare skincare was strong all year the consumption data was plus 27% for flight.
20, and that doesn't even include Ulta beauty, which expanded skin care.
Full chain. So we'll continue to see a focus on skin care I'm, particularly pleased with some of the more recent introductions Blizzard, Canada Cityville line as well as a full spectrum CBD line that we launched as a couple of weeks ago. It is a real desire from consumers for wellness and we're positioned well again with our skin care offering Christie's quality.
These extraordinary prices, that's even third thing that really focused on is digital weve long as the digitally native brand has been key focus of drives everything that we do from a consumer engagement standpoint, as I mentioned in the last few weeks seen triple digit increases on L. cosmetics Dot com.
As long as many of our retailer Dot coms.
Bleeds, you'll continue to see increased emphasis on digital.
And then on the second question regarding multi brand.
These long believed that the investments we've made in the team and infrastructure in the capabilities, we have could be applied to other brands in a significant leverage in being able to do that.
I'm really pleased with the integration that we've had with her well people acquisition within three months, we fully integrated into all of our health systems.
Operationally as well as starting to map out the growth path on well people. It's a great example of being able to take something.
As a lot of potential that can leverage they'll chassis that we have an equally excited about a new brand that we've been developing for some time, we've been able to talk about war in the August timeframe similar type of approach of being able to leverage it chassis that we've built whether it be in an adjacent category or different price points.
That again can leverage the lessons we've made in team in infrastructure.
Thanks, Craig our last question should.
Targeting Walmart have done a great job with curbside pickup in the drive up curbside experiencing as well as really rethinking stores than the age of social distancing is becoming a.
A big big topic.
Does that have implications for how you think about planning and or where you are with project Unicorn project Unicorn sounds like it's been really successful you've had a lot of momentum there.
Yeah, we've been really pleased with what we've seen at both target in Walmart on their buy online pick up curbside.
Those businesses, and particularly strong for us and I believe other brands as well I think what it relates to is also our efforts on the retailer Dot Com front, we've seen pretty strong growth all year not only on the different retailer dot coms. It also Amazon. So I think it's a continuation of a trend we've been seeing which is more comfort.
Online and being able to leverage the physical space is that retailers have and then as it relates a unicorn you and here you talked about unicorn for many quarters to calm because it's got multiple phases and we continue to drive.
Improvements in productivity through Unicorn in that includes our ability to do better visual merchandising in how we do that those online and then when it comes into their stores.
As well is what we think about a new reality of when they are navigating even the web sites, where customers is also another dimension that we'll be looking out with unicorn.
Great nice job on quote way best regards.
Thanks Oliver.
Next question today comes from Steph Wissink of Jefferies. Please go ahead.
Thanks, Good day, everyone. We have a two part question on skin care and you just started talking about it in response to the prior question, but I'm curious if you can.
Contextualize first a bit more how big can scan of the percentage of your total business.
And can you help us think about how big it retail versus some of your more advanced channels like your own dotcom, maybe even open as a specialty partner.
Sure I stuff. So skincare has been pretty big strategic focus of ours for some time going back, let's say at least 18 months part of that reflects what we seen from a category standpoint.
And the ability for it to.
Really drive incremental sales, but more importantly, it follows our model really well what we see some of the thus product from the prestige side and our ability to make those more accessible to consumers. So it's still a small part of our business, it's still less than 10% of our total business, but it's one of the fastest growing parts of our business and I think you'll continue to see it grow fast.
Mainly because of the innovation pipeline that we can bring the example, I gave on that full spectrum, Canada cities a line, though I mean, sorry full spectrum CV line that we just introduced its a good indication of our capabilities in terms of bring real innovation and news in skincare and having it be more accessible and then in terms of footprint.
I would say skincare has tremendous white space. The most developed customer that we have from his skincare standpoint is target.
Alta only started rolling it out full chain last year, and we've seen great results with both customers honor skincare, the making up an increasingly large portion of our business there or larger portion of our businesses still small portion of overall business and then I'd say the thing that gives me the greatest heart for skin care and what its potential is.
It's significantly larger portion of our online sales. So we were able to have the full assortment, which tells me that over time is more retailers take in skincare from Alf and allocate more spaces skincare. It can be a much bigger part of our business.
That's great and just one follow up on your marketing strategy as we progressed into the back half of this year and.
We think about potentially more of a recessionary environment I know you've not lean very heavily into price as an agent for driving awareness and utilization, but is that an opportunity lever that you see to really pressing to your value proposition. In addition to your other advantages. Thank you.
Yes.
Absolutely I think our value proposition is one of our core superpowers and in this environment in particular, we're seeing consumers really responded as messages. So we're already you know we're not seeing quite during this time, we think it's a great opportunity for us to build share we have taken marketing down relative to our original plan.
But it's still proportionate to net sales and that's because we want to keep the fuel on in terms of our engagement efforts, which have been quite successful and as part of those engagement efforts were constantly testing and learning different approaches what we've seen over the past number of weeks is some of our value messaging that we've done digitally have been consumers have been quite.
Responsive to they've done really well. So you I think you and continue to see us really hold that area of our advantage and find different ways of communicating.
And you won't have to wait till the back half.
Thank you very much.
Your next question today comes from Erinn Murphy Piper CMO. Please go ahead.
Great. Thanks, good afternoon.
My first question its three year terrain I'm curious you talked about CAD eight gain secured for Walmart and target in the course, another door can you kind of elaborate a little bit more about when we should be expecting though maybe what percent.
We respectively are getting them at that kind of a pre holiday or.
During at least that plan.
Sure higher so we're really pleased that with the strength that we saw throughout F. why 20, particularly on the productivity from the strength of renovation program and our consumer profile.
Retailers continue to reward us with more space. So as I mentioned in her prepared remarks, both Wal Mart and Ulta, we'll be expanding l. space in a subsidy their doors.
All the time it will be this fall so it won't have to wait till next spring's Planograms and that's the current kind of timeline that they're on for competitive reasons, neither customer likes us to reveal what what that footprint will look like so you have to unfortunately wait till the fall to see it in their stores. We believe there's still plenty of white space Eva.
In our most established customer target.
Last year as part of the Unicorn us developing these flex towers with them that allow us to highlight some of our key innovation and most productive items proved to be almost a mini space gain within target and were taking those merchandising vehicles that were seeing across customers and particularly in this environment maybe Rick.
Weighted to the previous question on really highlighting our price value equation and the price statements. We can make really looking about as an opportunity with the additional space to really make those statements.
Okay. That's helpful. And then I guess I recognize retailers have been prioritizing uptick riocan, Walmart and target kind of yet then Sheldon initial phase of the pandemic, but right now on your thing more retail open how are your key retailers you know talking about replenishment are they starting to look at replenishment yet.
And the reason that we walked or it's definitely feels like for your brand and several other cosmetic granted a lot stockouts right now I'm just curious on when you kind of expect that.
Actually change.
Yeah, well as you say for sure the retailers, we're prioritizing essentials, particularly that it initial period, we had such unprecedented demand for essential products.
We've always run fairly lean when it comes to an inventory standpoint, with our retailers. We're in very close contact with them, we've penetrated supply chains pretty well with each of our retailers and are working closely with them to make sure that we have.
Better in stock positions going forward and pretty confident of our ability to do that given our history.
Sorry, just declared our the retailers starting to replenish though the category.
They have always replenished it I think part of it has to do with.
Our relative to performance as I mentioned, while the category. It was way down and we were too, particularly during the point with stimulus checks, we performed extremely well relative to the category. So it's what we've seen in the past because elf moves much faster because we have this great value equation.
Consumers are buying more of it which creates the need for replenishment, but weve they've been replenishing we ship every week to each of our major customers. He and so I would expect that to catch up in short order.
And then Mandeep already have one more for you.
Nice job the strong growth margin acceleration figure that last year.
The 4% level can you just going to share with us what are the key.
Take from here, particularly as you think about the next 12 months. Thank you.
Yes, so hi, Aaron.
We're not giving guidance today and that would pertain to gross margin as well, but what I can tell you is that we have done a great job.
Offsetting the impact of tariffs through a mix of pricing our margin accretive innovation cost savings and of course, the onetime benefits that were seeing with foreign exchange.
And that's what I can tell you we made great progress there and we've been able to not only maintained but improve our gross margin in fiscal 2000, and we're really proud of that.
Thank you.
Your next question comes from Rupesh Parikh of Oppenheimer. Please go ahead.
Good afternoon, and thanks for taking my questions I guess a question for you to wrong just want to get if it turns or how you're thinking about demand for make up in this environment, especially in a more people working from home.
People are going out lots bowl, which areas.
Well, we certainly particularly on initial period saw.
The category declined consumer behavior change, where he does not need to where makeup as much when you're just at home and so certainly there was destruction from a demand standpoint in initial periods more recently, we've seen an uptick I think you'll be sometime before we know whether how much of that was due to the stimulus checks that were out.
There versus consumers frankly, being maybe a little pent up and wanting to get back to their lives and normalcy. We also are with each of our retailers pulling data for different regions of the country of when people are able to kind of get back and restrictions are lifted and we do see better results in those markets.
Restrictions have been lifted but again the long term impact of this I think we're going to have to continue to monitor overtime.
Great and then I guess, what just one more question as you look at the competitive backdrop out there.
You know companies more rather Duffy me traction and make up the past few years like how are you thinking of that backlog coming out. It was like does it as it gets a lot less competitive maybe there is less money going into somebody's Barbara I was just any thoughts there would be helpful.
Yes, I started my career and beauty almost 30 years ago and East told people then it's a highly competitive category and I haven't seen anything change other than that competitive rivalry increasing particularly when can brands. He go direct to consumer online, including the Genesis and the formation of else that way.
What I will also tell you, though is very few brands of skilled above the 100 million dollar Mark and so youre constantly see flows brands come in and out.
In that context, I feel very well positioned to take not only.
David grow the most share of the top five brands last year enough why 20, but even those initial period and covert 19, I think were the only brand growing share out of those top brands and so we've you know as long as we continue to execute our strategic imperatives.
And we put real focus on our leveraging what we call or superpowers I think we're well situated in the mark.
Great. Thank you.
The next question comes from Dell Chappell Suntrust. Please go ahead.
Thanks, Good afternoon Hope you all are well graphic.
Yes.
Two questions one.
You know.
How good of visibility do you have into the the pantries of your customers and then when I see that.
Has.
Phil track.
End of usage or.
Is it hard to tell him and when I say that as soon as a fair amount of your consumers that they've stayed at home they've used less cosmetics, they're not going out they're not going to store, they're not doing whatever.
And as it things open back up it they will but I don't know if your sales over the past with remotes attracted or if there has been pantry loading and then the loading or how do you. How you look at those have few months in a minute things open up.
Yes, So I'd tell you first of all Bill that we don't have great visibility in terms of the pantries and part of that has to deal with a loyal cosmetics consumer will have a number to some brands in many products, particularly the core enthusiasts is there's no such thing is enough makeup.
And so while the short term we have seen behavior change because it's being shelter at home. We believe when people are able to turn to more normal lifestyle, we'll see good consumption. There I think the other things that we pay really close attention, where we do have really good data is on l. cosmetics dot com and with all the initiatives we've had there.
And what we're seeing is very strong response, right now and so.
I think you know this will be a matter of wendy's retail fully really open up to change kind of the overall dynamic, but we're seeing quite a bit on off cosmetics dot com and it's anything all the metrics.
Our higher the number of new users coming to our site level knowledge traffic, but our conversion even our average order values are really.
Quite something right now and you can you help in terms of we'll see later.
But I guess.
The follow up into that you expect a pick up as Steve are you seeing in some states that are further along.
I'm in Georgia.
For opening a little faster than some people would like.
Do you think faster sales as people were getting back out those states where is it hard to tell.
We are we do track.
Stores, where we're restrictions have been lifted and the sales are better in those now with the long term impact is is there.
Is there another wave that Congress what happens there also one of the reasons why we're not prepared to give guidance at this point, but what I would tell you is.
You definitely can see once restrictions are lifted you do see a pretty significant uptick.
Got it and then one follow up in many you may not answer this but yes, you have the two planned in any given year, one with shelf space gains one with less built software can you tell us what you were thinking the plan was going to be pretty good.
Based on what you cared about Walmart Delta shelf space gains.
Yes so.
I just I will answer that question so.
We were we were hit before we got into covert if you recall a chart that we just showed here we were up 13% for four weeks ending February 22nd. So we had a lot of momentum coming into fiscal 21, and I tell you, we probably would have been at that higher in scenario with the shelf space gains with strategic extension of.
Well people and we.
We just announced a new brand, but that would be more so calendar 2021.
But we had a lot of momentum as we came in and so we were feeling good about that second scenario.
Great. That's very helpful. Thanks, so much they said.
Thank you.
The next question comes from Linda Bolton Weiser of D.A. Davidson. Please go ahead.
Hi, Thanks.
Can you talk about a little bit more about target and.
They've really done their beauty Saxon and reorganized it in kind of come up with the new format.
Can you talk about whether all their stores have converted yet to the new format and also what it means for you like is the literally convert over to the same amount of linear footage or does it modify things just by the format or can you talk a little bit more about that thanks.
Sure Hi, Linda as far as time goes about 1800 doors and I would say, we probably drop.
North of 30 different planner grams for them depending on their different formats. So they don't have any one standard.
They do have a I think and I always give names wrong, but I think it's called glow concept, which is their best expression of beauty.
We tend to have more space in those beauty blow out stores in as he comes where more of those stores to beauty blow up we tend to pick up more space you just have a bigger.
Amount of this.
Footprint dedicated to beauty in those stores with elevated presentation and so we've been in those beauty Glock stores as it continues to roll those out we get enhanced presence in those stores and then I'd say in the balance your target is not only our longest standing partner, but what's where we have the grades presence and so.
Even if it's not a beauty glaad store, our brand as quite well because they've been able to supplement the space. They have whether it be things like our flex towers or other merchandising that we deal with though so we have a pretty strong presence chain wide regardless of the format.
Thanks, and then also can I ask you about.
Your viewpoint toward M&A currently because you know it seems like you're going ahead with the launch of a new brand.
Organically. So does that mean you would also consider during this timeframe additional M&A and do you think opportunities are being created given the crisis. Thanks.
Sure. So I'd say, our first focuses the else brand and the tremendous potential we have one else and.
Best evidenced by the five strategic imperatives that we've executed against you'll continue to see as do that particularly in the short term I'd say our second priority is the other brands. We already have so the integration of while people now that that's been integrated really the gross leases that we had his time as acquisition, we there's a great deal of white space.
Well people and I'm really excited and hope to be able to talk to you in August of up new brand that Weve organic we created.
That is also really exciting so I'd say you for short term, we have our hands full and are fully dedicated to realizing the potential of all three of those brands with her team. That's a longer term there certainly are going to be opportunities in this marketplace theres going to be some brands.
Can benefit from the platform that we've created that we can also see a strong growth thesis to of course, it's premature to talk about that given our current focus but I'm, hoping both valuations come down and are more reasonably and that there are good opportunities in the future.
Great. Thank you and good luck with everything.
Thanks.
Your next question comes from Jon Andersen of William Blair. Please go ahead.
Hi, Good afternoon training Mehdi hope you're well.
Thanks again.
I wanted to follow up on.
Over the last question, you've talked a lot about building a multi brand platform and.
I don't want to ask about any specific M&A or.
Internal efforts, obviously it is more news to come on that but trying if you look out.
You know three years or five years, whatever the horizon and you think about.
The business as a multi brand platform. How many businesses are brands are we talking about are there any guard rails in terms of you know the sheer number of category. The brands that you feel you know can be up optimally managed by the company and then is there some sites criteria as well are you committed to.
Two fewer brands, perhaps with more size and scale to support new investments in innovation and marketing, where you open to kind of a portfolio with a longer tailed I know, there's a lot there, but just kind of bigger picture some guardrails around us. Thanks.
Sure. So John maybe building on my last point the best opportunity. We have is with the off brand and continue to realize its full potential.
And so that will clearly be our main focus having said that weve incredibly talented team and a set of capabilities that can be applied to other brands and so we look forward to proving that out both with well people as was the brand that were currently in development on I'd say, we do not having any magic number of how many brands do we want in that.
Portfolio. The in terms of Guardrails, we'll continue to be highly disciplined from a financial standpoint, if you think about it we've had this pursue strategic extensions as part of our strategy for a few years and it wasn't there was only three months ago that we did or for a strategic extension and we feel really great about the brand that we're developing world.
Antiquated.
From a financial perspective, that's much more attractive but also in terms of where what is looking at I see the second point for me would be the criteria is things that can both leverage our platform as well as exhibit really strong growth and so that is probably the bigger guide posts than any particulars.
Size of what we're looking for.
A number of brands are we're looking for and so.
Believe what you'll see us due over the next leased couple quarters is further flush out let me tell you about our plans on well people. Let me tell you about this new brand and why we're really excited in calendar 2021, that's not to say, we wouldn't look at where pursue other M&A. If it made sense, particularly in this environment there may be things up.
Look attractive, but that's really our current focus.
That's really helpful. Thanks last one for me international it sounds like UK was quite strong.
Maybe other.
International markets left so what's happening there maybe some of the markets that are.
Haven't been quite a strong and what are you doing to kind of return that business to growth.
Sure. So international still represents major white space for Us and I'd say who's been on this journey probably longer than a year now probably last couple years, where if you looked at or international footprint two years ago.
It was primarily comprised of distributor relationships in a variety of different markets around the world.
What we realized is a number of those distributors either current scale to the extent that we needed in the scale, where we didn't have a low control that we wanted to have interest in that market. So we tried something very different with UK. That's proven to be quite successful, which is direct headquarters coverage. So we started by taking away the distributor that had our web site in the UK.
Okay, and basically brought in house of cosmetic stock calm in the UK.
Direct relationships with both superdrug and boots, we seen incredibly strong growth in the UK. So that's our model going forward, that's not to say, we won't have some distributors in certain mark markets, but what you saw in international was US continue this journey of pulling business away from distributors in favor of rone direct coverage and probably the two that's countries of that are.
Represented would be Canada, which is where our first start was where we go direct to Walmart another leading retailers there and the UK and you'll see us take that model to other countries, we've been talking about testing.
The brand in Germany as we go forward, we talked last call in terms of our potential in China, particularly on E Commerce.
This call I just mentioned are focused area of the you from an E commerce standpoint, so getting that direct coverage in direct control both in our own website as well as key leading beauty retailer is really the focus going forward and I feel really great about that strategy because that's what we've actually used here in the U.S. and.
Total more profitable model is you kind of the distributor margin you can also have a better value equation in any of those particular markets.
Thank you.
Your next question comes from Mark Astrachan Stifel. Please go ahead.
Yes, thanks, and good afternoon, everyone.
I guess first question on online I'm curious.
It to the extent did you want to talk about it what percent of sales.
We're out right now in terms of.
Your website other retailer dot com et cetera, just all sales coming from that channel given obviously, what's what's going on the world and presumably a permanent shift to more online and biomark pickup in store et cetera.
You remind us or update us on kind of where your market share is online versus offline.
Yes, so I'll take that one mark.
So overall, our digital business is approximately 11% of our total sales and that was for fiscal 20.
As we've talked about seeing in recent weeks, our own ecommerce our retailer dotcoms really ramp up that percentage has accelerated but and 11% is where we work with fiscal Tony.
And how do you think about market share online versus offline.
It's really hard to measure.
Do you get some indication is through some of our retail partners, but they don't share all of their category data.
Certainly know what we do enough cosmetics dot com I would say the summary point there is it's going to be a continued area of focus and we believe we have a set of capabilities that make us a great partner with even retailer dot coms as was the Amazon them. So I think you'd see as a portion of our business. Our hope would be our digital business, we will go higher.
And I'd say the other thing I'll tell you is it even less than the commerce part of it.
Is the engine that drives everything else, our entire consumer engagement models, 100% digitally oriented of cosmetics dot com and a lot of the investments. We've made behind it is it is a central hall of our consumer engagement activities and if you, particularly if you go on our new App, which already has 60000 downloads I think it gives you good indicator.
No we're going both in terms of had the virtual makeup try on the receipt scanning which allows us to combine all of our customer data in one place our loyalty program and then our more recent content hubs, whether it be the health Discovery Harbor. The health Care's hub is you real good view of how we're using that to not only dry.
Our ecommerce sales, but more importantly, our overall sales company.
Got it Okay and then just.
Lastly, I frame still under more commentary about the new.
Brand launch upcoming but maybe just.
Talk a bit about.
How you think about.
We are in this is put on shelf is it existing retailers campaign for example that.
Those existing retailers on June 17 opportunity more up market as you kind of alluded to on their orders kind of day in either ability to get shelf space and just you know Sir I think about it being potentially complementary to what you're already doing with your existing reseller program.
Yes, so we see it highly complementary certainly our approach will be to leverage our strong relationships with their existing retailers our capabilities online and the rest of the chassis I talked about particularly on our our strength operationally the that combination of cost quality in speed.
But it is gonna be complementary to health. So most likely start in a different category start with different price points.
When we're able to announce it I think it'll be a lot clear than my hypothetical discussions right now and so look for hopefully in the August call will you give you much greater color on that but it's something that were tremendously excited about and part of that excitement comps being able to leverage the tremendous talent, we have as our team and our capabilities.
And we'll be able to apply to create something special.
Yes. Thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to turning a mean for any closing remark.
Great well. Thank you everyone I really appreciate the time today, I hope, everyone stays safe and healthy and navigates a challenging times were in I remain confident in our ability to continue to gain market share. Thanks to the talent, we have as a team our digital strength as well as overall value proposition and look forward to updating you.
Hopefully when things return more strong.
Thanks, everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.