Q3 2024 elf Beauty Inc Earnings Call

February 6, 2024

www.e.l.f.beautyinc.com e.l.f. Beauty Inc I'm in the club, boy, if you want, we can take it there, take it there Watch me, baby, I'm gone Watch me, baby, can't see me, yeah Houdini, yeah, can't see me, ah Houdini, Houdini, can't see me, yeah Houdini, yeah, can't see me, ah Houdini, Houdini Boy like this, he not ready Kill a look, call Freddy Snap the shot before we leave the lock up Thanks for watching!

My name is.

Amos.

Famous.

The same is true.

No.

Next I would make.

Okay.

Yeah.

Sure.

Jamie.

Flawless.

Barry you and me.

Mercedes nowhere.

Kasey Katton: Thank you for joining us today to discuss e.l.f. Beauty's third quarter fiscal 24 results. I'm Kasey Katton, Vice President of Corporate Development and Investor Relations.

Two quick.

Brian: This is Brian.

Speaker Change: Just a second.

Kasey Katton: With me today are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com. Since many of our remarks today contain forward-looking statements, please refer to our earnings release and reports filed with the SEC, where you'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, I will turn the webcast over to Tarang.

Speaker Change: Uh huh.

Brian: Let's cover you know a minute.

Thank you.

Brian: Washington.

Brian: <unk>.

Brian: Yes.

Brian: Yeah.

Brian: Okay.

Brian: Oh no no.

Brian: Yeah.

Brian: Sure.

Brian: Jamie.

Brian: 115 already killer Love.

Brian: Called Freddie.

Brian: Shopify, we lead the that gap.

Brian: Okay.

Tarang P. Amin: Thank you, Casey. And good afternoon, everyone. Today, we will discuss the drivers of our Q3 results and our Raised Outlook for Fiscal 2020. I want to start by recognizing the e.l.f.

Brian: [music].

Brian: Yes.

Brian: Okay.

Tarang P. Amin: Beauty team for delivering another phenomenal course. In Q3, we grew net sales by $85, increased gross margin by nearly 350 basis points and delivered $59 million in adjusted EBITDA, up 61% versus prior year. Our vision is to create a different kind of by building brands that disrupt norms., National Institute on the Health Empowerment of the human body that reconstructs the species' evolution in Positivity, Inclusivity, and Accessibility.

Brian: Okay.

Brian: Thank you.

Brian: Okay.

Brian: Yes.

Brian: Okay.

Okay.

Yes.

Brian: Okay.

Brian: [music].

Brian: Yes.

Brian: Okay.

Okay.

Brian: Okay.

Brian: [music].

Brian: Thank you for joining us today to discuss <unk> third quarter fiscal 'twenty four results I'm KC cotton, Vice President of corporate development and Investor Relations with me today are touring Amin, Chairman and Chief Executive Officer, and Mandy fields, Senior Vice President and Chief Financial Officer, We encourage you to tune into our web.

Tarang P. Amin: We've executed against this vision and delivered exceptional, consistent category-leading growth. Q3 marked our 20th consecutive quarter of net sales growth.

Tarang P. Amin: Beauty is in a rarefied group of consistent, high-growth consumer companies. We're one of only five public consumer companies out of 274 that has grown for 20 straight quarters and averaged at least 20% sales growth per. Across our business, we've continued to prioritize three areas with significant runway for growth. Color Cosmetics.

Cost presentation for the best viewing experience, which you can access on our website at Investor Dot <unk> Dot com.

Brian: 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-GAAP basis. Our earnings release contains reconciliations of the differences.

Tarang P. Amin: Skincare, and International. Let me update you on our progress in Q3. In color cosmetics, we continue to significantly outperform the category. In Q3, e.l.f.

Tarang P. Amin: Cosmetics grew 46% in the track channel. 23 times category growth, we increased our share by 305. Out of nearly 800 cosmetics brands tracked by Nielsen, e.l.f. is the only brand to gain share for 20 consecutive quarters.

Brian: Between the non-GAAP presentation, and the most directly comparable GAAP measure.

Tarang P. Amin: We've more than doubled our market share from about four and a half percent in 2019 to 10% in 2023, placing us as the number three brand. Given our momentum, we see an opportunity to double our share again over the next few years in Target, our longest-standing national retail customer. We're the number one brand with about a 19% share. Nearly double the share we had in Target just a few years ago. We're focused on replicating our success at Target across other key retailers and are making great progress towards that. In skincare, we also continue to outperform the category. In Q3, e.l.f.

Brian: With that let me turn the webcast over to Trey. Thank you Casey and good afternoon, everyone.

Trey: Today, we will discuss the drivers of our Q3 results and our raised outlook for fiscal 'twenty four.

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

Trey: In Q3, we grew net sales by 85%.

Trey: Increased gross margin by nearly 350 basis points.

Trey: And delivered $59 million and adjusted EBITDA up 61% versus prior year.

Trey: Our vision is to create a different kind of beauty company.

Trey: Building brands that disrupt norms shaped culture and connect communities to positivity inclusivity and accessibility.

Tarang P. Amin: Skin grew 89% in tracked channels, 10 times category growth of 9%. We grew our share by 60 basis points and gained six rank positions, increasing our rank to the number 14 brand as compared to the number 20 brand a year ago. Skin Today holds a 1.4% share and a significant runway with the number one brand holding 14%. We're also making progress with Centorium, the clinically effective biocompatible skincare brand we acquired in October. Notorium has doubled our skincare penetration to 18% of retail sales and gives us a fast-growing complementary brand to further our aspirations in the category.

Trey: We have executed against this vision and delivered exceptional consistent category leading growth.

Trey: Q3 marked our 20 <unk> consecutive quarter of net sales growth.

Trey: Putting else beauty in a rarefied group of consistent high growth consumer companies.

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

Trey: Across our business, we've continued to prioritize three areas with significant runway for growth colored.

Tarang P. Amin: They're turning to see exceptional growth with net sales growing at an 80% CAGR over the last two years. We're pleased by the strong growth that Notarium continued to deliver in. Turning to international, our net sales grew 119% in Q3 and drove approximately 15% of our business as compared to 13% a year ago. We saw terrific growth in the UK and Canada, our largest global markets, and we're enjoying success in our expansion to other countries as well. As compared to our number-three position in the U.S., e.l.f.

Trey: Color cosmetics.

Trey: Skincare.

Trey: And international.

Trey: Let me update you on our progress in Q3.

Trey: In color cosmetics, we continue to significantly outperformed the category in Q3 F. Cosmetics grew 46% in tracked channels 23 times category growth of 2%.

Trey: We increased our share by 305 basis points.

Trey: Out of nearly 800 cosmetics brands tracked by Nielsen LCC only brand gained share for 20 consecutive quarters.

Tarang P. Amin: is the number four cosmetics brand in Canada and the number six brand in the U.K. In Italy, where we just launched this fall, e.l.f. is already the number one brand in Douglas, across both mass and precision. We see significant runway to expand our brands. Across categories and geographies, the three fundamental drivers of our business remain the same: our value proposition, powerhouse innovation, and Disruptive Markets. Let me walk you through how each underpinned our strength in Q3, and how they collectively fuel our vision to be a different kind of First, we're known for our value problem. Our mission is to make the best of beauty accessible to every eye, lip, face, and skin concern. We have a unique ability to deliver high-quality Holy Grails at extraordinary value, created with inspiration from our community, the best products in prestige, and our distinctive e.l.f. The average price point for e.l.f. is a little over $6 today, as compared to over $9 for legacy mask cosmetics brands and over $20 for prestige.

Trey: We've more than doubled and our market share from about four 5% in 2019% to 10% in 2023.

Trey: Placing us as the number three brand nationally.

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

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

Nearly double this year, we had in target just a few years ago.

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

Trey: In skincare, we also continue to outperform the category in.

In Q3, LG scheme grew 89% in tracked channels 10 times category growth of 9%.

Trey: We grew our share by 60 basis points and gained six ranked positions increasing are ranked the number 14 brand as compared to the number 20 brand a year ago.

Trey: Al skin today holds a one 4% share and a significant runway with the number one brand holding 14% sure.

Tarang P. Amin: We believe our core value proposition expands the category, allowing more consumers to access the best of beauty. The second drive of our performance is our powerhouse innovation. Our innovation engine has built category leadership over time; e.l.f. has a number one or two position across 16 segments of the color cosmetics category, which collectively make up over 75% of e.l.f.

Trey: We're also making progress in Centurion, the clinically effective Biocompatible skincare brand we acquired in October.

Trey: <unk> has doubled our skincare penetration to 18% of retail sales and gives us a fast growing complementary brand to further aspirations in the category.

Tarang P. Amin: cosmetic sales. We continue to deliver strong sales growth and share gains in each. We have a track record of building growing product franchises in both cosmetics and skincare that endure instead of the typical one and done laundry. Our five largest franchises: Halo Glow. Camo.

Trey: Now turning to seen exceptional growth with net sales growing at an 80% CAGR over the last two years.

Trey: We're pleased by the strong growth and <unk> continued to deliver in Q3.

Trey: Turning to international our net sales grew 119% in Q3 and drove approximately 15% of our business as compared to 13% a year ago.

We saw terrific growth in the UK and Canada, our largest global markets and we are enjoying success in our expansion to other countries as well.

Tarang P. Amin: Power Grip, Holy Hydration, and Putty have grown year after year, as we launch new innovation within each. The entire franchise growth. In Q3, we extended our camel franchise into the blush category for the first time with the launch of our camel liquid blush, priced at an incredible value of $7 compared to a prestige item at $23. I've been waiting forever for e.l.f. to make a good cream blush.

Trey: As compared to a number three position in the U S health as a number for cosmetics brand in Canada, and the number six brand in the U K.

Trey: In Italy, where we just launched this fall health is already the number one brand in due glass across both mass and prestige.

Trey: We see significant runway to expand our brands globally.

Trey: Across categories and geographies the three fundamental drivers of our business remain the same.

Tarang P. Amin: I think we've got it. We're also innovating in the industry's top segments where we under index on share, like lips and mascara. In Q3, we launched our Glow Reviver Lip Oil, one of the most requested products from our community, priced at an incredible value of $8 compared to a Prestige item at $40. e.l.f. Cosmetics has come out with new Glow Reviver Lip Oils, and the way it makes your lips feel is unbelievable. Most lip oils are just not hydrating enough for me.

Trey: Our value proposition.

Trey: Powerhouse innovation.

Trey: And disruptive marketing engine.

Trey: Let me walk you through each underpinned our strength in Q3, and how they collectively fuel our vision to be a different kind of company.

Trey: First we are known for our value proposition.

Trey: Our mission is to make the best of beauty accessible to every eye lip face and skin concerns.

Trey: We have a unique ability to deliver high quality wholly grills at an extraordinary value.

Tarang P. Amin: But this one, y'all, the way it left my lips feeling super hydrated, it's non-sticky, and it has a high gloss. If you're a gloss girlie, this one is definitely for you. You guys have to try it out. We also launched our lash extender mascara, our fourth mascara launch in the last four years, and our first ever mascara with lengthening tubing technology. With our focused innovation in these areas, we've nearly doubled our lip and mascara share over the last three years and are still significantly underpenetrated today. For context, as compared to the 10% share we have across the cosmetics category. We have a 3% share in Lipstick, a $1.2 billion category, and a 2% share in mascara, which is nearly $1 billion.

Trey: Created with inspiration from our community the best products in prestige and our distinctive elf twist.

Trey: The average price points, where else is a little over $6 today as compared to over $9 for legacy mass cosmetics brands and over $20 for prestige brands.

Trey: We believe our core value proposition expands the category, allowing more consumers to access the best of beauty.

Trey: The second driver of our performance is our powerhouse innovation.

Trey: Our innovation engine is built category leadership over time.

Trey: <unk> has a number one or two position across 16 segments of the color cosmetics category, which.

Trey: Which collectively make up over 75% of Elf cosmetic sales.

Tarang P. Amin: We have significant white space in these large segments of beauty and the innovation engine. The third driver of our performance is our disruptive marketing. We have a track record of attracting and engaging existing and new audiences with buzzworthy activation. Unexpected Creativity and Coveted Collaboration.

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

Trey: We have a track record of building growing product franchises in both cosmetics and skincare that endure instead of typical one and done launches.

Trey: Our five largest franchises Halo globe.

Trey: Camo.

Trey: Power grid.

Trey: Hydration.

Tarang P. Amin: Our advantage lies in our ability to deliver real-time entertainment that is emotionally relevant and culturally relevant. Our unique content is customized with precision and delivered with impact across a wide range of platforms, building upon our learnings and success with our e.l.f. channel on YouTube and our elf you channel on Twitch.

Trey: And putty have grown year after year as.

Trey: As we launch new innovation within each the entire franchise grows.

Trey: In Q3, we extended our camel franchise into the blush category for the first time with the launch of our camera liquid blush.

Trey: Rice at an incredible value of $7 compared to a prestige item at $23.

Tarang P. Amin: We widened the aperture in Q3 with the launch of Elf Up, our first ever experience on Roblox, one of the world's most popular virtual playgrounds and immersive platform. True to our purpose, e.l.f. Up isn't just another game.

Speaker Change: And then waiting forever for Ultimate got good Crane Blush, I think we got it.

Speaker Change: We're also innovating in the industry's top segments, where we under index on share like lip and mascara.

Speaker Change: In Q3, we launched our Glo Revivor lip oil one of the most requested products from our community price at an incredible value of $8 compared to prestige item at $40.

Tarang P. Amin: It empowers entrepreneurs and cultural change makers to bring passion projects to life. The experience focuses on social impact and skill building for e.l.f.'s community and provides a digital sandbox for fostering creativity and entrepreneurship, launched less than three months ago.

Speaker Change: Of course, when it does come out with new global viral a boiled it the way you make Philips still it's unbelievable most lip or is it just a hydrating enough for me, but this one year all the way to have my lips filling super hydride its non sticky and it has a high gloss if youre a golf squarely. This one is definitely for you you guys have to try it out.

Tarang P. Amin: Up is already the number one rated brand experience on Roblox. Receiving a 96% rating and amassing over 4 million, Looking at new cohorts, the Latinx community represents some of the most passionate makeup consumers with 77% higher average spend in the e.l.f. over indexes among Latinxs and is a significant opportunity to build upon this affinity. In Q3, we teamed up with rising Latin music sensation Manuel Torizo to launch a new original Spanish song titled Ojos, Labios, Quera, which translates in English to Eyes, Lips, Face. This anthem is written to empower the Latin community, celebrating their beauty and pride in their Latin roots.

We also launched our lash extender Mascara, our forest Mascara launch in the last four years and our first ever mascara with lengthening tubing technology.

With our focused innovation in these areas, we've nearly doubled our lipid mascara share of the last three years and are still significantly underpenetrated today.

Speaker Change: For context as compared to the 10% share we have across the cosmetics category with a 3% share in lip a $1 2 billion dollar category and a 2% share in mascara and nearly $1 billion category.

Speaker Change: We have significant white space in these large segments of beauty and the innovation engine to conquest for them.

Speaker Change: The third driver of our performance is our disruptive marketing engine.

Tarang P. Amin: No se puede esconder lo que odio, que ha pasado. Ojos Labios Quera achieved over two billion median views, garnered over 304 million cross-platform views and plays, and reached the number one spot on Spotify in three. On the big screen, we release Cosmetic Criminals, a true crime parody documentary capturing the widespread phenomenon of household intergenerational cosmetic crime, stemming from reports about When family and friends borrow the e.l.f. Holy Grails with no intention of returning them, The main character represents their universal truth: e.l.f. is so affordable; just buy your own!

Speaker Change: We have a track record of attracting and engaging existing and new audiences with buzzworthy activations unexpected creativity and coveted collaborations.

Speaker Change: Our advantage lies in our ability to deliver real time entertainment with emotionally resonant and culturally relevant content.

Speaker Change: Our unique content is customized with precision and delivered with impact across a wide range of platforms.

Speaker Change: Building upon our learnings and success with our <unk> channel and Tic Toc and our <unk> channel on Twitch, we widened the aperture in Q3 with the launch of <unk>, our first ever experienced and roadblocks one of the world's most popular virtual playgrounds and immersive platforms.

Tarang P. Amin: My favorite one costs like five bucks. This spot debuted on YouTube, Amazon Freeview, and ahead of the new Mean Girls movie at select AMC theaters nationwide. Our 15-minute film was the longest branded content spot to ever run on the big screen. Since its launch on January 9th, Cosmetics Criminals garnered over $7 billion, amassed over 2 million views on YouTube alone, and garnered a 4.5 star rating on Amazon. Speaking of a big audience, elf returns to the big game on February 11 with our first ever national TV spot. Last year's spot featuring Jennifer Coolidge and Power Grip Primer affirmed our hypothesis that women were underserved despite being nearly 50% of The overwhelming success of the campaign by every metric fueled our return with a national presence this year versus a regional spot the year prior. Securing a national spot increases our household impressions by a factor of 3x. We believe this reach provides the best opportunity to springboard a viral moment across a wide spectrum of platforms and increases our ability to boost branding. The entertaining spot features our halo glow liquid filter, which is the star of our best-selling franchise in 2026. Hello, Meg, and Megatron.

Speaker Change: True to our purpose alpha isn't just another game it empowers entrepreneurs and cultural change makers to bring passion projects to life.

Speaker Change: The experienced focuses on social impact and skill building for Els community and provides a digital sandbox for fostering creativity and entrepreneurship.

Speaker Change: Launched less than three months ago Alpha is already the number one rated brand experience and the roadblocks platform.

Speaker Change: Receiving a 96% rating and amassing over 4 million plays.

Speaker Change: Looking at new cohorts the Latinx community represents some of the most passionate makeup consumers with 77% higher average spend in the category.

Speaker Change: Also over indexes among latinx community and is a significant opportunity to build upon this affinity.

Speaker Change: In Q3, we teamed up with rising Latin music sensation Manuel to Rizo to launch a new original Spanish language song titled OS Lobbyist, Kara, which translates in English to eyes lips face.

Speaker Change: This anthem is written to empower the Aladdin community celebrating their beauty and pride into Latin roots.

Speaker Change: Yes.

Speaker Change: Okay.

Tarang P. Amin: Who's this? It's Cooper. Who?

Speaker Change: Okay.

Tarang P. Amin: Oh, I'm so good. I got your number from my boss. Okay. I am the CMO of digital, so I just wanted to check in and let you know that you've been summoned. For what? Don't call this number back. Hello? You've been summoned? Let's do this thing. Simon?

Uh huh.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Sure.

Speaker Change: Tom.

Speaker Change: Hum.

Speaker Change: Oh horse Lobule scatter achieved over 2 billion media impressions garnered over 304 million cross platform views in place and reached the number one spot on Spotify in three categories.

Tarang P. Amin: Girl, get back here! I don't do dry beauty! I've got too much stuff to do! Oh! I've been summoned. Obviously.

Speaker Change: On the Big screen, we released cosmetic criminals are true crime parity documentary capturing the widespread phenomenon of household intergenerational cosmetic crime.

Tarang P. Amin: Over the past four years, we've increased our marketing investment from 7% of net sales to 22%. Our marketing investment is working, driving ROI multiples above industry benchmarks and helping us reach new audiences. Since 2020, our unaided awareness in the U.S. has doubled from 13% to 26%.

Stemming from reports about widespread elk pinching when family and friends Barro Alto Lee grills with no intention of returning them.

Speaker Change: The main character represents their universal truth.

Tarang P. Amin: That 26% unaided awareness today compares to the leading U.S. mass cosmetics brand at 52%, illustrating significant runway. Our results continue to fuel progress with national leadership. e.l.f. is the most productive cosmetics brand at our top three customers in the U.S., Target, Walmart, and Ulta Beauty.

Speaker Change: Okay.

Speaker Change: Oh no.

Speaker Change: Firstly.

Speaker Change: And my fear is only like five bucks.

Speaker Change: The spot debuted on Youtube Amazon freely and ahead of the new mean girls movie at select AMC theaters nationwide.

Speaker Change: Our 15 minute film was along this branded content spot to ever run on the big screen.

Speaker Change: Since its launch on January 9th cosmetics criminals garnered over 7 billion media impressions, our master over 2 million views on Youtube alone and garnered a four five star rating on Amazon.

Tarang P. Amin: We're also the most productive brand at our top two customers in the UK, Superdrug and Boots, giving us conviction that we can replicate our productivity model as we expand internationally. We continue to increase productivity, even as we expand space. We're pleased to announce that we'll be expanding space for e.l.f. in spring 2024 with CVS and in summer 2024 with Walmart. In addition to the space games we previously announced with Shoppers Drug Mart in Canada and Boots in the UK.

Speaker Change: Speaking of big audiences Elf returns to the Big game on February 11, with our first ever National TV spot.

Speaker Change: Last year's spot featuring Jennifer Coolidge and power group Primer affirmed our hypothesis that women, who are underserved despite being nearly 50% of became viewers.

Speaker Change: The overwhelming success of the campaign by every metric fueled our return with a national presence this year versus original spot the year prior.

Speaker Change: Securing a national spot increases our household impressions by a factor of three X.

Tarang P. Amin: We're also pleased to announce that we'll be expanding space for Notorium in spring 2024 with Shoppers Drug Mart, marking the brand's entry into Canada. In summary, as we enter our 20th year as a company, we continue to deliver exceptional. What gives me confidence for the future is the significant white space we see in color cosmetics, skincare, and the internet.

Speaker Change: We believe this reach provides the best opportunity to springboard of viral moment across a wide spectrum of platforms and increases our ability to boost brand impact.

Speaker Change: The entertaining spot features our halo will liquid filter the star of our best selling franchise in 2023.

Speaker Change: Okay.

Speaker Change: Hello, Maggie Megatron.

Mandy Fields: We continue to believe we are still in the early innings of unlocking the full potential for our. I'll now turn the call over to me. Thank you, Tarang. I'm pleased to share the highlights of our third quarter results, as well as our raised outlook for fiscal 24. Our third quarter results were outstanding. Q3 net sales grew 85% year-over-year, driven by broad-based strength across national and international retailers, as well as digital commerce. Our net sales growth was led by higher unit volume, which contributed approximately 56 percentage points to growth, with mix adding approximately 29 percentage points. Q3 digital consumption trends were up over 100% year over year. Digital channels drove 24% of our total consumption in Q3, as compared to 18% a year ago.

Maggie Megatron: Is that fair.

Speaker Change: So good I got your number from my Boston, Okay, I'm, the CMO of digital so I just wanted to check in and let you know that you.

Maggie Megatron: Thanks, Andrew.

Speaker Change: I don't call this number back.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Hello.

Speaker Change: [music] <unk> bin Salman.

Speaker Change: Thank you.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: <unk>.

Speaker Change: Hum.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Uh huh.

Speaker Change: Bill.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: <unk>.

Speaker Change: Okay.

Speaker Change: [music], Oh I've been MH.

Speaker Change: Obviously.

Speaker Change: Okay.

Mandy Fields: The momentum we're seeing is supported by enhancements across our loyalty program and our app, as well as digital and social platforms. Beauty Squad's loyalty program now has over 4.5 million members, with enrollment growing 30% year over year. Our loyalty members continue to be a key part of our digital ecosystem. Driving almost 80% of our sales on e.l.f.cosmetics.com, we're seeing terrific engagement on our e.l.f. The mobile app, which now boasts a 4.8-star rating and over 1.8 million downloads since launch.

Speaker Change: Okay.

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

Speaker Change: Our marketing investment is working driving ROI multiples above industry benchmarks and helping us reach new audiences since 2020, our unaided awareness in the U S has doubled from 13% to 26%.

Speaker Change: That 26% unaided awareness today compares to the leading U S mass cosmetics brand at 52% illustrating significant runway for growth.

Speaker Change: Our results continue to fuel progress with national retailers.

Speaker Change: As the most productive cosmetics brand at our top three customers in the U S target Walmart and Ulta beauty.

Mandy Fields: We're also enjoying strength across third-party digital and social platforms. We were amongst the fastest-growing beauty brands on Amazon in Q3 and were the first major beauty brand to launch on TikTok Shop. Q3 gross margin of 71% was up approximately 350 basis points compared to the prior year. We continue to see gross margin benefits from favorable FX rates, improved transportation costs, margin-accretive mix, and cost savings, on an adjusted basis. SG&A as a percentage of sales was 54% in Q3, compared to 47% last year.

Speaker Change: We're also the most productive brand or our top two customers in the U K superdrug and boots, giving us conviction that we can replicate our productivity model as we expand internationally.

Speaker Change: We continue to increase productivity, even as we expand space.

We're pleased to announce that we'll be expanding space for Alf in spring 2024 with Cvs.

And in summer 2024 with Walmart in.

Speaker Change: In addition to this space gains, we previously announced the shoppers drug Mart in Canada and boots in the UK.

Speaker Change: We're also pleased to announce that we'll be expanding space for notorious in spring 2024, with shoppers drug Mart, marking the brand's entry into Canada in summary, as we enter our 20th year as a company we continue to deliver exceptional results.

Mandy Fields: The increase is primarily due to higher marketing and digital spin. Marketing and Digital Investment for the quarter was 26% of net sales, up from 17% in Q3. Last, We continue to expect marketing and digital investment in the 22 to 24 percent range for full year fiscal 2014. Q3 Adjusted EBITDA was $59 million, up 61% versus last year. The adjusted EBITDA margin was approximately 22% of net sales. Adjusted net income was $43 million, or $0.74 per diluted share, compared to $27 million, or $0.48 per diluted share, a year ago. Moving to the Balance Sheet and Cash, our balance sheet remains strong, and we believe it positions us well to execute our long-term growth plans. We ended the quarter with approximately $72 million in cash on hand compared to a cash balance of $87 million a year ago.

Speaker Change: It gives me confidence for the future is a significant white space, we see in color cosmetics skincare and international.

Speaker Change: We continue to believe we are still in the early innings of unlocking the full potential for our brands.

Speaker Change: I'll now turn the call over to Mandy. Thank.

Mandy Fields: Thank you terrain I'm pleased to share the highlights of our third quarter results as well as our raised outlook for fiscal 'twenty for our third quarter results were outstanding Q3, net sales grew 85% year over year, driven by broad based strength across national and international retailers as well as digital commerce our net.

Mandy Fields: <unk> growth was led by higher unit volume, which contributed approximately 56 percentage points to growth with mix, adding approximately 29 percentage points.

Q3 digital consumption trends were up over 100% year over year digital channels drove 24% of our total consumption in Q3 as compared to 18% a year ago.

Mandy Fields: Our ending inventory balance was $205 million, in line with our expectations and up from $81 million a year ago. The difference is primarily a combination of three things. First, as we said last quarter, we continued to build back our inventory levels through Fiscal 24 to support strong consumer demand. Approximately $28 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 U.S. Our consolidated results include Noturium for the first time, which added approximately $25 million of inventory. We believe we have the appropriate levels of inventory across the business to service our customers and support the demand we're seeing. In early October, we closed the Notarium acquisition.

Mandy Fields: The momentum we're seeing is supported by enhancements across our loyalty program and our app as well as digital and social platforms. Our beauty squad loyalty program now has over four and a half million members with enrollment growing 30% year over year.

Mandy Fields: Our loyalty members continue to be a key part of our digital ecosystem driving almost 80% of our sales of cosmetics dot com.

Mandy Fields: We're seeing terrific engagement on our <unk> mobile App, which now boast a four eight star rating and over $1 8 million downloads. Since launch. We're also enjoying strength across third party digital and social platforms. We were amongst the fastest growing beauty brands on Amazon in Q3, and we're the first major.

Mandy Fields: It was funded largely using cash on hand and access to our existing credit facility, as well as approximately 600,000 shares of e.l.f. Beauty stock issued directly to founders and key managers. Our liquidity position remains strong, with relatively low leverage post the transaction. We end the quarter with less than one times leverage in terms of net debt to adjust to EBITDA.

Mandy Fields: Beauty brand that launched on tick Tock shop Q.

Mandy Fields: Q3 gross margin of 71% was up approximately 350 basis points compared to prior year. We continued to see gross margin benefits from favorable FX rates improved transportation cost margin accretive mix and cost savings.

Mandy Fields: We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extension. The initiatives we're focused on this year include continuing to invest in our people and infrastructure, and our ERP transition to SAP.

Mandy Fields: On an adjusted basis SG&A as a percentage of sales was 54% in Q3 compared to 47% last year.

Mandy Fields: The increase was primarily due to higher marketing and digital spend mark.

Mandy Fields: Getting in digital investment for the quarter was 26% of net sales up from 17% in Q3 last year.

Mandy Fields: As well as increased working capital and distribution capacity to support strong consumer demand. Now, let's turn to our updated Outlook for Fiscal 2014 for the full year. We expect net sales growth of approximately 69 to 71 percent, up from 55% to 57% in the preview. Adjusted EBITDA between $218 million and $220 million, up from $197 million to $200 million previously. Adjusted net income between $164 million and $166 million, up from $144 million to $146 million previously, and Adjusted EPA of $2.84 to $2.87 per diluted share, up from $2.47 to $2.50 previously. We expect our fiscal 24 adjusted tax rate to be approximately 14 percent as compared to 17 to 18 Let me provide you with additional color on our planning assumptions as we close out Fiscal 25. Starting with the top line.

Mandy Fields: We continue to expect marketing and digital investment and the 22% to 24% range for full year fiscal 'twenty four.

Mandy Fields: Q3, adjusted EBITDA was $59 million up 61% versus last year.

Mandy Fields: And adjusted EBITDA margin was approximately 22% of net sales.

Mandy Fields: Net income was $43 million or <unk> 74 cents per diluted share compared to $27 million or <unk> 48 cents per diluted share a year ago.

Mandy Fields: Moving to the balance sheet and cash flow.

Mandy Fields: Our balance sheet remains strong and we believe positions us well to execute our long term growth plans. We ended the quarter with approximately $72 million in cash on hand, compared to a cash balance of $87 million a year ago.

Mandy Fields: Our ending inventory balance was $205 million in line with our expectations and up from $81 million a year ago. The difference is primarily a combination of three things first as we said last quarter. We continued to build back our inventory levels through fiscal 'twenty four to support strong consumer demand.

Mandy Fields: Second approximately 28 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 U S.

Mandy Fields: We believe we are well-positioned to deliver another industry-leading year. Our raised outlook reflects the outperformance in Q3 we saw relative to our expectations, as well as an improved outlook for the balance of the year. Turning to Gross Margin, we expect our gross margin to be up approximately 280 basis points year-over-year.

Lastly, our consolidated results include material for the first time, which added approximately $25 million of inventory.

Mandy Fields: We believe we have the appropriate levels of inventory across the business to service our customers and support the demand we're seeing.

Mandy Fields: In early October we closed the <unk> acquisition. It was funded largely using cash on hand, and access to our existing credit facility as well as approximately 600000 shares of health beauty stock issued directly to founders and key management.

Mandy Fields: As compared to our expectation for up 225 basis points previous, the improved outlook is largely a result of our outperformance in Q3. In terms of the key puts and takes for the U.S., we continue to expect gross margin to benefit from lower transportation costs, favorable FX Rate, Margin or Creative Mix, and Cost Saver, which are expected to more than offset costs related to retailer activity and space. Turning to adjusted EBITDA.

Mandy Fields: Our liquidity position remained strong with relatively low leverage post the transaction we.

Mandy Fields: We ended the quarter with less than one times leverage in terms of net debt to adjusted EBITDA.

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

Mandy Fields: Our outlook implies adjusted EBITDA growth of approximately 87-88% versus prior year, up from 69 to 71% previously. We expect adjusted EBITDA margin leverage of approximately 200 basis points year-over-year, up from 190 basis points previously. Amen.

Mandy Fields: The initiatives were focused on this year include continuing to invest in our people and infrastructure.

Mandy Fields: Our ERP transition to S P.

Mandy Fields: As well as increased working capital and distribution capacity to support strong consumer demand.

Mandy Fields: Thank you for our strong net sales, Gross Margin Experience, and Leverage and our non-marketing SG&A expenses. Our flywheel approach of investing in marketing to drive the top line while expanding adjusted EBITDA margin gives me confidence in our ability to continue to drive profitable growth. In summary, our third quarter results underscore our ability to drive exceptional consistency.

Mandy Fields: Now, let's turn to our updated outlook for fiscal 'twenty four.

Mandy Fields: For the full year.

Mandy Fields: We expect net sales growth of approximately 69% to 71%.

Mandy Fields: Up from 55% to 57% previously.

Mandy Fields: Adjusted EBITDA between $218 million to $220 million up from $197 million to $200 million previously.

Mandy Fields: Adjusted net income between 164 million to $166 million up from $144 million to $146 million previously and adjusted EPS of $2 84 to $2.87 per diluted share.

Mandy Fields: Category Leading Growth. We have a significant white space opportunity in front of us as we continue our vision of creating a different kind of beauty. One that is purpose-led and results-driven.

Mandy Fields: Up from $2 47 to $2 50 previously.

Mandy Fields: With that, operator, you may open the call to Part of that as well, you did an amazing job separating and breaking down unit growth to mix. I wonder if you still have a lot of mixed effects that you're planning given your skin care, given the innovation that is value accretive into your numbers. So how that factor going forward, should we see some deceleration or still see some accretion on that? Hi Andrea, it's good to hear from you.

Mandy Fields: We expect our fiscal 'twenty four adjusted tax rate to be approximately 14% as compared to 17% to 18% previously.

Mandy Fields: Lastly.

Mandy Fields: We continue to expect our fully diluted average share count of approximately 58 million shares.

Speaker Change: Let me provide you with additional color on our planning assumptions as we close out fiscal 'twenty four.

Speaker Change: Starting with the topline.

Speaker Change: We believe we are well positioned to deliver another industry, leading year. Our raised outlook reflects the outperformance in Q3, we saw relative to our expectations as well as an improved outlook for the balance of the year, our guidance implies approximately 48% to 53% net sales growth in Q4.

Mandy Fields: So I'll start with your first question. If we look at our RAISE guidance, we have not changed any of our outlook on Noturium. We previously talked about Noturium contributing about $48 million for the year, and we expect that to be consistent. So our RAISE guidance really is reflective of the momentum that we continue to see behind e.l.f. Beauty overall.

Speaker Change: Turning to gross margin.

Speaker Change: In fiscal 'twenty four we expect our gross margin to be up approximately 280 basis points year over year as compared to our expectation for up 225 basis points previously.

Mandy Fields: So really pleased with our ability to not only raise for Q3, you know, pass through the Q3 beat, but also raise for Q4. Your question then is on mixed impacts as we go forward. So yes, very pleased with how Q3 came together and very consistent really with what we've seen all year with volume being the main driver of our growth. But on the mixed side, because we have not had any pricing this year that's impacting that, so it's purely mixed, introducing innovation at higher price points has had a benefit this year. And as we look forward and think about our future innovation, you know, we could see some impact from that as well. For example, especially as we think about gross margins, innovation mix has been one of the key drivers to that over time.

Speaker Change: The improved outlook is largely a result of our outperformance in Q3.

Speaker Change: In terms of the key puts and takes for the year. We continue to expect gross margin to benefit from lower transportation costs favorable FX rates margin accretive mix and cost savings, which are expected to more than offset costs related to retailer activity and space expansion.

Turning to adjusted EBITDA.

Speaker Change: Our outlook implies adjusted EBITDA growth of approximately 87% to 88% versus prior year.

From 69% to 71% previously.

Mandy Fields: And if I, that's super helpful Mandy, and if I can squeeze in terms of like how you're getting new shelf space, but it will be mostly into fiscal 25. So how can we look at that component within your guide and how Nielsen, you gave us in the past like some guideposts within Nielsen as we look at the compounded, how we should be thinking from now, you exceeded that margin, how we should be thinking about attracting channels as we go forward. So why don't I start with the Nielsen question?

Speaker Change: We expect adjusted EBITDA margin leverage of approximately 200 basis points year over year.

Speaker Change: Up from 190 basis points previously.

Speaker Change: Supported by the combination of our strong net sales growth.

Speaker Change: Gross margin expansion and leverage in our non marketing SG&A expenses.

Speaker Change: Our flywheel approach of investing in marketing to drive top line, while expanding adjusted EBITDA margins gives me confidence in our ability to continue to drive profitable growth.

Speaker Change: In summary, our third quarter results underscore our ability to drive exceptional consistent category leading growth.

Mandy Fields: So last quarter, we talked about seeing tract channels range from 20% growth up to 50% growth. And we said for Q3, it was going to be closer to that higher end of the range, which is what we saw as we exited Q3, closer to that 50% range. As we get into Q4, we do expect that we'll be closer to the lower part of that range, closer to the 20% out of tract channel.

Speaker Change: We have a significant white space opportunity in front of us as we continue our vision of creating a different kind of beauty company.

Speaker Change: One that is purpose led and results driven.

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

Speaker Change: Part of that as well.

Speaker Change: You did an amazing job.

Mandy Fields: But I will remind you that the tract channel only represents about half of our business. We are continuing to see great momentum in other parts of our business. And I'll just point you back to our guidance for Q4 really points to over 50% growth from a net sales standpoint. So we're feeling great about how the business is coming together, we believe, for the quarter. In terms of shelf space, you know, we did talk about picking up space in Walmart that will impact fiscal 25. That's going to be the summer of 25.

Speaker Change: Operating and breaking down unit growth to make.

Speaker Change: I Wonder if you still have a lot of mix effects that you are you're planning given your skincare given.

Speaker Change: The innovation that is value accretive venture the interim numbers. So how that factor going forward should we see some deceleration or is she will see some accretion on that thank you.

Speaker Change: Hi, Andrea good to hear from you. So I'll start with your first question.

Speaker Change:

If we look at our raised guidance and we have not changed any of our outlet auditoriums. So we've previously talked about material contributing about $48 million for the year and we expect that to be consistent though our raised guidance really is reflective of the momentum that we continue to see behind else beauty overall.

Mandy Fields: The other gains that we spoke about in shoppers and boots and CVS, that's going to be part of fiscal 24. And yes, you'll see a larger benefit in fiscal 25 as you move forward, but we will have some pipeline, things like that here in the quarter. Thank you very much. I'll pass it on.

Speaker Change: So really pleased with our ability to not only raise for Q3 pass through the Q3 and beat but also raised for Q4.

Mandy Fields: Thank you. The next question comes from Ashley Helgens with Jeffries. Please go ahead.

Mandy Fields: Hey, thanks for taking our question and congrats on the quarter. We just wanted to ask if you could just give us a little bit more color on the store penetration and average footage you'll have at both CVS and Walmart after this next round of expansion. And then also, if we could just one other question about tariffs. We're starting to get a lot of questions on tariffs, and we're locked in again. Can you just remind us of some of the mitigation efforts you have in place? Thanks so much.

Speaker Change: Your question then is on mix impacts as we go forward. So yes, very pleased with how Q3 came together and very consistent really with what we've seen all year with volume being the main driver of our growth.

Speaker Change: But on the mix side is because we have not had any pricing. This year, that's impacting that so it's purely mix introducing innovation at higher price points has had a benefit to this year and as we look forward and think about our future innovation, we could see some impact from that as well, especially as we think about gross margins and.

Mandy Fields: So, Ashley. In terms of our penetration, we're really pleased with the space we're going to pick up at Walmart. It's one of our single biggest opportunities from a space standpoint. The average shelf set at Walmart right now is about eight feet tall.

Speaker Change: Asian mix has been one of the one of the key drivers to that overtime.

Speaker Change: And if I that's super helpful. Mindy, if I can squeeze in terms of like how you're getting new shelf space, but but it will be mostly into the into fiscal 'twenty. Five. So how can we look at that component within your guide and how <unk>.

Mandy Fields: That compares to about 13 feet at Target, 12 feet at Ulta Beauty, and Walmart really has bigger sets than both those customers. So we don't disclose a specific amount of space, other than they are leaning in on e.l.f. I think we're the only brand they're making a pretty major move on space with. And we're looking forward to that in the summer. As Mandy says, it'll really impact us in fiscal 25.

Speaker Change: Gilson you gave us in the past like some guy guideposts within Nielsen as we look at the compounded how we should be thinking from now you exceeded that that margin, how we should be thinking of tracked channels as we go forward.

Mandy Fields: The other thing I would say is, you know, we have a pretty consistent track record of picking up space year after year. But the biggest driver of our business is our productivity, our ability to grow dollars per linear foot of space year after year, regardless of whether we pick up space or not. So we're pretty confident in terms of how that profile continues to shape up, with space being kind of the cherry on top. But really pleased, not only with Walmart, but CVS continues to make major moves in terms of space, a continuation of what they started over a year ago. And so we definitely, in drugs, have a lot more room to grow our space. So I feel really good about that, in addition to the shoppers and Boots.

Speaker Change: So why do I start with the Nielsen question.

Speaker Change: So last quarter, we had talked about seeing track channels range from 20% growth up to 50% growth and we said for Q3, it was going to be closer to that higher end of the range, which is what we saw and as we exited Q3 closer to that 50% range as we get into Q4, we do expect that we'll be closer towards that.

Lower part of that range closer to the 20% out of tracked channel, but I will remind you that tracked channel only represents about half of our business that.

Speaker Change: That we are continuing to see great momentum in other parts of our business and I'll just point you back to our guidance for Q4 really points to over 50% growth from a net sales standpoint. So we're feeling great about how the business is coming together, we believe for the quarter.

Mandy Fields: And then your question on tariffs, Ashley. Since 2019, we've been dealing with tariffs that have been put on our products, the majority of our products at the 25% level. And so if we were to think of additional tariffs being layered on, you know, we have reserved pricing for macro issues such as tariffs, which we did again in 2022, in response to the inflationary environment.

Speaker Change: Terms of shelf space.

Speaker Change: We did talk about picking up space and Walmart that will impact fiscal 'twenty five that's going to be summer of 'twenty five the other gains that we spoke about in shoppers in boots and Cvs.

Speaker Change: That's going to be part of fiscal 'twenty, four and yes, you'll see the larger benefit in fiscal 'twenty five as you move forward, but we will have some pipeline things like that here in the quarter.

Mandy Fields: So we know that that's a lever that we could pull if we were subject to additional tariffs, but something that we're keeping an eye on, and certainly something that we're very mindful of, especially pulling that pricing lever, just given the cost consciousness of the consumer right now. And we do have pricing power. I think one of the things many of our competitors took pricing over the last few months; we chose not to take pricing, to that point of keeping a superior value equation and also keeping in our back pocket if we needed to take pricing for any external factors.

Speaker Change: Thank you very much our press at all and congrats again.

Speaker Change: Thank you.

Speaker Change: The next question comes from Ashley Hogans with Jefferies. Please go ahead.

Ashley Hogans: Hey, Thanks for taking my question and congrats on the quarter. We just wanted to ask if you just give us a little bit more color on the years store penetration and average third so how about both Cvs and Walmart. After this next round of expansion and then also if you could just one other question about tariffs, we're starting to get a lot of questions on tariffs as Trump elected again can you just.

Ashley Hogans: Remind us of some of the mitigation efforts you have in place. Thanks, so much.

Speaker Change: Okay. So hi, Ashley in terms of our penetration, we're really pleased with the space, we're going to pick up at Walmart. It's one of our single biggest opportunities from a space standpoint, the average shelf set at Walmart right. Now is about eight feet that compares to about 13 feet at target 12 feet at all Ulta beauty and Walmart really has bigger set.

Mandy Fields: So we feel good in terms of how we're situated and our ability to continue to navigate a dynamic environment. The only other thing I would add is that we have a pretty big initiative on supplier diversification. So while most of our footprint today is in China, we have started up additional operations in Thailand, in Western Europe, and we'll continue on that journey. For the foreseeable future, a lot will come out of China.

Speaker Change: It's then both those customers. So we don't disclose the specific amount of space other than they are leaning in on <unk> I think we're the only brand, they're making pretty major move on space with and we're looking forward to that in the summer as Mandy said sell really impact us in fiscal 'twenty five the other thing I would say as you know we had a pretty consistent track record of picking up space you're after.

Mandy Fields: But also, with the addition of Notorium, which is 100% manufactured in the U.S., we feel good about how our supply chain is evolving in the future and being more diversified. The next question comes from Olivia Tong with Raymond James. Please go ahead.

Speaker Change: A year, but the biggest driver of our business is our productivity our ability to grow dollars per linear foot of space year after year, regardless of whether we've picked up space or not so we're pretty confident in terms of how that profile continues to shape up with space being kind of the cherry on top that really pleased not only with Walmart, but cvs continuing to make.

Mandy Fields: Great. Thanks. Good afternoon.

Mandy Fields: Congratulations. I wanted to ask you about the new shelf space, CVS Walmart. Can you talk about what the assortment will look like? Is it more pegs of your hero products, or are you getting traction in some of the new areas like lip, eye, and skin? Sure, so for context, Olivia, historically at CVS, we were in a three-foot gondola end cap. It allowed for a very little amount of assortment in

Speaker Change: No major moves in terms of space a continuation of what they started over a year ago and so we definitely and drug have a lot more room to grow our space. So feel really good about that in addition to the shoppers and boots.

Mandy Fields: CVS is moving to six and ten foot sets in line as they expand their space, so it gives us a lot more room to get more of our assortment and certainly all of our holy grails, many of our new items, each of our core items. Similarly, Walmart, while they're at eight feet, they have significantly more capacity to take more of our innovation, more skincare, and many of our other items. So we feel really good about what that's going to enable, similar to what we saw with both Target and Ulta as they expanded their assortments. Those are probably pretty good guidelines in terms of the space and what we're able to pick up. I got it.

Speaker Change: Okay.

Speaker Change: And then your question on tariffs Ashley.

Speaker Change: <unk>.

Speaker Change: Since 2019, we've been dealing with tariffs and that was put on our products. The majority of our product that the 25% level and so if we were to think of additional tariffs being layered on and you know we have reserved pricing for macro issues such as tariffs. We did again in 2022 and.

Speaker Change: Lance to the inflationary environment. So we know that that's a lever that we could pull if we were subject to additional tariffs, but something that we're keeping an eye on and certainly something that we're very mindful of especially of pulling that pricing lever just given the cost consciousness of the consumer right now and we do have pricing power I think one of the things many of our competitors.

Mandy Fields: And then how should they be thinking about volume versus price mix in the next 12 months? Obviously, you've seen very strong benefits from volume and price mix, but more from volume, and that obviously now creates tougher comps. The price mix is starting, or the mix is picking up, with Notorium sort of super driving that. So I'm just kind of curious how you think about the contribution from those two pieces. And then, just if I could sneak one other one in, it's just around advertising spending from here.

Speaker Change: With pricing over the last few months, we chose not to take pricing to that point of keeping a superior value equation and also keeping in our back pocket. If we will need to take pricing for any external factors. So we feel good in terms of how we're situated in our ability to continue to navigate a day.

Speaker Change: <unk> environment.

Speaker Change: So the other the only other thing I would add is we have a pretty big initiative on supplier diversification. So while most of our footprint today is in China. We have started up additional operations in Thailand in Western Europe, and we'll continue on that journey.

Mandy Fields: Now that you're at 24% of sales, you know, just thanks for confirming that you're planning a Super Bowl ad again this year. As you think about sort of getting the best ROI as you continue to increase your spend, you know, we also saw that NYX is planning a Super Bowl ad as well. So competition is clearly trying to... and they'll just kind of catch up to you and run your playbook as well. So, can you talk about some of the actions you're taking to just continue to stay ahead of your peers and keep that ROI as high as you have? Thanks. Hi Olivia.

Speaker Change: <unk> for the foreseeable future a lot will come out of China, but also with the addition of Nycturia, which is 100% manufactured in the U S. We feel good about how our supply chain is evolving in the future as being more diversified.

Speaker Change: Okay.

Speaker Change: The next question comes from Olivia Tong with Raymond James. Please go ahead.

Olivia Tong: Great. Thanks, good afternoon and congrats.

Olivia Tong: Wanted to ask you about a new shelf space Cvs Walmart can you talk about what.

Olivia Tong: What what the assortment will look like is it more pegs of your hero products or you're getting traction in some of the new areas like lip eye and skin.

Mandy Fields: I'll take the question on volume versus price mix. Again, we're very pleased that the majority of our growth has been driven by volume. I think that speaks to the health of the brand. I think that speaks to the engagement that we have with our community and something that we certainly expect to see on the road ahead. To what level price mix plays into it, we'll have to see as we go.

Speaker Change: Sure so for context, Olivia historically at Cvs, where necessary foot gondola end cap it allowed for very little amount of hiring.

Speaker Change: Assortment in those sets.

Speaker Change: Cvs is moving to six and 10 foot sets in line as they expand space. So it gives us a lot more room to get more of our assortment and certainly all of our Holy Grails, many of our new items each of our core items. Similarly, Walmart, while they're at eight feet.

Mandy Fields: But we feel pretty confident that volume will continue to lead our growth as we go forward. And then on your question about advertising, we feel great about the 24% that we're guiding this year. And that's really based on the tremendous ROIs we're seeing on our marketing investment in terms of gross sales per dollar invested. I've been in the consumer space for over 30 years.

Speaker Change: They have significantly more capacity to take more of our innovation more skincare at many of our other items. So we feel really good about what that's going to enable similar to what we saw with both target and Ulta as they expanded assortment those are probably pretty good guidance in terms of this basin and we're able to pick up.

Speaker Change: Got it and then.

Speaker Change: How should we be thinking about volume versus price mix in the next 12 months, obviously, you seem very struggled benefit from from volume.

Mandy Fields: It's the first brand I've seen where you can take your marketing levels up and actually get better ROIs. So we feel really good about what we continue to see from a marketing ROI standpoint, even as we take our levels up. And then in terms of competition and competition catching up, I think what you'll see is us continue to innovate, continue to be leaders and trailblazers on different platforms. You know, we talked this time about taking the strength we have in Gen Z and picking it up by opening up that aperture to more millennials, more Gen X. You heard about our efforts this last quarter with the Latinx community, where we are already overdeveloped with the partnership we did with Manuel Tirizo in terms of the engagement that that created. Even with Gen Alpha, you see us. Our branded experience on Roblox was the number one branded experience on Roblox, 96% rating, I think over 5 million plays so far.

Speaker Change: And price mix, but more from volume and that obviously now create tougher comps the price mix is starting to or the mix is picking up with notorious.

Speaker Change: Sort of tip of driving that to just kind of curious how how you think about the contribution from those two pieces and then just if I could sneak one other one in there just around advertising spending from here now that you are at 24% of sales.

Speaker Change:

Speaker Change: Thanks for confirming that your planning as you roll out again. This year you know as you think about sort of getting the best ROI as you as you continue to increase your spend we also saw that Nyx is planning to rollout as well. So competition is clearly trying to.

Speaker Change: Kind of catch up to you and run your playbook as well. So can you talk about some of the actions you're taking to just continue to stay ahead of your peers and keep that ROI as high as you have thanks so much.

Speaker Change: Hi, Olivia I'll take the question on volume versus price mix again, we're very pleased that the majority of our growth has been driven by volume I think that speaks to the health of the brand I think that speaks to the engagement that we have with our community and something that we certainly expect to see on the road ahead to what level of price mix plays into it well.

Mandy Fields: So I think, you know, competition can try to catch up, but we feel really great about our unique ability to entertain and engage our community. And you're going to continue to see that, including staying tuned for February 11th and what we have in store for the Super Bowl this year, where we're actually doing the national buy versus the regional buy we had last year, which triples our reach. And I think just in the teasers we've done, starting last week, we're already up to, I think, 11 billion impressions on those teasers, and we haven't even started the activation yet. Great. Thanks, Bethany. The next question comes from Linda Bolton-Weiser with D.A. Davidson

Speaker Change: To see and as we go through but we feel pretty confident that volume will continue to lead our growth as we go forward.

Speaker Change: And then on your question on advertising, we feel great about the 24% that we're guiding this year and that's really based on the tremendous rois, we're seeing on our marketing investment in terms of gross sales per dollar invested.

Speaker Change: They have been in the consumer space for over 30 years. It's the first brand I've seen where you take up your marketing levels and actually get better Rois. So we feel really good about what we continue to see from our marketing ROI standpoint, even as we take our levels up and then in terms of competition and competition catching up I think what you'll see is us continue to innovate.

Mandy Fields: Please go ahead. Yes, hi. I was just curious, with your expansion activities in Europe, are you shipping from Asia to Europe to fulfill those orders? And if so, are you experiencing any issues with shipping through the Suez Canal area? Are you seeing any spikes in freight rates that are affecting your costs? Hi Linda. So we do ship from China to Europe for our European business. We use a combination of both shipping as well as rail across Asia, and we have found rail to be a good solution for us.

Speaker Change: He needs to be leaders in trail Blazers on different platforms. We talked this time in terms of taking the strength we have in Gen. Z. We have been picking up by opening up that aperture more millennials more genex you heard about our efforts this last quarter with the Latinx community, where we already are also developed now with the partnership we did with manual chorizo in.

Mandy Fields: The shipping situation, we're keeping our eyes on it, has had minimal impact this fiscal year. We're looking ahead to the future. As we've seen, some rates temporarily went up.

Speaker Change: Terms of the engagement that that created even with Gen. Alpha ECS are a branded experience on roadblocks was the number one branded experience on roadblocks, 96% rating I think over 5 million plays so far so I think you know competition can try this.

Mandy Fields: We think that it's a temporary thing, but we'll keep our eye on it. And right now, it doesn't have much of an impact. Thanks. And can I just ask also, for Naturium, it was interesting what you said about expanding that brand already into another retailer. I thought my understanding was that you were going to take some time to kind of strategize and figure out how to go about it.

Speaker Change: Hi to catch up, but we feel really great about our unique ability to entertain and engage our community and you continue to see that including staying tuned for February 11th and what we have in store on the Super Bowl. This year, where we're actually doing the national buy versus fee regional by we had last year.

Mandy Fields: Have you changed with regard to your plan for the pace of expansion of that brand as you've gotten to know it better? I would say our plans are relatively consistent. For example, Notorium was already in discussions with Shopper Drug Mart.

Speaker Change: Triples, our reach and I think just didn't even the teasers we've done.

Speaker Change: Starting last week, we were already up to I think he 11 billion impressions on those teasers and we haven't even started the activation here.

Mandy Fields: We knew about that when we made the acquisition. We're actually quite excited about that, the first entry into Canada for that brand. You know, when we bought the brand, we thought there were three areas where we could really give help to Notorium. It's a team that's doing extremely well. That entire team came on board. They've been on as part of the e.l.f. umbrella now for three months.

Great. Thanks best of luck.

Speaker Change: The next question comes from Nick <unk>.

Speaker Change: <unk> Bolton Weiser with D. A Davidson. Please go ahead.

Speaker Change: Yes, Hi, I was just curious with your expansion activities in Europe are you shipping from Asia to Europe to fulfill those orders and if so are you experiencing any issues with shipping.

Speaker Change: Through the Suez Canal area or are you seeing any.

Speaker Change: Spikes in freight rates that are affecting your cost. Thanks.

Mandy Fields: They continue to run the business extremely well. The three areas that we could add value are number one to the team to help enhance and expand the team for the types of things they need, whether it be regulatory, quality, or manufacturing. There are a lot of capabilities we have in a number of different areas. The second is to continue to enhance their marketing model. They have an incredibly effective engagement model with consumers, and our ability to bring even more to that. And the third element, distribution, and the distribution ability really came into play with Shopper's Drug Mart.

Speaker Change: Hi, Linda So we do ship from China to Europe.

Linda: For our European business, and we use a combination of both shipping as well as rail over Asia, and we found a rail to be a good solution for us.

Linda: The shipping situation, we're keeping our eyes on it has minimal impact in this fiscal year, we're keeping an eye for the future as we've seen.

Linda: Some rates temporarily go up we think that it's a temporary thing, but we'll keep our eye on it and right now not much of an impact.

Speaker Change: Thanks, and then can I just ask also and furniture. It was interesting what you said about expanding.

Mandy Fields: We already have a very good business there, so our ability to help them navigate through Shopper's to make sure that we're getting both the best terms as well as the best levels of support. So I'd say it's more consistent than not.

Speaker Change: They're brand already in to another retailer I thought my understanding was that you were going to take some time to kind of you know.

Speaker Change: Strategize and figure out how to go about it or have you changed with regard to your plan for the pace of expansion of that brand as you've gotten to know <unk>.

Mandy Fields: We're extremely pleased with our first few months of Notorium. It continues to be a very strong growing brand with a great deal of potential. Great, thank you and congratulations. Thanks, Linda. The next question comes from Bill Chappell with Truist Securities. Please go ahead. Thanks. Good afternoon.

Speaker Change: No it better.

Speaker Change: I would say our plans are relatively consistent sanatorium was already in discussions with shoppers drug Mart, we knew about that when we made the acquisition we're actually quite excited about that the first entry into Canada for that brand.

Mandy Fields: Maybe you could help us understand the outperformance in the quarter, and I understand you have a solid track record of conservative expectations or forecasts, but I mean, this seems to be, you know, outstanding in terms of the beat and all across the board. So what drove or was there any, you know, couple factors that drove the upside, especially as I think we were all looking at kind of tougher comps as we entered December, but you seem to kind of surpass that and keep on moving, even as we see the scanner data today? So, you know, has anything changed? Anything stepped up? Was there something different, or were you just really conservative in your guide?

Speaker Change: We bought the brand we thought there were three areas, where we could really give helped minatory them. It's a team that's doing extremely well that entire team came on board they've been on as part of the L. From Birla now for three months. They continue to run the business extremely well the three areas that we can add value is number one to the team to help enhance and expand the team for the types of things.

Speaker Change: They need whether it be regulatory quality manufacturing, there's a lot of capabilities. We have in a number of these different areas. The second is to continue to enhance their marketing model. We have an incredibly effective engagement model with consumers our ability to bring even more to that and a third in distribution the distribution ability really came to.

Speaker Change: Play with shoppers drug Mart, we already have a very good business. There so our ability to help them navigate through shoppers to make sure that we're getting both the best terms as well as the best levels of support so I'd say, it's more consistent than not we're extremely pleased with our first few months of inventory continues to be very strong growing brand with a great deal of potential.

Mandy Fields: Well, you know, I would say, Bill, when we talk about exceptional, consistent category-leading growth, that's exactly what you've seen for us for 20 quarters in a row. You know, we cite the stat that we're one of only five public consumer companies that are 274 that have grown 20 consecutive quarters at over 20%. So I think it's more consistent than not.

Great. Thank you and congratulations.

Speaker Change: Thanks Linda.

Speaker Change: The next question comes from Bill Chapell with Truest Securities. Please go ahead.

Mandy Fields: In terms of the quarter, the quarter did come in better than we were expecting, and it really is all three of our key drivers. I look at our value equation, our powerhouse innovation, and our marketing engine. We continue to see great strength and great fundamentals in each of them. During the period, which was also during the holiday period, we had a number of our latest Holy Grail launches do exceptionally well. You know, we talked about our lip oils that we launched. This was an idea that really came from our community.

Bill Chapell: Thanks, Good afternoon.

Good afternoon.

Bill Chapell: Maybe just help us understand the outperformance in the quarter and I understand you have a.

Bill Chapell: A solid track record of conservative expectations or forecasts, but I mean, this seems to be.

Bill Chapell: Outstanding in terms of of the beam and all across the board. So what drove or was there any couple of factors that drove the upside, especially as I think we were all looking at kind of tougher comps as we enter December but you seem to kind of surpass that and keep on moving even as we see this.

Mandy Fields: They saw a prestige item that they really liked at $40, and basically, like E.L.F., we love that, but we can't afford $40. So, we developed our own with our own e.l.f. twist.

Bill Chapell: Skinner data today. So what is really changed anything stepped up was there something different or were you just really conservative on your guidance.

Mandy Fields: Our lip oils hydrate better, have a better doe foot in terms of application, and the formulations are incredible. And when we launched them, we saw them take off virally right away, with consumers making the direct comparison that it's actually better than the prestige product. We've seen similar results as we think about our Camo Liquid Blush at $7 versus a prestige item at $23. So, we continue to build upon these growing franchises. That, along with our increased marketing levels and what we're able to do from a value equation standpoint, I think will continue to propel our business. But, as Mandy said, we do expect Nielsen to be in that lower range, but we still feel really good even with Nielsen comping very strong numbers.

Speaker Change: Well I would say bill when we talk about exceptional consistent category, leading growth that's exactly what you've seen for us for 20 quarters in a row, we cite the stat of we're one of only five public consumer companies out of 274 that have grown 20 consecutive quarters at over 20%. So I think it's.

Speaker Change: More consistent than not in terms of the quarter the quarter did come in better than we were expecting and it really is.

Speaker Change: All three of our key drivers.

Speaker Change: If I look at our value equation, our powerhouse innovation and our marketing engine, we continue to see great strength and great fundamentals in each of them.

Speaker Change: During the period is also joined the holiday period, we had a number of our latest Holy Grail launches to exceptionally well we talked about our lip oils that we launched this is an idea that really came from our community. They saw a prestige item that they really liked at $40 number is basically like L. We love that but we need we can afford.

Mandy Fields: For example, this time last year, I think our target business was up over 100%, and we still continue to see really strong numbers on top of those really strong numbers. We feel really good about that. 53% growth that's implied in Q4, even though we're comping a quarter that's closer to 80%. That's fantastic. And then just sneaking one in, e.l.f.

Speaker Change: $80. So we developed ours with their own <unk> twist or our loop oils hydrate better have the better doughfoot in terms of application formulations are incredible and right. When we launch them that we saw in takeoff virally right away with consumers, making a direct comparison of it's actually better than the prestige product we've seen similar results as we.

Mandy Fields: Skincare. I mean, I know we're talking about Interium doing well, but I think you had... Planned on bringing some of, you know, cross-pollinating noturium and e.l.f.

Mandy Fields: skin care in terms of their Skill specific abilities and any updates there and just kind of how e.l.f. skin care is doing. Yeah, so e.l.f. Skin is doing exceptionally well. You know, we talked during the call on track channels,

Speaker Change: Think about our camel liquid plush.

Speaker Change: Plush at $7 versus a prestige item at 23. So we continue to build upon these growing franchises that along with our increased marketing levels and what we're able to do from a value creation standpoint, I think has continued to propel our business, but as Mandy said, we do expect Nielsen to be in that lower range, but we still feel really.

Mandy Fields: Skin Care was up 89% versus a category that's up 9%, so we continue to see great momentum on e.l.f. Skin.

Speaker Change: Good even with Nielsen Comping very strong numbers. For example, this time last year I think our target business was up over 100% and we still continue to see really strong numbers on top of those strong numbers.

Mandy Fields: Recall, it was a couple of years ago that we really dedicated that to it as its own brand with its own level of focus. And we've seen great things, both from an innovation pipeline, as well as from our awareness building. So we feel really good.

Speaker Change: Of the 53.

Speaker Change: Percent growth that's implied in Q4, even though where we're comping a quarter that's closer to 80%.

Mandy Fields: I mean, I think just in the last year, we increased our ranking in skin care from number 20 to number 14. And we have aspirations over time to be a top 10 brand in skin care. And I feel really good about both the momentum and the plans we have for. Great, thanks. The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Speaker Change: No that's fantastic and then just sticking with one in.

Speaker Change: Elf skin care I mean, I know, we're talking about material doing well, but I think you had planned.

Speaker Change: Planned on bringing some of our cross cross Pollinating material Elf skincare in terms of their <unk>.

Speaker Change: <unk> specific.

Speaker Change: Abilities, and any update there and just kind of how else skincare is doing.

Mandy Fields: Hey guys, obviously, incredibly strong growth in the quarter again. Tarang, maybe can you just give us a brief review of, as you think about the long-term market share opportunity, where do you see the opportunity dimensionalizing in three to five years? How does the recent growth and market share expansion you've seen maybe change that view? And just how would you think about it conceptually as we think through where the business could be in the longer term? Thanks, Dara.

Speaker Change: Yeah, So L skills doing exceptionally well we talked during the call in tracked channels L. Skincare was up 89% versus a category that was up 9%. So we continue to see great momentum on else skin recall. It was a couple of years ago that we really dedicate that has its own brand with its own level of focus and we're seeing great things Broadcom and <unk>.

Speaker Change: Innovation pipeline as well as kind of awareness build so she freeing feel really good I mean, I think just in the last year. We increased six ranked positions in skincare from number 20 to number 14, and we have aspirations over time to be a top 10 brand in skincare and I feel really good about both the momentum and the plans we have against it.

Mandy Fields: I feel incredibly well about our ability to continue to gain market share. I feel great about the 305 basis points of market share we grew in this past quarter. And really, if I think about the longer term view, it was just a few years ago that we had a four and a half share in Color Cosmetics. We're now a 10 share nationally. You know, we've often cited Target as, kind of, a beacon.

Speaker Change: Great. Thanks.

Speaker Change: Next question comes from Dara.

Dara: <unk> <unk> with Morgan Stanley. Please go ahead.

Dara: Hey, guys.

Dara: So.

Dara: Obviously incredibly strong growth in the quarter again.

Dara: Trang, maybe can you just give us a brief review on as you think about the long term market share opportunity.

Trang: Where do you see the opportunity to dimensionalize it get out three to five years.

Trang: How does the recent growth in market share expansion, you've seen maybe change that view.

Mandy Fields: We're number one at Target. We've doubled our market share there over just the last few years. And we're almost at a 19% share. So our sites are set for clear market leadership over time, as I look at the longer track record within Color Cosmetics. And I feel we're making great progress there. You can see in our current share momentum, but particularly as you get more space at Walmart, in Drug, as we continue to expand, we feel there's a tremendous opportunity to do what we did at Target. And I think we're making great progress there. But skincare, perhaps, is even a bigger opportunity.

Trang: And just how would you think about it conceptually.

Trang: As we think through where the business could be longer term. Thanks.

Speaker Change: Thanks, Dara I feel incredibly well about our ability to continue to gain market share I feel great about the 305 basis points of market share. We grew in this past quarter and really if I. If I think about the longer term view. It was just a few years ago that were a floor and a half share in color cosmetics for now a 10 share nationally.

Speaker Change: We've often cited target as.

Speaker Change: As kind of the Beacon, we're number one at target we've doubled our market share there over just the last few years and we're almost a 19% share. So our sights are set unclear market leadership over time as I look at the longer.

Mandy Fields: You know, if I take a look at all the growth we've had in skincare, the 89% I just talked about in terms of track channels, e.l.f. Skin growing, we're still only a 1.4 share in skincare on e.l.f. Skin, compared to a market leader that has 14 shares, so even more head space on skincare. And now we've got two incredible assets to be able to drive that aspiration, with both e.l.f. Skin and Notorium.

Speaker Change: Our track record within color cosmetics, and I feel we're making great progress. There you can see in our current share momentum that particularly as you get more space at Walmart in drug as we continue to expand and we feel there's a tremendous opportunity to do what we've done in target and I think we're making great progress there skincare.

Speaker Change: <unk>, perhaps is even a bigger opportunity if I take a look at all the growth of embedding skincare, the 89% I just talked about in terms of tracked channels our skin growing.

Mandy Fields: So feel really good about that. And then the last area, outside of kind of market share, which we often cite is the U.S. Nielsen market share. We're also making great progress in the international markets, right? If I look at our rank improvement in Canada and the U.K. just in the last couple of years, it's pretty phenomenal.

Speaker Change: We're still only a 1.4 share in skincare and El skin compared to a market leader, that's 14 share so even more.

Speaker Change: Headspace on skincare and now we've got two incredible assets to be able to drive that aspiration with both el skin inventory them. So feel really good there and then the last area outside of kind of market share market share, we often cite as the U S. Nielsen market share. We're also making great progress in the international markets when I look at our rank in Peru.

Mandy Fields: And, you know, with increased space at both Shoppers and with Superdrug and Boots, Superdrug this past year and Boots coming up, I feel even more confident with what we're doing there with our international team in the U.K., and, you know, a stat we cited in our call was that we just entered Douglas, Italy. I'm here to talk to you today about a company that was launched about a quarter ago, and we're already their number one brand, not only on the mass side, but also across prestige, number one overall. So it really tells me that this model can replicate, and not only in the U.S., but the amount of growth we have internationally. Great, thanks. The next question comes from Peter Grom with UBS. Please go ahead. Thanks, operator, and good afternoon, everyone. I hope you're doing well.

Speaker Change: Movement in Canada, and the U K just in the last couple of years is pretty phenomenal and with increased space at both shoppers smooth superdrug and boots.

Speaker Change: Superdrug in this past year in boots coming up I feel even more confident with what we're doing there with our international team in the U K and <unk>.

Speaker Change: That we cited in our in our call was we just entered Degloss, Italy.

Speaker Change: Led by about a quarter ago, and we're already there number one brand not only on the mass side, but also across prestige number one overall so it really tells me that this model can replicate not only in the U S. But the amount of growth we have internationally.

Mandy Fields: So, I wanted to ask a couple questions on margins. Maybe first, just on the fourth quarter. I apologize if I missed this, but the implied EBITDA margin in 4Q and kind of earnings as well embed a bit of a step down. Can you maybe just outline the drivers of that? The year-to-date performance and, you know, gross margin and marketing guidance would suggest it's not really either of those buckets. So, just maybe help us understand the puts and takes from a margin and earnings perspective, specifically for the fourth quarter. And then just, you know, the bigger picture, you know, the gross margin. The guidance implies north of 70% this year. Can you maybe just help us frame the opportunity from here?

Speaker Change: Okay.

Speaker Change: Great. Thanks.

Speaker Change: The next question comes from Peter Grom with UBS. Please go ahead.

Peter K. Grom: Thanks, operator, and good afternoon, everyone hope you're doing well so I wanted to ask a couple of questions on March eight maybe first just on the fourth quarter I apologize if I missed this but the implied EBITDA margin in <unk>.

Peter K. Grom: On earnings as well doesn't benefit of a step down can you maybe just outline the drivers of that the year to date performance.

Peter K. Grom: Gross margin and marketing guidance.

Peter K. Grom: Suggests it's not really either of those buckets. So just maybe help us understand the puts and takes from a margin and earnings perspective, specifically for the fourth quarter and then just bigger picture. The gross margin performance has been impressive.

Peter K. Grom: The guidance implies north of 70%. This year can you maybe just help us frame the opportunity from here in the room for further expansion as more of the the EBITDA leverage really going to come from Opex. Thanks.

Mandy Fields: Is there room for further expansion? Is more of the EBITDA leverage really going to come from OP-EDS? Thanks. Hi Peter.

Mandy Fields: So, yes, overall, I'm very pleased with the margin progression that we've made this year. Our outlook implies a 200 basis point expansion in EBITDA margin for this year. Our growth margins have also been very strong for this year. Our outlook is implying over 200 basis points; 280 basis points is what's implied from a guidance standpoint on the gross margin line. So, the quarters can ebb and flow in terms of the spin that you'll see in each quarter.

Speaker Change: Hi, Peter So, yes, overall I'm very pleased with the margin progression that we've made over this year our outlook implies a 200 basis point expansion.

Peter K. Grom: And EBITDA margin for this year, our gross margins have also been very strong for this year our outlook is implying.

Peter K. Grom: Over 200 basis by 280 basis points is what's implied from a guidance standpoint on the gross margin line. So the quarters can ebb and flow.

Peter K. Grom: In terms of the spin that youll see in each quarter, we are stepping up our marketing spend in Q4. So we are targeting that higher end of the range at 24% for the year and the first half of the year, we were closer to an 18% level and so you'll see marketing ramped up even from the 26% that we delivered in Q3, youll see that step up even higher into Q4. So.

Mandy Fields: We are stepping up our marketing spend in Q4, so we are targeting that higher end of the range at 24% for the year. In the first half of the year, we were closer to an 18% level, and so you'll see marketing ramped up even from the 26% that we delivered in Q3. You'll see that step up even higher into Q4.

Mandy Fields: So, that will have an impact overall on our spend, and we continue to invest in our people and infrastructure. You'll see that in our non-marketing SG&A as well. But in terms of the splits on the quarters, there is nothing really to call out other than we are going to be stepping up our marketing for Q4. The next question comes from Susan Anderson with Canaccord Genuity. Please go ahead. Hi, good evening, nice job on the quarter.

Peter K. Grom: That will have an impact overall on our spend and we continue to invest in our people and infrastructure.

Peter K. Grom: You'll see that in our non marketing SG&A as well, but in terms of the split on the quarters nothing really to call out other than that we are going to be stepping up our marketing.

Peter K. Grom: For Q4.

Peter K. Grom: The next question comes from Susan Anderson with Canaccord Genuity. Please go ahead.

Susan Kay Anderson: Hi, good evening nice job on the quarter.

Mandy Fields: I guess just really quick to follow up on that margin question. So I guess on the gross margin front for the fourth quarter, it looks like the full year guide, maybe it just implies slightly higher gross margin for the fourth quarter, so a little bit below what you guys did in the first three quarters. So just curious, the driver of that lower gross margin there, and then also on Naturium. It sounds like it's performing well and in line with your expectations. I'm curious if there's been, I know it's early, but any learning so far that you've taken from the brand that you think is applicable to e.l.f. skin. Thanks.

Susan Kay Anderson: I guess, just really quick to follow up on that margin question. So I guess on the gross margin front for the fourth quarter. It looks like the full year guide maybe it just imply slightly up for the fourth quarter. So a little bit below what you guys did in the first three quarters. So just curious the driver of that lower gross margin there and then also.

Susan Kay Anderson: On nature am it sounds like it's performing well and in line with your expectations I'm curious if there's been I know, it's early but any learnings so far that you've taken from the brand that you think is applicable to all skin. Thanks.

Mandy Fields: So, to unpack margin a little bit for Q3 and Q4, so in Q3, we had the benefits we called out, foreign exchange, transportation, cost savings mix, all of those continue on into Q4. The main difference is, though, in Q4 compared to Q3, last year, we started to see the transportation savings impact. So, if I look at Q3 last year, we were about a 67 margin. In Q4 last year, we

Speaker Change: So Ted unpack margin a little bit.

Speaker Change: For Q3 and Q4, so Q3, we had the benefits we called out foreign exchange transportation cost savings mix all of those continue on into Q4. The main differences, though in Q4 Q4 last year, we started to see the transportation.

Speaker Change: The savings impact that so.

Speaker Change: If I look at Q3 last year, we were about 67 margin Q4 last year were 69, so where it's already a 200 basis point step up into Q4 also I would say on Q4 historically.

Mandy Fields: So, it's already a 200 basis point step up into Q4. Also, I would say on Q4, historically, again, last year was an outlier, but historically, we do see a step down seasonally in our gross margins for Q4 as we're exiting certain products off the shelf and getting our new product onto the shelf. So, that also is impacting. But I feel great about the gross margin that we're forecasting that's implied in our outlook for Q4, roughly around a 69, which is really strong. And again, looking at ending the year with 280 basis points of margin expansion. And then, in terms of learnings from Notorium, I'd say there are probably two main ones.

Speaker Change: Again last year was an outlier, but historically, we do see a step down seasonally and our gross margins for Q4, as we're exiting certain product off the shelf getting our new product onto shelves. So that also is impacting but I feel great about the gross margin that we're out looking but that's implied in our our outlook for Q4.

Speaker Change: Roughly around a 69, which is really strong and again looking at ending the year with 280 basis points of margin expansion.

Speaker Change: And then in terms of learnings from the jury them I'd say, there's probably two main ones. One is a reinforcement of just how great. A team came along with notorious and how well they fit the culture and integrate in so far that integration has gone extremely well in terms of being able to help them realize the growth potential behind the torreon and also bring learnings into the company.

Mandy Fields: One is the reinforcement of just how great a team came along with Notorium and how well they fit the e.l.f. culture and integrated in. So far, that integration has gone extremely well in terms of being able to help them realize the growth potential behind Notorium and also bring learnings into the company. I think the second thing is, you know, we picked up over 35 people at Notorium, including co-founder Susan Yara, and so I think the learning for us at e.l.f. The skin is we started this journey a couple of years ago. How do we get even more dedicated resources on e.l.f. Skin to fully realize the potential there?

Speaker Change: I think the second thing is we picked up over 35 people on the torreon, including co founder Susan Euro and so I think the learning for us and they'll skin as we started this journey a couple of years ago, how do we get even more dedicated resource enel skin to fully realize the potential there that fits within our existing people plan in terms of what we have.

Mandy Fields: That fits within our existing people plan in terms of what we hire every year, additional people, and so I think that's probably the biggest learning back on the e.l.f. Skin side, getting that level of dedication and expertise. Great. Thanks so much for the details. Good luck for the rest of the year.

Speaker Change: Here every year additional people.

Speaker Change: And so I think that's probably the biggest learning back on the skin side is getting that level of dedication and expertise in el skin.

Speaker Change: Great. Thanks, so much for the details good luck the rest of the year.

Mandy Fields: The next question comes from Anna Lazul with Bank of America. Please go ahead. Hi, good afternoon. Thanks so much for the question. I wanted to ask you a bigger picture about e.l.f. Skin and Naturium.

Speaker Change: Thank you.

Speaker Change: The next question comes from Anna <unk> with Bank of America. Please go ahead.

Anna: Hi, good afternoon. Thanks, so much for the question I wanted to ask bigger picture on L. Skin <unk>. How are you thinking about the longer term potential for these two brands given there are different price points and ultimately where do you see these brands fitting in with certain retailers and different customer demographics, and then for <unk>.

Mandy Fields: How are you thinking about the longer-term potential for these two brands, given their different price points? And ultimately, where do you see these brands fitting in with certain retailers and different customer demographics? And then there is e.l.f.

Mandy Fields: Specific to skin care, are you beginning to see customers come in through skin care, or are sales still primarily from customers who are already users of e.l.f. Cosmetics migrating to e.l.f. Skin?

<unk>, specifically are you beginning to see customers come in through skincare or our sales still primarily from customers who are already users of our cosmetics migrating to all skin. Thank you.

Mandy Fields: So the bigger picture, Anna, for both these brands is that we see tremendous growth in both of them. e.l.f.

Anna: So the bigger picture Ana for both these brands as we see tremendous growth in both of them L. Skin as average unit retails around $9 primary audience female Gen Z has a ton of potential, particularly as more gen Z and the younger cohorts really migrate to skincare, we see it continue.

Mandy Fields: Skin, as the average unit retail is around $9, primary audience is female. Gen Z has a ton of potential, particularly as more Gen Z and the younger cohorts really migrate to skin care. We see it continue to expand both its presence in retail and in terms of its innovation pipeline. We see great potential there. Notorium, one of the reasons we really like the brand is just how well it complements e.l.f. Skin.

Anna: To expand both its presence in retail in terms of its innovation pipeline.

Ana: Great potential there notoriously one of the reasons, we really like the brand is just how well it complements L skin and.

Mandy Fields: At an $18 average unit retail, a higher price point, that mastige point, it also attracts a different audience, including over a third of its user base, almost 40% of its user base being men, and with the body category in particular. So we like the fact that they're very distinct and complementary, yet both have tremendous growth potential. In terms of where we could continue to see both brands, we think there's expansion potential for both brands. Notorium probably opens itself up to other more premium retail locations over time, but we feel really, really great about the business we have at Target, Amazon, and Notorium.com, and very excited about Shoppers Drug Mart.

Ana: At $18 average unit retail.

Ana: Higher price point that Masstige point.

It also attracts a different audience, including over a third of its user base of almost 40% of its user base being men and with a body category in particular, so we like the fact that they are very distinct and complementary yet both have tremendous growth potential in terms of where we could continue to see.

Ana: Both brands, we think theres expansion potential for both brands Najarian, probably opens itself up to other more premium retail locations over time, but we feel really really great about the business, we have a target Amazon <unk> dot com very excited about shoppers drug Mart, So youll see some overlap in terms of distribution.

Mandy Fields: So you'll see some overlap in terms of distribution with some differences that we haven't disclosed yet. And then from a demographic standpoint on e.l.f. Skin, the last part of your question, we are seeing us pick up more consumers directly from skin care. I think in the early days of e.l.f.,

Ana: With some differences that we haven't disclosed yet.

Ana: And then from a demographic standpoint on L. Skin. The last part of your question. We are seeing us pick up more consumers directly from skincare I say in the early days of L. Skin skin via was primarily left cosmetics fire a warehouse right next self cosmetics, you definitely got people building their baskets on Alf cosmetics.

Mandy Fields: Skin, the e.l.f. Skin buyer, was primarily an e.l.f. Cosmetics buyer. They were housed right next to e.l.f.

Mandy Fields: Cosmetics. You definitely got people building their baskets on e.l.f. Cosmetics, particularly with some of the latest innovations. If I take a look at our SunTouchables line, our SPF line, both WoGlow, SunTouchables Invisible, our spray, we're picking up people directly from Prestige Skin in that business. And so I feel really good about the strategy, particularly on an innovation standpoint, where we'll continue to get e.l.f. consumers, but we're increasingly picking up more directly from the skin. Great, thanks so much. The next question comes from Corinne Wolfmeyer with Piper Sandler. Please go ahead.

Ana: Particularly with some of the latest innovations if I take a look at our son Touchable line are SPF line, both would grow some.

Ana: Untouchables invisible our spray, we're picking a people directly from prestige skin in that in that business and so I feel really good about the strategy, particularly on an innovation standpoint, where we will continue to get health consumers, but we're increasingly picking up more directly from skincare.

Speaker Change: Great. Thanks, so much.

Corinne Smile: The next question comes from Corinne will Smile with Piper Sandler. Please go ahead.

Mandy Fields: Hey, good afternoon. Thanks for taking the question and congrats on a good quarter. First, I'd like to just clarify what percent of the supply chain is currently outside of China, inclusive of Notarium? And then could you just touch on, in terms of your marketing spend, how much are you allocating toward international versus domestic? And looking forward, over the next couple years, will that mix shift more toward international? Or how are you thinking about that going forward? Thank you. So the supply chain is still primarily in China, Corinne? I'd say over 80% are still in China, even with the inclusion of Notorium.

Speaker Change: Hey, good afternoon. Thanks for taking my question and congrats on a good quarter and first I'd like to just clarify on what percent of the supply chain is currently outside of China inclusive of material and then could you just touch on in terms of your your marketing spend how much are you allocating toward international.

Speaker Change: <unk> versus domestic and looking forward over the next couple of years, well that next shift more toward international or how are you thinking about that going forward. Thank you.

Speaker Change: Yeah. So the supply chain is still primarily in China, Corinne I'd say over 80% is still in China, even with the inclusion of notorious that's one of the things I think over time Youll see a shift.

Mandy Fields: That's one of the things I think over time you'll see a shift, given our diversification plans. And part of that diversification plan is also relying on some of our main suppliers in China to also look at other geographies. So we are able to leverage the tremendous both relationship expertise they have, our ability to work with them, as well as bring on new suppliers. So I feel really good about the progress that's being made under that. In terms of marketing spend, Corinne, our approach is very consistent with looking at marketing spend as a percentage of net sales.

Speaker Change: Given our diversification plans.

Speaker Change: And part of that diversification plans is also relying on some of our main suppliers in China to also look at other geographies. So we are able to leverage the tremendous those relationship expertise they have our ability to work with them as well as bringing on new suppliers I feel really good about the progress is being made.

Speaker Change: Under that.

Speaker Change: In terms of marketing spend and Correne. Our approach is very consistent with looking at marketing spend as a percentage of net sales and so that's how we have approached.

Mandy Fields: And so that's how we have approached how we allocate our spend across the different businesses. Would we lean in a little bit more to international or skincare, some of the other growth vectors? Perhaps.

Speaker Change: How we allocate our spend across the different businesses.

Speaker Change: Would we lean in a little bit more to international or skin care. Some of the other growth vectors, perhaps but we also want to make sure that we stay balanced in our approach and make sure that we're putting on.

Mandy Fields: But we also want to make sure that we stay balanced in our approach and make sure that we're putting a lot of the fuel behind e.l.f. Cosmetics. Great, thank you, e.l.f. The next question comes from Mark. Astrachan with Stifel. Please go ahead.

Speaker Change: A lot of the fuel behind our cosmetics.

Speaker Change: Great. Thank you.

Speaker Change: The next question comes from Mark.

Speaker Change: Okay.

Mark: Chin with Stifel. Please go ahead.

Mandy Fields: Thanks and afternoon, everyone. I guess. The business continues to grow. I'm really thinking more on the non-skin side.

Mark: Thanks and afternoon everyone.

Mark: I guess is the.

Chin: The business continues to grow I'm really thinking more on the non skin side, how much of the growth is sort of existing users and you touched a little bit on the loyalty program.

Mandy Fields: How much of the growth is sort of existing users? You touched a little bit on the loyalty program. How much is new users?

Chin: How much is new users and I guess as you increase marketing spend how does that dynamic play out meaning our existing users increasing basket are you attracting new users and maybe to sort of trying to get at just.

Mandy Fields: And I guess as you increase marketing, how does that dynamic play out? Meaning, are existing users increasing the basket? Are you attracting new users? And, you know, maybe to sort of try to get at.

Chin: How somebody enters into the <unk> family.

Chin: All of the lifecycle plays out be they buy more products over time I presume that means.

Mandy Fields: How somebody enters into the e.l.f. family The Beauty Cabinet Bag Makeup Kit, so to speak, is increasing in terms of what e.l.f. products are in it versus other categories. Some of those share gains are coming from math, some are coming from prestige, but maybe just sort of holistically kind of think about the life cycle here and who you're going after and how they stay in the ecosystem. I'll talk about evolution. I'd say in the early days, we really relied a lot on existing users to build their baskets, particularly as we expanded into additional product categories, and expanded into skin. I think that was the early strategy.

Chin: The beauty cabinet bag makeup kit so to speak is increasing in terms of what else products are in there versus other categories presume. Some of those share gains are coming from mass number coming from prestige, but maybe just sort of holistically kind of think about the lifecycle here and who you're going after and how how they stay in the ecosystem.

Chin:

Speaker Change: Yeah, Mark So I'll I'll talk about the evolution I would say in the early days, we really relied a lot on existing users to build their basket, particularly as we expand into additional product categories expanded into skin I think that was the early strategy really in the last few years, particularly as we've been able to take up our marketing levels in it.

Mandy Fields: Really, in the last few years, particularly as we've been able to step up our marketing levels and hit additional targets, we're seeing many more new users. And the great profile that we're getting on the new users, we can measure this through our Beauty Squad loyalty program, is that they're demonstrating much of the same behavior. Once they get into the franchise, they start buying more, and we continue to build the overall basket and overall lifetime value of both existing as well as new users. So, we feel really good about that profile, particularly being able to bring in both new users as we go. The other big characteristic I would say is that the market share we report is really based on Nielsen.

Speaker Change: <unk> targets, we're seeing many more new users and the great profile that we're getting on the new users. We can measure this therapy squad loyalty program is they're demonstrating much of the same behavior at radio city users once they get into the franchise. They start buying more and you continue to build the overall basket and overall lifetime value on both existing as well as <unk>.

Speaker Change: So we feel really good about that profile, particularly being able to bring in both new users as we go through the other big characteristics I would say is the market share.

Speaker Change: We report is really based on Nielsen. So that's just on the mass side in terms of like who were taking share from and how we continue to build but one of the great characteristics of the business over the last few years as particularly as we've doubled down on our Holy Grail innovation. These big innovation franchises that grow year after year is starting to source.

Mandy Fields: So, that's just on the mass side in terms of who we're taking shares from and how we continue to build. But one of the great characteristics of the business over the last few years, particularly as we've doubled down on our holy grail innovation, these big innovation franchises that grow year after year, is that we're starting to source a lot more also, not only from prestige but giving access to consumers who previously didn't have access. To these categories before, you know; we've used the example on our. Putty Primer.

Speaker Change: A lot more also not only from prestige, but give access to consumers who previously didn't have access to these categories. Before you would use the example on our.

Mandy Fields: There was an inspiration from a prestige item. We continue to track that prestige item. It's grown double digits, but we sell nine times the number of units of our Putty Primer. So we basically brought in millions of consumers who couldn't afford a $56 Putty Primer but certainly could afford our $10 one.

Speaker Change: Putty primer there.

Speaker Change: There was an inspiration from our prestige item, we continue to track that prestige item, it's grown double digits, but we sell nine times the number of units on on our putty primer. So we basically brought in millions of consumers, who couldn't afford a $56 putty primer, but certainly can afford our $10 one and so I think that's the other big dynamic what kind of.

Mandy Fields: And so I say that's the other big dynamic. We're going to continue to pick up share just given the momentum we have, the way our strategy is working. But perhaps even the bigger long-term opportunity is giving consumers access to categories they didn't previously have access to.

Speaker Change: TD can pick up share just given the momentum we have the way our strategy is working but perhaps even the bigger long term opportunity is giving consumers access to categories that didn't previously have access to.

Mandy Fields: This concludes our question and answer session. I would like to turn the conference back over to Tarang Amin for any closing remarks. Well, thank you for joining us today, everyone. I'm so proud of our incredible team at e.l.f. Beauty for delivering another phenomenal quarter. I thank every e.l.f. employee and e.l.f. partner for your passion and dedication or the vision of creating a different kind of beauty

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to you to ring Amin for any closing remarks.

Amin: Well, thank you for joining us today, everyone I'm, so proud of our incredible team at Ulta beauty for delivering another phenomenal quarter.

Amin: Thank you every else <unk> partner for your passion and dedication of our vision of creating a different kind of beauty company.

Tarang P. Amin: We look forward to seeing some of you at Cagney in a few weeks, where we'll be presenting for the first time, and speaking to you in May when we'll discuss our fourth quarter results in FY25 Outlook. Thank you, and be well. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Bloompies Bloompies Bloompies

Amin: We look forward to seeing some of you at Cagny in a few weeks, where we'll be presenting for the first time and speaking to you in may when we'll discuss our fourth quarter results and FY 'twenty five outlook, thank you and be well.

Amin: Okay.

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

Yes.

Speaker Change: Okay.

Speaker Change: Alright.

Speaker Change: Okay.

Speaker Change: Pretty even when they start.

Speaker Change: And I know you're not happen over any time.

Speaker Change: At the door looking back to past.

Q3 2024 elf Beauty Inc Earnings Call

Request a DemoDemo

ELF

e.l.f. Beauty

Earnings