Q1 2020 Earnings Call
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Greetings and welcome to L. Beauties first quarter fiscal 2020 earnings results. At this time all participants are in a listen only mode. A brief question answer session will follow the formal presentation. If anyone should require operator systems. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now turn the conference over to Willie Mcmenamin. Thank you. Please begin.
Good afternoon, everyone. Thank you for joining us today to discuss <unk> first quarter fiscal 2020 earnings results a copy of todays press release is available in the Investor really lesion section of El cosmetic Dot Com a recording of the call will also be available for 90 days on L. cosmetics Dot com.
As a reminder, this call contains forward looking statements that are based on management's beliefs and assumptions expectations estimates and projections. These statements, including those relating to the company's fiscal 2020 outlook are subject to known and unknown risks and uncertainties and therefore actual results may differ materially important factors that may cause actual results to differ from those expressed or implied by such forward. Looking statements are detailed in today's press release and the Companys SEC filings.
In addition, the company's presentation today includes information presented on a non-GAAP basis. We refer you to today's press release for a reconciliation of the differences between the non-GAAP presentation and the most directly comparable GAAP measures with me from management today are to rang, I mean, chairman and Chief Executive Officer, and Mandy fields, Senior Vice President and Chief Financial Officer with that I will turn the call over to touring.
Good afternoon, and thank you for joining us we're encouraged by our first quarter results with net sales of $60 million and adjusted EBITDA of 14, and a half million.
Excluding all stores net sales were up 7% versus year ago.
We're pleased with the initial progress we make on each of our strategic imperatives.
We're in the early days of our brand recharged and we like what we see so far.
In turn we are raising our fiscal 2020 guidance.
Let me update you on progress you've made during the quarter across each imperatives.
Our first two imperatives of driving demand in the brand and a major step up in digital are off to a fast start.
In June we launched our L. thing Amazing digital campaign, which showcases the unique attributes of the brand.
The digital assets support our mission to make the best of beauty accessible for every eye lip and face.
Since the campaign started impressions and video completion rates are double our initial goals.
These metrics indicate our message is resonating with consumers as they are choosing to watch our content to completion versus opting out.
Since January we've seen double digit improvements in our Google search and M.V. trends relative to a cosmetics category that saw soft trends and these measures.
Collectively these efforts drove share gains with Nielsen reporting else dollar share in the last 12 weeks of 4.3% up 50 basis points.
Our brand has been highly responsive to our marketing efforts and the lift in brand awareness is bringing new consumers to our retailers into l. cosmetics dot com.
For the quarter, our ecommerce site saw double digit increases in traffic conversion and revenue growth versus last year.
In addition to bringing more people to the brand we are transforming the l. consumer journey through digital technology.
This will enable a better consumer experience, including a revamp beauty squad loyalty program.
Beauty squad, which has 1.3 million members now features receipt scanning, allowing members to earn points for in store purchases made at national retailers, such as Walmart target Ulta beauty and drug stores.
This along with other technology enhancements will allow us to connect our consumer data to enable better personalization.
In the first quarter, we continue to ramp up our targeted outreach to influencers with box mailings and launch events featuring hero products like our New limited edition Jelly pop collection.
The jelly pop launch was supported with 500 Influencer is receiving a custom many else jelly pop refrigerator to keep this playful collection cool during the hot summer months.
Meg Influencers posted positive reviews and content to over $58 million of their combined followers on Instagram.
Jelly pop engagement on Instagram has been seven times greater than our average posts.
In addition to influence our outreach we have a steady calendar of monthly giveaways and collaborations supported with new digital content.
All of this has helped grow our Instagram followers to over $4.7 million.
We are leveraging our unique combination of cost quality and speed to drive our third imperative.
Our focus on first to mass by providing prestige quality products at an extraordinary value.
We are focused on supporting our hero products like Corliss, Putty primer, which the UK daily Mail recently called the best primer ever.
In June Paul as party primer was the number one l. vitamin target Alta Walmart and L. cosmetics Dot com.
We're also leveraging the strength of our 16 hour Camel Concealer, which compares favorably to the leading concealer in prestige.
We launched new camera displays and 1500, Walmart doors, and camel, plus L. sponge flex towers in 1500 target locations.
We continue to amplify these products to our digital marketing to truly make this a 360 degree activation.
Our fourth imperative improving productivity at national retailers is on track with Phase One project Unicorn complete across our largest national retail partners.
During the quarter, we saw improvements in productivity within our track channels, which include target and Walmart as well as our untracked channels such as Delta.
With the packaging and merchandising enhancements from Unicorn, we've seen growth across product segments.
Phase two of project Unicorn, which mostly covers brushes starts this month in all channels.
Phase three of Unicorn is planned for the spring 2020 sets, we will introduce more new items and better visual merchandising across retailers.
Our fifth strategic imperative is generating cost savings to help offset our increased marketing spend.
As a reminder, our most significant initiatives was closing our 22 l. stores in February .
We expect to redeploy the $13.7 million in savings from this to our marketing and digital initiatives.
In addition, we started our Ontario, California distribution center automation and expects to be fully running by the end of September .
Our us liquid filled facility is on schedule and expect to be operational by the end of the fiscal year.
We also continue to strengthen our China operations using lean manufacturing techniques.
Combined we expect these supply chain efforts to provide around $3 million in cost savings this year.
With that update I will now turn the call over to Mandy discuss our results and guidance in more detail.
Thank you terrain.
I will now discuss the results for the first quarter fiscal 2020 as compared to the three months ended June Thirtyth 2018.
Net sales of $60 million were up 7% from year ago, excluding El stores, driven by increased productivity across key retailers and strength on Alf cosmetics dotcom.
As terrain discussed we are pleased with the progress of our strategic imperatives. The sales momentum were seeing behind our marketing and digital investments and the continued success of project Unicorn.
Gross margin of 62% was flat to prior year with margin accretive innovation vendor concessions and favorable foreign exchange rates offsetting the impact of 10% tariffs on Chinese goods and the closure of our retail stores.
Note that in Q1, our gross margins were not yet impacted by tariffs at the 25% level, which cover most of our goods.
On August Onest additional tariffs of 10% were announced effective September onest, which would impact our brushes and tool.
We expect to offset the margin rate impact of tariffs through selective price increases.
FX and cost savings initiatives.
On an adjusted basis SDMA as a percentage of sales was 47% compared to 49% of net sales in the same period of 2018, mainly driven by cost savings from the closure of our 22 Alfs stores, partially offset by increased investment in our marketing and digital initiatives.
As discussed last quarter, we expect marketing plus e-commerce spend to be 10% to 12% of net sales on a year.
In Q1, marketing and ecommerce spend was 11% of net sales compared to 6% in the year ago quarter.
Adjusted EBITDA was up 12% at 14, and a half million versus $13 million a year ago.
Adjusted net income was $6.9 million or 14 cents per diluted share compared to six and a half million or 13 cents per diluted share a year ago.
We generated $12.9 million of cash flow from operations in the quarter, bringing our cash balance to 60.7 million as of June Thirtyth 2019.
Compared to a cash balance of $17.4 million last year.
The improvement was primarily driven by disciplined working capital management across inventory and receivables coupled with improved operating results.
Last quarter, we announced a share repurchase program of up to $25 million and Q1, we repurchased approximately 90000 shares.
As we evaluate our excess cash position our capital allocation strategy remains unchanged.
We plan to prioritize investment behind our key strategic initiatives to increase consumer awareness and build brand relevancy.
We will also continue to evaluate strategic extensions to leverage the investments we've made in our platform and to fuel long term growth.
We believe we are well positioned to fund our initiatives through free cash flow and return excess cash to shareholders through our repurchase program.
Now turning to our fiscal 2020 guidance.
Based on our strong Q1 results and initial progress from our marketing and digital investments, we are raising our fiscal 2020 outlook.
We expect net sales to be flat to down 4% versus fiscal 2019, excluding the impact of Elk stores.
This is up from the negative four to negative 8% range previously guided.
From that closed the upward revision to our adjusted EBITDA net income and EPS ranges.
We expect adjusted EBITDA between 47 and $50 million.
Adjusted net income between 19 and $22 million.
And adjusted EPS of 37 to 41 cents per share on a fully diluted basis with a share count of 52 and a half million.
Many of you are monitoring tracked channel data very closely and are encouraged by our recent trends.
Our improved topline guidance balances the strength with recent price increases and lower pipeline and seasonal shipments.
Let me provide some perspective on this.
In late July for the first time in else history, we initiated a price increase impacting approximately a third of our skews to help mitigate the impact of 25% care.
We have yet to see how this will affect our volume in the long term and should have a better understanding coming out of the second quarter. When we have more elasticity data.
Additionally, in Q2, and Q3 of fiscal 2020, we will be cycling $10 million and pipeline and seasonal volume from 2018 that we do not anticipate having this year.
Therefore, while we are encouraged with the recent strength in the business. We are taking a balanced approach to the outlook.
As I round out my first full quarter with the company I can't tell you how proud I am to be a part of the amazing team behind this extraordinary brand I look forward to updating you on our continued progress in the coming quarters.
With that operator, you may open the call to questions.
Thank you.
Well now be conducting a question and answer session.
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And one moment, please only poll for questions.
Thank you. Our first question comes from the line of Steph with Nick with Jefferies. Please proceed.
Thanks, Good afternoon, everyone man to this question is for you if I look at the first quarter and I annualize your EBITDA run rate. It would put the number closer to kind of 58 million versus your guidance, which at the midpoint about $48 million. So could you just help us bridge that $10 million of whether its conservativism or some spending that you haven't done that you plan to do how should we think about the delta versus the run rate.
And then if I could just throw one in for you as well just contextually.
If we look at tracked channel data and we look at what your guidance would imply how comfortable are you that you'll have enough inventory in the channel to keep the momentum going with respect to takeaway and consumption. Thank you.
All right. So I'll take the first part of that question. So when looking at Q1, if we really have some goodness from the store closures and marketing as we had said previously those too.
For the year will offset one another we didnt quite get to that 12% level in Q1 with marketing. So I would say that would be a piece that you'd have to peel back if you're trying to run rate some things forward. Additionally, our margin rate if you recall.
With the closure of our stores, we said that our margin rate on a year will naturally be about a 100 basis points lower will impact. This quarter, we had margin rate flat to last year. So we were able to recoup some gains through FX and they add vendor concessions and things like that.
That helped to keep margin rate in line. So I would say as you go back into your model I would still say the 100 basis points from the store closure you should keep in there that as a downside on the margin rate.
And then also I would say that on the year, we do plan to spend closer to that 12% on the marketing just given the early success that we've seen.
Okay and then on your second question Steph, we are pleased with the strength that we're seeing in tracked channel data and picking up share and are very comfortable in terms of our ability to have enough inventory to meet demand I think we've always had an approach where we carry enough inventory and have enough of a planning horizon, where we can bring that inventory and our customers are very efficient in that manner as well. So we feel good right now in terms of our ability to continue to see demand.
Thank you.
Thank you. Our next question comes from a lot of Oliver Chen with Cowen and company. Please proceed.
Hi, Thank you regarding price increases your what was your approach to just turn to optimize the third in the Skus that you.
Pick then what are your thoughts in terms of how.
Price increases may enter play with the level of in stocks that you have and how satisfied are you with in stock levels.
Has that also relates to project Unicorn would love your thoughts.
Sure Hi, Oliver this is trying so our approach on pricing was really go SKU by SKU and really analyze each skew to see kind of where.
Well your competitive set manufactured and who else might face pricing pressure. In addition to taking a look at where do we have the best value equation. So we really took a pretty and we've had a long time kind of to look at this.
Robust approach of kind of going by each SKU in saying, where do we have to make the most room and we took pricing on those skews.
In terms of the in stock levels I feel pretty good about kind of where we're trending so far this year in terms of our ability to meet in stock certainly pricing will result in average unit retails going up offset by.
By units and so I wouldn't expect it to have a major impact on in stock levels. I think those will stay healthy and then the last thing I'll tell you is.
It's a balanced approach. So we did we're not pricing fully to the tariffs mainly because we also have FX as well as the cost savings that we outlined.
On our call in terms of being able to balance that approach. So not all of it is pass through.
Okay, and just a follow up regarding beauty squad. It was interesting in terms of your thoughts about making tweaks to that program as well as.
Capturing more data from the wholesale purchases through the merger partners. So what do you what kind of changes needed to be made and where do you see that program heading to drive.
More engagement et cetera.
Yes. It is trying again, we've been really pleased with beauty squad I mean, the 1.3 million members. We have I think we've shared previously come to our site more often spend more.
And our more loyal to the brand and so being able to enhance that program and kind of go from kind of a points and dollar system that many of our members wanted as well as the ability to connect their purchases. We believe really takes us to a new level on beauty squad and.
We will look forward to continuing you tell you kind of how we're able to better personalize their consumer experience and and share perhaps more stats in terms of what it's doing for us, but it is a pretty big milestone in our loyalty program and one that we're very excited about given our presence in large national retailers as well as our key sites.
Thank you best regards.
Thank you.
Our next question comes from the line of Bill Chappell with Suntrust Robinson Humphrey. Please proceed.
Thanks, Good afternoon.
Good afternoon.
Thank you can you give us a sense aware project Unicorn is I mean do you feel like we're seeing.
50%, 75% of the benefits is that we are there meaningful chunks of stores still to kind of convert and are you planning on doing that in the back half of the year.
Hi, Bill, Yes, we feel great about project Unicorn, and where we stand. So project Unicorn is our major shelf packaging and product initiatives that has multiple phases. So the first phase has been executed with the majority of our volume at National retail customers, where we were able to get new items that are packaging better navigation, particularly to our market leading segments. We feel good about that and we're obviously seeing that is track numbers that you're able to track.
On phase two which is currently being implemented were applying.
Project Unicorn to our brush and tools business, which is a pretty big segment for us.
And then phase three really impacts the spring of 2020 sets will will get even more new products on and continue to make enhancements to our visual merchandising approach, particularly in regards of making sure consumers are able to find our key product that are first amassed products. So maybe you're going to continue to hear us talk about unicorn for quite some time, mainly because of the results we're seeing in the market.
Got it and then maybe just.
The Chinese one obviously is.
John favorable even more and more so in the past couple of weeks Didnt know, what you're expecting or whats your modeling in terms of how it affects your cost of goods sold for the remainder of the year.
Yes so.
You're right it has had some.
Upside there and now we're using that as an offset to the tariffs.
And so that's a part of our whole tool kit to help us offset the tariffs.
Got it but <unk>.
I mean, if you put the price increases through before some of this move so.
I could maybe read that it's a little bit of a benefit or cushion.
No because when we implemented the price increases before that additional 10% came out on brushes and tools. So I would say that we're all we're using it as a part of our tool kit and as we address tariffs.
Got it thank you.
Thank you.
Our next question comes from the line of Andrea Teixeira with JP Morgan. Please proceed.
Hi, Thank you. So if you can just elaborate a little bit more on the 2020 guide.
I guess in history Youve raised your guidance with no additional shelf for a non traditional display. So was wondering if that's the same practice you're embedding here.
And in particular for the new I understand there's obviously puts and takes on the timing of of project Unicorn and some of these innovation, but the parlous primer and jelly pop as you called out in the prepared remarks.
So it seems to me this is too conservative hearing me, assuming some of the less to fit them into disco. So I was wondering if you can.
Elaborate more on pack US you know the the guide and also if you're going to squeeze a little bit of the international trends. If you can tell us. Thank you.
Hi, Andrea Okay. So I'll go ahead and take the first part of that and now pass it to trying to top the international piece. So in terms of if the guy this.
Conservative or not so I would say that.
So.
Oh My original guidance was down four to down eight last quarter. When we came out and had our call and from that we've taken it up to flat to down for us. So certainly reflecting some of the momentum that we're seeing in the business.
But as I think about the price increases that we've just taken and we do need time to see how that plays out and how that impacts volume. So we're taking a balanced approach.
With the guidance I, what I would call it more balance than I would.
Conservative.
And no shelf space increases right no.
Additional shelf.
No shelf space other than what we've already previously disclosed in terms of we have been picking up space at Alta in a subset of their doors, we have been rolling out the brand in Walgreens and boots in the UK and so just those are the two things that we've previously disclosed we're right now in this time of year in conversations with our retailers for what 2020.
The calendar 2020 shelf sets look like and we usually talk about that on one of the future calls in terms of how we in particular, when we set our guidance on terms of how thats progressing, but obviously, we're in a very strong position right now both in terms of our business momentum relative to the category the level of innovation, we have and how we're engaging consumers.
Not mainly relates to your last question, which is how we are doing.
Internationally, we continue to be pleased with the we're seeing internationally I'd say are probably core focus country right. Now is the UK you heard me talk about kind of the UK daily mail, calling our parlous potty primary the best primer ever. We also have great momentum if I think about our longest standing retail customer there's superdrug had very strong comps at superdrug.
Boots is rolling out the brand as I mentioned previously and our on site.
In the UK or else cosmetics Dot com site is exhibiting very strong growth. So it gives us great.
Hope in terms of our continued rollout internationally, but we are taking a similar disciplined approach as we did in the U.S. So we're currently testing the brand in a number of retailers in Germany.
And also are very excited about our hum.
Our early days in China E Commerce, and our ability to kind of sell there and maintain our cruelty free status.
Great. Thank you so much I'll pass it on.
Thank you. Our next question comes from the line of Mark Astra Chan with Stifel. Please proceed.
Hi, This is kimberly on for Mark.
We had a quick question just on price increases are those already on the shelf and Kelly's heroes in the most recent.
Cubic scanner data.
Or is that later to calm and then also what are the price increase is consistent with what your competitors are Don.
So high Kimberly this is trying let me take that so we've reflected right now in pricing is we led on health cosmetics stock comps, if you going else cosmetics Dot com you will see higher prices.
Than even some of the retailers where concurrent implementation with the number of our retailers. So it some retailers you will see price already reflected others you want what I can tell you is we will not ship product at unless it's at the higher price Swiss peos come into us and so we are in implementation phase and I'd say related to the scanner question.
I don't think you're going to see that much of it in the scanner quite yet but over the next couple of months certainly you will see the pricing reflected in as I mentioned earlier, we would expect you will see average unit retails go up and units go down related to that.
Okay, great. Thank you and then just one more if I can.
In in the scanner data, we've seen that year to date skincare sales or is almost as big as full year for 2018.
So do you have any insights on how big that can get in time, what's driving it is it all really trial and discovery of the brand or.
Do you have any insights around like repeat purchases.
And loyalty of the brand.
Sure, we're really pleased with skin care, it's a major strategic kind of imperative of ours in terms of kind of within our overall portfolio. As you know global skincare is bigger than global color cosmetics category trends in skin care at least over the last couple of years have been stronger.
We're no exception in terms of being able to kind of ride the strength of the category that may be even more so given the level of innovation. We have so what's really driving our skin care is the RMB, our unique ability to bring prestige quality of extraordinary value and while skincare is higher on an average unit retail basis and our color.
Color cosmetics are these still comes in at a tremendous value relative to some of the key prestige and mass players in the category and particularly excited with the success. We've had this year on Hello hydration area is our first entry into kind of our hydration creams and that's done.
Extremely well and so I think you're going to continue to see momentum on.
Skin care, particularly as we expand distribution skincare started with us at target.
As I mentioned on the call last quarter also has now taken skincare full chain.
Off of a successful test and we continue to rollout skin care to more customers. So I personally am very bullish on skin care for the future but.
We look forward to continuing to talk about it.
Okay. Thanks.
Thank you. Our next question comes or line of Erinn Murphy with Piper Jaffray. Please proceed.
Great Thanks, and good afternoon.
I guess my question is around the digital business, but that really nice double digit growth can you just talk about what you think is really driving some of the improvement there and then is the double digit hates kind of how we should see that business kind of holding for the balance of the year and then I guess mandeep for you.
Just going back to the C b versus the guide just looking at the top line 5 million dollar beat $11 million lift to the full year.
I recognize you're not looking at incremental shelf space, but should we just assume that slightly second half weighted thats just based on.
The Walmart or could it be that open as well as the.
The kind of business that you're transacting with and kind of rolling out there just trying to understand that thank you.
Sure Hi, Aaron This is trying I'll take your first question and the man who will take the second.
So on our digital business, which we're also really pleased with the double digit growth, we're seeing in traffic conversion and sales and what I'd tell you is driving at here are the strategic imperatives I described earlier, specifically kind of our step up in marketing and digital support engaging more consumers and influencers in bringing attention to the brand I'd say equally important is the focus of that spend also being on our key first to mass product. So I highlighted a couple of them whether it be the parlous putty primary ore CAMMO can sealers or even some of our limited edition.
Exclusives like our jelly pop those are driving real consumer interest in the brand and we're amplifying that kind of that goes through our surround sound approach, which basically brings more consumers to the site and and then lastly, although it's not as sexy to talk about I think many of the improvements we've made from a technology standpoint.
Digitally I talked about kind of the some of the technology underpinning kind of our revamped beauty squad program.
Other things that we're doing there is also helping us with our conversion and some of the personalization initiatives. So there's quite a bit going on digitally I mean, obviously the digitally native brand that's always been important to us and it's great to step it up even to a different level yes.
And on the second part of your question Aaron on how to think about the balance of the year. So I.
I think I mentioned this earlier, but.
As you think about Q2 Q3 Q4, we do have the pricing there just rolled out at the end of July . So we are waiting to see how that impacts volumes certainly the space gains that touring mentioned will help to offset some of that.
And as well as that seasonal pipeline that we mentioned that we were cycling. So that's kind of how the balance of the year should should frame up within our guidance.
Okay, and then if I could just add why on the jelly pop I mean, it feels like that and I really think that full launch out of the game can you just talk about if it's attracting a new consumer to the outside.
Thanks.
Sure. So we love what we've seen on jelly pop I talked about some of the engagement numbers on jelly pop both in terms of.
That surround sound kind of approach, our marketing and digital how its attracted a number of attention from a number of Influencers, who in turn kind of I think reached over 58 million just on Instagram alone.
As well as the level of engagement I see is just another example of the strength that we have in our innovation pipeline and being able to amplify that pipeline.
And to your specific question on new users, we've seen with all of these big new launches whether it be parlous party primer jelly pop CAMMO concealer is they bring significantly more new users to the franchise I think the percentage.
That weve talked previously on wireless party primaries were seeing a similar trend on jelly pop is I think 70% of the traffic we're getting on the site related to those products, our new consumers. So we feel really good about that as well.
Great. Thank you guys.
Thank you. Our next question comes from the line of repressed Couric with Oppenheimer and company. Please proceed.
Good afternoon. This is actually Erica eiler on for past thanks for taking your questions.
I was wondering if you could comment on what you're seeing in the mass category lately in terms of overall category growth rates.
Yeah. This is trying so I'd say you know the mass category continues to be soft in color cosmetics and quite strong in skin care.
And that's a continuation for a trend we've now seen for quite some time I'll be honest with you I'm surprised how long mass color cosmetics has been soft.
So our point of view is we'll continue to take share or hope to continue to take share kind of in that market based on the strategic imperatives I outlined.
Okay, Great and then we're seeing more and more personalization popping up across the beauty space and with beauty brands, you talked a little bit about the scanner receipts how that enable you.
<unk> collaborate more personalization can you maybe talk about how you're capitalizing on this trend as we say here today.
Sure. So if I, if I look at our own migration on personalization. It first came from some of the technology I talked about that had better algorithms and better approaches, particularly as we re platformed our site and were able to.
Tap into.
Other capabilities to be able to just get better product recommendations and better the learning algorithms to figure out kind of based on what you bought what else you might like.
The going from the air to actually getting much better consumer profiles to be able to be able to customize.
Recommendations to what the behavior of that project.
Particularly consumer is.
I am, especially excited now that we're able to tie that consumer data together with their purchases at large national retailers as well that we'd be even that much better in terms of being able to understand our consumers and really to be able to make better retina only recommendations, but also the cure rate better products in terms of what would meet their needs as well as the overall experience I mean this is a connected.
Consumer journey. So it also goes to kind of what messages are we serving up based on what they are needed and we've had some experience even in our current campaign, where you know the content. We're just providing much greater digital content, where if you love animals, we can get one of our cruelty free messages. If you really care a lot about our value our ability veil of customized.
Some of the core brand attributes so I'd say, we still have a long way to go but I'm pleased with our initial progress.
Okay, great. Thanks, so much I'll pass it on.
Thank you. Our next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed.
Hi, we noticed your product on shelf at coal can you comment on that.
You're in the entire chain and also this is interesting because its a mass retailer rather than math. So can you give some color on how your assortment differs and calls versus at the mass retailers. Thanks.
Sure Hi, Linda this is training so we've been in Kohl's, starting last year, we entered and it was really.
Being approached by them as they as they did a survey of brands that their consumers wanted to see.
Elf popped in that in that assessment and so we've been in Kohl's. We are in full chain and we're pleased with our business and our partnership together, it's part of our as I look for channel by channel. It's part of what I would describe as a specialty channel obviously, our biggest specialty channel player is Ulta beauty.
But we have been historically and old Navy and other specialty players and I would say what we ask every retailer to do regardless of channel is carry some of our core items. So the majority of the items at Kohl's would care to be similar to other retailers.
And then each retailer life to have some that they yield uniquely carey or be able to kind of merchandise and drive and kohl's no different than that but again, it's still relatively early we're still in our first year at Kohl's and we're pleased with what we see.
Thank you very much.
Thank you.
Our next question comes from the line of Bonnie Herzog with Wells Fargo. Please proceed.
All right. Thank you I am I had a quick follow on question on your guidance I guess I am.
I'm wondering if there's any upside to your top line guidance. You know would you guys consider reinvesting it or let it flow through to the bottom line.
Yes, So you know the guy and Bonnie I would say again, we've increased from down four to eight up to the flat to negative four and that's kind of where we see the world today.
Certainly if there is upside to sales of things start to outpace we are making those decisions as we see momentum in the business and you know what say that our guidance is as we see the world today.
Okay.
And then I had a question circling back on Kara said just was wondering if you guys could.
Talk a little bit further on the pricing that you took in I guess, what I'm trying to understand is that magnitude.
The actual percentage price increase you know that you mentioned that you've taken to offset the increase in tariffs.
I'm thinking about the context, because I think it's the most you've ever taken on you haven't taken lot of pricing pricing historically, so I guess I'm trying to understand.
What could be the elasticity known how you think this will stick I know you mentioned, it's early but any.
Color on that or confidence of why you think it will be absorbed will be helpful.
And then wondering if you've been successful in getting any vendor concessions and then finally, you know whats your ability or or maybe willingness to move manufacturing out of China. Thanks.
Okay. So I'll take the first one and then pass it over to touring so on the pricing piece. So in regards to tariffs, we really have the three levers that we have to Paul we have vendor concessions or cost savings FX, and then pricing and so you know we're not going to give the percentage increase that we took on pricing for competitive reasons, but I will echo what trends that earlier that we did not recoup the full impact of the tariffs through pricing. So we took pricing on about a third of our skews and yes that is one of the levers within the tool kit to help us offset the Caribbean.
Yes, and to your point in terms of their ability to stick, Matt I think we are hearing already a number of.
Competitors also announcing kind of pricing you know having betting consumer for a very long time, having done dozens of price increases. This is about as straightforward as it goes from a pricing standpoint, there is a known kind of external kind of terror attacks.
Most people will pass those through I like our approach of being quite balanced in how we're doing it we're not putting it a 100% on pricing we are relying on FX as well as our cost savings.
To do it so I like the approach, but as me and he says it's also one of the things that's balancing our guidance the strength, you're currently seeing along with kind of the pricing and that was a $10 million of pipeline and seasonal that we're cycling next year and then lastly in terms of our supply chain. You know, it's one of the things we take great pride in over 15 years, we've built.
I believe the best combination of cost quality and speed in our industry and a lot of that advantage comes from what we've been able to build.
In China tear for no tariffs and we continue to make progress and improvements in terms of our core operations there as I mentioned, our lean manufacturing techniques.
But in addition to that you know we've we've always looked more globally in terms of where issue we manufacture and how do we want to do.
Operator, and so that includes a number of initiatives that we had initiated.
Prior to any tariff so if I think of our automation of our distribution centers that was done well before same with our U.S. liquid filled plant that we're building and should have up and operational by the end of our fiscal year.
And that was done well in advance.
And it really is a matter of just us continuing to get more efficient being able to take those take our cost savings and make sure that we investing in best value equation for the consumer and and the marketing that we'd like to do so I feel good about our our our approach feel good about kind of where we currently stand and then I think you know, we'll certainly be updating people over the next couple of quarters in terms of what we see in the overall market.
Okay. Thank you.
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Thank you.
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Great well, thanks again, everyone for joining us while we're still in the early days of our brand recharge. We're encouraged by the consumer and customer response and look forward to updating you on our next call. Thanks, everyone.
Thank you.
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