e.l.f. Beauty, Inc. 2027 Q1 Earnings Call

Thank you for joining us today to discuss e.l.f. Beauty's first quarter fiscal 2027 results. I'm Kristina Katten, 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'll 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 Tarang.

Thank you, Kacey, and good afternoon, everyone. I'm proud of the e.l.f. 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 seven 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 2027 outlook to 18%-20% net sales growth as compared to 12%-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. e.l.f. Cosmetics holds the number one rank in unit share and number two in dollar share. e.l.f. Skin has risen from the number 25 mass skincare brand a few years ago to the number 11 brand. Naturium is the fastest-growing skincare brand among the top 50. Rhode, the breakthrough beauty brand founded by Hailey Bieber, continues its outstanding growth. We believe Rhode could be the fastest beauty brand to achieve $1 billion in net sales. As e.l.f. 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-e.l.f.

sales from less than 1% to over 30%, skincare 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 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 e.l.f., as we talked last quarter, we're taking a series of actions to strengthen the e.l.f. 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 e.l.f. 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, e.l.f. 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 For It Blush Tint, and Thirst Burst Lip Treatment all are resonating with consumers.

In parallel, as we spoke about last quarter, we have fast-tracked additional innovation our community's 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 e.l.f.'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 e.l.f.'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, e.l.f. 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 IEEPA 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 2027, we're focusing on growing share for the e.l.f. 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 U.K.'s leading destination for beauty, in the fall of this year. We also plan to selectively seed the e.l.f. brand in new markets and capitalize on the glowing global demand we see from our community. This fall, we're excited to launch e.l.f. 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. e.l.f. is a highly elastic brand, as demonstrated by our success in cosmetics and skincare. With e.l.f. Skin, we've applied the same innovation playbook that fueled e.l.f. Cosmetics, taking inspiration from our community and the best products in prestige, then bringing those innovations to market at extraordinary value with our signature e.l.f. twist. It's working. In just a few years, e.l.f.

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 1 brand at 13%, illustrating the significant runway ahead of us. This fall, we're excited to launch e.l.f. Skin at Dollar General, meaningfully expanding our reach and building on the success we've achieved in cosmetics. Looking beyond cosmetics and skincare, our community continues to request e.l.f. enter other categories. With over 75% purchase intent for haircare, we answered the call in June with the launch of e.l.f. Hair, a curated six-product assortment, all priced at $10 or less. Entering haircare represents a strategically important expansion into a large, growing, and highly complementary beauty category. Haircare is an approximately $17 billion category in the U.S., growing faster than both cosmetics and skincare. e.l.f.

Hair debuted on TikTok Shop, fueling discovery and excitement, followed by an exclusive nationwide launch with Target. We supported the launch with our buzzy What The Health campaign.