Q2 2024 e.l.f. Beauty Inc Earnings Call

November 1, 2023

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Thank you for joining us today to discuss our skew these second quarter fiscal 'twenty core results I'm KC cotton, Vice President of corporate development and Investor Relations with me today are touring Aneel, Chairman and Chief Executive Officer, and Mandy fields, Senior Vice President and Chief Financial Officer.

We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at Investor Dot L. P D dotcom.

Since many of our remarks today contain forward looking statements. Please refer to our earnings release and our reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from these forward looking statements.

In addition, the company's presentation 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 Turing.

Thank you Casey and good afternoon, everyone.

We will discuss the drivers of our Q2 results and our raised outlook for fiscal 'twenty four.

I want to start by recognizing the <unk> team for delivering another phenomenal quarter.

In Q2, we grew net sales by 76% increased gross margin by 570 basis points.

And delivered $60 million and adjusted EBITDA up 122% versus prior year.

Q2 marked our 19th consecutive quarter of net sales growth putting else beauty in a select group of consistent high growth consumer companies.

We are one of only five public consumer companies out of 274 that has grown for 19 straight quarters and average at least 20% sales growth per quarter.

We've continued to highlight three areas with significant runway for growth in color cosmetics.

<unk> care and international let.

Let me update you on our progress in Q2.

In color cosmetics, we continue to significantly outperform category trends.

In Q2 F cosmetics grew 51% in tracked channels.

Nearly 17 times category growth of 3%.

We increased our share by 330 basis points.

Out of nearly 800 cosmetics brands tracked by Nielsen LCC only brand to gain share for 19 consecutive quarters.

We have more than doubled our market share since 2019 from about four 5% to 10%.

We are building strengths upon strength with our 330 basis points of share gains in Q2 on top of our share gains last year and the year before.

Given our momentum we see an opportunity to double our share over the next few years.

In Q2 Alpha is the number three brand nationally with approximately 10% share.

In target, our longest standing national retail customer with a number one brand with approximately 19% share.

Nearly double the level of share we had in target just two years ago.

Kasey Katten: Thank you for joining us today to discuss ELF Beauty's second quarter fiscal 24 results. I'm Kasey Katten, Vice President of Corporate Development and Investor Relations. With me today are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer.

We're focused on replicating our partnership and success at target across other key retailers and are making great progress towards that ambition.

In skincare, we continue to outperform the category.

In Q2 L skin grew 129% in tracked channels about 13 times category growth of 10% and was the fastest growing among the top 20 skincare brands.

Kasey Katten: We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbudy.com. Since many of our remarks today contain forward-looking statements, please refer to our earnings release, and reports filed with the SEC where you'll find factors that could cause actual results to differ materially from these forward-looking statements. In addition, the company's presentation today includes information presented on a non-gap basis. Our earnings release contains reconciliation of the differences between the non-gap presentation and the most directly comparable gap measure.

We grew our share by 80 basis points, increasing our ranked number 14 brand as compared to the number 19 Grand a year ago.

L skin today holds a one 6% share and a significant runway with the number one brand holding nearly 15% share.

Alf remains a gen Z favorite helping drive the share growth we have seen these last 19 quarters.

In Piper Sandler recent taking stock with teens fall survey health cosmetics remained the number one team favorite cosmetics brand for the fourth consecutive season.

Tarang Amin: With that, let me turn the webcast over to Tarang. Thank you, Kasey. Good afternoon, everyone. Today, we will discuss the drivers of our Q2 results and a raised outlook for fiscal 24. I want to start by recognizing the ELF Beauty team for delivering another phenomenal quarter. In Q2, we grew net sales by 76 percent, increased gross margin by 570 basis points, and delivered $60 million in adjusted EBITDA. Up 122 percent versus prior year.

We grew our share by 13 percentage points versus a year ago to 29%.

We believe this is a great indicator of brand strength.

For perspective, no other cosmetics brand has surpassed even 20% of the past five years.

L skin ranked in the top 10 favorite skincare brands for the second time.

F cosmetics dot com was a top 10 beauty shopping destination for teens for the third consecutive survey and was the only brand site on the list.

Tarang Amin: Q2 marked our 19th consecutive quarter of net sales growth, putting ELF Beauty in a select group of consistent, high-growth consumer companies. We are one of only five public consumer companies out of 274 that has grown for 19 straight quarters and average at least 20 percent sales growth per quarter. We continue to highlight three areas with significant runway for growth in color cosmetics, skin care, and international. Let me update you on our progress in Q2.

Looking outside the U S. We grew our international net sales of 157% in Q2.

Fueled by strength in Canada, and the U K.

L outpaced category growth by more than 10 times in Canada and more than seven times in the UK.

Fueling share gains in each.

<unk> today is the number four brand in Canada, with a 7% share and the number six brand in the UK with 5% sure.

We see significant runway to expand our brands globally.

Tarang Amin: In color cosmetics, we continue to significantly outperform category trends. In Q2, ELF cosmetics grew 51 percent track channels, nearly 17 times category growth is 3 percent. We increased our share by 330 basis points. Out of nearly 800 cosmetics brands tracked by Nielsen, ELF is the only brand to gain share from 19 consecutive quarters. We have more than doubled our market share since 2019 from about 4.5 percent to 10 percent. We are building strengths upon strength with our 330 basis points of share gains in Q2.

Our relentless focus on our five strategic imperatives continues to drive results across our brand portfolio.

Let me walk through how each of these strategic imperatives underpinned our strength in Q2.

Our first strategic imperative is to build brand demand.

Our disruptive marketing engine continues to redefine what's possible in beauty.

In Q2, we continue to break boundaries in gaming.

Entertaining short form content and record setting collaborations.

We leaned into gaming with the launch of a limited edition makeup collaboration in August with looser fruit also known as <unk>.

Tarang Amin: On top of our share gains last year and the year before. Given our momentum, we see an opportunity to double our share over the next few years. In Q2, ELF was a number three brand nationally with approximately 10 percent share. In target, our longest standing national retail customer were the number one brand with approximately 19 percent share. Nearly double the level of share we had in target just two years ago. We're focused on replicating our partnership and success at Target across other key retailers and are making great progress towards that ambition.

One of the world's top female gamers.

We drove further into entertainment and short form digital content with Georgia, the shore icon Snooki.

Leaning into the nostalgia of the moment to underscore the importance of SPF and our son Touchable franchise.

I'm Snooki and I have an important message.

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I know you look back and think that Snooki, you had a really healthy natural globe newswire.

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Tarang Amin: In skincare, we continue to outperform the category. In Q2, El Skin grew 129 percent in track channels, about 13 times category growth of 10 percent, and was the fastest growing among the top 20 skincare brands. We grew our share by 80 basis points, increasing our rank to the number 14 brand as compared to the number 19 brand a year ago. El Skin today holds a 1.6 percent share and a significant runway with the number one brand holding nearly 15 percent share.

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We launched another record setting collaboration in September.

As part of our strategy to continue building awareness and reach new audiences, we reunited with cultural icon and award winning actress Jennifer Coolidge to launch Dirty pillows.

Tarang Amin: Elf remains a Gen Z favorite, helping drive the share growth we've seen these last 19 quarters. In Piper Samler's recent taking stock with teens fall survey, Elf cosmetics remain the number one teen favorite cosmetics brand for the fourth consecutive season. We grew our share by 13 percentage points versus a year ago to 29 percent. We believe this is a great indicator of brand strength. For perspective, no other cosmetics brand has surpassed even 20 percent in the past five years.

This limited edition lip collection and campaign was inspired by and I would take from our big game commercial sheet.

I would call it by the same very similar to this a little bit lighter.

And I got Dirty pillar.

We took an unscripted moment and created a premium lip collection that launched an elf cosmetics dot com at El speed.

Our dirty pillars campaign explores a world where one's lips always come first.

Tarang Amin: El Skin ranked in the top 10 favorite skincare brands for the second time. Elf cosmetics.com was a top 10 beauty shopping destination for teens for the third consecutive survey and was the only brand site on the list. Looking outside the US, we grew our international net sales 157 percent Q2, fueled by strength in Canada and the UK. Elf outpaced category growth by more than 10 times in Canada and more than 7 times in the UK, fueling share gains in each.

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Tarang Amin: Elf today is the number four brand in Canada with a 7 percent share and the number six brand in the UK with 5 percent share. We see significant runway to expand our brand globally. Our relentless focus on our five strategic competitors continues to drive results across our brand portfolio. Let me walk through how each of these strategic competitors underpinned our strength in Q2.

The response from our community has been incredible.

Our Dirty pillars campaign earned over 11 billion media impressions in 48 hours, our highest ever for a product collaboration.

The initial drop of Dirty pillow lip kit sold out within two hours with over 40% of purchasers new to health.

Over the past four years, we've increased our marketing investment from 7% of net sales to 22%.

Tarang Amin: Our first strategic imperative is to build brand demand. Our disruptive marketing engine continues to redefine what's possible in beauty. In Q2, we continue to break boundaries in gaming, entertaining short form content, and record setting collaborations. We leaned into gaming with the launch of a limited edition makeup collaboration in August with loser fruit, also known as Lufu, one of the world's top female gamers. We dove further into entertainment and short form digital content with George A.

Our marketing investment is working driving ROI multiples above industry benchmarks and helping us reach new audiences.

Our most recent attitude and usage study underscores the broad based improvement we've seen since 2020, our brand satisfaction jumped 16 points to 80% the highest among our competitive set.

Our unaided awareness in the U S has doubled from 13% to 26%.

That 26% unaided awareness today compares to the leading U S mass cosmetics brand at 52%.

Tarang Amin: Shore icon Snooki. Leaning into the nostalgia of the moment to underscore the importance of SPF and our son touchable franchise. I'm Snooki, and I have an important message. The sun is a toothpaste. I know you look back and think, but Snooki, you had a really healthy natural glow. Well, I got news for you b****. I can't irresponsibly. Luckily, change is possible. The new, sun touchable sunscreen from Elf Gins. You can help protect you from the sun's drama, like the sunburns, early aging, and other mess up stuff.

Illustrating an opportunity to double again as we move forward.

Building upon our success in the U S. We took steps to accelerate brand awareness in the U K with our first ever community led brand campaign.

When we asked our growing community in the UK, what else means to them. It sparked a campaign that fueled a movement.

In September the U K lit up with our first 32nd UK advertising spot across social channels tube stations digital screens and experiential pop ups encouraging everyone to get involved and hashtag Express yourself.

Tarang Amin: So please, can responsibly. No one likes the burnt meatball. All right, everybody. Let's cut. So you sure you got everything for me? You sure you got it all because I got a lot to say. The sons of even birds are his cloudy out. Can I also steal this because I would love to have this. We launched another record setting collaboration in September as part of our strategy to continue building awareness and reach new audiences.

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Tarang Amin: We reunited with cultural icon and award-winning actress Jennifer Coolidge to launch dirty pillows. This limited edition lip collection and campaign was inspired by an outtake from our big game commercial shoot. I would call it with a shade very similar to this. A little bit lighter and I call it dirty pillows. We took an unscripted moment and created a premium lip collection that launched on ELF Cosmetics.com at ELF Speed. Our dirty pillows campaign explores the world where one's lips always come first.

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Tarang Amin: Here's your last day of Jennifer. I love you. What's going on? What are you doing? I was having a terrible nightmare. I came across a ball of marshmallows. I was starving to death just to eat marshmallow before I ate it. I didn't like it. I'm really tired. Sounded like you liked it. You're going to get lip gloss over the back end. Honestly. The response from our community has been incredible. Our dirty pillows campaign earned over 11 billion media impressions in 48 hours.

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Our second strategic imperative is to power digital.

Founded as a digitally native brand Elf remains the only top five mass cosmetics brand with our own direct to consumer site.

Our digitally led strategy continues to serve us well.

Q2, digital consumption trends were up over 75% year over year.

Digital channels rose, 17% of our total consumption in Q2 on a much bigger business as compared to 16% a year ago.

We're seeing terrific engagement on our L cosmetics mobile App, which now boasts a four eight star rating and over $1 6 million downloads.

Tarang Amin: Our highest ever for a product collaboration. The initial drop of dirty pillow lip kit sold out within two hours with over 40% of purchasers new to ELF. Over the past four years we've increased our marketing investment from 7% of net sales to 20%. Our marketing investment is working. Driving ROI multiples above industry benchmarks and helping us reach new audiences. Our most recent attitude in usage study underscores the broad base improvement we've seen since 2020.

Our monthly active user growth is outpacing that of traditional beauty retailers and over 90% of our transactions on the App are driven by our most loyal beauty squad loyalty members.

Beauty squad now has over $4 1 million members with enrolment growing over 25% year over year.

Our loyalty members are a key part of our digital ecosystem driving almost 80% of our sales on health cosmetics Dot com.

Our third strategic imperative is to lead innovation.

Tarang Amin: Our brand satisfaction jumped 16 points to 80%. The highest among our competitors set. Our unated awareness in the US is doubled from 13% to 26%. That 26% unated awareness today compares to the leading US mass cosmetics brand at 52%. Illustrating an opportunity to double again as we move forward. Building upon our success in the US, we took steps to accelerate brand awareness in the UK with our first ever community led brand campaign.

We have a unique ability to deliver Holy grails, taking inspiration from our community and the best products in prestige and bringing them to market at extraordinary value.

Our innovation continues to receive industry recognition.

In the highly coveted allure best of Beauty Awards.

More of our products garnered best of awards the largest number of awards, we received in a single year and marking the 11th consecutive year Health Beauty has won a best of Beauty Award.

Tarang Amin: When we asked our growing community in the UK what ELF means to them, it sparked a campaign that fueled a movement. In September, the UK lit up with our first 30 second UK advertising spot across social channels, cube stations, digital screens, and experiential pop-ups encouraging everyone to get involved and hashtag express your ELF. [inaudible] Every live.

Our innovation engine is built category leadership over time.

It also has a number one or two position across 16 segments of the color cosmetics category, which collectively make up over 75% of <unk> cosmetic sales.

We continue to deliver strong sales growth and share gains in each.

Our fourth strategic imperative is to drive productivity with our retail partners LP.

<unk> continues to drive best in class productivity on a sales per linear foot basis with both target and Walmart are two largest customers.

This productivity is earning us additional space with our retail partners.

As a reminder, in spring 2023, we expanded space in target, Walmart Cvs and shoppers drug Mart.

And in fall 2023, we expanded space in Ulta beauty, Cvs and Walgreens.

We're pleased to announce that we will be expanding our space in spring 2024, with shoppers drug Mart in Canada and with boots in the UK.

Last month, we also launched <unk> in Italy, with two glass furthering our international expansion.

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Our fifth strategic imperative is to deliver profitable growth.

Since 2019, we have been focused on the flywheel of investing behind our high ROI marketing and digital initiatives to drive topline growth, while also expanding our adjusted EBITDA margin.

Tarang Amin: Our second strategic imperative is to power digital. Founded as a digitally native brand, e.l.f, remains the only top five mass cosmetics brand with their own direct-to-consumer site. Our digitally-led strategy continues to service well. Q2 digital consumption trends were up over 75% year-over-year. Digital channels rose 17% of our total consumption in Q2 on a much bigger business, e.l.f, compared to 16% a year ago. We're seeing terrific engagement on our health cosmetics mobile app, which now boasts a 4.8 star rating, and over 1.6 million downloads.

We again delivered on this winning formula in Q2 with both strong top line growth and adjusted EBITDA margin expansion.

Supported by a combination of our strong sales growth.

Margin expansion and leverage in our non marketing SG&A expenses.

As we've grown we've continued to make investments in our infrastructure.

Our supply chain offers the best combination of cost quality and speed in our industry.

And has been able to keep pace with the strong consumer demand we're seeing.

Tarang Amin: Our monthly active user growth is outpacing that of traditional beauty retailers, and over 90% of our transactions on the app are driven by our most loyal beauty squad loyalty members. Beauty Squad now has over 4.1 million members with enrollment growing over 25% year-over-year. Our loyalty members are a key part of our digital ecosystem, driving almost 80% of our sales on healthcosmetics.com.

This year, we will begin implementation of SAP to continue to optimize our operations and core processes.

We're also planning to make investments to increase our distribution capacity to support our growth.

Even with this ongoing investment we expect to continue to deliver adjusted EBIT margin expansion in fiscal 2024.

We believe these ongoing investments in our team and infrastructure position us well to continue to drive profitable growth.

Tarang Amin: Our third strategic imperative is to lead innovation. We have a unique ability to deliver holy grails, taking inspiration from our community, and the best products in prestige, and bringing them to market extraordinary value. Our innovation continues to receive industry recognition. In the highly coveted Allure Best of Beauty Awards, four of our products garnered best of awards. The largest number of awards we've received in a single year, and marking the 11th consecutive year, Elf Beauty is one, a Best of Beauty Award.

Tarang Amin: Our innovation engine has built category leadership over time. Elf has a number one or two positions across 16 segments of the color cosmetics category, which collectively make up over 75% of Elf cosmetic sales. We continue to deliver strong sales growth and share gains in each.

Tarang Amin: Our fourth strategic imperative is to drive productivity with our retail partners. Elf continues to drive best-sing class productivity on a sales per linear foot basis, with both target and Walmart, our two largest customers. This productivity is earning us additional space with our retail partners. As a reminder, in spring 2023, we expanded space in Target, Walmart, CVS, and Shoppers Drug Mart. And in fall 2023, we expanded space in Alta Beauty, CVS, and Walgreens.

There are positive impact drives more successful business outcomes.

Our commitment to our culture and people was recently spotlighted by U S News and World report, who named L. Beauty to its annual list of best companies to work for.

Tarang Amin: We are pleased to announce that we'll be expanding our space in spring 2024, with Shoppers Drug Mart in Canada, and with boots in the UK. Last month, we also launched Elf in Italy with due gloss, furthering our international expansion.

We're also recognized by Newsweek as one of America's greenish companies, recognizing our progress and sustainability.

In summary, we believe the white space and color cosmetics skincare and international <unk>.

Coupled with a relentless focus on our five strategic imperatives will continue to fuel our ability to win in fiscal 24 and beyond.

I'll now turn the call over to Mandy.

Tarang Amin: Our fifth strategic imperative is to deliver profitable growth. Since 2019, we've been focused on the flywheel of investing behind our high ROI marketing and digital initiatives to drive top-line growth, while also expanding our electricity with the margins. We again delivered on this winning formula in Q2 with both strong top line growth and adjusted EBITDA margin expansion. Supported by a combination of our strong sales growth, gross margin expansion and leverage in our non-marketing SGNA expenses.

Thank you to rang.

I'm pleased to share the highlights of our second quarter results as well as our raised outlet for fiscal 24.

Our second quarter results were outstanding.

Q2, net sales grew 76% year over year, driven by broad based strength across national and international retailers as well as digital commerce.

Net sales growth was led by higher unit volume, which contributed approximately 56 percentage points to growth with mixed adding approximately 20 percentage points.

L for the only top five cosmetics brand to grow units according to chat channel data.

Tarang Amin: As we've grown, we continue to make investments in our infrastructure. Our supply chain offers the best combination of cost, quality, and speed in our industry and has been able to keep pace with a strong consumer demand we're seeing. This year will begin implementation of SAP to continue to optimize our operations and core processes. We're also planning to make investments to increase our distribution capacity to support our growth. Even with this ongoing investment, we expect to continue to deliver adjusted EBITDA margin expansion in fiscal 2024. We believe these ongoing investments in our team and infrastructure position as well to continue to drive profitable growth.

Q too gross margin of 71% was up approximately 570 basis points compared to prior year.

We saw gross margin benefits from lower inventory adjustments favorable F X rayed improved transportation costs margin accretive mix and cost savings, which more than offset costs related to retailer activity and space expansion.

On an adjusted basis SG&A as a percentage of sales was 45% and Q2 compared to 46 per cent last year.

We drove significant leverage and non marketing SG&A expenses, primarily as a result of our strong top line trends.

Tarang Amin: In early October, we officially closed on the acquisition of notorious and welcomed its passion team of employees to the ELF Beauty family. Nitorium is a fast growing disruptive brand on a mission to make high performance skincare accessible to all. The acquisition doubles our skincare presence to approximately 18% of retail sales from approximately 9% on a standalone basis. Nitorium has seen exceptional growth with net sales growing at approximately 80% cager over the last two years.

Marketing and digital investment for the quarter was 21% of net sales up from 16% in Q2 last year.

We continue to expect marketing and digital investment and the 22% to 24% range for the full year or fiscal 24.

Given first has spending at 18% of net sales, we expect to see spending above our annual range in the back half.

Q to adjusted EBITDA was $60 million up 122% versus last year.

Tarang Amin: We're still in the early days post-closing and look forward to realizing the significant opportunities we see ahead for the brand. Our unwavering focus on executing our five strategic imperatives is driving our results. At the same time, I'm proud that we continue to lead with purpose as we strive to create a different kind of beauty coming. One that is both purpose led and results driven. Our second annual impact report launched in September demonstrates how these go hand in hand. It shows our acting with purpose to further our positive impact drives more successful business outcomes.

And adjusted EBITDA margin was approximately 28% of net sales.

Adjusted net income was $47 million or 82 cents per diluted chair compared to $20 million or 36 cents per diluted share a year ago.

The increase across profitability metrics was driven by our strong net sales growth gross margin expansion and leverage and are non marketing SG&A expenses.

Moving to the balance sheet and cash flow.

Our balance sheet remain strong and we believe positions as well to execute our longterm growth plants.

Tarang Amin: Our commitment to our culture and people was recently spotlighted by US News and World Report, who named ELF Beauty to its annual list of best companies to work for. We're also recognized by Newsweek as one of America's greenest companies recognizing our progress and sustainability. In summary, we believe the white space and color cosmetics, skincare and international, coupled with our relentless focus on our five strategic imperatives, will continue to fuel our ability to win in fiscal 24 and beyond.

Are ending inventory balance was $147 million in line with our expectations and up from $81 million a year ago.

The difference is a combination of two things.

As we said last quarter, we plan to build back our inventory levels through physical 24 to support the strong consumer demand we're seeing.

In addition.

Approximately $37 million of the increase as a result of taking ownership of inventory from China when it ships versus when it enters our distribution center here in the U S.

Mandy Fields: I'll now turn the call over to Mandy. Thank you, Tereng.

We ended the quarter with approximately $168 million in cash on hand, compared to a cash balance of $85 million a year ago.

Mandy Fields: I'm pleased to share the highlights of our second quarter results as well as our raised outlook for fiscal 24. Our second quarter results were outstanding. Q2 net sales grew 76% year over year driven by broad-based strength across national and international retailers, as well as digital commerce. First, our net sales growth was led by higher unit volume which contributed approximately 56 percentage points to growth with mix adding approximately 20 percentage points. Elf was the only top 5 cosmetics brand to grow units according to track channel data.

I'm also pleased with the approximately $27 million in free cash flow, we generated in Q2.

We ended the quarter with a net cash position in less than one times leverage in terms of total debt to adjusted EBITDA.

Subsequent to the quarter and in early October we closed <unk> acquisition we.

We found it the 355 million dollar acquisition, largely using cash on hand, and access to our existing credit facility as well as $72 million of else beauty stock issued directly to founders and key management, which represented approximately 600000 shares.

Mandy Fields: Q2 growth margin of 71% was up approximately 570 basis points compared to prior year. For inventory adjustments favorable fx rates improved transportation costs margin of creative mix and cost savings which more than offset costs related to retailer activity and space expansion on an adjusted basis SNA as a percentage of sales was 45% in Q2 compared to 46% last year. We drove significant leverage and non-marketing SNA expenses primarily as a result of our strong top line trends.

We expect our liquidity position to remain strong with relatively low leverage posted transaction with net leverage expect it to be less than one and a half times adjusted EBITDA.

We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions.

The initiatives, we're focused on this year across our brand portfolio include continuing to invest in our people and infrastructure.

R E R P transition to S. A T S.

As well as increased working capital and distribution capacity to support the strong consumer demand we're seeing.

Mandy Fields: Marketing and digital investment for the quarter was 21% of net sales up from 16% in Q2 last year. We continued to expect marketing and digital investment in the 22 to 24% range for the full year of fiscal 24. Given first half spending at 18% of net sales we expect to see spending above our annual range in the back half. Q2 adjusted EBITDA was $60 million up 122% versus last year and adjusted EBITDA margin was approximately 28% of net sales.

Now, let's turn to our updated outlook for fiscal 24.

As we look to the second half of fiscal twenty-four we're well positioned to deliver another industry leading ear.

We are raising our full your outlook to reflect ongoing momentum and our underlying business as well as the addition of material.

For the full year, we now expect net sales growth of approximately 55% to 57% up from 37% to 39% previously.

Mandy Fields: Adjusted net income was $47 million or 82 cents per diluted share compared to $20 million or 36 cents per diluted share a year ago. The increase across profitability metrics was driven by our strong net sales growth growth margin expansion and leverage in our non-marketing SNA expenses.

Adjusted EBITDA between $197 million to $200 million.

Up from $171 million to $174 million previously.

Adjusted net income between $144 million to $146 million.

Up from $125 million to $127 million previously.

Mandy Fields: Moving to the balance sheet and cash flow. Our balance sheet remains strong and we believe positions as well to execute our long term growth plans. Our ending inventory balance was $147 million in line with our expectations and up from $81 million a year ago. The difference is a combination of two things. As we said last quarter we plan to build back our inventory levels through fiscal 24 to support the strong consumer demand we're seeing.

And adjusted EPS of $2.47 to $2.50 per diluted share.

Up from $2.19 to $2.22 previously.

We continue to expect our fiscal twenty-four adjusted tax rate to be approximately 17% to 18%.

Lastly, we now expect a fully diluted average share account of approximately 58 million chairs up from 57 million shares previously.

Mandy Fields: In addition approximately $37 million of the increase is the result of taking ownership of inventory from China when it ships versus when it enters our distribution center here in the US. We ended the quarter with approximately $168 million in cash on hand compared to a cash balance of $85 million a year ago. I'm also pleased with the approximately $27 million in free cash flow we generated in Q2. We ended the quarter with a net cash position and less than one times leverage in terms of total debt to adjust the EBITDA.

As a reminder, <unk> is expected to generate approximately $90 million of net sales and $17 million and adjusted EBITDA in the 12 months ending March 31st 2024, the acquisition of notary closed in early October editorial will start to contribute to our results and.

Fiscal Q3, we continue to expect <unk> to contribute approximately $48 million in net sales $9 million and adjusted EBITDA.

And four cents and adjusted EPS on a fully diluted basis and our fiscal 2024, let.

Mandy Fields: Subsequent to the quarter end, in early October, we closed the Naturium Acquisition. We funded the $355 million acquisition, largely using cash on hand, and access to our existing credit facility, as well as $72 million of L.f. Beauty stock issued directly to founders and key management, which represented approximately 600,000 shares. We expect our liquidity position to remain strong with relatively low leverage post-to-transaction, with net leverage expected to be less than 1.5 times adjusted EBITDA.

Let me provide you with additional color on our planning assumptions for fiscal 24, starting with top line.

On an organic basis, excluding the acquisition of material.

Ah raised outlook implies organic net sales growth of approximately 46% to 48% up from 37% to 39% previously.

Are raised outlook reflects the outperformance in Q2, we saw relative to our expectations as well as expected strength for the balance of the year and our underlying business.

Let me spend a moment Nielsen tracked channel trends.

Mandy Fields: We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions. The initiatives were focused on this year, across our brand portfolio, include continuing to invest in our people and infrastructure, our ERP transition to SAP, as well as increased working capital and distribution capacity to support the strong consumer demand we're seeing.

As a reminder, track channels only represent a portion of our sales.

When accounting for the acquisition of Metairie track Channel data covers about 50 per cent of our sales let.

Let me provide some context for what we've seen recently and track channels and set the stage for what you could see for the balance of the year.

For context R. Q2 results were exceptional what else growth and tracked channels accelerating relative to Q1 on both of one year and two year basis.

Mandy Fields: Now let's turn to our updated outlook for fiscal 24. As we look to the second half of fiscal 24, we are well positioned to deliver another industry leading year. We are raising our full year outlook to reflect ongoing momentum in our underlying business, as well as the addition of Naturium. For the full year, we now expect net sales growth of approximately 55 to 57 percent, up from 37 to 39 percent previously.

As we looked at Q3 and Q4, we believe our track channel growth for Elf could range between 20% to 50 per cent growth.

In Q3, we could be at the higher end of that range and in queue for we can be towards the lower end of that range given the compares in the base were cycling.

And both quarters, we could see track channel trends on a two year basis remain at or above the 90% level. We've seen in the latest 12 weeks.

Mandy Fields: Adjusted EBITDA between $197 to $200 million, up from $171 to $174 million previously, adjusted net income between $144 million to $146 million, up from $125 to $127 million previously. An adjusted EPS of $2.47 to $2.50 per diluted share, up from $2.19 to $2.22 previously. We continue to expect our fiscal 24 adjusted tax rate to be approximately 17 to 18 percent. Lastly, we now expect a fully diluted average share count of approximately 58 million shares, up from 57 million shares previously.

Across quarterly one year and two year track channel data, we continue to drive exceptional consistent category, leading sales growth.

Turning to gross margin.

And physical 24, we now expect our consolidated gross margin to be up approximately 225 basis points year over year as compared to our expectation for 150 basis points previously.

The improved outlook is largely a result of our outperformance in Q2.

Aided by lower inventory adjustments in the quarter and favorable mix.

In terms of the key puts and takes for the rest of the year. We continue to expect gross margin to benefit from lower transportation costs favors.

Favorable ethics rates.

Margin accretive mixed in cost savings, which are expected to more than offset costs related to retailer activity and space expansion.

Mandy Fields: As a reminder, Naturium is expected to generate approximately $90 million of net sales, and $17 million in adjusted EBITDA in the 12 months ending March 31st, 2024. The acquisition of Naturium closed in early October, and Naturium will start to contribute to our results in fiscal Q3. We continue to expect Naturium to contribute approximately $48 million in net sales, $9 million in adjusted EBITDA, and 4 cents in adjusted EPS on a fully diluted basis in our fiscal 2024.

Now turning to adjusted EBITDA.

Our outlook now implies adjusted EBITDA growth of approximately 69% to 71% versus prior year.

Up from 46% to 49% previously.

And adjusted EBITDA margin leverage of approximately 190 basis points year over year as compared to approximately 150 basis points previously.

The improved outlook is based on expected strong net sales growth.

Gross margin expansion.

Mandy Fields: Let me provide you with additional color on our planning assumptions for fiscal 24, starting with top line. On an organic basis, excluding the acquisition of the Turium, our raised outlook implies organic net sales growth of approximately 46 to 48 percent, up from 37 to 39 percent previously. Our raised outlook reflects the outperformance in Q2 we saw relative to our expectations. As well as expected strength for the balance of the year in our underlying business.

And leverage in our non marketing SG&A expenses.

We are quite pleased to be again in this position to meaningfully raise both our net sales growth and profitability outlook.

In summary, we.

We delivered a phenomenal second quarter.

Are disciplined execution behind our five strategic imperatives has driven category leading results over the last 19 quarters.

The significant white space, we see across color cosmetics skincare and internationally gives us confidence that we are still in the early innings Ah marking the full potential behind our brands.

Mandy Fields: Let me spend a moment on Nielsen Track Channel trends. As a reminder, track channels only represent a portion of our sales. When accounting for the acquisition of the Turium, track channel data covers about 50 percent of our sales. Let me provide some context for what we've seen recently in track channels and set the stage for what you could see for the balance of the year. For context, our Q2 results were exceptional, with health growth and track channels accelerating relative to Q1 on both a one year and two year basis.

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

Thank you.

We will now begin the question and answer session.

Mandy Fields: As we looked at Q3 and Q4, we believe our track channel growth for health could range between 20 percent to 50 percent growth. In Q3, we could be at the higher end of that range, and in Q4, we could be toward the lower end of that range given the compares in the base we are cycling. In both quarters, we could see track channel trends on a two year basis remain at or above the 90 percent level we've seen in the latest 12 weeks. Across quarterly, one year and two year track channel data, we continue to drive exceptional, consistent, category leading sales growth.

To ask a question you may testify than one on your Touchtone phone.

If you're using a speaker phone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then too.

Please limit yourself to one question.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Olivia at home with Raymond James. Please go ahead.

Great. Thanks, good afternoon, any congratulatory quarter.

Thanks, So let me.

Uhm My first question.

Previous course, you're you're raising the guy by more than the beat ourselves up if we just the base when detore them up $56 million and you'll be September quarter at least by consensus by $18 million. So can you just talk about friends, you're seeing so far this month, you're referencing Nielsen data.

You know maybe could you talk a little bit about.

Performing nontracked channels versus attract channels and just kept us up to date on books famous thank you.

Mandy Fields: Turning to growth margin. In fiscal 24, we now expect our consolidated growth margin to be up approximately 225 basis points year over year. As compared to our expectation for up 150 basis points previously, the improved outlook is largely a result of our outperformance in Q2, aided by lower inventory adjustments in the quarter and favorable mix. In terms of the key puts and takes for the rest of the year, we continue to expect growth margin to benefit from lower transportation costs, favorable FX rates, margin of creative mix and cost savings, which are expected to more than offset cost related to retailer activity and space expansion.

Hi, Olivia. Thank you so much for the question. So again, we feel great about the business overall as you noted we did raise our guidance up to 57 per cent on the top and and that's inclusive of adding the tourism in to our numbers as well and and why do we feel good about raising that guidance again based on the trends that were.

Seeing the momentum and the demand behind our brand.

Really encouraged us and we see a lot of white space ahead. When when you think about untracked channels. You know we have international digital an alternate fall into that untracked channels and some of our strongest performance, it's coming from that from that side of the house and so we really feel great all around on both sides of the business on the tract piece of.

Mandy Fields: Now turning to adjusted EBITDA. Our outlet now implies adjusted EBITDA growth of approximately 69 to 71 percent versus prior year. Up from 46 to 49 percent previously and adjusted EBITDA margin leverage of approximately 190 basis points year over year as compared to approximately 150 basis points previously. The improved outlook is based on expected strong net sales growth, growth margin expansion and leverage in our non-marketing SG&A extent. We are quite pleased to be, again, in this position, to meaningfully raise both our net sales growth and profitability outlook.

The business as well as the untracked piece, which encouraged us to take that guidance after 57 per cent on the top one.

Our next question comes from Dara Methonium with Morgan Stanley. Please go ahead.

Is it afternoon.

So you talked about the truck turtle momentum convenient to 324 and for your averages.

Pretty similar to a recent trend, but arguably you've had a ton of momentum and things naturally sort of slow overturn pricing contribution drops all forbid. So just give us a sense of your level of confidence that you can continue relatively line with with to your average trends and what's driving the.

Mandy Fields: In summary, we delivered a phenomenal second quarter. Our disciplined execution behind our five strategic imperatives has driven category leading results over the last 19 quarters. The significant white space we see across color cosmetics, skin care, and internationally gives us confidence that we are still in the early innings I'm unlocking the full potential behind our brands.

And maybe part of that is is updating wrestling shelf space expectations, and how that changes sequentially and the innovation pipeline you are in place over the next few quarters.

Okay.

Trying.

<unk>, we feel great about the fundamentals behind our business.

The trends that we're seeing particularly the delivery between our value equation powerhouse innovation and marketing engine Nielsen's naturally going to bounce around a little bit given that in the back half were comping 50 to 80 per cent growth in Nielsen. So we could see Nielsen range anywhere from 20% to 50% depending on what's going on in the base period.

Unknown Executive: With that operator, you may open the call to questions. Thank you.

Unknown Executive: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the key.

As Mandy said that to your stocks are still incredibly strong.

Unknown Executive: To withdraw your question, please press star then two. Please limit yourselves to one question.

Terms of the fundamentals.

As I step back.

<unk> most strongly correlate with our share price that's market share adjust net sales growth and adjusted EBITDA growth and if I look at all three of those we've never been stronger on market share you know, it's pretty astounding, but we picked up 330 basis points of sure growth and while we've doubled our share it with a.

Unknown Executive: At this time, we will pause more materially to assemble our roster.

Olivia Cheang: Our first question comes from Olivia Toam with Raymond James. Please go ahead. Great. Thanks. Good afternoon and congratulations on a great quarter. Thanks.

The last few years, we see an opportunity again double our share over the next few years it'll be quite just as closely to target our longstanding national retail customer what were the number one brand close to a 19 sure. So I feel really great in terms of what we can continue to do from a market share standpoint.

Mandy Fields: My first question, you know, similar to previous queries, you're you're raising the guide by more than the beat on on sales up if we adjust the baseline Victorian up 56 million and you beat December quarter, at least my content is by 18 million. So can you just talk about trends you're seeing so far this month, you reference the meals and data. You know, maybe could you talk a little bit about performing non track channels versus the track channels and just kept us up to date on what you've seen this month. Thank you.

Net sales growth <unk>, our top end of our range that was 57% net sales growth and adjusted EBITDA groceries, even higher at 71 per cent growth. So the core fundamentals were focused on food will continue to stay strong and we continue secret momentum and then in terms of shelf space and innovation again, we feel great.

Tarang Amin: Hi Olivia, thank you so much for the question. So again, we feel great about the business overall. As you noted, we did raise our guidance up to 57% on the top end. And that's inclusive of adding the Turium in to our numbers as well. And why did we feel good about raising that guidance again based on the trends that we're seeing the momentum and the demand behind our brand really encouraged us and we see a lot of white space ahead.

On those fronts, we picked up a ton of space. This fiscal year, we're continuing that momentum with additional space. Both at Superdrug am boots and in subsequent quarters, you'll hear us talk about other retailers in terms of the space, we pick up noting that the most important thing is the productivity drive speed the most productive branded target Walmart.

The retailers and our innovation pipeline has never been stronger we continue to have these holy grails that consumers can't seem to get enough of that'd be our ability to shine a light.

Tarang Amin: When we think about on track channels, you know, we have international digital and ultra that fall into that on track channels and some of our strongest performance is coming from that from that side of the house. And so we really feel great all around on both sides of the business on the track piece of the business, as well as the untracked piece, which encouraged us to take that guidance up to 57% on the top line.

Those Holy Grail marketing has been a winning formula continues to propel the top line and our adjusted EBITDA margins.

Our next question comes from animals with Bank of America. Please go ahead.

Hi, good afternoon, and thanks very much for the question I was wondering if you're seeing any trade down benefits and your results and whether this is gaining market share growth. In addition to solve 15th and just regarding the strengthen L. Skin. How are you splitting that incremental shall face and uhm to this brand verses all cosmetics. Thanks.

Tarang Amin: Our next question comes from Darra. My son is more than Stanley, please go ahead. Hey, good afternoon. So you talked about the track channel momentum continuing in Q3, Q4 into your averages remaining pretty similar to recent trend, but arguably you've had a ton of momentum and things naturally sort of slow over time pricing contribution drops off a bit. So just give us a sense of your level of confidence that you can continue relatively in line with with to your average trends and what's driving that.

Yeah, So I would say hi, Anna I would say overall, we're not seeing a wholesale trade down from prestige into mass the both sides of the pie or continue to do well from a beauty standpoint and fell I think really what is driving our performance you know one thing we pointed to for this quarter.

Is the increase in awareness that we're seeing behind the elf's brand we've doubled our awareness over the past few years and that it has really allowed us to bring more Gen X millennial into the brand and continue to penetrate Virginia V as well and so I do think at more folks coming into the franchise.

Tarang Amin: And maybe part of that is is updating us on shelf space expectations and how that changes sequentially and the innovation pipeline you have in place over the next few quarters. Thanks. Hi. This is Tarang. As Mandy said, we feel great about the fundamentals behind our business and the trends that we're seeing particularly the delivery between our value equation, powerhouse innovation and marketing engine. Nielsen's naturally going to bounce around a little bit given that in the back half, we're comping 50 to 80% growth in Nielsen.

Has really served as well you can also see that in our unit growth as I quoted 56 point of our sales growth is really driven by unit volume, which is really encouraging to see and so we are feeling great on that side from El skin certainly continues to be a focus for us we called out skin care one of our priorities in areas of white.

Tarang Amin: So we could see Nielsen range anywhere from 20 to 50%. Depending on what's going on in the base period, as Mandy said, the two-year stacks are still incredibly strong. In terms of the fundamentals, as I step back, the really three things that most strongly correlate with our share price, that's market share, adjust net sales growth and adjustity, but the growth. And if I look at all three of those, we've never been stronger on market share.

Face it we're going after and how we think about skin care on the shelf sets depending on the retailer, it's either house with our color cosmetics or separately and as we get shelf space games, especially in those areas, where we do have in house with color cosmetics, we're making sure that we have the best of our skin care available on those sets as well we have to talk to the.

Past about seeing skincare represent almost 20 per cent of our sales on <unk> cosmetics dotcom. So we know that there is a big opportunity for us to continue to penetrate skin care of within our retailers as well.

Tarang Amin: And it's pretty astounding that we picked up 330 basis points of share growth. And while we've doubled our share over the last few years, we see an opportunity again, double our share over the next few years. And at the point, this is closely to target our longest standing national retail customer, where their number one brand close to a 19 share. So I feel really great in terms of what we continue to do from a market share standpoint.

And the only other thing I would add is we are tremendously excited now with the acquisition of notorious it doubles, our presence in skin care to about 18% of our business. We have two incredible growth assets in skin care to continue to realize their potential.

Tarang Amin: Met sales growth, Mandy told you, our top end of our range now is 57% net sales growth, and adjusted ebit of growth is even higher at 71% growth. So the core fundamentals were focused on our fuel continue to stay strong, and we continue to see great momentum. And then in terms of shelf space and innovation, again, we feel great on those fronts. We picked up a ton of space. This fiscal year, we're continuing that momentum with additional space, both at super drug and boots.

Alright next question comes from Linda Bolton why is there will be a Davidson. Please go ahead.

Yes, hi, you've talked to a couple of times on the call about your increase in brand awareness in recent years and I was wondering what do you need to do to kind of kill the next stage of jump up and awareness is it just more of the same actions or are there.

Something different or new in the next stage do you need to add T V advertising, maybe in the international markets can you just come in on on that thank you.

Tarang Amin: And in subsequent quarters, you'll hear us talk about other retailers in terms of the space we pick up. Noting that the most important thing is the productivity drives being the most productive brand at target Walmart and other retailers. And our innovation pipeline has never been stronger. We continue to have these holy grails that consumers can't seem to get enough of, and their ability to shine the light on those holy grails through our market. It's been a winning formula that continues to propel the top line and our adjusted ebit of margins.

Hi, Linda this is trying first of all I'd say part of the reason why we've taken our marketing levels up over time is because it's working with exceptionally strong are wise multiples above industry benchmarks and so that's led us to continue to invest more in that has in turn brought greater awareness to the brand.

We talk doubling that awareness of 13% to 26%, we still see a massive opportunity from an awareness standpoint, as we said the market leaders sitting at about 52 per cent on any of the awareness and so the strategy were falling going forward is a combination of what's worked for us our digital approach, which not only has led to leadership amongst <unk>, they're bringing in.

Anna Lizzul: Next question comes from Annozul with Bank of America, please go ahead. Hi, good afternoon, and thanks very much for the question. I was wondering if you're seeing any trade down benefits in your results and whether this is eating market share growth and addition to shelf space in. And just regarding the strength and health and how are you putting that incremental shelf space gains to this brand versus all cosmetics. Thanks. Yeah, so I would say hi, Anna.

More millennials ingenix as well as new tactics one of the reasons why we did a spot on the big game. This past year was being able to cast a much broader net to consumers that may not know of elephant for you to find both those strategies to be effective and continuing to increase our awareness not only the U S. What a recently launched awareness campaign.

Anna Lizzul: I would say overall, we're not seeing a wholesale trade down from prestige into mass. Both sides of the pie continue to do well from a beauty standpoint. And so I think really what is driving our performance, you know, one thing we point it to for this quarter is the increase in awareness that we're seeing behind Elf brand. We've doubled our awareness over the past few years, and that has really allowed us to bring more gen X millennial into the brand and continue to penetrate the gen Z as well.

The U K, we feel really great about it so you're going to continue to see US do continue to disrupt the market entertainer community in a way that resonates with them and continues to bring more people into franchise.

Our next question comes from Andrea <unk> J P. Morgan. Please go ahead.

Anna Lizzul: And so I do think more folks coming into the franchise has really served as well. You can also see that in our unit growth, as I quoted 56 points of our sales growth is really driven by unit volume, which is really encouraging to see. And so we are feeling great on that side from Elf skin certainly continues to be a focus for us. We've called out skincare, one of our priorities and areas of white space that we're going after.

Good afternoon. Thank you for taking my my questions. So turned you you spoke about the innovations, especially in the white spaces and skin.

As well as in Lipstick and Mascara is which you wonder I wonder skew relative to what your <unk>.

Potential power can be in your market share can you comment a little bit on how you progress towards the objective of of having a similar market share and interesting in my tunnel checks I've been seeing some stockhausen and lip, especially olive oil.

Anna Lizzul: And how we think about skincare on the shelf sets, depending on the retailer is either house with our color cosmetics or separately. And as we get shelf space gains, especially in those areas where we do have a house with color cosmetics. We're making sure that we have the best of our skincare available on those sets as well. We have talked in the past about seeing skincare represent almost 20% of our sales on else cosmetics.com.

So wonder if embedded in your guidance you have that improving or is there anything you can share in terms of getting more I would say capacity to to execute the plan and and obviously you have a very fast response to market, but just curious if you were able to most recent.

Anna Lizzul: So we know that there is a big opportunity for us to continue to penetrate skincare within our retailers as well. And the only other thing I would add is we're tremendously excited now with the acquisition of notorium. It doubles our presence in skincare to about 18% of our business.

Improve that and then just related to that I know <unk> also has been very that it has been increasing awareness and and and in the past you we were able to get into so for a Canada I'm just wondering if part of the the opportunities for taking.

Tarang Amin: We have two incredible growth assets in skincare to continue to realize that potential.

Linda Bolton: My next question comes from Linda Bolton, why is there a way to be a day to spend? Please go ahead. Yes, hi, you've talked a couple of times on the call about your increase in brand awareness in recent years. And I was wondering what do you need to do to kind of fuel the next stage of jump up in awareness? Is it just more of the same actions or are there something different or new in the next stage?

<unk> and for taking of course your your hero products everywhere is there any chance you can see also Q, so care expanding even further into other areas or it's gonna be mostly on the on the you know the the the core products and else. Thank you.

Hi, Andrea So I would say, we're making tremendous progress across every category. We're competing again, we talked about our leadership and 16 sub segments of color cosmetics were also conquesting. Some of these big leather category. So if I look at skin care, you know I feel great <unk> skin was up 129 per.

Linda Bolton: You need to add TV advertising, maybe in the international market. Can you just comment on that? Thank you. Hi, Linda. This is Tarang. First of all, I'd say part of the reason why we've taken our marketing levels up over time is because it's working. We have exceptionally strong ROI multiples above industry benchmarks. And so that's led us to continue to invest more. And that has, in turn, brought greater awareness to the brand as we talked, doubling that awareness from 13 to 26%.

<unk> almost 10 times with a category was for the quarter really driven by the innovation that we have in that category and awareness building were doing there you mentioned vast scare where we've also had good share progress as well as lip on lip <unk> I think a lot of this has to do with our approach to innovation, but we're constantly listening to our community and taking inspiration from them and.

Linda Bolton: We still see a massive opportunity from an awareness standpoint. As we said, the market leader is sitting at about 52% on native awareness. And so the strategy we're following going forward is a combination of what's worked for us, our digital approach, which not only is led to leadership amongst Gen Z, but bringing in more millennials and Gen X, as well as new tactics. One of the reasons why we did a spot on the big game this past year was being able to pass a much broader net to consumers that may not know of ELF. And we find both those strategies to be effective and continuing to increase our awareness, not only in the US, but are recently launched awareness campaign in the UK. We feel really great about it.

Christie's our community awhile ago had seen a prestige live below product that they really liked but it was priced at $40. So just in this past quarter. A few weeks ago, we launched our loop oil price of $8 versus a prestige I'm at 40, and we've just seen incredible response as you mentioned I mean, I think it's sold out the first time.

We put it out we have gotten more inventory on that product and you'll continue to see it do extremely well and it's significantly building our presence in lip. So we feel good about our two pronged innovation strategy really focusing on these franchises that continue to build a year after year as well as conquesting. Some of these other bigger categories and are made.

Tarang Amin: So you're going to continue to see us do and continue to disrupt the market and retain our community in a way that resonates with them and continue to bring more people into the franchise.

Great progress there.

And then in terms of <unk>, we feel great about our efforts to increase awareness on keys. So here, we have a pretty big innovation in the last few months and it's like skin. So tremendous response to that and you will be hearing about additional distribution points in the future on <unk> as we continue to build awareness on that brand and certainly couldn't be.

Andrea Teixeira: Our next question comes from Andrea T. Sherow and JP Morgan. Please go ahead. Good afternoon. Thank you for taking my question. So Teran, you spoke about the innovation, especially in the white space is in skin, as well as in lipsticks and mascara, which you wonder who under skew relative to what your potential power can be in your market share. Can you comment a little bit on how you progress towards the objective of of having a similar market share and interesting in my channel checks have been seen some stock out in lip, especially your lip oil.

More excited about notorious and what we could do with mature you as a reminder, mature oriented.

Close to $80 million net sales or $90 million in net sales actually really with a pretty limited distribution footprint, primarily a target Amazon and their own site. So we feel that we can increase its presence at current distribution as well as in the future take it to new distribution point, so multiple vectors of being able to.

Address the white space, we have both in skin care as well as some of these other categories.

Andrea Teixeira: So wonder if embedded in your guidance, you have that improving or is that anything you can share in terms of getting more, I would say, capacity to execute the plan and obviously you have a very fast response to market, but just curious if you were able to most recently improve that. And then just related to that, I know he's so care also has been very, that has been increasing awareness and any of the past you were able to get into for Canada, just wondering if part of the opportunity for taking natural and for taking, of course, you are your hero products everywhere. Is that any chance you can see also keep so care expanding even further into other areas, or it's going to be mostly on the, you know, the core products in health.

Our next question comes from Bill.

Chapel with two securities. Please go ahead.

Good afternoon.

Good afternoon to.

Mm.

My name is Jennifer.

T mobile visa quarter, especially on gross margin and step up the sales and marketing even further than we were.

I can repeat and I'd get the.

<unk>.

Mmm.

Are you continuing to reinvest I can <unk> poor you. After this or are you looking to maybe accelerated material may accelerate U K accelerated some of the international.

<unk>.

And reinvest more there or is it still there's just so much opportunity in the U S is going back primarily there. Thanks.

The Bill we see opportunity in both areas. We've obviously continue to reinvest in our core business in the U S. We're seeing great results as we talked about not only an awareness, but the brand satisfaction scores jumping all the way up to 80% satisfaction the highest in our competitive set we know that marketing is working and so you'll continue to see us build aware.

Tarang Amin: Hi, Andrea. So I would say we're making tremendous progress across every category. We're competing again. We talked about our leadership and 16 sub-segments of color cosmetics. We're also conquesting some of these bigger other categories. So if I look at skincare, you know, I feel great. Elf skin was up 129%, almost 10 times where the category was for the quarter, really driven by the innovation that we have in that category and awareness building we're doing there.

<unk> and our equity in the U S, but because we have a much bigger base and a bigger percentage in terms of marketing digital we're also able to pursue some of the keys growth sectors, we talked about our investment in skin care. In addition to color cosmetics as well as international part of how we drove 157 per cent growth in international.

Tarang Amin: You mentioned mascara, where we've also had good share progress, as well as lip on lip. You know, I think a lot of this has to do with our approach to innovation, where we're constantly listening to our community and taking inspiration from them and prestige. Our community a while ago had seen a prestige lip oil product that they really liked, but it was priced at $40. So just in this past quarter, a few weeks ago, we launched our lip oil price at $8, versus that prestige I'm at $40.

We are investing behind awareness in the U K and our efforts in Canada as well as well as expanding in other countries. Just a couple of weeks ago, We entered Italy with two glass in Italy.

I was told US he was probably the best launch they've ever seen for a brand and we see tremendous response from consumers. So I think the money that we have within the range that we've taught it gives us enough money to perceive both continue to focus on our core as well as expand into some of these new areas.

Tarang Amin: And we've just seen incredible response. As you mentioned, I mean, I think it sold out the first time we put it out. We have gotten more inventory on that product and you'll continue to see it do extremely well. And it's significantly building our presence and lip. So we feel good about our two-pronged innovation strategy, really focusing on these franchises that continue to build the year after year, as well as conquesting some of these other bigger categories and are making great progress there.

Oh.

Alright next question comes from Peter ground with U P. S. Please go ahead.

Good afternoon, everyone.

Really strong international Greg.

Tarang Amin: And then in terms of key sole care, we feel great about our efforts to increase awareness on key sole care. We had a pretty big innovation in the last few months and it's like skin, so tremendous response to that. And you will be hearing about additional distribution points in the future on key sole care as we continue to build awareness on that brand. And certainly couldn't be more excited about notorious and what we could do with notorious as a reminder.

Two cor mortgage you called ammunition expansion into into Italy, Yeah, I know it.

Several years to kind of get into those five 6% sure level that you're currently out of those markets, but can you maybe just talk about the opportunity.

Typically and then maybe I should think about other markets in front of the timeline around that is there anything you can share are you looking at additional markets or in the near term.

Just any color on international strategy will be helpful. Thanks.

Tarang Amin: Nitorium did close to $80 million of net sales, or $90 million net sales actually, really with a pretty limited distribution footprint, primarily at Target, Amazon and their own sites. So we feel that we can increase its presence in current distribution as well as in the future or take it to new distribution points. So multiple vectors of being able to address the white space. We have both in skincare as well, some of these other categories.

So Peter on the international we're seeing real strength, primarily in Canada, and the UK. The first two countries, we expanded in and I needed that you mentioned the call, but our Canadian business is 10 times, where the category growth rate is our UK business up seven times, where the category growth rate is so the primary area of growth so far.

[noise] is coming from those first to market that we're really focused on and we see a tremendous potential to be over time, a top three brand in both of those markets. In addition, you're gonna see is take the same disciplined rollout strategy that we followed in the U S to other markets. We're super excited about what we're going to be able to do in Italy, and the response of the brand there.

William Chappell: Our next question comes from Phil Chappell with true security. Please go ahead. Thanks. Good afternoon. Get up and in.

Tarang Amin: I mean, this is kind of a recurring theme of you, you beat the quarter, especially on gross margin and step up the fails in marketing even further than we would have. And I get that. Now as we're. Are you continue to reinvest back in core US business, or are you looking to maybe accelerate deterian accelerate UK accelerate some of the international opportunities and reinvest more there or is it still there's just so much opportunity in the US that it's going back primarily there. Thanks.

You will hear about additional countries in the coming quarters, I don't think you'll ever hear us talk about going into 30 countries. All at once we liked this approach of both with our own website as well as following kind of a leading retailer in a particular country to be able to really penetrate that and go from there. So I see a ton of growth potential both in Canada and the U.

K excited about Italy, and you'll hear about additional markets in the company and the coming quarters.

Your next question comes from Susan Anderson with Canaccord Tenuity. Please go ahead.

Hi, good evening nice job on the corner again.

I was wondering I guess just to follow up on the international market can you maybe just talk about the margin structure versus where you're at in the U S. I guess is it similar.

Tarang Amin: So Bill, we see opportunity in both areas. We've obviously continued to reinvest in our core business in the US. We're seeing great results as we talked about not only in awareness, but the brand satisfaction scores jumping all up to 80% satisfaction the highest in our competitive set. We know that marketing is working. And so you'll continue to see us build awareness and our equity in the US. But because we have a much bigger base and a bigger percentage in terms of marketing digital, we're also able to pursue some of the key growth vectors.

To the U S business and then also just on nature I am I'm curious if you think there's some learning there you can take and maybe apply to el skin to drive new product introduction and growth. Thanks.

Hi, Susan Thanks for the question so from a margin standpoint, it's pretty similar margins internationally and the U S. I would say the one key difference is the terror right as it as we ship product into the U S. Those products are turfed into our international markets that they shipped directly we do not see the same level of tariffs and.

Tarang Amin: We talked about our investment in skincare in addition to color cosmetics, as well as international part of how we drove 157% growth in international is we are investing behind awareness in the UK and our efforts in Canada as well. As well as expanding in other countries, just a couple of weeks ago, we entered Italy with due gloss and Italy due gloss told us it was probably the best launch they've ever seen for a brand.

So that would be one advantage to the international market overall.

And then on a Tory and one of the things that led us to the acquisition was not only the tremendous growth rate and potentially saw an aquarium, but the team. They would have an entire team with real skin care expertise. So we definitely feel we're gonna learn things from Victoria that can be applied to your skin and vice versa, and so that I think that was one of the real benefits of editorial acquisition.

Tarang Amin: And we see tremendous response from consumers. So I think the money that we have within the range that we've talked gives us enough money to pursue both continue to focus on our core as well as expanded to some of these new areas.

<unk> is highly complimentary to L skin somebody a tremendous expertise in formulation in education their engagement model, which should we definitely see has relevance pale skin and then in turn our capabilities for both the distribution and being able to ramp up their marketing efforts, we think will benefit in a dream as well so is it your perfect meal.

Peter Grom: Next question comes from Peter Grom with UBS. Please go ahead. Thanks operator and good afternoon everyone. So, you know, really strong international growth in the corner in your two core markets. And you called out the initial expansion into Italy. But I know it took you kind of several years to kind of get into this five, six percent share loan that you're currently out of those markets. But can you maybe just talk about the opportunity for Italy specifically.

Peter Grom: And then maybe as you think about other markets and kind of the timeline around that, is there anything you can share? Are you looking at additional markets in the near term? So yeah, just any color on the international strategy would be helpful. Thanks. Peter, on international, we're seeing real strength primarily in Canada and the UK, the first two countries we expanded in. And it mentioned in the call, but our Canadian business is 10 times where the category growth rate is our UK business sub seven times or the category growth rate is so the primary area of growth so far is coming from those first two markets that we really focused on.

Age that way.

Alright next question comes from <unk> minor with Alright for Sandler. Please go ahead.

Hey, good afternoon, Tina Thanks for taking a question congrats on a really awesome quarter I'd like to touch a little bit on the investments you briefly touched about touched on in the prepared remarks with some S. A P span and adding more distribution capacity that is going to add a little bit of pressure in the back half I know you're not guiding to the next.

Fiscal year, but how should we be thinking about those investments as we had it you know beyond the next couple of quarters and the impact to the margin profile there. Thank you.

Thanks for the question. So in terms of the S. A P and our distribution capacity all of that is already baked into our guidance overall and so it is when you think about kind of how we raised our top line in our adjusted EBITDA those are already reflected into into our guidance and so on.

Peter Grom: And we see a tremendous potential to be over time and top three brand in both those markets. In addition, you're going to see us take the same disciplined rollout strategy that we followed in the US to other markets. We're super excited about what we're going to be able to do in Italy and the response of the brand there.

And especially on the S. A P side and as we think about some of those capacity builds out that out from a distribution standpoint, a lot of that is gonna be capital that you'll see throughout and so uhm will eventually slow through from a DNA standpoint, but again not not looking out into physical twenty-five just yet but no that whatever.

Tarang Amin: You will hear about additional countries in the coming quarters. I don't think you'll ever hear us talk about going to 30 countries all at once. We like this approach of both with our own website as well as following kind of a leading retailer in a particular country to be able to really penetrate that and grow from there. So I see a ton of growth potential both in Canada and the UK excited about Italy and you'll hear about additional markets in the coming quarters.

Gotten in there it's already embedded in our guidance and the only other thing I would add is this has been a continual investment story. So this is not one where we've rob certain areas for years and now have to make a huge investment. We've invested every single year in terms of our technology stack in terms of our infrastructure.

So we don't see it as outsized all other then you'll see a little bit more capital, but other than that we feel pretty good about both those investments as well as the ability to continue to meet the demand that we're seeing.

Susan Anderson: Our next question comes from Susan Anderson with Canada Corte Generating. Please go ahead. Hi, good evening. Nice job on the quarter again. I was wondering, I guess just to follow up on the international market, can you maybe just talk about the margin structure versus where you're at in the US? I guess it's similar to the US business and then also just on nature. I'm curious if you think there's some learning there you can take and maybe apply to else skin to drive new product introduction and growth. Thanks.

Our next question comes from <unk> with Oppenheimer. Please God.

Good afternoon, and thanks for taking my question and also congrats on a really strong quarter I wanted to see if you can provide any more commentary on the Q3 to four cadence.

Sure on sales or EBITDA, just help us for a modeling perspective.

Tarang Amin: Hi, Susan. Thanks for the question. So from a margin standpoint, pretty similar margins internationally in the US. I would say the one key difference is the tariff. As we ship products into the US, those products are tariffed into our international markets as they ship directly. We do not see those same level of tariffs. And so that would be one advantage to the international markets overall. And then on a Torium, one of the things that led us to that acquisition was not only the tremendous growth rate and potential we saw in the Torium, but the team they have an entire team with real skin care expertise.

Yeah. So in our prepared remarks, I did indicate that Nielsen could be anywhere between 20 and 50 per cent for that uhm Backcast in Q3 can be at the higher end of that Q4 could be towards the lower end of that as we start to cycle Uhm higher comparison the base as you know, we don't get quarterly Guy.

So that's kind of the color that were given for the second half and you know our guidance approach is to be very balanced and that that has worked quite well for us and we're just gonna take it one quarter at a time, but really pleased with our overall raise to 57 per cent on the top and.

Tarang Amin: So we definitely feel we're going to learn things from the Torium that can be applied to health skin and vice versa. And so I think that was one of the real benefits of the Torium acquisition is it's highly complementary to health skin. They have tremendous expertise and formulation and education, their engagement model, which we definitely see has relevance to health skin. And then in turn, our capabilities from both the distribution and being able to ramp up their marketing efforts we think will benefit the Torium as well. So it's a perfect marriage that way.

Our next question comes from John Anderson with William Blair. Please go ahead.

Good afternoon, everybody and congratulations on the quarter quick quick two part question first I'm pricing pricing has been pretty consistent contributor to the business. It was about 20 per cent or so in fiscal twenty-three, it's running about 20% through the first half of fiscal 24 do you.

Price mixed continues at that kind of level and what is he was driving that is it is it a big mix element is it list price increases just trying to get a sense for how much room you out for that to continue and then the second question is on the marketing and digital.

Korinne Wolfmeyer: Our next question comes from Korinne Wolfmeyer with Dr. Sandler, Glee Sillahead. Okay, good afternoon, team, and thanks for taking the question and congrats on a really awesome quarter. I'd like to touch a little bit on the investments you briefly touched about touched on in the prepare remarks with some FAP spend and adding more distribution capacity. So it's going to add a little bit of pressure in the back half. I know you're not guiding to the next fiscal year, but how should we be thinking about those investments as we head, you know, beyond the next couple quarters and the impacts to the margin profile there. Thank you.

The the the full your outlook implies I guess that you'd be spending in the second half, it's kind of a high twenties right 28 per cent sales or so and I think that would be kind of a record level for the company.

You know do.

Do you have the plans in place already you don't know how that will be spent in can you talk a little bit about whether it's more of kind of the same type of vehicles or whether there is you know kind of another big game consideration in.

Mandy Fields: Thanks for the question. So in terms of the SAT and our distribution capacity, all of that is already baked into our guidance overall. And so as we think about kind of how we raised our top line and our adjusted EBITDA, those are already reflected into our guidance. And so, and especially on the SAP side, and as we think about some of those capacity builds out, build out from a distribution standpoint, a lot of that is going to be capital that you'll see throughout.

In there as well thanks.

Alright, alright, thanks, John So from a pricing standpoint, I, just give you a little bit of history on how we've approached pricing, we've really only taken to price increases in our history that first within 2019 in response to tariffs and black.

The last one was in 2022 in response to the inflationary environment, So largely what you're seeing from from a price standpoint, when I talk about 56 point driven by volume and the remainder driven by price extra largely mix and that really speaks to the innovation that we've introduced more recently, we have items like our power <unk>.

Mandy Fields: And so we'll eventually flow through from a DNA standpoint, but again, not not looking out into fiscal 25 just yet, but know that whatever we've gotten in there, it's already embedded in our guidance. And the only other thing I would add is this has been a continual investment story. So this is not one where we've robbed certain areas for years and now have to make a huge investment. We've invested every single year in terms of our technology stack, in terms of our infrastructure.

Primer and arc port, a potty prime or inner halo glow, ranging from 10 to $14, but still very much resonating with our consumers and so that is really what's influencing that pricing peace more so on the make side, we actually did not take any pricing here in in in the U S in fiscal 24.

Mandy Fields: And so we don't see it as outsized. Other than you'll see a little bit more capital, but other than that, we feel pretty good about both those investments, as well as the ability to continue to meet the demand that we're seeing.

And so that the mix it is really what's driving that that increase.

<unk>.

And on the marketing front, John we feel great about what we're gonna invest that money and it's a combination of the strategies that have worked particularly in our digital advertising our broader awareness efforts. Many of these game changing collaborations. The one we just did this last quarter with Jennifer Coolidge on Dirty Pillows, I think we got something.

Rupesh Parikh: Our next question comes from RuPesh, Parik with Oppenheimer. Please go ahead. Good afternoon.

Mandy Fields: Thanks for taking my question and also congrats on a really strong quarter. I want to see if you can provide any more commentary on the Q3Q4 cadence. I don't know if anything you share on sales or EBITDA just to help us from a modeling perspective. Yes, so in our prepared remarks, I did indicate that Nielsen could be anywhere between a 20 and 50% for the back half and Q3 could be at the higher end of that.

Like 11 billion impressions on filled out of the product right away, we're gonna have to get more for the holiday time, So you're going to continue to see that and we feel good about where we're gonna put that money against including in some of the new areas I talked about in terms of continue to ramp up skincare awareness Nycturia international So we have.

Mandy Fields: Q4 could be towards the lower end of that as we start to cycle higher compares in the base. As you know, we don't give quarterly guidance. So that's kind of the color that we're given for the second half. And you know, our guidance approach is to be very balanced and that that has worked quite well for us. And we're just going to take it one quarter at a time, but really pleased with our overall raise to 57% on the top end.

Have plenty of good places to put that money and continue to see exceptionally strong otherwise.

Sorry.

<unk>, sorry, I, just I wanted to talk about it on the pricing pizza dwell on the international peace that that we did not take pricing and physical twenty-four here in the U S. But there was a small one that we did take internationally that uhm actually it's kicking off here in October.

Mandy Fields: Next question comes from John Anderson with William Blair, please go ahead. Good afternoon, everybody, and congratulations on the quarter. I have a quick quick two part question. First on pricing pricing has been a pretty consistent contributor to the business of about 20% or so in fiscal 23. It's running about 20% through the first half of fiscal 24. Do you think price. Mix continues at that kind of level. And what is driving that?

And that's the pricing internationally. It was just really to a line prices between the U S and international really taken pricing here early last year and early 22, we would not take pricing down in international just given when did you take the last international price increase so it's really just to harmonize our pricing structure.

Mandy Fields: Is it a big mix element? Is it list price increases? Just trying to get a sense for how much room you have for that to continue. And then the second question is on the marketing and digital. The the full year outlook, the implies, I guess, that you'd be spending in the second half at kind of a high 20s rate, you know, 28% of sales or so. And I think that would be kind of a record level for the company.

Globally.

Alright next question comes from Oliver Chen with P. D. L. Please go ahead.

Hi, there you've had a really great results congrats on the cosmetic side, what what do you think it will take to for you to get the number number one market share what are the bigger opportunities as you think about product or channel.

Scope it out in your Strep plans second on skin care, how are you thinking about hero products and and the the contrasting that with what you've done and cosmetics or not given that it's a category with uhm efficacy and just different kinds of dynamics.

Mandy Fields: You know, do you have the plans in place already, you know, on how that will be spent thinking to talk a little bit about whether it's more of kind of the same type of vehicles or whether there is, you know, kind of another big game consideration in there as well. Thanks. All right. Thanks, John. So from a pricing standpoint, I just give you a little bit of history on how we've approached pricing.

Third and finally international has been a big opportunity in the past as well like earlier and your and your and your.

Development, what's different now about how you're approaching it and it seems to be really working just would love some thoughts on that too. Thank you.

Mandy Fields: We've really only taken two price increases in our history. The first was in 2019 in response to tariffs. And the last one was in 2022 in response to the inflationary environment. So largely what you're seeing from a price standpoint, when I talk about 56 points driven by volume and the remainder driven by price, that's largely mixed. And that really speaks to the innovation that we've introduced more recently. We have items like our power grip primer and our portless study primer and our halo glow ranging from 10 to 14 dollars, but still very much resonating with our consumers.

Yeah.

So hi, Oliver in terms of your first question what will it take to get the number one market share, it's really replicating what we've been able to do a target and if you look at our target business. You know you mentioned, we're close to a 19 sure. There almost 600 basis points ahead of number two may believe in that market.

<unk> channel that number one position, we basically have done over the last few years here and it's been a combination of three things one they've dedicated much more space to elf.

Then we see in other retailers and we're in the process of replicating some of those space games and other other retailers to the level of disruption that elf has in their stores I mean at any given point I think we're about four or five different spots within a target store and authorities the way we partner with from a marketing.

Mandy Fields: And so that is really what's influencing that pricing piece. More so on the mix side, we actually did not take any pricing here in in the US in fiscal 24. And so that the mix is really what's driving that that increase that you're seeing. And on the marketing front, John, we feel great about what we're going to invest that money. And it's a combination of the strategies that have worked, particularly in our digital advertising, our broader awareness efforts.

<unk>, an overall multi functional standpoint, and really I have a lot of confidence. So we can do those same things in other retailers if I take a look at the progress who they just in a few years with an ultra beauty, we're already one of their top cosmetics brands and that was even before they expanded the space that the most recently did in the fall Walmart.

Mandy Fields: Many of these game changing collaborations, the one we just did this last quarter with Jennifer Coolidge on dirty pillows. I think we got something like 11 billion impressions on sold out of the product right away. We're going to have to get more for the holiday time. So you're going to continue to see that. And we feel good about where we're going to put that money against and including in some of the new areas I talked about in terms of continued ramp up skin care awareness, notorious international.

Wal-mart remains a huge opportunity see progress there as well and then drug drug is still rolling off the brand. So I think over the next few years as we get better presence in these retailers as we partner the way we have partnered with targets.

I can see us get to that number one share a position over time and then Ah by the way target is not standing still charge is one of our best retail partners and customers and the level of collaboration we have they recently held a meeting at target they indicated which is how good elf become their first billion dollar retail Brandon.

Mandy Fields: So we have plenty of good places to put that money and continue to see exceptionally strong our eyes. Sorry, just a circle back. Sorry, I want to circle back on the pricing piece as well on the international piece that I said we did not take pricing in fiscal 24 here in the US. But there was a small one that we did take internationally that actually is kicking off here in October. And that pricing internationally is just really going to align prices between the US and international. We've taken pricing here early last year and early 22. We did not take pricing that international just given when we take the last international price increase. So it's really just to harmonize our pricing structure globally.

Target and for perspective, we're gonna do about $400 million of retail sales and target. This year. So I think it's really encouraging sign when even to your top customers coming to you in figuring hockey do more than double even within their so a great deal of bullishness in terms of our market share and then in terms of skin care. You know I think we're seeing some of the same parallels but.

We saw with L color, if I take a look at our skincare, we do have some real hero franchises I'd take a look at a halo Oh Holy.

Holy Hydration franchise.

Been able to do they are consistently build that franchise a year after year. Our most recent franchise Untouchables is often incredible start the first three items in that franchise. We're just seeing real residents in so we'll continue to map out the innovation that we have in in both L skin as well as the pipeline in Victoria.

Oliver Chen: Our next question comes from Oliver Chen with PD column. Please go ahead. Hi there, you've had a really great results congrats on the cosmetics side. What do you think it will take for you to get to number one market share? What are the bigger opportunities as you think about product or channel as you scope it out in your strut plans? Second, on skincare, how are you thinking about hero products and the contrasting that with what you've done in cosmetics or not, given that it's a category with efficacy and just different kinds of dynamics.

It's really quite rich so I feel great about the products. We have there and then finally in terms of international I'd say, what's different from the past is we have real proof points in both Canada and the U K and a consistent approach that I talked about in terms of how we were able to penetrate both those markets with.

Leading retailers. In addition, we're building out a very strong international team. So we opened up entity in the U K I think it was last year, we have a team their authority over over 30 people, that's really focused on our international expansion as I mentioned in Italy being one of the most recent examples there.

Oliver Chen: Third and finally, international has been a big opportunity in the past as well, like earlier in your development. What's different now about how you're approaching it? It seems to be really working just with love from thoughts on that too. Thank you. So hi Oliver, in terms of your first question, what will it take to get to number one market share? It's really replicating what we've been able to do at Target. And if you look at our target business, you know, we mentioned we're close to a 19 share there almost 600 basis points ahead of number two, Maybelline in that market or in that channel.

So feel great on all three fronts in terms of our ability to continue to build market share in color. Obviously the pipeline we have in skin care of wood really all three of our branch L skin, new Tori I'm in <unk>, and then internationally just tons of white space, there relative to our global peers.

Oliver Chen: That number one position we basically have done over the last few years here and it's been a combination of three things. One, they've dedicated much more space to ELF than we see in other retailers and we're in the process of replicating some of those space gains and other retailers to the level of disruption that ELF has in their stores. I mean, at any given point, I think we're in about four or five different spots within a target store.

Our next question comes from Martha <unk> people. Please go ahead.

<unk> an afternoon everyone.

Curious Skinner Nina seems to be feeling a little bit of a slowdown in cosmetics Rebecca thoughts.

<unk>, what's what's driving that what do you think your influences.

That specific sector of the beauty category going forward.

And then secondly, please just remind us of skin grows above overall growth where's their product. Please today and where do you think you can go over time, then you can move that away from the typical set to put that with with the other skin care products and does that make a difference as you do that.

Oliver Chen: And then third is the way we partner with from a marketing and overall multifunctional standpoint. And really, I have a lot of confidence that we can do those same things in other retailers. If I take a look at the progress we've made this in a few years within ultra beauty, we're already one of their top cosmetics brands. And that was even before they expanded the space that they most recently did in the fall.

Okay.

So overall, Mark I'd say I'm quite bullish and have been for some time on the color cosmetics and skin care category.

Oliver Chen: Walmart remains a huge opportunity to see progress there as well. And then drug, drug is still rolling out the brand. So I think over the next few years, as we get better presence in these retailers, as we partner the way we have partnered with Target, I can see us get to that number one share position over time. And then, by the way, Target's not standing still. Target's one of our best retail partners and customers and the level of collaboration we have.

And that's definitely what you saw it you saw a great resurgence after the pandemic you know you're gonna have some bouncing around in terms of some scanner data different periods overall received good activity in the category and by that I mean, very strong consumer residents in terms of wanting to get out there and express themselves. Good innovation good levels of invest.

Smith, so I actually and quite bullish on the category going forward as you go through and then do I take this and then an elk skin as I spoke to earlier, Mark really depends by retailer wherever house today and target as an example, where in line with color cosmetics that alter we are actually in the.

Oliver Chen: They recently held a meeting at Target. They instigated, which is how could ELF become their first billion-dollar retail brand in Target? And for perspective, we're going to do about $400 million of retail sales in Target this year. So I think it's a really encouraging sign when even your top customer is coming to you and figuring, you know, how could you more than double even within there. So a great deal of bullishness in terms of our market share.

Skincare set and so we see an opportunity to continue to test and learn from both of those set to see what is you know most.

Oliver Chen: And then in terms of skincare, I think we're seeing some of the same parallels that we saw with ELF color. If I take a look at our skincare, we do have some real hero franchises. I take a look at our halo of all holy hydration franchise. And what we've been able to do there consistently build that franchise a year after year. Our most recent franchise and touchables is often an incredible start.

Five the most sales in each of those retailers, but eventually we could feed <unk> potentially on its own in the skin care said one of the things we really loved about metairie I'm actually they are in skin care within the skin care set and have done a phenomenal job. So a lot of things that we can learn from that brand as well.

Oliver Chen: The first three items in that franchise, we're just seeing real resonance in. So we'll continue to map out the innovation that we have in in both ELF skin as well as the pipeline and Victorian is really quite rich. So I feel great about the products we have there. And then finally, in terms of international, I'd say what's different from the past is we have real proof points in both Canada and the UK and that consistent approach that I talked about in terms of how we were able to penetrate both those markets with leading retailers.

This concludes that question and answer session I would like to turn the conference back <unk>, Chairman and C E O for any closing.

Bye bye.

Well, thank you for joining us today I'm, so proud of our incredible team it off duty for delivering an outstanding first have a physical 24, we look forward to seeing some of your upcoming investor meetings and speaking with you in February when will discuss our third quarter results. Thank you and be well.

Oliver Chen: In addition, we're building out a very strong international team. So we opened up entity in the UK. I think it was last year. We have a team there that's already over over 30 people that's really focused on our international expansion. As I mentioned, Italy being one of the best recent examples there. So feel great on all three fronts in terms of our ability to continue build market sharing color. Obviously, the pipeline we have in skincare with really all three of our brands, ELF skin, Victorian and key cell care. And then internationally, there's tons of white space there, relative cargo will appear.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Mark Astrachan: Our next question comes from Mark Astrachan with people. Please go ahead.

[noise] coma Olga.

Okay.

Yeah.

Mmm.

Oh God I'm all for it.

The amount.

[noise].

Tarang Amin: Thanks, and after you're going, I'm curious, Skinnerdita seems to be showing a little bit of a slowdown in cosmetics or makeup thoughts about what's what's driving that. What do you think influences that specific sector of the beauty category going forward? And then secondly, please just remind us as else can grow above overall growth.

Okay.

[noise] Lucerne.

Tarang Amin: Where's that product place today and where do you think you can go over time, meaning can you move that away from the typical sets put that with with the other skincare products and does that make a difference as you do that. Thanks. So overall, Mark, I'd say I'm quite bullish and have been for some time on the color cosmetics and skincare category. And that's definitely what you saw. You saw great resurgence after the pandemic.

Tarang Amin: You know, you're going to have some bouncing around in terms of scanner data, different periods. Overall, we're seeing good activity in the category. And by that, I mean very strong consumer residents in terms of wanting to get out there and express themselves. Good innovation, good levels of investment. So I actually, and quite bullish on the category going forward as you go through and then. And then on else skin, as I spoke to earlier, Mark, really depends by retailer where we're housed today in target as an example where in line with color cosmetics that also we are actually in the skincare set.

Tarang Amin: And so we see an opportunity to continue to test and learn from both of those sets to see what is, you know, most, you know, going to drive the most sales in each of those retailers. But eventually we could see Elf skin potentially on its own in the skincare set. One of the things we really loved about nature, I'm actually they are in skincare within the skincare set and have done a phenomenal job. So a lot of things that we can learn from that brand as well.

Tarang Amin: This concludes our question and answer session. I would like to turn the conference back over to you during the meeting, chairman and CEO for any closing remarks. Well, thank you for joining us today. I'm so proud of our incredible team at Elf Beauty for delivering outstanding first half of fiscal 24. We look forward to seeing some of you at our upcoming investor meetings and speaking with you in February when we'll discuss our third quarter results. Thank you and be well.

Unknown Executive: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. You You

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