Q4 2025 elf Beauty Inc Earnings Call
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[music], you'll find factors that could cause actual results to differ materially from any forward looking for.
In addition, the company's presentation today includes information presented on a non-GAAP basis.
Our earnings release contains reconciliations of GAAP and non-GAAP.
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Speaker Change: Three months ago. Our lost my you know I found myself in a downturn so not mold monetize adult to adult weigh up it's a doubling of compute they are I haven't got time to explain my playbook.
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Speaker Change: Don't say, calling and meeting chairman and Chief Executive Officer, and Mandy fields, Senior Vice President and Chief Financial Officer of BD team and partners for delivering another year of industry leading results.
Speaker Change: In fiscal 'twenty five we grew net sales, 28% and adjusted EBITDA by 26%.
Speaker Change: We gained share globally across our largest geographies, including 190 basis points of share in the U S 170 basis points of share in Canada, and 270 basis points of share in the U K.
Speaker Change: Q4 marked our 25th consecutive quarter of both net sales growth and market share gains putting F beauty in a rarefied group of high growth companies.
Speaker Change: We were one of only six public consumer companies out of 546 that has grown for 25 straight quarters and average at least 20% sales growth per quarter.
Speaker Change: <unk> is the only brand of the nearly 1000 cosmetics brands tracked by Nielsen to gain share for 25 consecutive quarters.
Speaker Change: The combination of our value proposition powerhouse innovation and disruptive marketing engine continue to fuel our market share gains and deepen the connection we have with our community.
Speaker Change: In Piper Sandler latest taking stock with teens survey health cosmetics is ranked the number one team favorite brands for the seventh consecutive season.
Speaker Change: Our 35% Mindshare is now three and a half times the number two brand.
Speaker Change: L skin increase its ranking to number six favorite teen brand up two spots relative to last year.
Speaker Change: And we continue to grow our audience beyond Gen Z.
Speaker Change: Recent survey show Elf ranks number one in purchases amongst millennials and Gen Alpha <unk>.
Speaker Change: <unk> purchased by more than one of every three households in the U S. With our household penetration growing almost 400 basis points relative to last year.
Speaker Change: Our marketing is working.
Speaker Change: Living rois multiples above industry benchmarks, and expanding our unaided brand awareness from 13% in 2020% to 33% in 2024.
Speaker Change: For context, the leading U S mass cosmetics brand has 55% unaided awareness, which gives us confidence in our runway for growth.
Speaker Change: In fiscal 'twenty five we made further progress in our key areas of white space.
Speaker Change: Color cosmetics skincare and international.
Speaker Change: In cosmetics health is the number one brand in the U S by unit share and number two by dollar share.
Speaker Change: And is the fastest growing among the top 20 brands this year by a wide margin.
Speaker Change: We expanded our number one rank in target with 21% of their entire cosmetics category.
Speaker Change: We also increased from the number four brand the number two brand in Walmart.
Speaker Change: In skincare, we now hold two of the fastest growing mass skincare brands with al skin editorial.
Speaker Change: We expanded into Torian to Ulta beauty this year seeing strong results and already achieving the number one rank in body wash.
Speaker Change: Internationally, we grew share in our largest existing markets, the UK and Canada.
Speaker Change: Executing our biggest international launch date with ROSSMANN in Germany.
Speaker Change: And achieved a top three brand ranking in new retailers in the Netherlands, Italy and Mexico.
Speaker Change: We continue to see global demand for our brands.
Speaker Change: Let me spend a few minutes, taking you through the topics that are likely top of mind the.
Speaker Change: The impact of tariffs.
Speaker Change: Our mitigation efforts.
Speaker Change: And the actions, we're taking to deliver continued category leading growth and market share gains.
Speaker Change: Starting with tariffs and our mitigation efforts.
Speaker Change: To set the foundation about 75% of our global production today comes from China.
Speaker Change: As of May 14th product imports in the U S are now subject to tariffs at the 55% level.
Speaker Change: 25% that was put in place in 2019.
Speaker Change: Plus an incremental 30% that's now in place through mid August.
Speaker Change: While we were hopeful of having some long term resolution the timing of a more permanent rate is not known and the range of outcomes is broad.
Speaker Change: If tariffs were to remain at this incremental 30% level, we estimate the gross impact of our cost of goods sold to be approximately $50 million on an annualized basis.
Speaker Change: If tariffs were to go back up to the 145% level that was in place earlier this year the.
Speaker Change: The impact will be much higher.
Speaker Change: Given the broad range of outcomes on tariffs, we're not providing a fiscal 'twenty six outlook at this time.
Speaker Change: Our tariff mitigation plans are underway to three key vectors.
Speaker Change: Rising.
Speaker Change: Supply chain optimization and business diversification.
Speaker Change: First pricing too.
Speaker Change: To partially mitigate the impact from tariffs we plan to take a dollar increase on our entire product assortment globally effective August 1st.
Speaker Change: We were intentionally not going beyond that one dollar to preserve our value proposition and fulfill our mission to make the best of beauty accessible to every eye lip and face.
Speaker Change: This is only the third price increase we've taken in our 21 year history. Unlike many of our competitors who regularly take price increases.
Speaker Change: Historically consumers have been able to accept a dollar increase.
Speaker Change: We are transparent with our community and our pricing actions and hope to see long term tariff relief. So we don't have to take further pricing action.
Speaker Change: Next supply chain optimization.
Speaker Change: We believe our unique China based supply chain is an area of competitive advantage, we've been honing for the past 21 years.
Speaker Change: It underpins our value proposition delivering the best combination of quality cost and speed in our industry.
Speaker Change: We're the only fair trade certified beauty company and are committed to our China team and suppliers.
Speaker Change: Given our growing global business, we've been diversifying our supply chain over the years well ahead of recent tariff news.
Speaker Change: Recall back in 2019, nearly 100% of our product was sourced in China.
Speaker Change: Today about 75% comes from China, and we expect this will come down further by the end of fiscal 'twenty six as we continue to work with our key suppliers to setup additional operations outside the country.
Speaker Change: Additionally, we are pursuing cost savings and supplier concessions.
Speaker Change: Lastly on business diversification.
Speaker Change: Our international sales, which are not currently subject to tariffs continue to be the fastest growing part of our business we.
Speaker Change: We grew our international net sales, 60% fiscal 'twenty five.
Speaker Change: Six years ago, we sold $28 million internationally or about 10% of our sales.
Speaker Change: Today, we sell $250 million internationally, representing nearly 20% of our sales.
Speaker Change: We expect that mix to continue to grow as we aim to gain share in existing markets and expand into new markets.
Speaker Change: To that end, we're excited to launch <unk>. This month in over 200 stores with crowd that the number one beauty retailer in the Netherlands, and Belgium further expanding our presence in these countries.
Speaker Change: Over the coming months, we'll also be launching else into 1000 stores with ROSSMANN in Poland, Our first entry into that country.
Speaker Change: This builds upon our successful partnership with ROSSMANN in Germany.
Speaker Change: We're continuing to lean into our value proposition powerhouse innovation and disruptive marketing engine to drive category, leading growth and market share gains.
Speaker Change: Looking to our value proposition the average price point for L. A is about 6050 <unk> today as compared to nearly $9.50 for legacy mass cosmetics brands and over $20 for prestige brands.
Speaker Change: As we look ahead, we expect many brands to take pricing in response to tariffs and macro environmental pressures further accentuating our core value proposition.
Speaker Change: From an innovation standpoint, we're excited about our latest product launch our glo revivor melting lip balms.
Speaker Change: Priced at an incredible value of $9 compared to a prestige item at $24.
Speaker Change: Based on requests from our community we accelerated this launch to April from the fall and are pleased with the response, we've seen health.
Speaker Change: Health has new lip balms and I have a lot of thought to pigment looks in say if this is giving inclusivity did we need one more lip balm situation in the market, probably not but what else gives you a nine dollar lip balm situation and is so spicy about it we have to review it and they're like were cheaper we are better.
Speaker Change: Live with it.
Speaker Change: Global Revival lip balm is one of the top selling products in recent weeks on both Alf cosmetics dot com and with our largest global retail partners.
Speaker Change: As we look ahead, we feel great about the pipeline of innovation, we have coming in the fall.
Speaker Change: We're also leaning into our ability to entertain and engage consumers to fuel our core product launches.
Speaker Change: For example, our latest many trick Pony campaign is a moment to spotlight halo glow liquid filter.
Speaker Change: This is our third largest product family driving our 63% share of the highlighter category. The Genesis of the campaign is rooted in community insights on the many ways they use halo grill.
Speaker Change: This multitasking product is the definition of a workhorse.
Glenn: Hello, Glenn liquid filter isn't just a one trick pony it can be used alone and their foundation or as a highlight and all.
Speaker Change: All in one affordable cruelty free product excuse me.
Speaker Change: Okay. The term one trick pony is actually very offensive just because josh over their only knows one track.
Speaker Change: Doesn't mean, we're all like that I actually know a lot of tracks I can do this.
Speaker Change: Ah I can do impressions.
Mom: That was my mom.
Mom: Although I do magic.
Mom: Stephen Hart.
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: Our halo glow not just a one trick pony Hank just talked about that.
Speaker Change: Our halo glow and many check Tony correct or am I, the multi talented smartphone horse health Halo glow and more play talented small bone horse.
Speaker Change: Thanks.
Speaker Change: Within its first few weeks the campaign is fueling Halo cool franchise momentum delivering an 80% boost in organic traffic and double digit lift in sales of both Halo go liquid filter and Halo glow beauty ones on F cosmetics Dot com.
Speaker Change: We've delivered strong growth over the past 25 quarters by continuing to leverage our many areas of competitive advantage.
Speaker Change: Our passionate team of owners and high performance team culture Val.
Speaker Change: Value proposition.
Speaker Change: Powerhouse innovation.
Speaker Change: Disruptive marketing engine and productivity model.
Speaker Change: These areas of advantage have propelled consistent growth, enabling us to strengthen our market share in both stable and uncertain macroeconomic environment.
Speaker Change: As we look ahead, we remain confident in our ability to continue to gain market share and capture the significant white space ahead of us, which we believe has further accelerated with our acquisition of road.
Speaker Change: I'll now turn the call over to Mandy to talk more about our fourth quarter results and our approach to fiscal 'twenty six.
Mandy Fields: During Q4 net sales grew 4% year over year on top of 71% growth in Q4 of last year.
Speaker Change: We experienced growth across both digital and retail channels.
Speaker Change: Looking to our geographical regions, our net sales in the U S grew 1% year over year in Q4, while international sales grew 19%.
Speaker Change: Higher unit volume contributed approximately eight points to growth in Q4, which was partially offset by a four point decline from price and product mix.
Speaker Change: Q4 gross margin of 71% was up approximately 50 basis points compared to prior year.
Speaker Change: Gross margin benefits were primarily driven by favorable foreign exchange impacts on goods purchased from China, and lower transportation costs.
Speaker Change: On an adjusted basis SG&A as a percentage of sales was 52% in Q4 as compared to 61% in Q4 last year.
Speaker Change: The primary driver of that year over year decline with our plan for a more normalized rate of marketing and digital investment throughout the year.
Speaker Change: Marketing and digital investments for the quarter was 23% of net sales in line with our expectations and as compared to 34% last year.
Speaker Change: Q4, adjusted EBITDA was $81 million up 99% versus last year.
Speaker Change: Adjusted net income was $45 million or 78 cents per diluted share compared to $31 million or 53 cents per diluted share a year ago.
Speaker Change: The increase across profitability metrics was driven by our net sales growth gross margin expansion and leverage in our marketing and digital spend.
Speaker Change: Now, let's turn to our full year results.
Speaker Change: In fiscal 'twenty five we grew net sales, 28% adjusted EBITDA by 26% and increased our U S market share by 190 basis points.
Speaker Change: We achieved new market share highs and U S mass cosmetics and skincare, while thoughtfully continuing our international expansion strategy.
Speaker Change: Moving to the balance sheet and cash flow.
Speaker Change: Our balance sheet remains strong and we believe positions us well to execute our long term growth plans. We ended the year with $149 million in cash on hand, compared to a cash balance of $108 million a year ago.
Speaker Change: I'm also pleased with the approximately $115 million in free cash flow, we generated in fiscal 'twenty five.
Speaker Change: From $62 million a year ago.
Speaker Change: Our liquidity position remained strong in.
Speaker Change: In March we refinanced our credit facility and to a $500 million revolver to give us greater flexibility and improved terms.
Speaker Change: We ended the year with less than one times leverage in terms of net debt to adjusted EBITDA and availability on our revolver of approximately $243 million.
Terrain: Now, let's turn to fiscal 'twenty six as terrain discussed there are a broad range of potential tariff outcomes balancing all factors. We don't believe it's prudent to provide an outlook and then have to adjusted if tariffs were to move from where they are today.
Terrain: As a result, we are not providing an initial full year fiscal 'twenty six outlook.
Terrain: With that said I'd like to provide some color on how we're approaching the year.
Terrain: Starting with the top line as we look ahead, we remain focused on share gains in the U S and expanding our business internationally and we continue to make progress in each.
Terrain: Looking at Q1 to date, we are seeing our consumption trends better than what we saw in Q4 and continuing to trend well ahead of the category.
Terrain: In the month of April we were the only top five cosmetics brand to post growth with allocating an additional 130 basis points of market share in the U S.
Terrain: Turning to gross margin, we expect gross margin benefits from price increases cost savings and supplier concessions to be offset by the incremental tariff costs shrink spoke about.
Terrain: Given the timing of our inventory turns some of that tariff headwind will start to impact our gross margin in Q1.
Terrain: Turning to SG&A.
Terrain: We continue to invest in our high ROI marketing initiatives.
Terrain: <unk> and infrastructure to support the significant white space, we see ahead.
Terrain: We plan to maintain marketing and digital spend at approximately 24% to 26% of net sales in fiscal 'twenty six.
Terrain: In line with the range, we targeted in fiscal 'twenty five looking to non marketing SG&A, we expect to see dollar growth on a year over year basis, primarily as we annualize the investments we made in our team and infrastructure last year.
Terrain: <unk> rollout and continue our international expansion.
drain: I'll now turn it back to drain to talk about today's exciting announcement.
Speaker Change: Thank you Mandy and health beauty, our vision is to be a different kind of company by building brands that disrupt norms shape culture and connect communities through positivity inclusivity and accessibility, we disrupted the beauty industry from our inception in 2000 and for selling premium cosmetics.
drain: For one dollar over the Internet.
drain: And democratizing access to the best of beauty for millions of consumers, we've been disrupting and driving industry, leading growth for 21 years in service to our growing communities around the world.
drain: We have a very high bar for M&A, given the strong organic growth, we've been able to deliver and only act when we find a win win force multiplier or acquisition of Vittorio <unk> in 2023 double down on the white space, we see in skincare and brought US a vision of founder Susan Euro bring.
drain: Bringing the signs of consistent skincare.
drain: To everyone everywhere every day.
drain: We kept <unk> entire team and leverage each company's strengths to further accelerate the combined business near term leverage F beauty's capabilities to expand into Ulta beauty in the U S shoppers drug Mart in Canada and boots in the UK.
drain: And in turn we benefited from the expanded expertise and skincare to further accelerate L skin fiscal 'twenty five was one of the strongest growth years ever for both notorious and they'll skin.
drain: We believe the acquisition of road is a unique opportunity to bring together two like minded Disruptors, who are best in class at delivering high quality innovation to highly engaged communities.
drain: The unique partnership accelerates our collective potential to transform the beauty industry.
Speaker Change: Founder Haley Road Bieber, our fellow ball disruptor saw clear white space opportunity to bring a lifestyle approach to beauty.
Speaker Change: I've been in the consumer space 34 years and had been blown away by what Haley and her team are building.
Speaker Change: In just under three years since its founding.
Speaker Change: <unk> seen exceptional growth.
Speaker Change: <unk> $212 million of net sales in the last 12 months.
Speaker Change: <unk> only with just 10 products.
Speaker Change: Road unique fashion for aesthetic and lifestyle approach to beauty has driven success and scale across multiple product categories cosmetics skincare and accessories.
Speaker Change: Road has a powerful engagement model that has cultivated an incredibly enthusiastic and vocal community of brand champions the type of firm and community engagement that people will camp out overnight and stand in line for 14 hours at a pop up event in L. A.
Speaker Change: Not just a byproduct but to buy into the brand lifestyle.
Speaker Change: The brand ranks number one in earned media value amongst skincare peers with less than 1% of road social media content being sponsored.
Speaker Change: The strength of this brand caught our attention and the attention of the world's leading global beauty retailer Sephora.
Speaker Change: Basically almost every beauty brand and are a destination of choice for many top brands.
Speaker Change: So for a standard approach is to test the brand in a subset of stores before scaling.
Speaker Change: Given roads breakthrough DTC success, and so for his belief in the potential of the brand road is planned to launch and also for stores across the U S and Canada. This fall and in the U K by the end of the year.
Speaker Change: So for us he's haley well beyond our celebrity status.
Speaker Change: <unk> is a thoughtful founder with a unique vision incredible instinct and desirable aesthetic.
Speaker Change: Our time getting to know Haley affirms this.
Speaker Change: As we look ahead, we see massive runway for growth and are excited to partner together with wrote to bring the brand to more phases places and spaces.
Speaker Change: We see potential to leverage our mutual strengths.
Speaker Change: Both elephant road are known for their strong digital community engagement.
Speaker Change: We look forward to enhancing this strength by helping to accelerate roads brand awareness for.
Speaker Change: For context roads, the aided awareness is 20% today in the U S, which is impressive for a brand this young and.
Speaker Change: And it's half the level of other premium skincare brands, which averaged 40% or more awareness.
Speaker Change: Looking outside the U S International drives nearly 20% of roads DTC sales, while 74% of the brand's social followers are from international markets.
Speaker Change: There is significant pent up global appetite for this brand.
Speaker Change: We plan to invest in marketing and fuel their disruptive marketing engine to further roads brand awareness and further build its community of loyalists.
Speaker Change: We also plan to leverage our expertise.
Speaker Change: And help road further move into retail distribution.
Speaker Change: We have deep relationships with Sephora as top management and are excited to accelerate F. Beauty's global presence with Sephora building upon the successful partnership we've had since launching Elf and Sephora, Mexico last year.
Speaker Change: Lastly, we see potential to provide road with opportunities to broaden its product assortment and innovation in the skincare and hybrid makeup categories and expand into new adjacent categories in the future Haley's instincts have proven to breakthrough the most crowded categories and we look forward to supporting her and the team.
Speaker Change: <unk> at each lifestyle stage.
Speaker Change: I want to close by extending a special thank you to the health beauty and road teams.
Speaker Change: Each or success of the power of our teams.
Speaker Change: On the roadside haley's a visionary in her unique perspective, tenacity and passion to reinvent beauty come through in every aspect of the business.
Speaker Change: She surrounded yourself with an exceptional team to bring the vision of road to life for millions of consumers further fueling fandom.
Speaker Change: In addition to Hailey, we intend to retain co founders, Michael and Lorne Ratner.
Speaker Change: Experienced CEO, Nick flowers and their passionate team.
Speaker Change: We plan to continue to operate road from its headquarters in Los Angeles, and build that team further to realize the global opportunity we both see.
Speaker Change: This approach will also allow the elf beauty team to remain focused on the significant white space. We see ahead for our existing brands.
Speaker Change: We're confident our combined companies have a bright future ahead of us.
Speaker Change: We look forward to partnering with road to continue to disrupt the industry and further our vision to create a different kind of company.
Speaker Change: I'll now turn the call over to Mandy to talk about the financial details of the transaction.
Speaker Change: Terrain I'll start with valuation.
Speaker Change: The billion dollar headline price breaks out into two components the upfront purchase price of $800 million clothing represent approximately three eight times roads latest 12 months net sales, which compares favorably to precedent transactions in beauty.
Speaker Change: The transaction also includes additional potential earn out consideration of $200 million based on the future growth of the brand over a three year time frame.
Speaker Change: We expect to finance the transaction using fully committed debt financing of approximately $600 million as well as $200 million or approximately $2 6 million shares of newly issued shares of <unk> common stock issued directly to the equity holders of road.
Speaker Change: We expect our liquidity position to remain strong with relatively low leverage post the transaction.
Speaker Change: The transaction, which is subject to customary closing conditions is expected to close in our second quarter of fiscal 2026.
Speaker Change: Turning to roads financials.
Speaker Change: In the last 12 months road generated $212 million in net sales and very strong profitability levels. We expect the addition of road to be accretive to our top line growth adjusted EBITDA margins and earnings given the expected timing of the transaction close we expect ROE to contribute to.
Speaker Change: Our results starting in our fiscal Q2.
Speaker Change: When we have more certainty on the tariff front, we plan to issue guidance inclusive of roads contribution.
Speaker Change: In summary, we're excited to welcome wrote to the F beauty family.
Speaker Change: We have remained highly disciplined in assessing M&A and looking for opportunities that can leverage our strengths and bring complementary capabilities to els.
Speaker Change: Finding a brand that has achieved this unique combination of disruption curation scale and profitability is rare and.
Speaker Change: And we are equally excited about the global opportunity, we still see ahead.
Speaker Change: With this acquisition, we are further diversifying L beauty with a distinct yet complementary brand that we expect to be accretive to both our growth profile and earnings.
Speaker Change: With that operator, you may open the call to questions.
Speaker Change: And your first question today will come from Olivia Tong with Raymond James. Please go ahead.
Olivia Tong: Great. Thanks, good afternoon.
Speaker Change: A couple of questions here first just on the quarter, realizing that you're not giving a fiscal 'twenty six outlook, but it.
Speaker Change: Sounds like for June quarter at least you are still working off of pre tariff inventory. So is there anything you can tell us about performance I mean, you've got two quarters in the books at this point so that would be helpful. You also talk about performance across a number of channels, but Didnt mentioned dollar general. So just wanted to see how that was going and then in terms of growth.
Speaker Change: If you could just talk about your thought process in terms of further expansion and whether it will be run independently or integrated into the health business. Thanks, So much.
Speaker Change: Hi, Olivia I'll take the question on kind of Q1 and any additional color there.
Speaker Change: As you said, we're not giving guidance at this time and really that's rooted and until we get more certainty from a tariff perspective, just given such a wide range of outcomes on that front.
Speaker Change: I can tell you we feel great about our business as we are in Q1 as we noted on the call. We continue to build share even into this quarter and we.
Speaker Change: We'll be cycling some.
Speaker Change: Our space expansion and Walmart the launch are the net trillium in Ulta beauty and some outsized growth from an international perspective in Q1, but overall, we're feeling great about where we are.
Speaker Change: And then Olivier you had a question on dollar general is well that continues to go extremely well well well above their expectations. We're building a ton of share and we're really pleased with how it's doing.
Speaker Change: Particularly serving the underserved rural areas that didn't have access.
Speaker Change: To help before so we are feeling great about that and then switching gears to road.
Speaker Change: I can't tell you how excited we are with the acquisition of road. If you take a look at Ulta beauty. We just finished our 25th consecutive quarter of.
Speaker Change: Net sales and market share growth.
Speaker Change: <unk> is on fire and we're further feeling about fire with the acquisition of road road is going to continue to be run out of Los Angeles. They have an incredible team with Haley our co founders Michael Ratner, born Ratner and experienced CEO net flows and so we'll continue to run that team our loss Angeles both supplement.
Speaker Change: The team and particularly increase the level of hiring to go after the global expansion opportunities that we see the near term priority will be really to execute with excellence to support our rollout. It's a massive rollout at sephora in all U S stores and Canadian doors, followed later this year.
Speaker Change: Rollout into so for the UK as well and so we'll be looking to help the team really make sure that that's an awesome launch I can tell you before I couldn't be happier or more excited being able to get road. That's an incredible brand I mean being able to go from zero to $212 million of net sales direct to consumer only with only.
Speaker Change: <unk> products I don't think any of us have seen anything like it so extremely excited and you'll continue to hear news in terms of particularly once it closes in terms of our future expansion plans.
Speaker Change: And your next question today will come from Dara <unk> with Morgan Stanley. Please go ahead.
Speaker Change: Hey, guys.
Speaker Change: So maybe just wanted to follow up obviously, you're not giving guidance for fiscal 'twenty six.
Speaker Change: But just given we're two months into fiscal Q1 any additional perspective your answers Olivia were helpful. But.
Speaker Change: Q1 revenue is probably not as impacted by tariffs at this point. So was just hoping for any more detail there and perhaps also keeping the comp issue you mentioned in the U S. Could you talk about your U S topline growth potential relative to the scanner data and then on the road acquisition drag obviously are very excited by the growth.
Speaker Change: Two of these here can you also just discuss organizationally the key incremental capabilities that <unk> can bring to the brand.
Speaker Change: Just vice versa. What you think growth can bring to your organization and how you think about the biggest potential opportunities on that front. Thanks.
Speaker Change: Right. So I did provide some color there dara on.
Speaker Change: Q1 top line like I said, we feel great about what we're seeing from a consumption standpoint, and we will be cycling those items I already noted.
Speaker Change: We go through so feeling great about Q1 overall now one thing that we did note on the call is that the impact of tariffs will start to hit us in Q1, and so that's something to be mindful of as you all think about how you're modeling.
Speaker Change: Profitability for the quarter.
Speaker Change: Hi, Dara in terms of your question on road from an organizational capability standpoint, we've always had built up a set of capabilities across marketing innovation. Our retail approach that we can apply to road more specifically.
Speaker Change: We've made the switch in both both brands are digitally native brands and we've made the switch successfully a number of years ago in expanding into retail and so we'll be able to help road, particularly has expanded to sephora and then beyond that as they work to improve increase the global footprint of the brand.
Speaker Change: From a marketing standpoint, it's amazing what they've been able to do the engagement model they have again.
Speaker Change: Never seen anything like it where consumers are willing to camp out overnight.
Speaker Change: Stay in line 14 hours at a pop up event, not just a byproduct but to buy into the entire lifestyle and so it's very much reminiscent of tough type of community engagement we have.
Speaker Change: And leveraging that strength, but in addition, we see an opportunity to increase the awareness of road as I mentioned they are aided awareness is only 20% so our ability to invest more into the brand increased awareness and then third I would say from a peak.
Speaker Change: People standpoint, it's an incredible team, but it's a small teams our ability really across every function to be able to enhance that team and bring the capabilities. We successfully applied to L. Two road will be there so everything from retail to marketing to the overall team and expansion globally are things that we hoped to.
Speaker Change: Help them with and help realize haley's vision in terms of what we get in return.
Speaker Change: One of the most beautiful brands of ever seen that is on a rocket ship growth, we get to enhance our relationship and presence with sephora globally over time and to learn from each other I think every acquisition, we've done and if I take a look at what we got as in Detroit, which is a home run acquisition. We did just just in 2023.
Speaker Change: Brought us Susan Yaris vision in terms of the science behind consistent skincare.
Speaker Change: Everywhere for everyone and we've been able to help that business to both in terms of expanding distribution in terms of building out the team and being able to really leverage each other's strengths such that not only is <unk> growing really fast, but all skin just had its strongest growth here as well.
Speaker Change: And your next question today will come from Oliver Chen with TD Cowen. Please go ahead.
Speaker Change: Hi, This is John I'll follow that that's where it goes more of a question first question just on the domestic shelf space gains. Obviously, you have a bigger base allowed to work off of what sort of the right pace of growth in the U S in terms of booking.
Speaker Change: And then the second question around road is their proposal for cross selling between rodents and else given the younger consumers gravitate towards both brands is there any sort of.
Speaker Change: Couple of overlap.
Speaker Change: Exercise, you've done and what that could be synergistic across both brands. Thank you very much.
Speaker Change: Hi, John So I'll take the first question on domestic shelf space gains you know we're very.
Speaker Change: I'm pleased with the shelf space gains that we've gotten over this last year and as as we've talked usually we do have some expansion and so as we talked on the call. Today. We have launch. We're launching include crowds that are in Belgium, and the Netherlands. We are also we also talked about rosman, Poland from an international standpoint.
Speaker Change: And here in the U S. We just had the space expansion in target. This past spring that we're very pleased with and so there's still a lot of potential out there for us as we think about domestic shelf space expansion.
Speaker Change: We talked about Walmart.
Speaker Change: Last year getting that 50%.
Speaker Change: Self space increase still remains an opportunity for us are on the road ahead to continue to increase space, there as well really across all of our top retailers and so that's something you'll have to stay tuned for as we go through.
Speaker Change: And then in terms of your second question in terms of road and any consumer crossover I would say, both Els and road has exceptional engagement efforts with our communities and we both care deeply about each of our communities.
Speaker Change: As you know Els is the number one brand amongst teens I think our share of Gen. Gen. Gen. Z is three and a half times next highest brand were also the most purchase brand amongst Gen Alpha and millennials, we see a skew with road also to Gen Z and the younger consumers, but both brands have multi generational appeal you'll find.
Speaker Change: Really rich consumer set on those brands that we continue that will continue to build.
Speaker Change: And your next question today will come from Susan Anderson with Canaccord Genuity. Please go ahead.
Speaker Change: Hi, Good evening. Thanks for taking my question I guess, just a follow up really quick on the tariffs I think you said Randy that you'll start to feel the impact in the first quarter. I guess is that just some inventory that you can it kind of has built out because I think this whole year, you kind of built some inventory in the balance sheet. So just curious how long that's going to last.
Speaker Change: And then at what point and first quarter are you having to flow through new inventory, but additional tariff.
Speaker Change: And then I assume as the price increases go through in August the second quarter won't be impacted and then just one quick questions on <unk> I was curious if you had any new shelf space gains there for neytiri them or any international plans.
Speaker Change: Alright, hi, Susan so on on the tariff impact and why I'm, saying that it's going to start in Q1, we were mindful on the shipments that we brought in.
Speaker Change: You know from the April period, when the tariffs we're at that higher rate through may when they went to the lower rate, but we will.
Speaker Change: We're mindful about that it's really the product that we needed to ship out most immediately so we will feel some of that tariff impact in Q1 and to your point pricing will not be in effect. So that will not be a mitigating factor in Q1.
Olivia Tong: And then auditoriums and we didn't have anything new to share there, but as outside that it was a great year furniture him that we're very proud of and I'll, let <unk> add Olivia.
Olivia Tong: And I would say on the tree and we continue to make progress we feel extremely great about our performance and Ulta beauty both in the facial skincare as well as body sections. We did take nutrient expanded turns distributions at boots, and we're actually increasing the store count pretty significantly there as well, we'll continue to see us talk about.
Olivia Tong: Other expansion with maturing as well.
Speaker Change: And your next question today will come from Korean Wolf Meyer with Piper Sandler. Please go ahead.
Speaker Change: Hey, good afternoon. Thanks, so much for taking the question I want to touch a little bit on the pricing that you're planning here in August how should we be thinking about the incremental sales left that could come from that and what kind of elasticity you think that that can bring and then any context on why timing of August.
Speaker Change: That pricing and then also can you confirm I think the prepared remarks was across the entire portfolio and all geographies. So does that include all brands are just al. Thanks, So much.
Speaker Change: Hi, Corinne so yes pricing, we just announced our pricing moves last Friday, and it's been we as usual, we're transparent with our community and we posted that on our social channels and so the pricing that we're taking effective August 1st and why that's August 1st is because many of our retailers require a 90 day AR.
Speaker Change: Windows on any pricing moves and so that's why we've landed at August 1st.
Speaker Change: That's gonna be across all of our Skus globally. So every item within the elsewhere folio gone up a dollar we also had social posts croswell people naturally them as well and as well as Keystone care. So we will be across all of our brands, taking some form of pricing.
Speaker Change: We have you know as we think about it from a sales lift standpoint, we have incorporated as we look at it from our internal models. Some elasticity just given that this is a unique macro that we're operating in but what we've seen so far from community response has like a 99% positive sentiment on our pricing so I think more.
Speaker Change: To come post August and as we see how consumers react and the sales lift from pricing and then the only other thing I would add there is we think there is an opportunity for us to continue to build market share by taking our prices up just one dollar we still will have a superior value proposition, especially as we expect a lot of other people to take pricing. So it's a great opportunity.
Speaker Change: <unk> for us not only due to preserve the value for our community, but also continuing to drive market share.
Speaker Change: And your next question today will come from Andrea Teixeira with Jpmorgan. Please go ahead.
Speaker Change: Thank you operator, and good afternoon wherever they want it. So can you comment a little bit more about the most with since topline trends I understand many of you and you have to run to you. Both founded positive about the most recent trends, but we have been seeing I think all of us on this call the tracked channel.
Speaker Change: Consumption in April was now back to low to mid teens for the Alpha beauty.
Speaker Change: Side of the business.
Speaker Change: Is that I would just say reflective of the performance across all channels. That's the first question.
Speaker Change: And then on road.
Speaker Change: Can you comment factually on how much was the growth pace most recently.
Speaker Change: And then also how.
Speaker Change: Diversify they are into some other products some of them.
Speaker Change: Obviously very popular in viral just curiosity in terms of like the skincare side of the business against the color cosmetic side, how diversified they are and how obviously complementary they can be I guess, the health beauty legacy portfolio. Thank you.
Speaker Change: Alright, so andre thanks for the question on topline trends as I've said, we're very pleased with the consumption trends that we're seeing as we think about that from a net sales standpoint for the quarter calling.
Speaker Change: Calling out those three items again, we will be cycling that space expansion and Walmart the launch of mature them at Ulta beauty and outsized growth from an international standpoint, and so.
Speaker Change: I think with those pieces that you can kind of get to where we're where we're thinking from a Q1 standpoint, but again not providing guidance at this time.
Speaker Change: And then on your question on road, we're not disclosing the specific growth rate other than they went from zero to $212 million of net sales in three years. So it's a very fast growing brand.
Speaker Change: We have very high hopes as they expand into sephora as well in terms of the product assortment one of the things we really like about road is just how tight the product.
Speaker Change: Assortment is it's only 10 products across skincare color cosmetics, and accessories and you see power skus across their entire entire lineup just given how tight that ranges what are the things that we plan to do on one of the earlier questions on capabilities is we have an incredible innovation capability.
Speaker Change: Being able to really help Haley and the team advance their vision in terms of their lifestyle approach to beauty and other product categories that they can get into as well as broadening out some of the ranges here over time, we look forward to being able to help them with that as well.
Speaker Change: And your next question today will come from Ana <unk> with Bank of America. Please go ahead.
Ana: Hi, good afternoon. Thank you so much for the question.
Ana: I was wondering here with the acquisition of road do you see any potential for other brands or products you have to benefit from potentially added distribution in Sephora and then as we take a step back and look at the <unk> parent company now do you see the company, becoming more of a portfolio of bran.
Speaker Change: <unk> with maybe additional acquisitions over time, thank you.
Speaker Change: Hi, Ana in terms of road and Sephora, we already were making progress with Sephora I mentioned, we had one of their best launches ever last year with <unk> in Mexico, we've been in discussions with Sephora about other markets around the world that we could take the <unk>.
Speaker Change: Brandon This just accelerates our presence with sephora and even a bigger scale and certainly there are opportunities for other parts of our brand portfolio and Sephora just there as they are with every there isn't a retailer in the world right now that doesn't want elf or a portfolio of brands and so for us, it's really about making sure we're taking a disciplined sequential.
Speaker Change: Our approach with each retailer as we go go through and then maybe a broader question. We are a portfolio of brands one of the things that I'm really proud of is every one of our brands in our fiscal 'twenty five.
Speaker Change: Distinct yet complementary to each other and.
Speaker Change: And so we love what we have with our brand portfolio, especially with the addition of road.
Speaker Change: We really powerful overall portfolio that needs different consumer needs different segments, and we really like that in terms of future acquisitions I would say our primary focus is always going to be to realize the white space, we see for existing brand portfolio and a strong organic growth we see there our second priority to make sure we close and <unk>.
Speaker Change: Actually integrate in road, so I'd say those are our two.
Speaker Change: Main priorities right now is we just couldn't be more excited with what road is going to bring to health beauty and what we can do together.
Speaker Change: And your next question today will come from Peter Grom with UBS. Please go ahead.
Peter Grom: Thanks, operator, and good afternoon, everyone.
Speaker Change: So.
Speaker Change: And he will talk about the consumption performance. This.
Speaker Change: Quarter to date.
Speaker Change: Two questions.
Speaker Change: Look back kind of the slowdown that you saw.
Speaker Change: Back in kind of the January February timeframe.
Speaker Change: Do you feel like you have a better understanding today in terms of what ultimately drove that performance and then just as you think about the improvement we've seen over the past few weeks.
Speaker Change: I understand that there's going to be a gap between sales.
Speaker Change: And what we're seeing from a consumption perspective.
Speaker Change: Just as we think about the improvement what is driving that instead of a consumption and how sustainable is that.
Speaker Change: We look forward here.
Speaker Change: Yes.
Speaker Change: Yeah. So on your first part in terms of the slowdown that we saw.
Speaker Change: In the in the January kind of March quarter, we know exactly what happened there we were lapping by far our biggest product launch effort with our viral loop oils as well as some of the other innovation. We have we feel really good about the spring innovation about twice the rate of most years any other year the year before that was almost <unk> higher.
Speaker Change: So that really you are lapping a big innovation cycle as you go through in terms of the improved trends again youre seeing the impact of.
Speaker Change: Our overall marketing as well as innovation I talked about our melting lip balms.
Speaker Change: Is that a huge hit they were requested by our community and incredible value relative to prestige and feel really good about the innovation we have come in this fall too so really like what we're seeing on the business right now and like even more what we see coming.
Speaker Change: And your next question today will come from Ashley <unk> with Jefferies. Please go ahead.
Sidney: Hi, This is sidney on for Ashley. Thank you for taking our question.
Speaker Change: Just wondering if you can share anything more on what adjacent categories, you see opportunities and for road and.
Speaker Change: Then the Star candidate has showed math outperform prestige in Q1, just curious if youre seeing any trade down or if you can kind of speak to that trend and then just on the innovation pace. You. Just commented on do you plan to keep that kind of two times speed throughout the balance of the year. Thank you.
Speaker Change: In terms of adjacent categories, we haven't disclosed that yet we still don't own the business until it closes will be.
Speaker Change: Had plenty of conversations with Haley and her team about some of the categories, you're going to have to stay tuned for that but there's plenty of room with just 10 million products for them to continue to expand haley's vision and we look forward to helping her in terms of trade down and we don't we don't have a great way of seeing trade down as two different datasets between prestige and mass.
Speaker Change: What I can tell you is the secret of our success is less to do with trade down we're taking share it's more our ability to bring access to millions of consumers, who previously couldn't afford a particular segment and thats really what I think if I look back over a long arc of time that our biggest driver of really being able to bring more consumers into a particular set.
Speaker Change: Our franchise they previously didn't have access to.
Speaker Change: And then on the innovation I'm, sorry, I was just going to answer the last question on the pace of innovation.
Speaker Change: Turning his point, we feel great about our pace of innovation in fact, he talked about the melting lip balms, we launched our share for it and blush as well it's completely sold out on our F. Cosmetics dotcom. So we do have some really nice indicators that our fall innovation is resonating with our community.
Speaker Change: And your next question today will come from Mark all trigger with Baird. Please go ahead.
Mark Altricher: Good afternoon. Thank you for taking my question.
Mark Altricher: Just first with respect to the price increase that you announced what has been the feedback so far from our retail partners and just anything you're hearing that would suggest you you will see pressure on volumes and then on international you.
Mark Altricher: You talked about the factors affecting the first quarter, you noted cycling outsized growth in international.
Speaker Change: I guess the year over year growth rate on a percentage basis last year was pretty consistent in Q1 and Q2 the year over year growth on a dollar basis was pretty consistent really in the first three quarters of last year. So I guess I'm trying to I'm wondering if the comments youre, giving for the first quarter any reason to think why that wouldn't carry forward.
Speaker Change: For the next few quarters as we think about <unk>.
Speaker Change: <unk> International growth. Thank you.
Speaker Change: Yeah, Hey, Mark in terms of your first question on pricing.
Speaker Change: We've heard from our retail partners that a number of different people are going to be taking pricing I think they are bracing for it across a number of consumer categories. That's why we feel great about our approach in terms of just taking it up a dollar being transparent with our community as Randy said the response has been overwhelmingly positive, particularly.
Speaker Change: Our responsibility to make sure we're having superior value for our community.
Speaker Change: And so I'd say, so far no real pushback from a retailer standpoint, they understand and I think we're actually grateful that were not going all the way to the level that I think they would expect to take in so overall those conversations have gone well and I think we're going to we're going to come through it.
Speaker Change: We believe we are going to come through it well just given the approach.
Olivia Tong: And then on your question on International Mark you're right.
Olivia Tong: The outsized growth from an international perspective, certainly will carry through the first half of the year as we think about what we launched and a number of markets that we opened and things like that so I'm answering it in terms of Q1, because that's what folks have been asking about that but certainly it.
Speaker Change: May see that trend continue through the first half for sure.
Speaker Change: And I would say you know youre going to continue to hear us talk about additional new markets throughout the year crowds that were very excited about we already have the number one position with iqos in the Netherlands. This will further improve our position both in the Netherlands, and Belgium, particularly excited about our launch coming up in Poland.
Speaker Change: <unk> has a huge share of the Poland market and so given our success to Osman in Germany, you're going to see that now you'll continue to hear about other.
Speaker Change: Expansion markets throughout the year as we go through and so we'll take it one quarter at a time and update you on additional expansion.
Speaker Change: And your next question today will come from Bonnie Herzog with Goldman Sachs. Please go ahead.
Bonnie Herzog: Alright. Thank you hi, everyone actually wanted to go back to tariffs with a question you know I understand the situation is fluid there's a ton of uncertainty, but could you tell us in a worst case scenario. If you believe you can still generate earnings growth this fiscal year.
Bonnie Herzog: Could you talk about potential mitigation efforts and.
Bonnie Herzog: What you would consider doing in a worst case scenario I guess I assume you would need to take further pricing and then possibly shift production faster you know any other considerations.
Speaker Change: And then ultimately touring I guess I'd like to understand your priority to drive margins and earnings growth versus you know balancing market share and a potential worst case scenario. Thank you.
Bonnie Herzog: Hi, Bonnie so on tariffs there is a wide range of outcomes on the tariff front, which is why we did not provide guidance today.
Speaker Change: We have a mitigation playbook tariff playbook that we've talked about really consists of three things pricing supply chain optimization and business diversification of which we're making progress across all three of those.
Speaker Change: And because there are a wide range of outcomes, it's really that.
Speaker Change: Prudent for us not to just talk about a number of different scenarios, but really to focus on the one that we talked about on the call, which is the $50 million impact if tariffs were to stay at the 55% level now we know that the only in place for the next 90 days and so we are going to take it as it comes but until we have more certainty on that front really.
Speaker Change: Are not diving into more detail on the impacts of mitigation and what a worst case should be but rest assured we've run a number of scenarios behind the scenes.
Mandy Fields: And then in terms of your question on margins versus market share I think the beauty of else's. Then we've always had a very balanced plan with grain market share 25 consecutive quarters, we're confident of our ability to continue to gain market share and over the years. We've made good margin progress as Mandy said the range of outcomes are too broad to really spur.
Mandy Fields: You laid on overall margins at this time once we have greater resolution on it we'll be able to provide that in our guidance.
Speaker Change: And your next question today will come from <unk> <unk> with Oppenheimer. Please go ahead great.
Speaker Change: Afternoon, and thanks for taking my question. So just going back to the acquisition just curious on sourcing and then if you see any limitations or limited growth from a good policy perspective, and then just I guess just coming back to tariffs as well in your base case scenario do you believe is the pricing and other mitigation efforts.
Speaker Change: Totally offset at least I think the $50 million exposure you guys.
Speaker Change: Disclose just based on the current environment.
Speaker Change: Yeah. So first I'll take the first question in terms of road. They have an excellent supply base and that's been able to meet the demand. They see we feel confident about continue to meet that demand they have suppliers, both in Italy, and South Korea as I mentioned.
Speaker Change: With a ton of capacity. So we feel good about the plans, particularly as we prepare for sephora here. So.
Speaker Change: Don't see any concerns from an overall capacity standpoint, our ability to source, we feel highly confident we have a very good high quality.
Speaker Change: Those suppliers.
Speaker Change: And then from a tariff standpoint every patch we have not gone into the details on how much we're mitigating of that $50 million annualized impact again, when we have more certainty on the tariff front, we'll be back to you with what those impacts are.
Speaker Change: And your next question today will come from Jon Andersen with William Blair. Please go ahead.
Jon Andersen: Hey, good afternoon, everybody. Thanks for the questions I've got one for Mandy and one for touring maybe Mandy on the comments you made around gross margin.
Speaker Change: When you were giving some color around fiscal 'twenty six I think you mentioned that.
Speaker Change: Price and productivity will help offset.
Speaker Change: Tariff impact were you talking on a on a rate basis. So that we should expect kind of the legacy health beauty gross margins to be relatively flat year over year, and then if I could throw it in for train.
Speaker Change: I'm really curious as you kind of vetted.
Speaker Change: Road.
Speaker Change: How you got comfortable and the whole team got comfortable that.
Speaker Change: This is a brand with.
Speaker Change: Our lifestyle brand with the law.
Speaker Change: Long sustainable growth trajectory.
Speaker Change: Kind of a high.
Speaker Change: A high Flyer celebrity brand, but.
Speaker Change: It may be a little bit more faddish, just love to kind of understand your viewpoint on that then.
Speaker Change: Thanks, Bob.
Speaker Change: Hi, John So on gross margins actually are not giving any guidance on gross margin or gross profit from that matter.
Speaker Change: And and the impacts and mitigation efforts.
Speaker Change: We called out was the $50 million on an annualized basis and the impact of tariffs at at 55% level.
Speaker Change: We do have we have pricing as we talked about our mitigation efforts pricing cost savings concessions with our suppliers.
Speaker Change: When we get to a point, where we are and having more certainty from a tariff standpoint, we will be able to come back around with a gross margin impact.
Speaker Change: And then John in terms of the longevity of road and what gives us confidence I'd say there are a number of things first and foremost Haley hailey is well beyond our celebrity she's one of the most thoughtful Saunders I've ever met test right instincts are desirable aesthetic.
Speaker Change: <unk> and <unk>.
Speaker Change: So for us thoroughly impressed with everyone who is better the more time, we spent with there just how thoughtful she is in terms of the vision of that brand and where it can go.
Speaker Change: Gives us a lot of confidence.
Speaker Change: It's incredibly hard to scale the brand in our space.
Speaker Change: We cited this stat before Theyre 1900, cosmetics and skincare brand struck by Nielsen alone only 26 of them have more than $100 million in retail sales to be able to do $212 million DTC only in net sales is simply incredible and talks to the strength of the consumer conviction behind the brand and the third thing is.
Speaker Change: Quality of the products and the innovation our outstanding they are amongst the highest repeat rates of any brands any brand we've seen in the category across skincare color cosmetics et cetera. So there's real depth of consumer conviction in this brand it's still young so theres quite a few more consumers that we can attract to the.
Speaker Change: Brand.
Speaker Change: But the core metrics that we look at in terms of like what is the equity of the brand how does it resonate what's level of community engagement what is the quality of the products and how are they resonating what's the repeat rates here, we feel great about all of those things and see the brand for the long term and to help you with or without.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to touring I mean, chairman and CEO for any closing remarks.
Speaker Change: Well, thank you for joining us today I'm, so proud of the incredible team of beauty and it road for delivering another year of industry leading results.
Speaker Change: Definitely thrilled to welcome road to the <unk> family, we look forward to seeing some of you at some of our upcoming investor meetings and speaking to you in August when we'll discuss our first quarter results. Thank you and be well.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: That's fine.
Speaker Change: No I don't give a damn thing.
Speaker Change: Oh.
Speaker Change: Thanks, Matt.
Speaker Change: Thanks Betty.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: With me.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: No I didn't cry could you cry and for yourself.
Speaker Change: Got it.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Got it.
Speaker Change: Yeah.
Speaker Change: <unk>.
Speaker Change: That's not unusual.
Speaker Change: How about in November.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Maybe maybe.
Speaker Change: Okay.
Speaker Change: Danielle.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Okay.