Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- e.l.f. Beauty Inc (ELF, Financial) reported a 40% increase in net sales for Q2, surpassing their expectations.
- The company achieved its 23rd consecutive quarter of net sales growth and market share gains.
- International sales grew by 91%, contributing to 21% of total net sales, up from 16% a year ago.
- The Beauty Squad loyalty program saw a 30% year-over-year increase in membership, reaching 5.3 million members.
- e.l.f. Beauty Inc (ELF) raised its FY25 guidance, expecting 28% to 30% net sales growth, reflecting confidence in continued market share gains.
Negative Points
- U.S. consumption trends in Q2 were softer than expected, with growth at 16% versus the anticipated 20%.
- The overall color cosmetics category saw a decline of 5% in Q2, indicating a more cautious consumer spending environment.
- The company faced challenges in cycling significant strength from previous product launches, impacting current growth.
- Adjusted SG&A expenses increased to 53% of sales, up from 45% last year, driven by higher marketing and digital investments.
- Inventory levels rose to $239 million, up from $147 million a year ago, due to timing of inventory ownership and increased demand.
Q & A Highlights
Q: As makeup or mass cosmetics has slowed, have you reconsidered marketing spend as a percentage of sales, and can you comment on challenges in the drug channel?
A: Tarang Amin, CEO, stated that despite a pullback in Q2, they remain bullish on the category and plan to maintain consistent marketing spend at 24% to 26% of sales. Their marketing is effective, with ROI above industry benchmarks. In the drug channel, e.l.f. Beauty is expanding, with increased space in CVS and Walgreens, offsetting any channel dynamics.
Q: Can you discuss the growth of mass beauty and your ability to stay ahead of a slowing category?
A: Tarang Amin, CEO, highlighted their consistent value proposition, innovation, and disruptive marketing as key drivers. They have significant market share opportunities, especially in color cosmetics, skincare, and international markets. Their strategy includes expanding space in Target and Walgreens and entering new international markets.
Q: Why is the timing right for entering Dollar General, and how do you manage potential brand equity risks?
A: Tarang Amin, CEO, explained that Dollar General's strategy aligns with e.l.f. Beauty's mission to make beauty accessible. They are displacing some existing brands and have a strong presentation in Dollar General stores. The brand's elasticity allows it to play in both value and prestige channels without risking brand equity.
Q: How are you preparing for potential tariffs, and what impact could they have?
A: Mandy Fields, CFO, noted that they have experience managing tariffs from 2019 and have diversified their supply chain, reducing reliance on China. They have a playbook involving cost savings, pricing adjustments, and supplier concessions. Tariffs would not impact FY25, and they are prepared for potential future tariffs.
Q: Can you elaborate on the shift in guidance approach prioritizing consistency of delivery?
A: Mandy Fields, CFO, stated that while their guidance strategy remains consistent, as the company grows, the magnitude of beats and raises will naturally be smaller. They focus on consistent delivery, net sales growth, adjusted EBITDA growth, and market share as key performance indicators.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
