e.l.f.(ELF)2023-08-02 01:18Financial Data and Key Metrics - Q1 net sales grew 76% YoY, driven by broad-based strength across national and international retailers and digital commerce [43] - Gross margin increased by 280 basis points to 71% in Q1, benefiting from favorable FX rates, margin accretive mix, and cost savings [46] - Adjusted EBITDA was 63 million or 21 million or $0.39 per diluted share a year ago [48] - The company raised its full-year fiscal 2024 outlook, expecting net sales growth of 37% to 39%, up from 22% to 24% previously [49] Business Line Performance - In color cosmetics, e.l.f. grew 48% in tracked channels, well above category growth of 6%, and increased market share by 260 basis points [12] - In skincare, e.l.f. SKIN grew 127% in tracked channels, outperforming category growth of 10%, and grew market share by 75 basis points [13] - The company’s four largest franchises—Camo, Putty, Halo Glow, and Power Grip—continued to grow year-over-year, with new innovations driving further growth [15] Market Performance - Internationally, net sales grew 79% in Q1, fueled by strength in the UK and Canada, where e.l.f. outperformed category growth by nearly 10x and 3x, respectively [31] - In the UK and Canada, e.l.f. is the number six brand with about a 5% share, compared to the number one brand, which has over 17% share [31] Company Strategy and Industry Competition - The company’s strategy focuses on three key drivers: value proposition, powerhouse innovation, and disruptive marketing [32] - e.l.f. aims to double its market share in color cosmetics and skincare over the next few years, leveraging its strong innovation pipeline and international expansion [12][13] - The company’s supply chain offers the best combination of cost, quality, and speed, with diversification efforts underway in Thailand and other geographies [82] Management Commentary on Operating Environment and Future Outlook - Management highlighted the strong momentum in the business, with 18 consecutive quarters of growth and an average of 20% sales growth per quarter [21] - The company sees significant white space opportunities in color cosmetics, skincare, and international markets, which are expected to drive long-term growth [12][13][31] - Management raised the full-year fiscal 2024 outlook, reflecting strong Q1 performance and an improved outlook for the rest of the year [26][49] Other Important Information - The company’s Beauty Squad Loyalty Program now has over 3.9 million members, driving almost 80% of sales on elfcosmetics.com [45] - e.l.f. Beauty is committed to donating 2% of prior year profits annually to drive positive impact in communities [38] - The company’s marketing ROI remains strong, with plans to increase marketing spend to 22% to 24% of net sales in fiscal 2024 [74] Q&A Session Summary Question: Long-term top-line growth and gross margin ceiling [1] - Management has not revisited the long-term growth algorithm but remains confident in the momentum, with 18 consecutive quarters of growth and an average of 20% growth per quarter [2] - Gross margins are expected to improve by 150 basis points in fiscal 2024, driven by innovation, favorable mix, and cost savings [22][27] Question: Marketing ROI and spending ahead of sales growth [66] - Marketing ROI remains strong, with plans to increase marketing spend to 22% to 24% of net sales in fiscal 2024 [74] - The company is focused on driving productivity through innovation and marketing, with space gains complementing this strategy [70] Question: International growth strategy and product differentiation [100] - The company is prioritizing Western Europe for international expansion, with plans to enter additional markets in a disciplined manner [115] - Pricing strategy in international markets may include adjustments to align with local market conditions [111] Question: Gross margin outlook and sustainability [101] - Gross margin expansion in Q1 was driven by favorable FX rates, cost savings, and lower inventory adjustments, with further benefits expected from transportation costs and FX through fiscal 2024 [107] - The company expects gross margin to improve by 150 basis points in fiscal 2024, with innovation and cost savings driving sustainable margin expansion [27] Question: Skincare consumer overlap and trade dynamics [97] - Historically, skincare consumers have primarily been e.l.f. cosmetics consumers, but recent innovations like Suntouchable! Whoa Glow have attracted new consumers to the franchise [105] - The company sees significant white space in skincare, with a 1.5% market share compared to the market leader’s 15% [13]