Q1 2021 e.l.f. Beauty Inc Earnings Call
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Good day and welcome to the duties first quarter fiscal 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal corporate specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.
I would now like to turn the conference over to Milind Gerfried. Please go ahead.
Thank you for joining us today to discuss Ehealth beauties first quarter fiscal 2021 results I'm willing to freed head of corporate communications for health beauty.
As a reminder, this call contains forward looking statements that are based on management's expectations, including those related to the category trends and longer term outlook and are subject to known and unknown risks and uncertainties.
Therefore actual results may differ materially.
Important factors that may cause actual results could differ are detailed in today's press release and the company's SBC filings.
In addition, the company's presentation today includes information presented on a non-GAAP basis.
We refer you to today's press release, a reconciliation of the differences between the non-GAAP presentation and the most directly comparable GAAP measures.
Please note after the presentation there is a separate dial in for the Q in a fashion also noted in the press release.
With me from management today are trained mean, chairman and Chief Executive Officer, and Mandy fields, Senior Vice President and Chief Financial Officer, Let me turn the webcast Overtrain.
Thank you Melinda and good afternoon, everyone, I hope that you're staying safe and well.
Today, we will talk about our first quarter fiscal 2021 results the creation of a new beauty lifestyle brand with Alicia keys, and the overall strategic framework for the company.
I'm, so proud to be of team for delivering strong results and navigating major category headwinds during the covert 19 anaemic.
This is our sixth consecutive quarter of net sales growth with Q1, net sales of $65 million up 8% versus year ago.
We also expanded gross margin to 67% up nearly 500 basis points versus last year and delivered adjusted EBITDA of $60 million up 7% versus year ago.
Of the top five color cosmetics brands in the U.S., we were the only wanted to grow share in the quarter with 5.5% in the market up 100 basis points.
We achieved all of this in a volatile category that was down double digits.
We continue to excel on our multiple areas as competitive advantage by investing in our brand recharge in executing our five strategic imperatives.
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 to move it else speed positions us well to continue to gain market share.
Today, we're thrilled to announce our partnering with Alicia keys to create a beauty lifestyle brand codenamed projects Superwoman.
I will describe shortly why we believe this brand will be so special and will enhance the overall strategic framework for our company, but first let me provide a few highlights on the quarter.
Our first strategic imperative is to drive brand demand.
We have a number of initiatives that are driving greater brand relevance, we at least a bowl campaign last year to bring else superpowers to the forefront of the beauty conversation.
The original superpowers at our consumers can't get enough of our 100% beginning cruelty free and first a mass Holy Grail products that deliver premium quality at unbelievable prices with Universal appeal.
During these uncertain economic times, we've seen our value messaging has even greater consumer relevant our sales growth accelerated once government stimulus checks and supplemental unemployment benefits hit consumers wallet with new and existing consumers alike voting for else exceptional value proposition search demand for al outpace the category for the.
Quarter with Google searches rising 1.5 per cent compared to decline of 9.5% for the category and double digit losses for key competitors.
Else press impression sort, 333% for the quarter versus prior year, and we surpassed 5.5 million Instagram followers, emphasizing our growing audience.
We recently conducted in Nielsen marketing mix analysis and saw strong ROI result, in the absolute and relative to keep benchmarks, giving us further confidence that our marketing and digital initiatives are driving profitable sales.
Our record breaking eyes ups face tick tock hashtag challenge the most viral campaign and tick Tock U.S. history continues to rise reaching over 6 billion views in over 4.5 million user generated video study.
This is an increase of over 1.5 billion views and 1.3 million videos in the past quarter, highlighting the strength of our audience engagement on the platform.
While continuing to leverage tick tock, we remain focused on our entire digital ecosystem.
We are expanding our existing footprint with deeper engagement on key platforms like Youtube Snapchat and interest while seeking in testing new frontiers.
An Amazing example is new frontiers as our unique brand collaboration with Potently another brand favored by Gensix.
We work together and a virtual prom collection that marry their beloved food menu with our best selling products.
This limited edition Prieto inspired makeup collection sold out within four minutes on Elf cosmetics Dot com with 100% of these orders made by new consumers.
The campaign at high engagement across all social channels with over 3 million tick tock views in over 350 million impressions across beauty lifestyle Entertainment business press the strength of our value equation in brand building activities is attracting new consumers to the brand.
During the quarter over 50% of our retail purchases were from new consumers. This was even higher and else cosmetics dot com with over 65% of those purchasing being new consumers.
Furthermore, we're seeing that else consumers are highly engaged with beauty in spending nearly 1.5 times more than non elf purchasers.
Our second strategic imperative is a major step up in digital.
True to our digitally native routes, we continue to lead with digital first strategy that is benefiting both Alf cosmetics dot com as well as our retailer Dot coms.
During the quarter, we saw major shift online with our digital channels expanding to 17% of our total business up from 11% enough White 20.
Q1, digital consumption grew triple digits versus year ago.
Elf cosmetics dot com the number one mass cosmetics ecommerce site powers, our digital ecosystem, new consumers acquired in the quarter were up over 100% year over year.
We also experienced strong gains in traffic orders conversion any O V. A particular bright spot is our skin care business, which accounted for nearly 25% of our sales and elf cosmetics dot com in Q1 versus 18% last year.
Importantly, the Lv with skin care consumers is approximately $10 higher than our cosmetics only consumers.
Our beauty squad loyalty program reached 2 million members up over 150% year over year, and we believe it has even greater potential as a driver of our overall business going forward.
App downloads reached over 130000 with augmented reality continuing to drive conversion.
We also launched the alsop in the UK.
We continue to expand our digital footprint globally.
Last month, we launched Alf cosmetic stock Commie, you with a localize experience in Germany, and the ability shipped 10 other EU countries.
We're pleased with acceleration or overall digital commerce and the growth we're seeing on all retailer dot coms, especially Amazon.
Our third imperative of providing first amass prestige quality products also delivered strong results.
We continued our pace of product launches during covert 19 and found that consumers embraced our innovation.
Our biggest strategic focus is skincare, where we continue to see strong results behind our new cannabis city, though and full spectrum CBD collections.
These collection support our consumers desire for wellness and self care at an incredible value.
Our supers collection powered by the trending Super ingredient Niacinamide also seen a surge in demand.
Oh skincare consumption for the quarter was up 19% track channels versus a category. There was down 7% more recently tracked channel consumption was up over 30% in our Elf cosmetics dot com consumption was up over 100%.
We have additional launches slated for the balance of the fiscal year expected to help propel our skincare momentum.
We reinforce our strengthen primers brushes and brow pencils, maintaining our number one position and all three segments.
We also continue to drive share gains in our market, leading Parlous party primer and camera concealer franchises with segment share increases a 15 points in 13 points respectively.
The extension of our Parlous Party franchise has been particularly successful with all three primers now ranking in the top 10 mass primers. We're also pleased with the results of our purpose driven product collaborations and limited time collections.
We partner with the J kiss of for the second year in a row. This time, featuring a 100% deegan highly pigmented 18 piece I Shadow pellet.
Jay kits that reinforces our shared values of cruelty free and how else stands with every I lip face and Paul.
Nice autopilot and brush that sold out on our website and less than five days. We also introduced a retro Paradise collection tropical inspired line of products that was created after last year's beauty scape an event that gives rising beauty enthusiast, an opportunity to collaborate with ehealth and create products.
The winning team the glam gals in else had been on an amazing journey together from the birth of the concept in the Bahamas, two shelves at target.
This collection is proving right now more than ever we all need a passport paradise.
Our fourth strategic imperative is driving national retailer productivity and centers around project Unicorn, our initiative to improve assortment presentation and navigation at shelf, we successfully executed phase three of projects Unicorn. This past spring with better visual merchandising, particularly for our market, leading primers and Chemokines sealers.
We ship to target, new Unicorn displays and flex towers for retro Paradise.
We continue to see the blurring of the physical and digital realms as excited consumer share their in store experience would tick tock video creations, including this one which quickly garnered a 130000 views you guys I just want to targeting I thought this new our retro Paradise line and I fell in love everything so pretty I wanted one of each but I want to myself and just look cost to try.
As pleased as we are with Unicorn execution, we continue to face category headwinds due to covert 19.
Ulta beauty and our main international retailers brick and mortar stores were closed most of the quarter.
Even at target in Walmart, our top two customers who remained open we continue to see volatility in a definite slow down with the recent surgeon Coke in 19.
We're also lapping the benefits of the price increase we took last July in response to the 25% tariffs.
Well, we expect the category in our business to be challenged by the pandemic remain focused on a relative performance to key competition, we mentioned last quarter that given the strength of our productivity innovation and consumer engagement Walmart in Ulta beauty plan to expand Elf space. This fall in a subset of their doors. This expansion will allow us to increase our skin care assortment.
At both customers.
For perspective, skincare was 6% of our tracked channel consumption and therefore I 20 in Q1 it grew to 9%.
Skincare comprises a much higher percentage of Ralph cosmetics Dot com business at nearly 25%.
We believe is our retail footprint and skincare expands with more space, we have the opportunity to further drive our skin care business.
Our fifth imperative is delivering cost savings to help fuel brand investments.
I'm proud of our operations team. We're one of the first beauty companies come out of covert 19 restrictions in China fully operational.
All of our suppliers are back in business in the first week and we're running at full capacity. After five weeks not only did our team maintains apply continuity. They continue to generate cost savings by a lean manufacturing techniques that have contributed to our strong gross margin rates. We've also identified significant cogs savings on key well people products, which gives us abilities in.
Vest and recharging the brand and sharpen retail pricing.
Our new liquid filled manufacturing plant is continue to be delayed by covert 19 as local restrictions have prevented us from doing engineering and installation work the progress in our five strategic imperatives has been terrific and we believe we have further opportunity with each.
We're equally excited by 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 is a pioneering clean beauty brand well people.
This acquisition is strategically important as consumers are becoming increasingly conscious of the ingredients in their products.
Our thesis is that we can benefit from the 12 year history, well people has as a pioneering clean beauty with 40, E.W.G. verify products and in turn leverage the investments we've made in our team in infrastructure scaled the brand.
Last earnings call, we'd already fully integrated this acquisition onto the health platform.
And now we're starting to realize synergies and make progress on brand growth initiatives. The most significant activity. This quarter is conducting the strategic work for well people brand recharge similar to the work we did on else last year.
At the core of this recharges our brand vision, because all people can be well people as we strive to make clean beauty accessible.
We look forward to bringing this brand recharge market over the coming months, Here's an early peak.
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Our team has also been working on the creation of a groundbreaking new brand that I'm thrilled to announce.
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Anticipated to launch in calendar 2021 project Superwoman is a new beauty and lifestyle brand created with Alicia Keys 15 time Grammy Award, winning artist producer actress and New York Times bestselling author.
One of the leashes personal skincare journey and her passion for bringing lighten positivity in the world. The brand vision is more than skin deep.
With an inclusive point of view, an authentic voice and a line of skin loving dermatologists developed cruelty free products project Superwoman aims to bring new meaning to beauty by helping people honor ritual and their daily life and practice intention and every action make no mistake. This is not another celebrity beauty line.
Because alicia is more than an icon she's an inspiration.
Inner song lyrics, numerous interviews and editorials and in or candid, New York Times best selling new book more myself a journey. She is openly and honestly shared her skin struggles her frustration with societies unrealistic beauty ideals and our own journey to finding clarity strengthen a deeper knowledge ever real self.
Now through this endeavor. She aims to help others find that same place of peace and power within themselves.
Anthony you know beauty is.
Beauty is about the soul and the heart and spirit and what comes through you had a view and so it's more than just the surface. You know its is a deep conversation about who we are in who we want to be and where we're going it's a passionate my deep passion of mine it has been using them.
In personal experiences and and it's about listing frequency in the vibration in figuring out how can we create rituals for ourselves that really so Stella no. What I mean, so I'm. So excited to be partnered with L. on this I mean, the passion is real energy is so pure.
Really creating something that I believe in and I love and I know youre going up.
Our innovation team has already developed a robust multi year multicategory product pipeline with Alicia keys, and Dr. Rene Snyder co founder of well people and board certified dermatologists.
Spec projects superwoman to be available online and in retail outlets in calendar year 2021.
We look forward to unveiling more in advance of our Q2 earnings call in November.
We believe strategic extensions are key to our long term growth as we evolve from a single brand to multi brand beauty company.
Before I turn the call over to me, Andy Let me provide a bit more perspective on the overall strategic framework of the company and our brands.
Health Beauty is apparent company the bowl disruptor with a kind heart health beauty stands with every I lip face and Paul.
This deep commitment to inclusive accessible cruelty free beauty has fueled the success of our namesake Elf cosmetics brand since 2004.
We continue to expand our portfolio with strategic extensions that support our purpose in values Elf cosmetics makes the best of beauty accessible to every I lip and face we make high quality prestige inspired cosmetics and skin care products at an extraordinary value and are proud to be a 100% beacon and cruelty free.
Well people is a clean beauty pioneer raising the standard for high performance plant powered cruelty free cosmetics since 2008.
Landed on the principles of purity artistry and responsibility, we're committed to creating clean products that help people be well look well and do well.
Projects Superwoman is a beauty lifestyle brand carefully crafted with Felicia keys with an inclusive point of view and authentic voice and the line of skin loving dermatologists developed cruelty free products projects Superwoman will aim to bring new meaning to beauty by helping people to find piece and power within themselves.
From a price tier standpoint, Elf cosmetics is extraordinary value in the mass segment. While people is plant powered beauty in the messed each segment and project Superwoman is lifestyle beauty and entry level prestige.
All three brands are accessible relative to their competitive set.
Supporting all of these brands is our high performance team and company values to delight, our consumers do the right thing work together to win and execute with speed and quality in other matters. We're pleased to have reached agreement with marathon partners. In early July that allows us to remain focused on executing our strategic imperatives.
We're also happy to welcome Lori Keith as another strong independent Board member.
Lori brings to our board the perspective very experienced portfolio manager and expertise in E.S.G., we'd also like to thank TPG for their six and a half your investment in the company and help building Ehealth beauty from 100 million dollar revenue private company to a nearly 300 million dollar public company.
Consistent with its practice to responsibly returned money to its investors TPG is now completely exited its position in health beauty.
Tbds investment in Alphas made from a growth fund raising 2011 for which Alf delivered strong returns.
In summary, we are moving it I'll speak to grow share and position ourselves for an even brighter future 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 mandate to discuss the financials. Thank you terrain and thank you all for joining us this afternoon.
Today I'll cover our Q1 financial results provide perspective on what we're seeing in the current operating environment and discuss how our strategic extensions connect to our long term economic model.
We're quite pleased with our Q1 results.
We delivered net sales of $65 million up 8% from year ago.
This growth was mainly driven by E commerce performance and tracked channel customers, partially offset by Altera and international store closures that persisted most of the quarter.
Our growth was further accelerated once we started to see stimulus impact consumers wallet.
Our performance in the last 12 weeks ending 613 outpaced the large legacy brands in our space and our outperformance versus the category accelerated with market share up 100 basis points gross margin of 67% was up nearly 500 basis points compared to prior year.
Al cosmetics Dotcom was the primary driver behind our expanded gross margin.
But the consumer shifting online our site representing more of our sales mix versus year ago, and total company gross margin benefited from that mix shift given the acceleration in sales momentum. We saw an else cosmetics dotcom. We were also able to be less promotional and drive stronger gross margin overall on our site.
The benefit of E commerce margin accretive mix FX and price increases lifted overall gross margin for the quarter to the extent consumer shift back into pre covert 19 shopping behavior and away from E. Commerce. We expect the benefit we are seeing in gross margin will roll back by approximately 200 basis points on an adjusted basis.
SGN as a percentage of sales with 51% compared to 47% last year, primarily driven by Annualizing head count related to building out our marketing digital and innovation capabilities.
Increased operational costs related to higher ecommerce volume in the quarter and increased investment behind marketing in digital on a dollar basis.
Marketing and digital investment as a percentage of net sales was 11%.
Given the strong sales performance in the back half of the quarter, we ended up below our 214% target.
We expect higher levels of marketing spend as a percentage of sales over the balance of the fiscal year as we target to stay within the 12% to 14% range on a full year basis.
Q1, adjusted EBITDA of 16 million was up 7% versus prior year with margin at 24% of net sales.
Adjusted net income was 9 million or 17 cents per diluted share compared to 7 million or 14 cents per diluted share a year ago for the three months ended June thirtyth, we generated $12 million in cash flow from operations. We also reduced capital expenditures by $2 million versus prior year and repay the $20 million we had outside.
Turning on our revolving credit facility this quarter.
We ended Q1 with $54 million in cash on hand, compared to our cash balance of $61 million a year ago.
Liquidity remained strong with the combination of our cash balance and access to our revolving credit facility sitting at over $100 million.
We expect our cash priorities to remain on fortifying the balance sheet during the cobot 19 pandemic investing behind our five strategic imperative.
According strategic extensions to fuel long term growth.
From an outlook standpoint, our full year fiscal 2001 guidance remain suspended.
Performance, we delivered in Q1 was strong, but we're cautious not to anchor near term expectations on a quarter with multiple external variables and play.
We expect the overall economic environment to remain quite volatile.
We also expect consumer behavior to remain impacted by cobot 19 at least through the end of the calendar year, if not our full fiscal year.
While we experienced double digit growth in tracked channel data in the back half of the quarter, we expect to see a leveling off as the first round of stimulus dollars drives out and as we cycle the price increase we implement it last summer.
Additionally, we're seeing a great deal of volatility in our recent sales data, especially as cobot 19 cases surge across the U.S.. We expect this also to impact tracked channel results in the near term.
The expense front, we continue to take steps to reduce where we can while still investing in our long term growth.
Stayed at last quarter, we did not expect savings in Q1, but expected some progress in Q2.
Given the improvement in sales since the start of Q1 increased operational costs associated with the sale shift toward L. cosmetics dot com and our current plan to keep marketing a digital in the 12% to 14% range for the year, we do not expect to see material cost savings on a year over year basis, we expect to have stronger gross margin at the shift in E com.
Yes remains with net margin, partially offset within S. DNA.
We will also have certain costs related to our strategic extensions that we expect to treat as adjustments to ask DNA for the balance of the year.
Examples include integration cost unwell people and development costs on project Superwoman, we expect $5 million to $7 million of working capital and Capex investment across these brands in fiscal 2021, as we prepare for retailer distribution. This aligns with our cash priorities leveraging our existing cash to him.
Yes, and long term growth.
Lastly, I cannot express how excited I am about project Superwoman, adding this brand plus while people to our portfolio reflects our deep commitment to inclusive accessible and cruelty free beauty.
Our financial standpoint, our interests are aligned with the leashes with a royalty and milestone based fee structure that leverages, both cash and L. beauty equity.
We believe this brand is both distinctive and complimentary to our portfolio and allows us to leverage the cost structure, we have in place as we scale. It up while we expect the short term to be quite volatile and uncertain. We continue to believe and our long term economic model once the retail environment return to normalcy.
We believe that our digital strength and core value proposition will enable us to continue to outpace the category and position the l. Fran for growth.
And with the addition of well people and project Superwoman, we believe that the higher end of our long term economic model can be achieved with that I'll turn the presentation back to terrain.
Thanks, Manny this is indeed, an exciting time for health beauty, we're taking market share and believe we're well positioned to ride out the current storm.
We continue to fuel our momentum on Elf cosmetics as well as develop additional growth factors behind well people in projects Superwoman.
What gives me great confidence in a long term potential and white space is a set of competitive advantages that we possess.
We have the right team with an employee base at 73% female 60% millennial and 46% diverse representing the consumers that we serve we're one of only nine public companies with the board of directors composed of 67% women, 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 amassed products, we move at El speed with the ability to bring new products to market and as few as 13 weeks.
We have world class operations, providing us the best combination of cost quality and speed.
We know how to go to market and growth through our strong relationships with international retail partners, 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 multi brand house.
While these remain difficult times, we're optimistic in the long term potential of this company.
With that operator, you may open to the call to questions.
For those you'd like to ask a question. Please do so through a separate dial in line noted on the screen.
Does not asking questions can hear the question and answer session through the webcast.
We'll pause a few minutes for those seeking to ask questions to queue up in the dial in line.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too and at this time will.
Pause momentarily to assemble a roster.
And our first question will come from Erinn Murphy with Piper Sandler. Please go ahead.
Great. Thanks, good afternoon, and congrats on a strong port first quarter.
My question. My first question is really around the progression of trends that you guys on the quarter, maybe if you could speak to what you thought math from a replenishment perspective, and then at all to typically.
That would closer part of the quarter, what did you start to the that channel or that retailer opened up mid quarter.
Yes, so a high Aaron how are you.
So in terms of what we saw within the quarter. If this quite a volatile quarter. So if you recall when we were in April our trends were down about 30% in tracked channels and then towards the back half of the quarter. We really saw an acceleration and we believe that was primarily driven by us stimulus and the extra unemployed.
Benefit that our consumers were receiving.
I would say that from that from an ultra standpoint, we saw strong growth in ecommerce with all that but to your point their stores were closed not through the quarter. So that we did not have.
You know any sales growth there for Q1.
Okay, and then I guess my second question is really around project superwoman, given the pricing a bit brand I think terrain you talked about entry level per stage. How are you thinking about the channel opportunity. There will you be working with new retailers and then you referenced that it's kind of a light style brand I'm curious if you're thinking about more wells.
In addition to scan and cosmetics.
Anchors that you do so well thank you.
Higher and we're thrilled about working with Alicia keys on a new lifestyle beauty brands, what we mean by lifestyle beauty brand is this brand is much more than just product alone Alisha is someone is real substance who has meaningful things to say on beauty wellness inclusivity. Many of the core values that we stand for.
So in terms of each question on channel mix as a digitally native brand ourselves. Our first focus will be online, there's a tremendous amount of content and.
Advice that we can share that we will want to do through digital engagement first.
We will be revealing more on the brand, including the brand name lineup and retail partnerships, probably by time of our November call.
Great. Thank you bye.
Hum.
Our next question will come from Andrea Teixeira with JP Morgan. Please go ahead.
Hey, good afternoon, there and first of all congratulations on the partnership with Alicia.
Good luck planned I would say more exploration ambassador.
And also more first quarter results were also so I wanted to.
I understand and perhaps make sure that we.
Listen correct me, if I mean, this woman and the merchants are you.
Obviously, the puts and takes of the gross margin will be less.
No in fact, we expect to be impacted boots this quarter than before but I was just thinking all your elevated you anniversary first of all the gross margin I understand you're anniversarying the pricing before but curious to see how much that impact to the last years.
Quarter said that we can take that along and also how we should be thinking and elevated it's Jamie I think when I when I saw the numbers for my math I think you kind of it concludes and universe, saying they think that no.
It's going if you like.
Are you play margins are going to be flattish or you're still going to see when include many margins are going to EBIT level, but that being said labs improvement that's all.
At quarter. Thank you.
Yes, Okay, Hi, Andrea I will start with the top so your question on gross margin so our gross margin.
Was it we picked up a benefit this quarter because of the shift in ecommerce and so that benefit was probably about 200 basis points.
That we saw there in the quarter now to the extent that consumer shift back to normal in store shopping patterns that gross margin benefit will all the way on a sequential basis.
In terms of pricing Q2 is when we implemented the pricing last year. So that's when we'll start to cycle that impact and pricing overall was somewhere in the range of 210 300 basis points benefit for gross margin standpoint.
And then on S. DNA, we are anniversarying some of the investments that we made in our infrastructure behind our marketing and innovation and digital capabilities.
So that is one of the drivers of why you see as she and a higher on the quarter as well as on a dollar basis incremental costs are incremental investment in marketing and digital and then also as I talked about the E. Commerce shift we got the benefit in gross margin, but there's also incremental cost that come into the SGN a line.
So those you picked up in S. DNA and this quarter and in terms of adjusted EBITDA and margins on the outlook I mean, we have suspended guidance. So I can't really give you.
Kind of direction on that on in terms of expectations.
But.
I can say that as we think about marketing investment we only had 11% this quarter that certainly we want to get up into that 12% to 14% range for the balance of the year.
That's helpful. Thank you very lumpy.
Our next question will come from Steph Wissink with Jefferies. Please go ahead.
Thank you good afternoon, everyone Alco congratulations from us on a strong quarter.
I wanted to start with use of the question on your comment on space gains you assigned those game to skincare I'm curious if you can talk a little bit about your agenda on skin, specifically at Walmart and also with both weight gain I think you've also reference that partnership with the Lisa will include some skin care, but maybe just talk broadly about their agenda with skin care over the course.
The next six and 12 months.
Sure Hi stuff.
What I'd tell you skincare is been a strategic importance to us for the last couple years, and we continue to pour more into skincare, both from an innovation standpoint, as well as what we've seen in our momentum and growth trends. So I talked in our prepared remarks skin care as a total percentage of our business is 9%.
Represents 25% of barrels cosmetics dot com business. So we see quite a bit of room to grow in skincare, particularly as we get larger retail footprint on skincare. The most of all customer we have right now in skincare is target, where we do have more space. So as we pick up more space and other retailers, including Ulta beauty.
The and Walmart this fall it gives us the opportunity to get more of our skin care items in there. So we continue to see greater strength in skincare as were able to get a bigger footprint there and our innovation on skincare is definitely resonating the candidates achieve aligns our recent CBD full spectrum CBD line as well as our.
Supers line also delivered important results to the quarter and we have a great pipeline for the future.
And then in terms of our new lifestyle beauty brand with Felicia keys.
Lot of that was born really through a leashes personal journey and struggles in skincare and what she has to say on overall beauty and so that line is much more than just product, but certainly we'll have a focused initially on skin care, but we've also developed a multi category multiyear pipeline on that.
That business and the last thing I'll tell you on skincare as we continue to increase our capabilities in this area.
Dr. RENASYS nighter, who's one of the co founders of well people and a board certified dermatologists, it's actually aided our innovation team in the development of some of the products for Alicia Keys line as well is what we're doing on while people.
Thank you one follow up just on your new to customer file I think you mentioned, 50% of your purchases were from new customers and 65 for someone else dot com any unique cohort in place on those new customers that you're finding new to file.
Yes, so we're really pleased to see the level of new consumers coming to our brand. We the initial view that we have is a combination of consumers coming to us from legacy brands on the mass side as well as some trade down from per stage. So the specific stats are about 56% of consumers.
In retail came to us our new consumers and over 65% on Elf cosmetics Dot com will get better profiles of that overtime. That's just one quarter's worth the data. So a lot of that will depend how many of them are we able to retain.
Really pleased but how many consumers are coming into the franchise.
Thank you.
Our next question will come from lender wiser with da Davidson. Please go ahead.
Yes, Hi, I'm wondering if you could update us on your international business.
Finally, what retailers you have distribution in Europe in the UK owns of talk about some of your aspirations. There and also is there any long term plans for penetrating the Chinese beauty market. Thanks.
Hi, Linda So let me take that question on the international business.
I would say for the quarter International as similar story to what we thought here in the U.S. So our international.
In line business was very strong with that international retailers. If you think about our presence in the UK at boots, and Superdrug workload. Those stores were closed most of the quarter as well. So we saw growth overall and international but it was driven by E Commerce and so I would say international is definitely still an important.
Most of our business and tremendous white space remains in that market and then in terms of China I'm going to pass it to drink to speak more about that sure. We have high hopes for our business in China as well our business in China right now is 100% online.
Really through some of the key marketplaces like T mall in JT, what we find in China E. Commerce is really important as a brand value standpoint for us is having being manufactured in country. Our ability to go through a different regulatory scheme, where we are guaranteed our cruelty free status and so that's for at least the four.
Foreseeable future till regulations change the only aspirations, we'll have we'll be on E commerce, but it happens to be the largest ecommerce market in the world and I'd say, we're still very much in the early days in terms of our penetration there, but it's a key area focus.
Thank you.
Yes.
Our next question will come from Oliver Chen with Cowen. Please go ahead.
Congrats on the new brand regarding project Superwoman, Alicia keys, what are your thoughts on the long term opportunity of the spread relative to SLF and how you're thinking about the you are as well as points of distribution more broadly a relative to your two year presence at 11.
I would also thanks for the details on skin care as well as we model that going forward are there implications for a you are under margin as it looks like a nice opportunity to continue to grow that mix.
Where might that mix go overtime.
Sure Hi, Oliver So we are thrilled to work with Alicia keys, and one of the things that attracts just to Leisha was not only her longstanding vision and mission as as she thinks of beauty much much broader in greater depth than many others, but the fact that she is not just a celebrity she is much more she's a.
Person of real substance now as a 15 time.
Grammy Award winner artist producer now, even this New York times bestselling author with her.
Memoir, more myself, she has real substance and so a big part of this work with her is really developing a long term vision for the brand.
So as I mentioned earlier, we've already mapped out multi year product pipeline as well as other things that we can do and so we're really excited and then in terms of how that relates to help I would say why is it really exciting things about the company right. Now is we continue to see a great deal of white space on else, whether it be on space, bringing new consumers to our brand our levels.
Innovation overall value equation, you add to that well people, including clear pioneer and clean beauty as well as this lifestyle beauty brand with Alicia keys, we think creates a much stronger portfolio for us as a company such that we have greater confidence once things return to normalcy of hitting the higher end of that long term economic.
Model that Mandy previously shared.
And then in terms of mix you definitely hurt right that consumers, who buy skincare and cosmetics dot com have a $10 higher.
Average order value than consumers only by cosmetics skincare, while still an extraordinary value from an l. standpoint.
Does have a higher mix from a price standpoint, so as that happens overtime, we would expect a you ours as a company to increases skincare.
Proportion of the overall business increases.
Okay. Lastly, thank you on innovation and ahead I'm regarding ingredients and you're thinking about R&D specific to ingredients and proprietary technology you can develop internally what's on your mind or roadmap in terms of 'em differentiating yourself from a ingredion innovation perspective.
Well, we've long been focused on ingredients from standpoint of consumers are increasingly in conscious of the ingredients that are in there in their products. So a while ago, we formulated away from Parabens violates. Our then Greens consumers did not want to see in their products. We heard from this last quarter is a real focus on it.
Greetings and wellness, particularly in our skin care products are Canada cities full spectrum CBD lines, even our supers collection that has nice minimized in it definitely have a very strong ingredient focus I think bringing well people into the company. It gives us even stronger capability in this area.
Plant powered clean beauty brand that has not only one of the highest standards, including beauty labels, but our ability to really take lessons from that applied to not only else, but also what we do on the new lifestyle beauty brand, we create with Leisha keys really see greater focus on the green Cerner products.
And I feel great about our capabilities in that regard.
Thank you best regards.
Our next question will come from Dara Mohsenian with Morgan Stanley. Please go ahead.
Hey, good afternoon guys.
Good afternoon Pandora.
Can you discuss the opportunity for shelf space gains at brick and mortar and the forward as we look out to calendar 2021 color building on the earlier question on skincare. Your share gains were obviously very strong this quarter and a lot of your larger share competitors saw some pretty substantial declines so im.
Just wondering if the recent performance.
Drives more of a step change in shelf space opportunity going forward in color over the next year or so.
And then secondly, also in the same subject where their shelf space changes from this spring that were delayed as a result of cold.
Is it realistic to expect changes this fall or retailers, so pretty apprehensive about making changes to the shelves in this current environment. Thanks.
So darla, let's say, we have great potential when it comes to shelf space gains in color in fact, the gains that were going to pick up at Walmart in Ulta.
We both color as well as skincare solely that our preferred sets are expanding this space, we already have on health and housing skincare within our else that that's the approach that we've taken at target and has done very really well with for us.
Walmart will follow a similar approach as they expand shelf space in a subset of their doors.
Ulta beauty has decided to put skincare in their skin care sets and the additional space will pick up there in the fall.
We'll be nu skin care set so we'll see a combination in both places both picking up more space on health in our color cosmetics sets, where we can put more skincare items in as well as secondary location in the skincare aisles, and we feel good about that in terms of our current plans were still on track for the gains that we had.
All of our spring resets actuation backup Oliver spring resets.
Were executed.
Phase three of project Unicorn, which had much greater focus on visual merchandising, particularly on our key hero items like portal is party primer and Chemokines Sealers those were executed well and we're definitely seeing the benefits of that phase three unicorn execution are we are on track for space gains This fall at both Walmart.
No to beauty and are also hopeful for future space gains, although we do not have confirmation on any of those yes, those usually come a bit later and.
We'll have to see how this in in this environment, where retailers go but we certainly have much more room when it comes to space gains.
Okay and has the performance the last few months just push a bit more there has that sort of change the conversations with retailers do you think that's giving you more incremental opportunity that you would expect at six months ago pre coated and then.
Just a different question in terms of the new customers you picked up can you talk about how you are trying to hold on to that customer going forward.
Yeah.
You know maybe repeat rates you've seen early on from some of those new customers that would also be helpful. Thanks.
Yes, well I would say on the space opportunity I don't believe it's changed the conversation as well as much as continued to strengthen our case. This is a sixth consecutive quarter, where we've had net sales growth. Our productivity continues to increase of the key retailers were at our innovation pipeline is bigger and better than most.
Most competitors that they see and our consumer profile all of those really argue for more space and so I think that conversation is well established it really comes to the retailers on strategies and when are they able to make changes to their shelf sets of but the overall case for space I think has been well need and is well received by.
Almost all of our retail customers and then in terms of new customers that we've been picking up I'd say, our primary focus there, particularly online is through our beauty squad loyalty program as I mentioned that loyalty program is now up to 2 million members up over 150% versus last year.
To be an increase area of focus for us as we continue to convert those new customers to loyal consumers and initiatives that we've previously talked about such as our app.
Our ability to integrate in receipt scanning where someone can get elf loyalty points, regardless of where they buy.
Both products will help aiding that journey. So our focus is converting more of those consumers over to our loyalty program and really retaining them overtime.
Great. Thanks.
Our next question will come from Bill Chappell with Truest Securities. Please go ahead.
Hey, Thanks, good afternoon.
Good afternoon Bill.
Yes through and going back to the project Superwoman.
You know as well as anybody else, the pros and cons of kind of a celebrity endorsement and kind of celebrity brand.
And just trying to understand you, though the thought process because.
Yeah, obviously different marketing advertising you know everything that comes with that type of brand versus versus where Elfas, Dan. But also you know maybe it financially does does it mean that you're gonna have to take up marketing advertising beyond the 12% to 14% to really launched a brand new brand I make a big squash.
Or do you look to it being it like Yelp was come slowly but surely.
Building out a presence over a number of years.
Yes, So first of all Bill I think one of the things that really attractions just two Alicia keys is she's more than a celebrity she has real substance and someone we can see building the brand with long term for many years and our approach is more consistent with health than maybe some of the other models that you're familiar with the of those who do.
Celebrity brands. This is really a lifestyle beauty brand for the long term and so the approach that we take which is digital first very much.
Remains intact. Our approach is we're able to then announce which retailers will be entering at a later date I think you'll see a great deal of interest in doing things be Elf way and building this brand for the long term.
In terms of the specific levels of marketing support we haven't talked about that yet relative to we haven't given the overall size of the new lifestyle brand in our approach there.
What I would tell you is it is not necessarily the big Bang approach once where we're trying to get as much sales and then you move onto the next thing. This is something we definitely want to build and nurture for the long term and so.
I think have talked previously about this is not one where we're just planning to spend tens of millions of dollars and then forget about the brand. This is something we definitely want to build and the launch plans very much reflect that in terms of leading with content nurturing online.
And then taking selective retailer relationships to help further amplify in magnify the brand all with in hand in hand, with Alicia Keys, who has an incredible and loyal following.
Got it and then just in terms of follow up on cadence I mean.
Is this a typical you need to have the brand the placement all they've done by calendar yearend, so you're ready for shelf Planogram resets in the spring or it will drag I will not drag out it will it well at phase out a little bit longer than that.
You know we haven't.
We haven't given a specific timing, but what I would say is will lead online and then you'll see retail penetration a bit later, we will probably be in a better positioned to talk some of those specific plans on our next call.
Got it and then just one last one there do you see having more Bradley said mowing multi brand and with well people from the that enough word you'd see are there other areas you could go down the road.
We definitely see other places we can go the overall strategy or the strategic framework is taking the capabilities, we have in team and our infrastructure in applying them to other fast growing emerging brands I would say we ever hands full for the time being particularly with such tremendous white space we have.
No our plans for well people, including those sneak peak, we gave on the Grand recharge and what we can do on that brand and then obviously their excitement on the lifestyle beauty brand with Felicia keys, but we are open to other tuck in acquisitions as well as brands. We create we don't have any immediate plans for that given our focus.
These three brands.
But it is something that you could see in the future as part of overall strategic framework and leveraging the team and capabilities that we've built.
Perfect. Thanks, a lot of the cold.
Thanks.
Our next question will come from Jon Andersen with William Blair. Please go ahead.
Good afternoon, everybody and thank you for the questions.
Just two quick ones for me.
Turning you mentioned that.
Phase Threea project Unicorn.
It was largely I think complete this spring.
Can you talk about.
Are there additional efforts.
[music].
Unicorn that we should expect to see during coming quarters or do you kind of view. It now as mission accomplished with respect to that effort and refocus on other areas going forward.
Hi, John I don't have you ever going to hear me stop talking about project Unicorn as it has multiple phases and if you really look at the objectives of project Unicorn. They really were to elevate our presentation at shelf in retail settings, and increase our productivity and I don't think that work will ever be done we.
Do like what we're seeing.
In each successive phase of Unicorn. So the next couple of phases of Unicorn will continue the journey that we had this spring of continuing to be able to elevate our presentation and bring greater visual merchandising to our retailer shelf sets. The first phase three as I just mentioned really focused on some of our core hero items such as.
Carlos Party primer on Chemokines, Sealers, which if you looked at them. This year versus last year is so much easier to navigate on the shells and find the areas that we have real strength, we see additional opportunities continue to elevate that visual merchandising. So in the additional space that will pick up this fall at both Walmart and Ulta beauty.
We will continue to see the evolution of Unicorn, there and we're hoping in future years, particularly next year as I look at calendar year 2021.
The next version of the step change in terms of what else looks like on shelf I think if you look at some point maybe in one of these webcast will show pictures of what we look like through the successive phases of Unicorn.
And it's quite clear in terms of the elevation of the brand and how much easier. It is for consumers to navigate which in turn has led to much greater productivity and we still see further room to grow.
Excellent.
You mentioned briefly in your prepared comments that the new liquid filled facility has been delayed due to do to cope with.
Do you have an update on when you think.
That facility will be production ready.
And or are there any.
Capacity constraints that you need to deal with in the near term.
Given given that lays there.
Yes, so our liquid filled facility in southern California. Unfortunately.
It has been a victim of the shutdowns related to covert 19, so we've not been able to do the engineering and installation work necessary, we're still under lockdown for that particular facility. So I do not have an update on the timing.
That facility I would say the later this year hopefully I.
I think we're all hoping for resolution to covert 19, and returning to normalcy, but I think that will be subject somewhat to our our path on when when are we back to normal from that standpoint in terms of capacity I'd say, you know actually one other thing on the liquid filled facility. The objectives of that facility are still very much in.
Hi, which is gives us further supply diversification.
And also significantly reduces lead times, which were interested in particularly as we think of the robustness of our innovation program. So when we are able to open it up I think we'll have we have high hopes on being able to achieve those objectives.
Meanwhile, I'm so proud of our team our operations team, particularly our team in China. We were one of the first beauty companies to be fully operational left recovered restrictions are lifted I think we're at full capacity within five weeks, we've not seen any meaningful supply disruptions. During this volatile time.
And our team continues to deliver lean manufacturing savings and ideas for the future and then from a capacity standpoint, we have plenty of capacity to meet our needs and a lot of that will be and really incumbent on our planning as we continue to see a lot of volatility in the business, but we feel great about our overall the strength of our supply chain.
That combination of cost quality and speed, we're able to deliver and I think you know really being put to the test Jordan Cove in 19, pandemic and really coming through that so far with flying colors.
Great I actually if I could squeeze one more him.
So you know you've gone pretty quickly from.
One brand out.
The like a line that value price points, you know two to now having well people.
Clean beauty brand you WG verified real rich credentials there.
Now, adding a lifetime life.
Style beauty brand.
So you know going from I guess, one to kind of three brands increases some of the complexity of managing the business. How you allocate resources to innovation marketing and then more operational aspects like production planning inventory management are there changes that you have need you have made or.
We did make internally from an organizational standpoint people standpoint.
In order to effectively steward you know these three brands as opposed to the single brand focused you've had in the past.
Sure John I'd tell you two things there.
First and foremost we've not of our 250 employees I think Weve hand selected almost 240 of them now and so we tend to pick from Blue chip CP consumer and beauty environments. So much of the team comes with multi brand experience everyone on the executive team is as.
Managed multiple brands at the same time off any categories that involve many more brands. So I think that capabilities. We have are really good from a ability to manage a portfolio of brands and then the second thing is you heard me any talk about her as she in a levels and some of that as she in a really.
We went into a vision of building this multi brand house. So we have added resources in marketing digital innovation other areas of the company that give us greater confidence to be able to manage a portfolio of brands with some mix of people who can manage multiple brands. If I think of a lot of the back office functions that.
It doesn't matter, we have one brand or three brands that you can spread against as well as dedicated resource by by these each of these brands as well and so I feel good having lived for almost 30 years with a multi brand environment, our ability to do that but certainly that's also one of the reasons why.
We really want to make sure we execute these three.
With that sorts before moving on to additional brands.
Thanks, so much and congratulations on strong quarter.
Thank you.
Our next question will come from Rupesh Parikh with Oppenheimer. Please go ahead.
Good afternoon, Thanks for taking my question.
Just going back to the commentary just about some of the volatility around the spike introductions that you're seeing more recently.
Any more color you can provide into the impact whether you see across all channels categories are more retailer more E commerce or just some thoughts there.
Yes, Hi, Rupesh, so I would say that you know what the surgeon covert cases, and the uncertainty around another phase a stimulus we have started to see softening in the tracked channel.
Say, you know and the data that was released just on Tuesday, we were in that 3% range on a like a weekly basis. So.
I think theres still a lot of volatility can be seen.
Out there until there's more of a normal environment, we still have cobot and then we still have uncertainty in the broader economy and so I think we're gonna have to just take.
Take any a week by week here as we look forward.
Great and then I'll sneak one more question so I.
I guess just on the promotional environment I'm curious, what you're seeing right now and then if you look at some of your retail customers.
Do you see the need maybe to support them more later in the year, just given the difficult macro backdrop.
Yes, I'll start first with our E Commerce I mentioned on the call that we were actually able to be less promotional on our ecommerce, which gave us an even more of a gross margin benefit because of all of the natural traffic that we were seeing into the channel. So that was a benefit to us I would say it from a retailer standpoint, we're not promote.
So we don't really play that game and so we know we don't feel any pressure to be any more promotional.
In that channel.
And a lot of at least our business model.
Which is extraordinary value every day and that served as well and that's really our mission is continue to rely prestige qualities extraordinary values and not be hi, hi, low player Promotionally driven player yes.
Okay, great. Thank you.
Thank you.
Our next question will come from Mark Astra Chan with Stifel. Please go ahead.
Thank you.
Everyone.
I wanted to ask about some of the shelf space gains you're going to open.
Walmart for the fall.
Maybe just directional kind of.
Sides of Incrementality, there and.
Related to that what is general receptivity from.
Retail regarding.
Shelf space gains beyond those two retailers.
Given that.
Gain share gains now for quite some time in.
Obviously underperformance or most of the larger brands, where a lot of them just into.
Be able to get out of the road way so does that create more opportunity for you in time.
And any sort of broader strokes about how to think about that it would be helpful.
Yes, so mark both Walmart and Ulta beauty do not want us to give specifics on our ship space gains. So you'll you'll have to wait till you those get set in the fall to get a better sense of those and hopefully we could talk in November we've already said, it's a subset of both retailers store counts and picking.
Spacing, you'll be able to see that should.
Soon enough I would say on the receptivity of greater space shelf space gains.
Beyond those customers were having conversations with almost all of our retail customers on increasing space in on else I think the most established customer targets has an average footprint. That's at least twice as big as any other customers. There's plenty of room for people to increase space on on Els, particularly given our trends.
And what we have from an innovation standpoint.
Again, I don't have visibility on what 2021 looks like yet in that regard will probably not be able to provide that tilted later in the year. Once we have some confirmations.
Okay.
Helpful. Maybe sort of related question that starts loss related to will come back related. So just bought in general on makeup category performance remaining we obviously you touched on some of the uncertainty, but you're maybe talk about how and under what circumstances potentially begins.
Approval or is it simple covert go away.
Dollar improves your obviously is performing better and then back to previous question on.
Space that you've got generally how retailer to kind of thinking about allocation that would be incremental.
Going forward or the school opportunistic on a brand level basis, where were applicable.
Sure. So I'd say the factors on the makeup category I think first and foremost as you outlined is a return to normalcy post covert 19, I think thats going to be one of the biggest drivers we've seen the behavior even in the volatility we've seen in our own data, which is in April our tracked channel business is way down.
Given the restrictions that were in place and the fears uncovered 19 and going to retail settings. So I do think some resumption of normalcy will be one of the key catalyst of seeing better trends. In makeup I think the other thing is I'm really hopeful that some of the larger legacy players as they're able to return to launching more.
Products being able to do more within the category can be good for the category. Overall, so I have long believes that having some of the larger players also do better from an innovation and consumer engagement standpoint is good for the overall category. We are confident of our ability to continue to gain share no matter what the environment is weather.
The the categories declining or increasing.
And so I would say that would be the second lien piece, and then third which relates to both of those is I do if I look at longer term trends as a core category for consumers and so what you'll see is a shift within the category on those segments that are speaking most to consumers so whether it be the blurring of the lines between skincare and.
Makeup we've seen really good results on the wellness products, whether it be Canada's achieve CBD collection supers, a number of those or our core makeup line one of the reasons why I believe we're gaining share is our focus on complexity.
Corliss Party primer is the only product you need to have whether you were wearing makeup or not.
To look great and feel great Arkon sealers have a similar outlook as well as many of our other core products. So I think you'll see continuously regardless of where the overall market is some shifts within the category as well in terms of those categories are subcategories are speaking more to consumers.
Got it that's helpful. Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to terrain I mean for any closing remarks. Please go ahead.
Well. Thank you everyone for joining us today I'm, so grateful to my talented teammates for meeting the challenges of this pandemic and building market share I'm energized by the potential we have with well people and I look forward to sharing more about our new lifestyle beauty brand with Felicia keys.
I fundamentally believe our futures bright.
Of course will continue to be challenged by the environment around us and Comping. Some big months ahead, but I have confidence in our strategy and our team. We look forward to speaking with many of you again at our annual stockholders meeting on August 27.
Thank you and be well.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Good money come and go hard now.
Any phone interviews, let me wipe away to payers they can make it to be a baby.