e.l.f. Beauty, Inc. (ELF) Q1 2027 Earnings Call Transcript

Thank you for joining us today to discuss Elf Beauty's First Quarter Fiscal 27 Results. I'm Casey Catton, Vice President of Corporate Development and Investor Relations. With me today are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com. Since many of our remarks today contain forward-looking statements, please refer to our earnings release and reports filed with the SEC, where you will find factors that could cause actual results to differ materially from these forward-looking statements. In addition, the company's presentation today includes information presented on a non-GAAP basis. Our earnings release contains reconciliations of the differences between the non-GAAP presentation and the most directly comparable GAAP measure. With that, let me turn the webcast over to Turing.

Thank you, KC, and good afternoon, everyone. I'm proud of the Elf Beauty team for achieving another quarter of industry-leading results. In Q1, we grew net sales 36% and delivered our 30th consecutive quarter of net sales growth. That's over 7 continuous years of net sales growth. We're one of only six public consumer companies out of 516 that has grown for 30 straight quarters and average at least 20% net sales growth per quarter. This consistent, category-leading growth is a testament to the strength of our team, strategy, and portfolio of brands. With the momentum we're seeing, we're raising our Fiscal 27 outlook to 18% to 20% net sales growth as compared to 12% to 14% previously. We have strength across our diversified portfolio of brands. For context, out of approximately 1,800 cosmetics and skincare brands tracked by Nielsen, only 14 have surpassed $200 million in retail sales. We have four brands to surpass this threshold, each built on the same winning combination – Value Proposition, Powerhouse Innovation, and Disruptive Marketing Engine. Elf Cosmetics holds a No. 1 rank in unit share and No. 2 in dollar share. Elf Skin has risen from the No. 25 mass skincare brand a few years ago to the No. 11 brand. Notorium is the fastest-growing skincare brand among the top 50. And Rode, the breakthrough beauty brand founded by Haley Bieber, continues its outstanding growth. We believe Rode could be the fastest beauty brand to achieve a billion dollars in net sales. As Elf Beauty scales towards $2 billion in net sales, we believe the continued diversification of our business across brands, categories, channels, and supply chain positions us well for the next chapter of growth. Over the past three years, we've grown non-elf sales from less than 1% to over 30%, skin care from 10% to nearly 25%, and digital penetration from 18% to 30%. I'm also proud of the incredible work the team has done to further diversify our supply chain. Just a few years ago, only 1% of our production came from outside of China. By the end of this fiscal year, we expect it to be around 60%. We now have a more robust supply chain to meet the global demand that we see for our brands, while maintaining our unique combination of quality, cost, and speed. Looking at our most recent results, let me provide an update on each of our brands. Starting with Elf. As we talked last quarter, we're taking a series of actions to strengthen the Elf brand across five key areas. Value Proposition, Powerhouse Innovation, Disruptive Marketing, International Expansion, and Category Adjacencies. First, Value Proposition. For 22 years, we've democratized access to the best of beauty. The average price point for E.L.F. Cosmetics is about $7, as compared to over $10 for legacy mass brands and over $30 for prestige brands. At a time when consumers remain concerned about the economy, our value proposition has never been more important. To that end, last quarter we spoke about the pricing actions we're taking to drive unit momentum. We began a price discovery test in May, expanding what initially was a temporary price reduction on a single product to the majority of Elf brand SKUs. We learned through this testing the vast majority of our SKUs are priced appropriately, reinforcing our value proposition. We did identify about 10% of our SKUs where we believe we can drive units by maintaining lower prices. The remaining SKUs will return to their pre-test prices over the next couple weeks. These pricing actions strengthen our confidence in delivering a superior value proposition. Second, powerhouse innovation. Our community-led innovation model is one of our most durable competitive advantages. We listen closely to our community and quickly translate their requests into premium quality products at extraordinary prices. Our fall 2026 innovation hit shelves in July, and we're pleased to be delivering ahead of our expectations. Across the mass cosmetics category so far this season, Elf holds four of the top 10 new launches in dollars, and five of the top 10 in units.

Our main stain lip marker, Power Grip Rose Setting Spray, cream blush and bronzer duo brush, sheer fort blush tint and thirst burst lip treatment all are resonating with consumers oh wow this is so precise yo it sets immediately it feels so juicy it feels like a lot of product is in here i love the applicator okay okay only five dollars and a precise applicator

yeah you know where i'm going you know where i'm going maple latte and bergen did that are finally back in stock these are the elf lip and cheek stains that are going absolutely viral because you can literally get them for like what six bucks or something maple latte is the most wearable perfect everyday nude shade and on the cheeks it gives you this like gorgeous bronzy type of glow i'm literally obsessed i love that you can cheer these out and do one little layer wait for it to dry down or you can build them up and just go over top of that one more time. Bergen did that as the most beautiful like just bit in burgundy shade and just look at how stunning this is on the cheeks. I love that these are not like it's inspiration where they're like literally dripping down your face but they still give you a super long lasting all day type of tint to your lips and your cheeks. Are you seeing that? These are my two favorite shades and they seem to be everybody else's too because every single time they restock them they set off that same day, run and grab them while you I'll put the link for you down below.

In parallel, as we spoke about last quarter, we have fast-tracked additional innovation our community has been asking for. We aim to have these products in market before the holidays. Third, disruptive marketing. We're leaning into our disruptive marketing engine to fuel ELF's brand awareness and deepen the connection we have with our community. We have a track record of delivering marketing ROIs multiples above industry benchmarks. growing Elf's unaided awareness from 13% to 45% in just a few years, and becoming the most purchased brand among Gen Z, Gen Alpha, and Millennials. Today, Elf Cosmetics is purchased by approximately one in three women in the U.S., which means two-thirds of the market is still ours to reach. In Q1, we received approximately $50 million of IEPA tariff refunds. We plan to fully reinvest these funds in our business this year, largely through a combination of the pricing actions I spoke about and increased marketing investment to support key innovation and delight our community. We believe this reinvestment approach is the right one. It supports our brands, strengthens our competitive positioning, and sets us up for long-term growth. Fourth, international expansion. Over the last five years, we've doubled our international penetration to 21% of our net sales. With legacy beauty peers having over 70% of their sales outside the U.S., we see a clear runway for growth. In fiscal 27, we're focusing on growing share for the Elf brand in our largest markets, the U.K., Canada, and Germany, by activating our marketing engine and extending our brand reach. To that end, we're excited to announce that we'll be expanding our presence in Boots, the UK's leading destination for beauty, in the fall of this year. We also plan to selectively seed the Elf brand in new markets and capitalize on the glowing global demand we see from our community. This fall, we're excited to launch Elf with Sephora in Brazil, the world's third largest cosmetics market. With this launch, we're furthering our presence in Latin America and building upon the number one cosmetics brand ranking we've achieved with Sephora in Mexico. Fifth, category adjacencies. Elf is a highly elastic brand as demonstrated by our success in cosmetics and skin care. With Elf Skin, we've applied the same innovation playbook that fueled Elf Cosmetics. products, taking inspiration from our community and the best products in prestige, then bringing those innovations to market at extraordinary value with our signature Elf Twist. It's working. In just a few years, Elf Skin has risen to the number 11 mass skincare brand in the U.S. Yet we hold only a 2% share of the mass skincare category compared to the number one brand at 13%, illustrating the significant runway ahead of us. This fall, we're excited to launch ELF Skin at Dollar General, meaningfully expanding our reach and building on the success we've achieved in cosmetics. Looking beyond cosmetics and skin care, our community continues to request ELF enter other categories, with over 75% purchase intent for hair care. We answered the call in June with the launch of Elf Hair, a curated six-product assortment, all priced at $10 or less. Entering hair care represents a strategically important expansion into a large, growing, and highly complementary beauty category. Hair care is an approximately $17 billion category in the U.S., growing faster than both cosmetics and skin care. elf hair debuted on tick tock shop fueling discovery and excitement followed by an exclusive nationwide launch with target we supported the launch with our buzzy what the health campaign wait what is that what what the hell oh my gosh that's kind of gorge okay bigfoot i show yes We're excited by the early results, with nearly half of Elf hair purchasers new to the Elf brand. We plan to nurture Elf hair with Target, as we see it having similar potential to Elf's skin over time. Turning to Notorium. Notorium's remarkable growth is fueled by its clinically effective biocompatible skincare products. In Q1, Notarium unveiled Glow Better Together, a new brand campaign celebrating the people, relationships, and rituals behind its best-selling Glow Getter collection.

Who brings out my best glow? I bring out my best glow. My sister brings out my glow. Definitely my mom.

My husband. My niece.

It's not just one person. All of these wonderful things make me glow from the inside out. I feel like my glow reminds people that they could glow too, and we could make the world a better, glowier place. Nothing makes me glow more than having my people around me. I feel like I glow better, period. I'm a true glow better, okay?

We're excited about Notorium's runway for growth, both in the U.S. and internationally. Since launching with Sephora in Australia and New Zealand last October, Notorium has already achieved the number one ranking in body, a testament to the brand's global appeal and the power of our go-to-market approach. Building on that momentum, we're thrilled to announce that Notorium will be launching with Sephora in Canada and Mexico this fall. Finally, Rode. Rode's growth continues to be exceptional. The combination of Rode's curated product assortment and powerful consumer engagement model has translated into record-setting consumer demand. In the last year alone, we executed record-breaking launches with Sephora in North America and the UK, and with Mecca in Australia and New Zealand, achieving the No. 1 beauty brand ranking in both retailers. As great as these results are, Rode is in less than 20% of Sephora's stores globally. That's why we're excited to launch Rode this September with Sephora in Europe across 19 countries. What gives us further confidence in the durability of Rode's growth is that each new class of innovation continues to build, underscoring the power of the brand and the strength of repeat purchases. Rode's latest summer product launch drove $27 million of DTC sales in a single day. Yes, $27 million of sales on RodeSkin.com in a single day. We acquired 90,000 new consumers that day while also seeing strong repeat purchases, with over 70% of sales coming from existing consumers. Road's summer station tour further amplified the launch with a series of high-impact experiential pop-ups, reinforcing its cultural relevance and nurturing its growing community of fans. In summary, I feel great about our strong start to fiscal 27, and am excited about where we're headed. I'm so proud of our passionate team of owners who have delivered consistent, industry-leading results. As we look ahead, I believe we're well-positioned for continued growth across our portfolio of disruptive brands that are winning with the next generation of consumers. We have a proven strategy, a track record to be proud of, and major white space ahead of us. And we're just getting started. I'll now turn the call over to Mandy to discuss our first quarter results and raise outlook for fiscal 27.

Thank you, Tereng. Q1 net sales grew 36% year over year. Organic net sales, excluding ROAD, were largely in line with the high single-digit decline we outlooked as we lapped a busy shipping period last year as we prepared for our ERP cutover in Q2 and as we cycled the launch of Elf's Glow Reviver Melting Lip Balms. Rode outperformed our expectations in the quarter, contributing approximately $160 million in net sales, driven by strong retail demand and a record-breaking summer innovation launch on RodeSkin.com. U.S. net sales grew 29% in Q1, while international net sales grew 61%. Pricing and product mix added approximately 39 percentage points to net sales growth in Q1, while unit volumes were down approximately 3 percentage points. Q1 gross margin of 83% increased approximately 1,400 basis points compared to prior year. Approximately 1,050 basis points of that increase was driven by $50 million of IEPA tariff refunds received in the quarter and flowing into COGS. Excluding this benefit, gross margin was still meaningfully higher year-over-year, up about 350 basis points, reflecting benefits from pricing and lower year-over-year tariff rates. On an adjusted basis, SG&A as a percentage of sales was 54% in Q1, as compared to 50% in Q1 last year. The primary driver was continued investments in team and infrastructure, along with investments in merchandising and distribution. Marketing and digital investment for the quarter was 22% of net sales, below our expectations due to timing of spend and flat to last year. Q1 adjusted EBITDA was $168 million, up 93% as compared to $87 million in Q1 last year. Excluding the impact of tariff refunds, our adjusted EBITDA was up 36% year-over-year. Adjusted net income in Q1 was $105 million or $1.75 per diluted share, compared to $51 million or $0.89 per diluted share a year ago. The impact of tariff refunds was an approximately $40 million benefit to adjusted net income or approximately $0.68 per diluted share. Moving to the balance sheet. We believe the strength of our balance sheet continues to position us well, to execute our long-term strategic plans, and invest in the growth of our business. We end at Q1 with $344 million in cash on hand, compared to a cash balance of $170 million a year ago. Note, our June-ending cash balance included $53 million in tariff-free funds, inclusive of interest we received in the quarter. In Q1, we repurchased approximately $50 million of our outstanding common stock, given the disconnect between Elf Beauty's market valuation and the strength of our business fundamentals. We expect our cash priorities to remain focused on investing in our business to support the runway for growth we see ahead. In fiscal 2027, as Tereng spoke about, we plan to reinvest the $50 million of tariff refunds we received, largely through a combination of lowered prices on a subset of our portfolio and increased marketing investment across our brands. We also plan to invest behind technology, including AI capabilities and phase two of our SAP integration, and working capital to support our brand expansions globally, particularly with Rhodes' launch into Europe. Additionally, we expect to use a portion of our cash to satisfy the first payment of the road earnout later this year, given the brand's outperformance. Our liquidity position remains strong, with less than one and a half times net debt to adjusted EBITDA. Now let's turn to our updated outlook for fiscal 27. We are raising our outlook on both the top and bottom line. For the full year, we now expect net sales growth of approximately 18% to 20%, up from 12% to 14% previously. Adjusted EBITDA between $401 to $407 million, up from $379 to $385 million previously. Adjusted net income between $212 to $215 million, up from $198 to $201 million previously. And adjusted EPS of $3.50 to $3.55 per diluted share, up from $3.27 to $3.32 previously. We continue to expect our Fiscal 27 adjusted tax rate to be approximately 25 to 26 percent and a fully diluted average share count of approximately 60.5 million shares. Let me provide you with additional color on our planning assumptions for Fiscal 27. Starting with the top line. For the full year, we expect net sales growth of approximately 18 to 20 percent year over year, up from 12 to 14 percent previously. We expect Rode to contribute approximately 13 percentage points to net sales growth in fiscal 27 up from nine percentage points previously for the four month period until we annualize the acquisition in August. On an organic basis, we expect to deliver six to seven percent net sales growth in fiscal 27 up from four to five percent previously. Our outlook implies 10% to 12% organic net sales growth for the balance of the year, up from 7% to 9% previously. This improved outlook reflects our expectation that all brands in our portfolio grow for the balance of the year. Looking to Q2, we expect to deliver total net sales growth in the mid-30s. This is better than our prior outlook on both a total and organic basis, supported by improving trends on e.l.f., cycling a period where we stopped e.l.f. brand shipments on orders that did not reflect last year's price increase, and pipeline shipments for roads launch with Sephora in Europe. From a profitability perspective, we now expect adjusted EBITDA of $401 million to $407 million in fiscal 27, growing 20 to 21 percent year over year, up from the $379 to $385 million or 13 to 15 percent growth previously. As I discussed earlier, our outlook assumes that we will fully reinvest the $50 million of tariff refunds we received this quarter, largely through a combination of lowered prices on a subset of our portfolio and increased marketing investment across our brands. We expect gross margin in fiscal 27 to be up approximately 200 basis points year over year, as compared to our outlook for about flat previously, largely driven by the upside we saw in Q1. Excluding tariff-free funds, our Fiscal 27 outlook remains unchanged at approximately flat gross margin year-over-year. As a reminder, we expect gross margin benefits from lower year-over-year tariff rates and price increases, particularly in the first half of our fiscal year, to be offset by mix as road continues to transition further into retail. We expect marketing and digital spend as a percent of net sales for the full year to be at the high end of our previous 23 to 25 percent range. As we look to the balance of the year, marketing and digital is planned to track ahead of that range, given the underspend in Q1. Our outlook implies mid-teens adjusted EBITDA margins for the balance of the year, given the timing of our reinvestment spending. The tariff refund benefit was captured in Q1 and will be reinvesting that over the balance of the year to an expected net zero adjusted EBITDA impact on the full year. For the full year, we continue to expect adjusted EBITDA margins of approximately 21% of 20 basis points year over year. In summary, Q1 marked our 30th consecutive quarter of net sales growth, a testament to the durability of our model and the power of our brand portfolio. We are taking targeted actions to strengthen the Elf brand while continuing to invest behind all of our brands. We remain confident in the strength of our fundamentals and excited about the opportunity ahead. With that, operator, you may open the call to questions.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And our first question today will come from Olivia Tong with Raymond James. Please go ahead.

Great. Thanks and good afternoon. You know, with the price adjustments that you've now implemented, can you talk about what you've seen over the last few weeks, you know, generating more trial? Is it bringing certain consumers back? And what you're assuming with the guide in terms of new shelf space? And then also how you think about the offsets to minimize the margin impact of the change on the products where the price reductions will be permanent. And then secondly on road, fantastic performance. It's now been about a year since it was acquired. So perhaps can you talk about some of the key capabilities that RODE has brought to Elf, the company, and what Elf, the company, has brought to RODE, you know, what you think are the biggest unlocks, and what do you think is the right pace for further geographic expansion?

Hi, Olivia. This is Terang. So first on the pricing adjustments, I feel great about the work the team has done on our price discovery. As you recall, last August, we took our prices up a dollar in response to tariffs and inflationary pressures. Overall pricing action was successful. We grew dollars in the process, but we did see a degradation in units. So the objective of our price discovery test was to see how could we further drive unit momentum. What started with a single item, we expanded to the majority of L-SKUs. And what we found through the price discovery test was two things. First, 90% of our SKUs were priced appropriately. ELF has pricing power and continues to deliver an extraordinary value every day. Second, we did identify about 10% of our SKUs that by maintaining the lower price, we could drive significant unit momentum. And so we're going to keep that 10% at the lower pricing while the other items go back to the original pre-priced levels. And what we found, obviously, you've seen in some of the scanner data an improvement in overall trends, both in dollars as well as units. So I feel really good about the pricing action. And then in terms of the long-term offsets on that pricing action, the good news is the 10% of SKUs that we did see higher unit momentum, we actually believe we can grow gross profit dollars over time through that pricing action. That's how strong the unit movements were on that 10% of items. So we're in the best of both places, both reinforcing our value proposition, offering a superior value every day, and identifying things that we can do to further drive unit momentum. And then on your second question on Rode, Rode is just a phenomenal brand. I've been in the consumer space 35 years, and it's probably one of the most special brands I've ever seen. What Rhodes brought to Elf obviously is tremendous growth, bringing more consumers into Elf Beauty. We've had just a tremendous amount of success. Our launches into Sephora in North America and the UK, Mecca in Australia and New Zealand. We saw record-breaking results in terms of the launch, but we've maintained the number one ranking in both those retailers. So I'm particularly excited about the upcoming expansion that we see. In addition, Rode very much fits the culture of ELF from the team all the way to our approach in terms of how we engage consumers, including the strength of innovation. I mentioned in the prepared remarks the Summer of Rode launch that we did in terms of our innovation anchored by our highlighting milk and the pocket bronzers. They did $27 million of sales in one day on roadskin.com. And to put that in perspective, you know, we often talk about Nielsen tracking 1,800 cosmetics and skincare brands. Rode did in one day more than, what, 98% of those brands do in an entire year. So there's just been a tremendous amount of momentum on Rode. And I'd say in terms of what ELF beauty brings to Rode, in terms of our capabilities, certainly that expansion ability of executing with excellence our launch of the Sephora and Mecca, The upcoming launch we have with Sephora also in the 19 countries in Europe certainly leverages our entire distribution network. I think there's a great deal of synergy when you think about our approach from a marketing standpoint, innovation standpoint, and overall team. We've doubled the size of the road team in the one year that we've had that brand from about 50 people to over 100 people, really building the capabilities that we're known to be able to do. And the last thing I would say is we continue to build the awareness on the Rode brand. We're investing more in marketing. We're investing in taking the tariff refunds and really investing across the entire portfolio of brands. As successful as Rode has been, unneeded awareness on Rode is still in the high single digits. So we have a major opportunity to bring more consumers in. So it's just been the perfect acquisition on every front. And what makes me most proud is just the one team, one dream philosophy that that team and the entire ELF team buys into.

And Olivia, this is Mandy. I think you also had a question on new shelf space included in the guidance. And just to recap what we talked about on the call, on ELF, we're getting expanded space in Boots in the UK, Dollar General with our ELF skin, and also going to Sephora in Brazil on ELF. And then on Naturium, we have Sephora Canada and Mexico, and Tarang just spoke to you about the expansion on road in 19 countries in Europe.

And our next question will come from Anna Lizel with Bank of America. Please go ahead.

Hi, good afternoon. Thank you so much for the question. Mandy, I wanted to touch on the guidance here. We certainly appreciate the big beat in physical Q1 as well as the guidance raise, but the raise does get eaten up a bit by the beat. So I was wondering if you could talk about your decision to only raise by this amount given the momentum that you're seeing across the business and in particular on road. And then secondly, I was wondering if you could talk about your entry into the hair category. Where do you see this sitting on the shelf ultimately if this is introduced initially in the cosmetics aisle like you did for Elf Skin? Do you see a possibility for breakout farther along? Thank you.

Hi, Anna. I'll take that first question on the guidance. One, I just have to say I'm just so proud of this team and what we've been able to deliver in Q1. 36% net sales growth, 93% growth in adjusted EBITDA. Fantastic. And even with the tariff refund, if we exclude that from our Q1 results, we still would have been up 36% on adjusted EBITDA in the quarter. So very strong results overall. In terms of the raise, a very strong raise as well. We're going from 12 to 14% net sales growth to 18 to 20% on our outlook. And then on the adjusted EBITDA side, going from 385 on the top end last time around, up to 401 to $407 million in adjusted EBITDA. That's 21% growth in adjusted EBITDA on the top line I mean on adjusted EBITDA overall so a hundred million nearly raised on top line 22 million on adjusted EBITDA I think is very strong first quarter out and so we're feeling great about the the beat and the raise that we've been able to flow through this time around and maybe just a touch on adjusted EBITDA a little bit more just a double click I just want to make sure everybody's tracking with me. So, we got the $50 million of tariff refunds in Q1, but we're not able to reinvest really any of that in Q1, just given the timing of when that came in. So, you're going to see that $50 million reinvested Q2 through Q4, netting to zero on the year. So, if you put the tariff refund aside and think about the raise on the year from an adjusted EBITDA standpoint, that's really driven by the core business not by the tariff refund we plan to spend all of that back and so again just coming coming back to it 21% growth on adjusted EBITDA is our projection for the year which we believe is quite strong.

Hi Anna this is Trang I'll take your second question on elf hair we're extremely excited it's a meaningful strategic adjacency for us hair care in the US alone is a 17 billion dollar category growing faster than cosmetics and skin care and it's a category frankly our community has been asking for for a long time about 75 percent intention behind purchase intention behind hair and it's done the elf way so I'll use the analogy of elf skin where if we can take that same model that elf is known for which is taking inspiration from prestige putting our elf twist on and introducing it in an incredible value self hair starts with a six-product curated lineup that all have prestige equivalents but are priced $10 or less. We've seen 99% positive consumer intention behind it. We're well ahead of our expectations. This is a launch that we are launching exclusively with Target, similar to our approach that we first started on Elf Skin to help nurture the brand. We in Target are extremely excited and we We believe this could be a really big category for us in the future, similar to what we've been able to do with Elf Skin. So again, really off to a really strong start on hair and very bullish on its future.

And our next question will come from Susan Anderson with Canaccord Genuity. Please go ahead.

Thank you for making my questions. I'm curious if you could give some color just on the Elf brand performance in the international markets, particularly UK and Germany, I guess. Have you seen any improvement there? And then also, just back to the price investments, it sounds like the initial 10%, you really saw the biggest move. And so curious, the rest of the price investments, if you really just didn't see that much elasticity, which is why you're raising it back.

So, hi, Susan. This is Cherang. I would say we're seeing meaningful improvement on the Elf brand internationally in the U.K. and Germany. I'll start with Germany. As you recall, our results were weighed down by lapping the massive launch we had with Rossman, Germany. We've now introduced the brand with DM in Germany, and we've seen a major turn in that market to very strong positive growth. UK, similarly, we had some pretty negative trends. It was a very promotional environment. We weren't participating in a lot of those promotions. We've now turned on our awareness building and marketing activities in that market and have also seen a major improvement in that market. In addition, to show the confidence our retailers have in this, we have a pretty big expansion coming with Boots this fall. So I feel really good about kind of the progress in both those markets as well as continue to seed the brand and new markets. I'm very excited about the launch we have coming up with Sephora in Brazil. It's the third largest cosmetics market in the world, and we've had long pent-up demand for e.l.f. in that market. So really, really pleased to bring it there. So making good progress on International, not just only on ELF, but really across the portfolio of Notorium and Road as well.

And on the price investments, oh, sorry, just to answer Susan's question on the price investments, what we saw, as Doreen talked about, you know, 90% of our portfolio on ELF we feel is appropriately priced. While we saw unit improvement on some of those items, It just was not enough to justify the investment that was being made there. The team was very thoughtful about what we wanted to do as we move forward, and that 10% was really identified can move units, we expect, sales and gross profit. And so, really, we think that that subset of SKUs is the right set to remain at the lower price point.

And our next question will come from Christian Rios with Bernstein. Please go ahead.

Thanks for taking the question. One, I wanted to understand a little bit more what's your channel strategy for hair care, where exactly is being sold now, and do you have a roadmap with milestones for expansion across your ecosystem of channels? How are you going to be thinking about expanding to new doors over the next couple of years? And then, two, on just a modeling question, I understand that the tariffs were reinvested. I wanted to understand if we should think about those reinvestments as one-time-two, or will they become a headwind next year when you don't have the refunds on the margin? Thank you so much.

Hi, Christian. This is Terang. I'll take the first question. On hair care, I would say, and I didn't answer the first question that was given in terms of where it's shelved. Hair care is going to be shelved in the hair care aisle. We have great placement in the haircare aisle with Target in addition we have incremental merchandising space as well to really bring haircare to life and that would be our strategy going forward is haircare will be in the haircare aisle and if you go into a Target you can see the presentation there. From a channel standpoint as I mentioned we are exclusive with Target through this fiscal year that's part of us nurturing, obviously Target is our longest standing national retail customer, very similar approach to what we took with e.l.f. skin. We started exclusively with Target and then expanded from there. And we would expect to do the same thing with e.l.f. hair over time. But for this fiscal year, it will be a Target exclusive and we'll continue to nurture the brand with them.

And then on your question on the reinvestments, Q2 through Q4, we're going to be investing that primarily behind marketing, also with the pricing that we've been discussing today. And that is a one-time investment versus the $50 million is also a one-time inflow. And so as we get into fiscal 28, we'll work through that. But I would tell you we have a great track record of EBITDA growth over time. And so just really wanted to put this money to work in this year as we are seeking to kind of drive unit volumes and use that as a way to better connect with our community. And so more to come as we get into fiscal 28.

And the only other thing I would add is we feel great about the investment in marketing. Our marketing is working. We've long had ROIs multiples above the industry benchmarks. You saw the level of awareness we've built with Elf over time from 13% to 45%. Every single brand metric is extremely strong. And we're the number one brand amongst Gen Z, Gen Alpha, Millennials. So we feel great about that marketing investment, continue to double down on that, as well as put more marketing dollars against the growth we're seeing in Nitorium and Road. We have major opportunities, even with the strong growth of both those brands, to continue to bring more consumers into those franchises. So we feel these are the right investments, not only for right now, but to really set up our brands for the right trajectory long term.

And our next question will come from Sydney Wagner. with Jeffries. Please go ahead.

Hi, thanks for taking our question. Just one more on pricing. So of the 10% of SKUs where maintaining the lower prices was justified with the additional unit growth, what characteristics did those products have in common? And what were the learnings from kind of the commonalities there? And then just curious how those translate into your thinking for the ex-US business. And then just maybe more broadly on the international strategy, it sounds like the core Elf brand performance has stabilized in some of the key markets. How are you thinking about the cadence of new geographies and launches there for the core Elf brand? Thank you.

So Sydney, one of the reasons why we did a very broad test is our hypothesis was we have a great value proposition, but let's really isolate the SKUs where you could see disproportionate unit movement, you know. We talked last quarter about our skin tints, taking those from $18 to $14. Initially we saw a 40% lift in units, more recently it's been between 60 to 80%. So it was really going after a targeted approach of finding those items where taking, keeping the pricing lower would result in the disproportionate amount of unit movement and that really is what we saw and it was across the line. There wasn't any particular segment, It wasn't just on our lowest-priced items. It really depended on the particular item and its competitive set. And so that's why we went so broad to really discover what those specific items were. And, again, reinforce that 90% of our items were priced appropriately, and we continue to deliver a great value. And this overall action will strengthen our overall value proposition in the marketplace, which is what we're most known for. So we feel really great about that. And then in terms of how it translates internationally, we're using a similar approach internationally in terms of looking each market is different. We're not doing the same level of broad price discovery, but we have identified certain items that we believe would drive higher unit movement through some pricing actions there, but that's more limited in nature. And then from an international cadence standpoint, you know, what I feel best about our international business is the strength of our portfolio internationally. If you take a look at Rode, getting into 19 countries with Sephora in Europe, if I look at Notorium in Canada and Mexico with Sephora, continued expansion of the markets. And then Elf, we talked about Sephora. We talked about doubling down in terms of our presence in the U.K. with Boots as well as other markets. So you're going to see a better balance from us going forward. I feel like we've, you know, I think one of our learnings was we were opening up new markets pretty much every quarter. I think you're going to continue to see us open up new markets. But it came at the expense of the focus on our core markets. And I think we have a much better approach now of really making sure we're putting the full ELF marketing model. In those countries, we have very strong ACV coverage. So both in the U.K. and Germany, we have over 75% ACV. of the mass category it justifies ongoing marketing support in those markets to continue to build that business year in year out the way we have in the u.s while continuing to seed new markets i like the balance that we have in our plan that you'll continue to see not only on elf but across our portfolio and our next question will come from uh andrea texera with jp morgan Please go ahead.

Thanks, Operator, and good afternoon, everybody. I wanted to just go back to, I remember Tarang and Lengy used to give us an idea how you're going against the category, especially in the elf beauty, obviously, heritage brand and against also skin, elf skin, just to kind of gauge what is your growth has been. And I remember coming from eight to about six, then to about three globally. Just curious how that re-accelerated. And then as we think about, I totally understand the $50 million was not there to begin with. You're reinvesting 100% of it. But just curious to see how the percentage of sales you've been, I understand the pricing components, but on the percentage of sales of marketing, you're already at around 24%. So that will take you, I mean, by my math, probably, you know, to 25. I was just curious to see how, and Mandy, you discussed saying this is going to be a one-time effect, and then you can pull back and re-leverage again and have the operating leverage. Because I think part of your success over the years has been not only of course the top line is the the paramount is the driving force but you also had some operating leverage as we go just curious to see how the balance is and again I by my math you probably need only about 25 million even without to invest back about a buck that you added for this 10% so coming back to the same price levels that you were before the price increase. And then the balance would be about half of it would be invested in marketing. So just like double click on that if you can. I know it's a three-part question, but you can also confirm that it's about half of the 50 million would be invested in marketing. Thank you.

So Andrea, I'll start with the first question. We're feeling really great about the targeted actions we have against the ELF brand. As I talked at length here on the pricing actions, to reinforce our value proposition our fall innovation is off to a strong start it's ahead of our our expectations and offer a terrific value if i look at our main stain lip marker at five dollars versus prestige at twenty five dollars our sheer for it blush at five dollars versus a prestige item at twenty eight dollars these are items that have a clear point of reference with prestige and offer a terrific value we're seeing momentum there as we talked in terms of marketing and the incremental marketing dollars we have. We feel good about investing those across our portfolio of brands. I already talked about hair care and the bullishness we have on hair care, not only for this year but long term, and then international as we continue to see the brand. And you've certainly seen it in improved trends if you look at the scanner data, both in terms of units as well as dollars. We continue to expect that to improve as we have these focus actions in market and so overall I feel great about the brand and even with the slowdown that we had over the last number of months in the last year we picked up 60 basis points of market share it's the most market most basis points of market share gain out of the top 10 brands so I would say I feel great about the brand and particularly over a longer arc but even more recently and with the actions that we're taking and then on the reinvestment question Andrea, so from a marketing as a percent of net sales, we still anticipate that 23 to 25 percent range.

We're going to be towards the higher end of that range, and as I said on the call, Q2 through Q4 may even be beyond that range as we seek to kind of hit that 25 percent given that we underspent in Q1. And so that's from a percent of net sales how we're managing marketing, very consistent with where we've been these last seven years in terms of managing it as a percentage of sales and then on the reinvestment split between kind of pricing and marketing i would say a portion goes towards the pricing piece but majority is going to go across marketing across our brand portfolio um is the way we're thinking about that and our next question will come from steve powers with deutsche bank please go ahead great thank you very much um maybe i don't doesn't sound like it, but do you have any kind of prescribed notion as to the timing of that

incremental spending over the next three quarters? That'd be question number one. Question number two is, what portion of the incremental spending do you expect will yield a return in the current fiscal year versus being more longer term brand equity building in nature? And to the extent it it is supposed to yield a return in this year. I was saying the pricing, for example, would. Is that now contemplated in your guide? Because I think it wasn't when we started the fiscal year. And then question number three on a different tact, if I could, is that I didn't hear anything. Maybe I missed it, but I didn't hear anything on an updated cost inflation outlook, whether in regards to freight or packaging or the like.

Just any thoughts on that and whether that now is included in your guide or if it's still outstanding thank you all right Steve so I'll take that first question on the timing over the next three quarters we really haven't broken that down by quarter other than to say like I just mentioned to Andrea that as we look at Q2 through Q4 you could see that marketing range outside of that 23 to 25 percent given the underspend that we had in Q1 and so that's how I would think about that I'm going to let to answer the second question on the yield, but on the cost inflation outlook, from an input cost standpoint, we really haven't seen anything come our way from our suppliers. And the one thing that we have seen are higher freight costs. So that's already baked into our outlook. And so from that perspective, I think we've got it pretty well managed in our current fiscal outlook.

Yeah, and Stephen, in your question in terms of where we see the benefit of the marketing, I would say we see in both. We see both the short-term impact as well as the longer-term impact. I talked about the longer-term impact in terms of building awareness and bringing more consumers in the franchise. Given the stronger eyes we have on our marketing, we would also expect an impact this year. If there's one thing you take away from this call today, I want you to take away the confidence we have in our business, The confidence, as expressed by a very strong raise in terms of our fiscal year outlook, the confidence we have in the focus actions on Elf, as well as the momentum we continue to see on Notorium and Road. And so this investment is really behind that confidence in terms of what we know we can get out of marketing, not only this year, but for the years to come in terms of the long-term build of these brands where we see tremendous white space.

And our next question will come from Peter Grum. with UBS. Please go ahead.

Great. Thank you. So maybe just starting on the stronger organic sales outlook, and I know you mentioned that you expect all brands to grow through the balance of the year, but I was kind of curious what drove the confidence to increase the outlook for organic sales at this point in the year. And maybe specifically, is it a function of more optimism around road as it goes into organic in the back half of the year, or is it across the base business?

And I guess related to that is there any way to quantify or put guardrails around what you were expecting from the hair care launch uh in this organic sales outlook yep so thanks for the question peter um the stronger organic outlook is as we talked on the call really driven by the the improved trends that we're seeing on else and the confidence that we have in in the momentum we're seeing behind Rode and Naturium it's really across our portfolio that organic sales growth balance of the year the outlook is 10 to 12% growth which is very strong and we feel great about where our brands are trending Terrain just hit on a couple of things with the fall innovation being better than our expectations and things like that we still have the the EU launch with Rode coming up next month that we're excited about, so a lot of things ahead for Elf Beauty, and look, we're taking it a quarter at a time. I agree with you. It's a strong raise first quarter out, but we've got a couple more quarters ahead of us, and we're feeling great about where we are.

And our next question will come from Filippo Filorni with Citi. Please go ahead.

Hi, good afternoon, everyone. I wanted to ask on road and expansion into Sephora Europe, which is upcoming. Can you give us a sense of how much of the pipeline you're expecting in fiscal Q2 and then just any expectation of how the brand can do in Europe relative to the U.S. when you look at a per door basis, like any rough order of idea how you're thinking about that expansion? And then Tereng, like a follow-up on just the pricing. You mentioned in a couple of weeks, we are going to see some of the SKUs that are going to go back to the prior pricing. Any expectation on elasticity is there as you kind of bring back prices back to the prior level? What are you guys thinking about that? Thank you.

Thanks, Filippo. So first of all, on road, I think you've probably gotten our bullishness on road through this call. We're extremely excited about the launch coming up in Sephora, Europe across 19 countries. We haven't quantified the pipeline, but most of that pipeline, all that pipeline is going to go out in Q2. So it's one of the reasons why we said Q2 is going to be another particularly strong quarter given the pipeline that we have for road going out. And we're learning from each of our experiences. I mean, the road so massively outperformed everyone's expectations on our launches with Sephora in the U.S., Canada, U.K., as well as with Mecca in Australia and New Zealand, that we're taking that into our planning considerations in terms of making sure we're taking even a stronger stance on the pipeline that we have. And a lot of that's based on many of Sephora's best stores are actually outside the U.S. Many of them are in Europe. If we take a look, I think out of their top 10 doors, top 10, a number of them are in Europe. So we feel really good about the doors that we're going into as we go through. The other thing that gives us confidence is if you take a look at Haley's followers or Rhodes followers, I think over 70% of them are outside the U.S. So we've been hearing plenty of signals of pent-up demand from a consumer standpoint and particular excitement from Sephora in terms of Sephora would love to have this brand in every one of their doors globally, but we're going to sequence it one step at a time. And then in terms of price elasticity, we feel good once the other items go back to the original pricing. As Mandy said, we did see some unit improvement of those items, but it didn't justify relative to the level of price reduction. So we believe this plan of the 10% that will drive strong unit momentum will be in the best of both worlds, where we can have both dollar as well as unit growth post this pricing action, both the things that are coming back up as well as the things that we're going to permanently keep down, again, reinforcing our wall value proposition, but also doing so in a way that drives stronger gross profit over time.

And this will conclude our question and answer session. I'd like to turn the conference back over to Tarang Amin for any closing remarks.

Well, thanks for joining us today. I'm so proud of our passionate team of owners operating in a high-performance team culture for showing what it means to be a different kind of beauty company by building brands that disrupt norms, shape culture, and connect communities through positivity, inclusivity, and accessibility. The consistency of our industry-leading results gives me great confidence that for us, anything's often possible. We look forward to seeing some of you at our upcoming investor conferences and events over the next few weeks and to speaking with you again when we discuss our second quarter fiscal 27 results in November. Thank you and be well.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.