Q2 2023 elf Beauty Inc Earnings Call
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Thank you for joining us today to discuss <unk> seven patients today includes information presented on a non-GAAP basis. Our earnings release contains reconciliations of the differences between the non-GAAP presentation and the most directly comparable GAAP measure with that let me turn the webcast over to Trey.
Thank you Casey and good afternoon, everyone.
Today, we will discuss the drivers of our Q2 results and our raised outlook for fiscal 'twenty three.
We delivered another quarter well ahead of our expectations.
We grew net sales by 33% increase.
Increased gross margin by 190 basis points.
And delivered $27 million and adjusted EBITDA up 47%.
Q2 marked our 15th consecutive quarter of net sales growth.
Given our momentum we are raising our full year guidance.
We are encouraged by the growth we're seeing across the color cosmetics category.
In Q2 category trends grew 5% versus a year ago and were above pre pandemic levels.
<unk> cosmetics consumption was even stronger up 27% in tracked channels.
Our market share grew by 115 basis points overtaking Revlon for the number four position for the first time.
We were the fastest growing top five brand by a wide margin.
Looking to skincare Q2 category trends were also strong.
Up 15% versus a year ago.
L skin consumption was up 44% in tracked channels well above category growth rates.
Before diving into our growth drivers I want to share a few Q2 highlights.
In September we launched our first ever impact report to highlight how the company is making a positive impact on people the planet and our furry friends.
The report showcases how we are creating a different kind of beauty company by building brands designed to disrupt industry norms shape culture.
And connect communities through positivity inclusivity and accessibility.
Our commitment to our culture and people was recently spotlighted by Newsweek, who named <unk> to its annual list of top 100, most loved workplaces.
Elses Gen Z favorite in Piper Sandler Semiannual Teen survey Alf remained the number one favorite cosmetics brand among teens.
We grew our share by 500 basis points versus year ago and attained the number one ranked across all income groups.
L cosmetics dot com became a top 10 shopping destination for teens for the first time.
The only single brand site among major retailers.
Our value proposition innovation engine and ability to attract and engage consumers are driving strong results with teens and across our entire business.
Let me take a few minutes to talk through how each of these drivers enabled our results in Q2.
First we are known for our value proposition.
We make the best of beauty accessible to every eye lip face and skin concern.
We take inspiration from our community and the best products in prestige and deliver high quality Holy Grail products at extraordinary prices.
We see evidence of consumers looking for value both in absolute price point and relative to prestige.
We believe we are benefiting from trade down as consumers choose our Holy Grails and the value they provide versus the prestige comparison.
And trade within mass as evidenced by our strong share gains.
The average price point for <unk> is a little over $5 today as compared to around $9 for legacy mass cosmetics brands.
And over $22 for prestige brands.
Unlike many of these higher priced brands, our pricing strategy focuses on everyday value instead of broad based promotions.
The second driver of our performance is that we are in an innovation powerhouse.
Our innovation engine is built leadership over time across multiple segments.
Our seven largest segments brushes primers setting sprays eyeshadows can sealers browse sponges collectively make up over half of our cosmetic sales.
We have the number one or two position in all seven segments and saw share gains in each in Q2.
Our innovation continues to receive industry recognition.
In the highly coveted lower burst of beauty awards three of our products garnered best of awards, marking the 10th consecutive year <unk> has won this honor.
Our new products are resonating with our community.
Power grip primary builds upon our strength in the primary category and its jaw dropping value at $10 versus the prestige equivalent at $34.
Our group was our top selling SKU in Q2.
We're seeing viral success of our recently launched Halo glow liquid filter.
It's incredible value of $14 versus the prestige equivalent at $46 propelled us to be the number one selling product on <unk> cosmetics dot com in Q2.
They were putting the Charlotte Tilbury solid still care up against the <unk> Halo glow liquid filter, which is but in my opinion I think its better our most popular shades of sold out multiple times, both online and with our retail partners Halo glow also helped to drive significant increase in sign ups for our beauty squad loyalty.
Program as consumers were eager to get early access to this viral sensation.
<unk> now has $3 2 million members with enrollment growing over 20% year over year.
Our loyalty members have higher average order values purchase more frequently have stronger retention rates drive almost 70% of our sales on <unk> cosmetics dot com.
And are a rich source of first party data.
Let me take a step back to talk about the role that innovation plays in our business as I often say it is the linchpin of our entire strategy.
We have a track record of driving share leadership through innovation and building our franchise this year after year.
Primaries are a great example.
In Q2, we remain the number one brand across primers growing our share over a 1000 basis points to 46%.
Alf holds all of the top five primary Skus and 14 of the top 20 Skus.
Importantly, our primer families are growing and building upon each other.
We launched our original mineral infused face primer as a holy Grail in 2009.
Priced at $6, a compare to an iconic prestige primary at $36.
That initial product family quickly built out our leadership and primers.
We followed that success a few years later with the launch of the poorly faced primer.
Then pour list putty primer in 2019.
Matt and luminous putty primer in 2020.
Acme fighting putty primary in 2021.
In power grid primer this past year.
We continue to innovate behind successful new items and also find that the newest Holy Grails return attention to our predecessor lunches.
As a result, we're enjoying balanced growth between both our new and existing items with each of our primary families growing share.
In addition to building share in key segments, we focus our innovation efforts to create sustaining franchises across categories.
A good example is a franchise equity we've built in putty to extend our innovation success beyond primers.
Our putty blush, and putty branches were our best selling products in the blush and brands or segments in Q2.
I am excited to Leverages innovation approach as we seek to build share in existing categories and conquest new areas.
The third driver of our performance is our ability to attract and engage consumers with disruptive digital first marketing.
We have built strength across multiple social platforms and continue to penetrate new frontiers.
We were a pioneer on tick tock.
And are now a four time tictoc billionaire with our latest hashtag challenge garnering over 14 billion views.
We were the first major beauty company to launch a branded channel on Twitch <unk>.
Aimed at empowering rising women gamers and content creators in.
In August we became the first major beauty brand on be real a reality based photo sharing platform. That's rising in popularity among Gen Z. We recently push further into Snapchat.
Launching a new power grip augmented reality lens to creatively engage with our consumers and build awareness for one of our newest Holy Grail.
We continue to engage with our community on platforms. They find most meaningful.
Over the past three years, we've increased our marketing investment from 7% of net sales to 16%.
Our marketing investment is working.
Driving ROI multiples above industry benchmarks.
Our marketing initiatives are helping us reach new audiences.
Penetrate new platforms and test and learn in new frontiers.
With the combination of our top line momentum and.
And the ongoing strong ROI, we now expect marketing to be at the high end of our 17% to 19% range for fiscal 'twenty three.
Okay.
These three drivers of our performance our.
Our value proposition innovation engine and ability to attract and engage consumers are helping us gain more retail space.
We are pleased to announce space expansion, we've earned in a subset of doors with several of our retail partners.
We will be expanding space with both Walmart and target in spring 2023 in.
In addition to this space gains, we previously announced with Cvs and fall 2022 and spring 2023.
Internationally, which represents major white space, we're expanding space with shoppers drug Mart in Canada for spring 2023.
In addition to this space gains, we previously announced with Superdrug in the U K for fall 2022.
Before me any details our results and raised outlook I want to take a moment to discuss our brand superpowers, which set the foundation for our overall competitive advantage.
Since inception, <unk> has delivered premium quality at accessible price points.
We've built upon the superpowers of cruelty free and our commitment to Els clean.
Our most recent addition is that we are the first beauty company to have a third party manufacturing facility fair trade certified.
A fair trade certified seal on our product Cigna.
Signifies that was made according to rigorous standards to promote sustainable livelihoods and safe working conditions for factory employees.
Protect the environment.
And required transparent supply change.
With Alf consumers can have premium quality beauty products at accessible price points with broad appeal.
That our cruelty free <unk>.
<unk> clean and fair trade certified.
While other beauty brands can try to replicate any one of these we believe the unique combination of our expanding superpowers forms our competitive moat.
And fuels, our ability to win in fiscal 2023 and beyond.
I'll now turn the call over to Mandy.
Thank you <unk>.
Our second quarter results were outstanding.
Q2, net sales grew 33% year over year, driven by broad based strength across national and international retailers as well as digital commerce.
Our consumption trends continue to be well balanced between increases in both AUR and units and between strength in both our core products as well as recent innovation.
Our digitally led strategy continues to serve us well.
In Q2 digital consumption trends were up over 75% year over year.
Digital channels drove 15% of our total consumption in Q2 as compared to 12% a year ago.
Gross margin at 65% was up approximately 190 basis points compared to prior year.
We saw gross margin benefits from price increases.
Cost savings and margin accretive mix.
These gross margin benefits more than offset the impact of inventory adjustments and higher transportation costs in the quarter.
On an adjusted basis.
G&A as a percentage of sales was 46% compared to 49% last year.
We drove leverage in our non marketing SG&A expenses as a result of our better than expected top line trends.
Marketing and digital investments for the quarter was approximately 16% of net sales in line versus a year ago and was lower than expected on a percentage basis, given our significant top line outperformance.
As <unk> mentioned with the combination of our top line momentum and strong ROI, we now expect marketing and digital investments for the full year to be approximately 19% of net sales.
At the high end of our 2017% to 19% range.
Q2, adjusted EBITDA was $27 million up 47% versus last year and.
And adjusted EBITDA margin was approximately 22% of net sales.
Adjusted net income was $20 million or <unk> 36 cents per diluted share compared to $11 million or 21 cents per diluted share a year ago.
Moving to the balance sheet and cash flow.
Our balance sheet remains strong and we believe this positions us well to execute our long term growth plans.
We ended the quarter with $85 million in cash on hand, compared to a cash balance of $42 million a year ago.
Our ending inventory balance was $81 million up from $70 million in June as expected.
We remain confident in our ability to meet the strong consumer demand we're seeing.
I'm also pleased with our strong free cash flow generation, we've seen year to date of approximately $42 million.
Given our cash position, we ended the quarter with less than one times leverage on a net debt basis.
We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions.
And this rising interest rate environment. We are also exploring retiring a portion of our debt given our strong cash flow.
Now, let's turn to our raised outlook for fiscal 'twenty three.
For the full year, we now expect net sales growth of approximately 22% to 24% versus prior year.
Up from 14% to 16% previously.
We expect adjusted EBITDA between 93, and a half to $95 million up from 83, and a half to $85 million previously.
We expect adjusted net income between $59 million to $65 million.
Up from 47 to $48 $5 million previously.
And adjusted EPS of $1 seven to $1 <unk> per diluted share.
From 84 to 87 previously.
We expect our fiscal 'twenty, three adjusted tax rate to be approximately 22% to 23%.
As compared to 25% to 26% previously.
Lastly, we expect our fully diluted share count of approximately 56 million shares at year end.
Let me provide you with additional color on our planning assumptions for fiscal 'twenty three.
Starting with the top line.
Our raised outlook reflects our outperformance in Q2 relative to our expectations pipeline related to the incremental space gains to rank spoke about with Walmart target and shoppers drug Mart.
As well as our ongoing business momentum.
Turning to gross margin.
We now expect our gross margin to be up approximately 175 basis points year over year.
As compared to our previous expectation for up 100 basis points.
This is largely a result of our outperformance in Q2 and an improved outlook on transportation costs.
In terms of the key drivers for the year, we expect the combination of price increases.
Margin accretive mix and cost savings to support our gross margin improvement.
Now turning to adjusted EBITDA.
Our outlook implies adjusted EBITDA growth of approximately 25% to 27% versus prior year.
Up from approximately 12% to 14% previously.
And on top of the strong 22% growth in fiscal 'twenty two.
This embeds, our marketing and digital spend expectations at the top end of our 17% to 19% range.
Even with that increased investment our outlook now implies adjusted EBITDA margin leverage of approximately 50 basis points year over year.
The improved outlook is supported by the combination of our strong sales growth.
Gross margin expansion and leverage in our non marketing SG&A expenses.
Overall, we are quite pleased to be in a position to meaningfully raise both our sales and profitability outlook and what continues to be a dynamic environment.
In summary, we're pleased with our outstanding Q2 results and remain upbeat on our long term growth potential.
Significant white space remains across cosmetics and skincare.
Both domestically and internationally to support our expected top line growth.
We also continue to expect to deliver leverage in our adjusted EBITDA margin.
Finally, we believe our solid balance sheet low leverage and strong cash flow generation can continue to drive shareholder returns and support our overall growth.
With that operator, you may open the call to questions.
We will now begin the question.
<unk> answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
If at any time your question has been addressed and he would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Olivia Tong with Raymond James. Please go ahead.
Great. Thank you good afternoon first congratulate them.
Obviously, a very strong quarter.
We're obviously hearing a lot about inventory and.
The slowdown what have you.
Here and just kind of curious if you could talk about how sales was coming out of it out of the quarter clearly you raised the guide by.
<unk>.
By the by the beat but a little bit less in terms of the flow through on our profitability I assume some of that is marketing.
If you could just talk a little bit about that that would be fantastic. Thank you.
Sure.
Olivia and as you mentioned, we're really pleased with our Q2 results.
Net sales of 33% adjusted EBITDA up 47%, so really strong results.
Also pleased with our ability to raise our guidance on both the topline and bottom line in this environment and cell and as our guidance implies for the second half of 19%.
From a net sales standpoint, which has continued to strengthen so we felt great about our ability to deliver in Q2 and then also the outlook that we've provided in terms of inventory slowing down as they I think you are indicating it retailers youre hearing that inventory is slowing down is that.
Is that a question or the aggregate how exactly how theyre pulling back a little bit on how much inventory they want a home <unk> and beauty of course, but just given given the backdrop just curious how you're thinking about it.
Yeah. So we're quite pleased with our own inventory position. In fact, you saw our inventory build from 70 million in June up to 81 here.
In the September ending quarter and from a retailer standpoint to your point I in beauty, we have not felt bad for Marvin tailored in fact, I think we have a little bit of the opposite problem of just making sure that we're supplying our retailers and keeping up with the demand that we're seeing.
What we have been able to do in fact remain 95%, though very pleased with our position.
Great.
And then a little bit more detail in terms of who it is that you think you're gaining share from is it other mass players or are you seeing any trade down sequentially from proceeds whether a function of your innovation or the environment that we're in.
And any any.
Any incremental detail you can give in terms of the makeup of the new consumer et cetera.
Thank you.
Liquor.
Yeah, Hi, Olivia this is training so I would say, we're seeing strength across our business all price points all channels national retailers, our digital business internationally and if we take a look at that strength of three main drivers are our value proposition, our innovation engine and ability to attract and engage consumers.
As for trade down I think we're seeing two different things here one on some of our higher price point items, we're seeing trade down from prestige.
So items like our 14 dollar Halo glow liquid filter is still a phenomenal value relative to the $46 prestige equivalent. So we're seeing that across our Holy Grails, where consumers are making that comparison and we're seeing great growth. There and then we're all seeing trade within mass the 115 basis points of share we picked up is.
Consumers coming to us from other brands and again I think that value equation really.
Holds up strong as well as our innovation and ability to engage consumers. So we're seeing it pretty broad based strength and across a variety of different players.
Great. Thank you best of luck.
The next question comes from Andrea <unk> with J P. Morgan. Please go ahead.
Hi, good afternoon, everyone and thank you.
And congratulations also to the strong results.
I don't want to take any credit from under performance and especially in sales. So I think it will be dismissive side I'll ask in terms of the current brake backdrop.
Can you talk about customer behavior, I think Ron you had mentioned just now that.
That even post pricing it seems that consumers are so eager to to premium <unk>, but have you seen within kind of families of products any sign of a downgrade are weaving comparable products and and if you can comment on that move that you made not only in pricing, but I guess your average price and terms.
Although criminalisation and more skincare within the portfolio and then I have a follow up on on the on the Samsung.
Sure Andrea So maybe I'll step back and start with the category.
We've long been bullish on the color cosmetics category on the mass side and mass skincare and we very much saw that strength this quarter, while the category grew 5% for the quarter in the last four weeks. It was up 10% and then within the category, where even wealth better positioned our consumption I think in tracked channels was up 27%. Similarly on this.
Skincare side category is up 15% L. Skin grew 44%. So the strength that we're seeing is really across the board. We are getting trade down from prestige, but we're also getting trade from within other mass brands. Our average unit retails on the color side are $5 relative to legacy.
Mass brands that are $9 and prestige brands that are $22. So we have a superior value proposition really for any consumer across almost any price point in our range and the same holds true in skincare I think our ability to bring prestige quality skincare at these accessible price points is also helping us win within <unk>.
So we feel great about that and then in terms of the consumer profile. We've long had strength amongst gen Z as you heard in the call we strengthened our position against teens the number one brand amongst teens across all income groups.
But beyond teens, we also been picking up more consumers from both millennials and Gen X and I think it really speaks to both the combination of our innovation as well as our activities attracting and engaging consumers. So we feel really great about the fundamental health of the business and the core fundamentals behind it.
That's super helpful. And then on a breakdown of the 22% to 24% I know.
There's a lot of moving pieces in terms of immunization, new distribution is that fair to say for this specific fiscal year.
You're still benefiting call it like a third of your of your growth into new distribution and how we should be thinking.
Of our additional shelf space with anything doors on your doors.
Hi, Andrea its mandate.
So the 22% to 24%.
Growth that we're seeing are largely driven by the momentum that we've had year to date and just with our continued outlook or that momentum to be strong as we go into the second half as from a distribution standpoint, we did talk about this space gains that we're picking up and Walmart and in target as well as shopper those have been baked in from a pie.
Find perspective to our outlook as well.
That's really the way to think about how we built up our our sales guidance that we provided.
Okay. Thank you I'll personal.
The next question comes from Ashley Hogan with Jefferies. Please go ahead.
Hey, Thanks for taking our questions and congrats on the quarter.
As you mentioned on the call and although we continue to see stock out of your Halo glow products will just wondering is this purely a function of the viral nature of the product or have you.
Had any some supply constraints and then on holiday curious by your plans to get that.
Yes, Hi, Tim.
Hi, Ashley So first of all on stock outs I'll back up a little bit and feel really great about our ability to meet consumer demand. We've had many of you saw the consumption for the quarter and yet our customer in stocks are over 95%. So we feel great about regardless of the disruption that's out there our ability to continue to meet that demand.
And in terms of the specific item Halo will liquid filter that was a viral sensation. It's a phenomenal product that compare so 46 dollar prestige item and where price only at 2014. So this was just a matter of I think the demand on that item was probably 10 X. What we initially forecasted we've brought it back in stock and it keep.
Selling out so I think this year, we have good plans to bring in more Halo glow, we don't see any issues from a supply chain standpoint, but we will from time to time have these items such as really take off in our hearts.
Chase down, but I feel that situation should improve as we get into our fourth quarter.
And bodes well for the future because that item continues to have real strength as does our power grid primer.
The other thing I'll say is each of these innovations, particularly as we're building these long standing kind of sustaining franchises.
Brings attention back to the core part of our business and so we're seeing strength not only in our new items, but really our core items. Some of the these items we've had for years as they they're certainly resonating with consumers.
And then on a holiday.
On your holiday kits. If you recall last year, we were I think one of the first companies that really saw the impending container imbalance and we made a strategic shift at that time to really forgo a lot of the big holiday kits and prioritize our core business and that strategy worked exceptionally well we saw really.
Strong sales during the holiday period and expansion of gross margins and really the core insight is L. A is a terrific brand to gift whether we put it in a box or the consumer puts it in a box and so we're following forward with that strategy. This year as well our primary focus is on our core items there will be some limited holiday kits similar to what we did.
Last year and half cosmetics dot com and a few of our retailers, but the focus really is on these everyday items that consumers really love.
Wonderful. Thank you so much a drop again on the quarter.
Thanks.
The next question comes from Bill Chappell with <unk> Securities. Please go ahead.
Thanks, Good afternoon.
Good afternoon.
I guess first on the marketing spend and kind of the high end of our guidance is that just to make sure I understand is that just youre running ahead of schedule and so had.
Additional.
Reinvest in this was timely was there a bigger slate of kind of new products that you just wanted to support and do you see this as kind of a new you know the higher end as a new norm just get a little more color around that decision would be great. Thanks.
Sure. So our decision to invest more in marketing or go to the top end of our range of 17% to 19% range really just has to do with the returns we're seeing on that marketing investment our rois are well above any industry benchmark in terms of gross sales per dollar invested youre seeing the momentum in terms of what it's doing both in terms of a <unk>.
<unk>, new consumers as well as propelling our sales growth. So it really is.
Going and and and realized and kind of what we're seeing there. The other thing I feel really great about is we're able to invest in our brands for the long term and we're also benefiting also having EBITDA leverage so being able to grow our EBITDA margins 50 basis points I think is a terrific position to be and so so we love that combo.
<unk> of being able to invest more in our business and increase our profitability.
And is it something that you.
Do you expect to be at the high end for the foreseeable future is that.
See that momentum.
Well certainly for this year I think we definitely see it will have to wait till may when we give our fiscal 'twenty for guidance in terms of where we see the ranges and but you know what I would tell you is our objective is going to be continued strong investment behind our brands and delivering the EBITDA margin that we talked about and I'm glad to be able to do so this.
Year.
No that's great and maybe real quick just on freight rates is that the kind of the biggest bucket that youre seeing some some.
Tailwind in terms of year over year costs and could they go even further or are you fairly locked in for the remainder of this year.
Yes, so the freight rates are on the inbound container costs that were saying I know that you know last year rates were exceptionally high and we have seen some stabilization in the last few months, which is great to see.
And it's something that we continue to watch, but feeling good about right now.
And I do think there'll be a little bit of a tailwind for us here and enter fiscal 'twenty four.
Fantastic. Thanks, so much.
Okay.
The next question comes from Linda Bolton Weiser with D. A Davidson. Please go ahead.
Yes, hi.
So I was just trying to work out the math here with the gross margin.
Do you have any guidance.
Guidance or comments about the cadence of gross margin I think it's usually down sequentially in the fourth quarter would that type of seasonality.
Exempt again this fiscal year.
Hi, Linda its Mandy add yes.
Yes, so when we look at the gross margin implied for the second half.
I would say that we do have as last year, we had a higher gross margin. If you recall in Q3, because we walked away from the holiday program.
And we do usually see it step down into Q4, so I think that the buying seasonality to assume.
<unk>.
As you think about your modeling.
Okay and then.
I was just curious.
If you all had any theories as to why the skin care category is growing faster than color. It may elsewhere than prestige color is growing faster than skin care do you have any insight on that.
So Linda I don't think we have that much insight other than I think consumers are particularly attuned to value right now and mass skin care I think offers really great product set a much better value.
That'd be my hypothesis, but what I would tell you is skincare has been strong actually now for quite a few years and so we continue to see that trend with consumers caring about their skin care needs, we see it even amongst our <unk>.
Gen Z audience in terms of their interest and in skincare and color. So we're bullish on both categories on the mass side.
Okay. Thank you very much.
The next question comes from Anna <unk> with Bank of America. Please go ahead.
Hi, good afternoon, and thank you for the question.
I was wondering if you can comment on the expansion of al than as a standalone brand and how its performing among your demographic.
And that's on the shelf next to al cosmetics. When you think that the growth is mostly driven by consumers who are already buying all cosmetics or moving into L. Scan or are you seeing new entrants into the brand or skin care of the category. Thanks.
Hi, So we're really pleased with.
Our.
Progress on our skin, we as you mentioned, we did pull it apart as a standalone brand I think couple of quarters ago or last quarter is the first time, we put its own awareness building campaign, we have a terrific pipeline of innovation on our skin. So I think all of those things are working for us and you can definitely see in the outsize growth that we have in <unk>.
Again.
In terms of longer term, where the current user basis I would say primarily right now it is a lot of core F consumers, particularly places like target, where we havent shelved within the the Alf main offset we know consumers are highly open to wanting else skin and it was really more of a awareness problem.
Of do they understand that we have el skin. So I'd say, that's most of our sales right now but longer term, particularly in some retailers were also testing the brand in the skincare set.
I think youre going to see a nice balance between else consumers and new consumers to the brand, particularly given the innovation that we have on our skin.
Great. Thanks, and just as a follow up on in terms of the increase in shelf space at Walmart and target. How are you expecting for the balance between distribution of our cosmetic and I'll scan.
Well I think anytime we get more space. It gives us an opportunity to put more L skin into a retailer and that very much will be the case here I would say the majority of that space will still be against self color cosmetics, just given the amount of innovation, we have there as well and that's most of our business, but we definitely will take that opportunity.
I'm, having 3.2 million members that program is up 20% year over year and there you know those members purchase more more frequently have higher lifetime value and most significantly a rich source of first party data. So it actually makes our marketing more effective being able to have look alike targets.
<unk> you have that first party data that fuels everything, but we've also seen real strength as I mentioned, a cross our different digital property, so not only of cosmetics dot com, where we're seeing good growth, but a retailer dotcoms ultra dotcom target Dot com I think they've made a number of investments to improve their digital business and Amazon <unk>.
He needs to be quite strong for us and at great source of growth. So we're saying it across the way starts first and foremost with our overall approach digitally native brand to start with digital and let that fuel everything else.
Okay, Great and then just on the distribution front you know it seems it seems pretty significant between Walmart target and some of the other retailers. Your name is there anything qualitatively quantity to where you can just talk about the account has significantly of additions are gonna be in the spring.
Yes, I'd say on space expansion, we've had a good track record over the years, if I back up nine years ago, we'd probably have about 11000 linear feet of space in the U S. We have over 130000 linear feet now and if you look year over year. They were a coupla years early in our life, where he had I'd call. It a massive step change and there was one ear ifill target gave us.
50 per cent more space across all their doors, but other than that it's really been <unk>.
Pretty methodical subset of our retailers chain doors that it'll give us some incremental space with so we liked that cadence. Our primary focus is always gonna be on productivity being able to drive strong comp store growth, regardless, where the retailer gives us some space. So I would say, yes definitely significant particularly.
Targets, almost longest standing national retail partner and.
They're making a further statement on LS Elf is also now I think they're top two or three brand across all of cosmetics and facial skincare. So it definitely goes hand in hand, with our growth Walmart, we have a massive opportunity and I'd say still have quite a bit of white space, even with the space. They are about to give us.
But really across the board I feel their space opportunities everywhere, we look but having this approach of a pretty disciplined rollout and being able to to build that on top of our overall productivity model is pretty healthy in a.
Pretty consistent approach.
Great. Thank you.
The next question comes from David Check now with William Blair. Please go ahead.
David check now stepping on for John Anderson, Congrats guys on a great quarter. My question is about the sales and EBITDA guidance and wide implies that would be waited so heavily towards the front half of the year. The reason I ask first one sales as you said in one of the earlier questions. Your sales guidance at the high end of the room.
Change implies high teams for the second half, but that's compared to nearly 30 per cent year to date and scanner data has been running even higher than that and then second on <unk>, you're implying low single digit growth or EBITDA in the second half that.
That compares to roughly 46% year to date, so I imagine the marketing investments are the main reason on the EBITDA fee, but for modeling purposes. If you could provide some color on that and the implied slowdown on the top line that would be great.
Hi, David Thanks for the question. So uhm, an overall guidance standpoint, again, we feel great about our guidance range, 22% to 24% on the top line at 25 to 27 per cent growth and adjusted EBITDA. In this environment is really something that we are quite proud of in terms of first half versus second half you know.
We always take a balanced approach when it comes to our guidance <unk> never want to get too far ahead of ourselves. We're encouraged with the track channel data that we're seeing right now being 40 per cent growth phenomenon given that we do think that our net sales add guidance will wait a little bit more towards Q3 versus Q4.
If I were modeling that but I think it's prudent for us not to assume a 40 per cent run rate continues for the balance of the year. So I'd love to see it but at this point and you know, we're we're taking a balanced approach with with our guidance.
On the EBIT side of things you're right from a marketing standpoint, we've been at 16 per cent for the first half of the year and to get to the 19% for the full year will require a little bit more investment in Q3, and Q4 and so that's why you see the EBITDA margin uhm add down on a year over year <unk>.
<unk> birth as being up in the first task.
Great. Thank you that that's very helpful. And then one follow up question considering utilize that hybrid supply chain model in China could you provide any color on if there's been an impact from COVID-19 shutdowns with that ramping up again in China.
Yeah, So hi, David Strang I'm exceptionally proud of our operations team a team in China I O T. Our biggest test came last quarter with Lockdowns in Shanghai, where a lot of our team are for two months and yet we continue to produce and ship product more recently, we have not seen.
Any major impact the rolling kind of shut down so I think our our supply chain there is pretty well distributed throughout the country and so I don't think any of our facilities have directly been impacted in any any meaningful way and so we feel great about our ability to continue to meet the strong consumer demand that we see.
Great well, that's all very helpful. Thank you very much.
The next question comes from.
Piper Sandler. Please go ahead.
Hey, good afternoon, and thanks for taking my question and congrats on a great quarter. So first I'd just like to ask a little bit more on the T. T. C channel I can kind of what you're seeing with an E. Commerce, obviously that had a lot of really good momentum recently can you speak to like how how far down the road you think that's all <unk>.
Okay, and what are your bacon and to expectations in terms of the strength and the D. T C channel.
<unk>, we're quite pleased with our E Commerce Department that stirring mentioned, it's pretty broad based you know not only our own the dotcom, but also retailer dotcom and what we're seeing on Amazon.
You know I would say that this quarter as well, we did get a little bit of a bump as well from the Halo glove lunch, we really saw the consumers overtime cosmetics dotcom in fact, we still have a waiting list for consumers anticipating when that's going to be back in stock. So that they can get their hands on <unk>.
<unk>. So I would say you know our outlets banks and that we see continued growth in the e-commerce channels not at the tune of 75 per cent, but still solid growth for it for the outlook.
That's very helpful. Thank you and then just explaining a bit on some of your marketing efforts can you just talk a little bit about what all of this extra spending is going to entail is it gonna continue being like online digital social media marketing are you gonna do more of a target maybe the older generations beyond January .
Maybe some of the upper income groups can you just talk you know kind of talk through it some of your efforts to with that there's extra marketing sense. Thank you.
Sure Hi, Corinne I would say on our marketing efforts. It really is a continuation of the strategy. We successfully deployed over the last few years and it's a combination of digital advertising that we see really good returns against in terms of building up our core awareness and prospecting on new frontiers, we wanted the first <unk>.
The branch on Tictoc, who are now I think a four time tictoc billionaire with our latest challenge I think having over 14 billion views were the first major beauty bran on Twitch and we're seeing great results on our L. Few channel on Twitch with the first beauty brand major beauty brand on be real and were encouraged by the initial response there as well.
So the additional marketing spend will be to continue our efforts to build greater awareness behind our branch. This a lot further we can go there as well as being able to prospect, both new platforms and new collaborations and so you know you'll you'll have to wait and see what so what our team is.
In store, but I feel really great about about what they're doing particularly when I look at the <unk> and the momentum it's driving.
Thank you.
The next question comes from.
Mark Astor chat with Stifel. Please go ahead.
Yeah. Thanks, an afternoon everyone.
I guess just to start to follow up on that last question in terms of incremental marketing spin.
Can you maybe give you some directional color about where it's going by by category.
<unk> business L skin care, Keith <unk> et cetera.
Sure. So I would say look just by the nature of our business. The vast majority will go against of color that is the biggest part of our business, but it also gives the opportunity to double down on the success, we're seeing enough skin and continue to build trial an awareness in both well people in <unk>, but in terms of the app.
Without break out the total dollars I would say probably falls in line with the size of our business and that opportunity. So I'd say, primarily elf color followed by Elf skin and then the remaining Mount will be on <unk> and while people.
Got it thank you and then.
Following up on one of the earlier.
She was trying to think about the recruitment of new consumers to the business.
And anything that you can help us walk through in terms of.
How somebody kind of enters the brand from a presumably lower priced elf.
Make up caller offering <unk> higher priced offering today, then move over to skin here I guess, you can kind of stop there, but is there any sort of way even to move them into.
Well people are into to accuse kind of going forward, but I think I'm more interested in kind of the first part of trading up within the color business and kind of horizontally moving into skin care.
Sure. So historically I would've if I answer. This question a few years ago I would've said the primary way and if somebody to try one of our just absolutely extraordinary value products and usually one of our lower price products there'd be delighted by the performance of that product and then would move up the range I'd say today, we're seeing.
<unk>, new user acquisition across different price points are certainly those who come in at an entry point, perhaps a younger consumer who <unk>, whose first experimenting trying with makeup try some of our lower price items as a great entry in but we're picking up many more consumers to this strategy on our Holy Grail, when we can create a product and.
<unk> community or prestige and introduce it add an incredible value, we're seeing tremendous new user acquisition Mandy to start a moment ago in terms of <unk> cosmetics dot com and how many consumers we brought in through our Halo Quill launch we saw similar results with our power grid primer, which is our number one item right.
Now she's latest I looked at it I think it's a number three item in all of color cosmetic. So we have some phenomenal items that are getting regardless of price point, new users interested with all the buzz that they see the item and then skin care is very similar I'd say the primary way if I look back last year that we got a skin care of user was an existing.
<unk> consumer.
<unk> then built their basket because they already loved Alf and wanted to try L. Skincare again are wholly hydration franchise, which is our biggest franchises and skincare, we're seeing not only elf consumers, but other consumers who recognize the quality of that product at the prices that we have so I think our model is much more robust.
Today than even a number of years ago, particularly with this emphasis on Holy Grail products and the attention they bring to the rest of our line.
Great. Thank you.
The next question comes from Oliver with Cohen. Please go ahead.
I try and many great quarter.
<unk> you off for the unexceptional value just on the price increases ahead, and what's happening there could you speak to consumer appetite and plans and also any mixed mixed dynamics as you continue to really innovate nicely and skincare.
And then secondly touring our research highlights would be real as well in terms of that being a exciting slash interesting and novel platform.
What are your thoughts ahead for.
<unk> three.
And how you're thinking about that in terms of your loyalty program or how material it could be the customer acquisition trends.
Thank you.
Sure sure I'll <unk> I'll go ahead and take the first question on pricing and so if you recall, we kept pricing and March on about two thirds of our portfolio and we have seen consumers respond pretty well to that if you think about our sales growth more recently very balance between.
Pricing and unit growth, which is great to see we do not have an additional price increase on the horizon. We are very at judicious and when we take pricing and really have only taken it in response to that broad macro factors.
Because we do want to make sure that we're maintaining that value proposition for our consumers and <unk>, that's that's where we set on pricing right now.
And on your second question Oliver I'd say, yeah, we're excited about <unk> and various other platforms that we're gonna try and then in terms of your question on the matter worse and web three say you know we're already starting to experiment. There. If you take a look at our our channel on Twitch. It does combine kind of this corps virtual experience <unk>.
With physical reality, we have efforts that our team is doing in terms of going even deeper than that just given our leadership over digital and and the various platforms. You look at some more to come on there I'd say, we're exploring at the primary focus right now really is and the platforms that we're seeing success and are strong.
<unk> digital advertising, which is having results we definitely have our eyes on it and I think we have some exciting plans coming up.
Okay entering on projects Unicorn I mean, it seems like you're in stock levels are really happy with but where where are you in that journey are you pleased with the nature of the placement in the assortment I mean, you keep on evolving with the product architecture. So did unicorn change or evolve would love some thoughts.
Yeah sure Oliver <unk>, we're really pleased with project Unicorn in fact last year. We the next chapter of project Unicorns. Since we went through a number to a new phase is really designed to get better presentation on shelf greater productivity I think received over a million pounds of packaging. We're pleased with all of that last year, we read.
Granted Unicorn project Green Unicorn, because we feel there's even further we can go both in terms of waste elimination being more sustainable I'm, particularly proud of being the first beauty brand that got Fairtrade certified really ties into the superpowers that we have so we have much further to go on project Green Unicorn.
And I think you'll see it every time you see shelves reset there is a continual improvement progress.
Just recently saw what we're gonna have come out in the spring of next year and I think it's a further advancement in terms of overall shelf sets and what we're able to do.
Last question the recharge packaging.
And it looks better but what was the rationale for that in terms of what you saw that opportunity and have you been pleased with that on the skin care.
Yeah, we have we've really been pleased with what we're doing a cross skin care, including packaging and I think the the <unk>.
When we declare that L skin was its own brand, we really looked at every aspect of that business and said was it absolutely clear that this is the L skin Brandon. So I think the primary purpose of that package redesign was really to make sure al skin kind of Scream first and foremost, but the second is also the realisation of the communications.
Task and skincare is different in color cosmetics color cosmetics has to move more on trend an impulse skincare tends to it was much more on education and so it really making sure that we're communicating even better with consumers in terms of what are the ingredients in the skin care products or their core benefits I feel the new packaging does a great job with it and I think you know.
If you take a look at our track channel.
Results of up 44% versus a category 15, I'd say, it's working along with our other efforts.
[noise]. Thank you best regards.
Okay.
This concludes that question and answer session I would like to turn the conference back over it.
I mean for any closing remarks.
Well, thank you for joining us today I'm, so proud of our incredible team at else beauty for delivering another outstanding quarter results. We look forward to seeing some of you at our upcoming investor meetings and speaking with you in February when will discuss our third quarter results. Thank you and be well.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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