Some Conference Call excerpts
In color cosmetics, we continue to significantly outperform the category. In Q3, e.l.f. Cosmetics grew 46% in tracked channels, 23 times category growth of 2%.
In Target, our longest-standing national retail customer, we’re the number one brand with about a 19% share, nearly double the share we had in Target just a few years ago.
In skincare, we also continue to outperform the category. In Q3, e.l.f. SKIN grew 89% in tracked channels, 10 times category growth of 9%. We grew our share by 60 basis points [from 0.8% to 1.4%, not bad!] and gained six rank positions, increasing our rank to the number 14 brand as compared to the number 20 brand a year ago, e.l.f. SKIN today holds a 1.4% share and a significant runway with the number one brand holding 14% share.
We’re also making progress with Naturium, the skincare brand we acquired in October. Naturium has doubled our skincare penetration to 18% of retail sales and gives us a fast growing complementary brand to further our aspirations in the category. Naturium has seen exceptional growth with net sales growing at an 80% CAGR over the last two years. We’re pleased by the strong growth that Naturium continued to deliver in Q3.
Turning to international, our net sales grew 119% in Q3 and drove 15% of our business as compared to 13% a year ago. We saw terrific growth in the U.K. and Canada, our largest global markets. As compared to our number three position in the U.S., e.l.f. is the number four cosmetics brand in Canada and the number six brand in the U.K.
In Italy, where we just launched this fall, e.l.f. is already the number one brand in Douglas across both mass and prestige. We see significant runway to expand our brands globally.
[ Douglas is the leading premium beauty and health platform in Europe. Offering around 200,000 beauty, lifestyle and health products in online shops, the beauty marketplace and around 2,000 stores…]
First, we’re known for our value proposition. Our mission is to make the best of beauty accessible to every eye, lip, face and skin concern. We have a unique ability to deliver high quality holy grails at an extraordinary value, created with inspiration from our community, the best products in prestige, and our distinctive e.l.f. Twist. The average price point for e.l.f. is a little over $6 today as compared to over $9 for legacy mass cosmetics brands and over $20 for prestige brands. [Hard for competitors to undersell them, except at a loss, while Elf maintains a 71% gross margin].
Our ending inventory balance was $205 million in-line with our expectations and up from $81 million a year ago. The difference is primarily a combination of three things.
First, as we said last quarter, we continued to build back our inventory levels through fiscal ‘24 to support strong consumer demand.
Second, approximately 28 million of the increase is the result of taking ownership of inventory from China when it ships versus when it enters our distribution center here in the U.S. [avoiding import tarifs?]
Lastly, our consolidated results include Naturium for the first time, which added approximately $25 million of inventory. We believe we have the appropriate levels of inventory across the business to service our customers and support the demand we’re seeing.
Question : Maybe you can help us understand the outperformance in the quarter. And I understand you have a solid track record of conservative expectations or forecasts. But I mean, this seems to be upstanding in terms of the beat and all across the board. So, what drove or was there any couple of factors that drove the upside, especially as I think we were all looking at kind of tougher comps as we entered December, but you seem to kind of surpass that and keep on moving even as we see the scanner data today. So, is anything changed? Anything stepped up? Was there something different or were you just really conservative on your guidance?
Answer : Well, I would say, Bill, When we talk about exceptional, consistent category leading growth, that’s exactly what you’ve seen for us for 20 quarters in a row. We cite the stat of we’re one of only five public consumer companies out of 274 that have grown 20 consecutive quarters at over 20%. So, I think it’s more consistent than not.
In terms of the quarter, the quarter did come in better than we were expecting. And it really is, all three of our key drivers working in concert. So, if I look at our value equation, our powerhouse innovation, and our marketing engine, we continue to see great strength and great fundamentals in each of them.
[These are just a few excerpts. There’s lots more]
Saul (for disclosure, Elf is my largest position).