Linda Bolton-Weiser • D.A. Davidson & Co.

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CFO Shane Jones clarified the $2-3M tariff impact estimate includes currently proposed retaliatory tariffs but not hypothetical future ones on U.S. exports to Asia. CEO Terrence Moorehead and Jones identified Taiwan, Japan, and a significant rebound in Korea (up 21%) as the primary drivers of Asia's strength. Moorehead expressed confidence in sustainable, though not 21%, growth in Korea due to improved fundamentals. On digital, they stated it represents about 25% of North American revenue, while China's business is 100% digital live streaming.

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CEO Terrence Moorehead attributed North American headwinds to both strapped consumers and temporary friction from the phased rollout of a new digital platform, with back-end tools for distributors still being implemented. Regarding costs, Moorehead and CFO Shane Jones confirmed the company is on track to achieve its $10 million savings target by year-end, with more savings expected in 2025. Jones noted that FX and inflation have masked benefits but expects a gross margin inflection in Q4. Moorehead added that there are no significant raw material shortages at present.

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Executive Michel Atwood stated that the most significant destocking effects are past, with the gap between sell-in and sell-out moderating in Q4. He noted that while competition is increasing and pressuring peer margins, Interparfums has maintained its operating margin. Executive Jean Madar expressed confidence in gaining market share in 2025, driven by a strong innovation pipeline. He detailed that the Ferragamo launch will begin in Q2 2025, accelerate in Q3, and target the U.S., Italy, and Mexico.

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CFO John DeSimone explained the guidance range reflects potential upside or downside risk primarily in the U.S. and China. He confirmed that currency headwinds of approximately 80 basis points are masking significant underlying EBITDA margin improvement. Incoming CEO Stephan Gratziani addressed China, attributing the weakness to a major strategic shift toward a customer-focused model and a new loyalty program. He noted the transition was slower than expected but is yielding the desired results in the customer base, with new initiatives planned to accelerate growth.

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President Stephan Gratziani explained that China's volume was impacted by a strategic shift to a new customer loyalty program, which boosted new customers by 65% but temporarily de-emphasized sales representative recruiting. CFO John DeSimone confirmed that significant cost savings have been realized, contributing to margin improvement, and stated the negative gross margin mix was primarily due to lower sales in the high-margin China market.

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Chairman and CEO Tarang Amin countered that the company has an incredibly strong innovation pipeline and does not 'copy' products but rather takes inspiration and adds a unique 'e.l.f. twist,' particularly on value. CFO Mandy Fields highlighted the lip category as a prime example of success in a conquest category, noting that the company grew its share by over 800 basis points, demonstrating that its innovation model allows it to gain significant share in new segments.

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CFO Mandy Fields clarified that the negative mix was from Naturium's planned expansion into wholesale, while international growth is a positive for gross margin due to the absence of U.S. tariffs. CEO Tarang Amin explained the hesitation on a long-term algorithm, citing that their previous one proved too conservative and that they prefer investors to focus on their three key metrics: net sales growth, adjusted EBITDA growth, and market share gains.

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CEO Ron Lombardi clarified the Dramamine extension targets stress-induced nausea and the Fleet expansion is into constipation products aligned with its 'serious relief' heritage, not competing with fiber supplements. He also expressed confidence in Q4 momentum. CFO and COO Christine Sacco explained the free cash flow guidance of '$240 million or more' already implies potential upside, accommodating the strong performance.

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CEO Ynon Kreiz agreed that Mattel's supply chain is a significant competitive advantage, enabling the company to manage complexity and excel in challenging market conditions. He stressed the advantage is not just about cost but also quality, service levels, and retail collaboration. He noted that supply chain efficiencies were a key driver of the strong gross margin and profitability improvements achieved in 2024.

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CEO Ynon Kreiz confirmed the Fisher-Price Wood line is now expanding globally after its exclusive period with Walmart and noted the overall brand has great momentum. Regarding competitors, he emphasized Mattel's focus on its own strategy and the competitive advantage of its scaled, in-house supply chain, which is symbiotic with its entertainment franchise strategy.

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CEO Linda Rendle explained that there is no single consumer metric that perfectly correlates with category performance. CFO Kevin Jacobsen clarified that the digital transformation is a 5-year, $560-$580 million program currently in its fourth year. He expects spending to decrease next year and conclude after fiscal year '26, at which point the charges will cease.

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Andre Schulten, an executive, detailed pockets of strength in U.S. Beauty (deodorants, personal care) but acknowledged weakness in Skin Care, where Olay is down double-digits. Jon Moeller, Chairman, President and CEO, explained that the overall segment's volume decline was heavily influenced by its significant presence in China, where volumes are still recovering and weighed on the global segment's results.

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Executive Andre Schulten reported that Olay's new innovations like Super Serums and Melts are highly successful in North America, while acknowledging an opportunity to rejuvenate the core jar business. In China, he noted that after divesting a brand, the focused Hair Care portfolio is performing well with strong innovation, highlighting that Pantene was the #1 online hair care brand in the last quarter, though the overall market remains down.

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Sara Hyzer, VP and CFO, quantified the customer bankruptcy's impact at approximately $800,000 and noted higher accruals for a growth reward program contributed to the SG&A increase. She also confirmed the Q2 easy comparison was due to a $2.5 million disruption from the prior year's ERP implementation. Steve Brass, President and CEO, clarified that U.S. promotions were not unusually large but reflected strong retail POS sales, up 4-5%. He explained the sales cadence involves strong H1 growth in Brazil tapering in H2, while Asia distributor markets are expected to pick up in H2. He attributed strong European performance to broad-based execution across the region.

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CFO Sara Hyzer confirmed the FY2025 guidance is on a pro forma basis, fully excluding the brands targeted for divestiture, and noted the company will provide non-GAAP comparisons. She explained that future margin gains will be more gradual and driven by supply chain initiatives, with an assumed oil price of $70-$90 per barrel. Hyzer projected back-half weighted sales growth for the year. President and CEO Steve Brass added that Asia-Pacific growth will start slower due to tough comps, while Brazil's incremental growth will be front-loaded. He attributed China's strong performance to successful, ongoing sampling and distribution expansion programs.

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President and CEO Denise Paulonis reiterated the company's guidance for low single-digit comp growth and margin expansion, expressing conviction in their plans. She explained that owned brands (like the successful 'Bondbar') and national brands are complementary and part of a modern specialty retail strategy. Regarding drugstore closures, she stated the company focuses on its own customer acquisition strategy rather than tracking specific competitor impacts.

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CFO Doug Hekking clarified that increased Q4 promotions will primarily impact the associate incentives line, driving lower margin guidance. Chief Commercial Officer Brent Neidig stated the new whey protein is for a broad market, not just GLP-1 users, and that the core nutritionals category remains the focus for 2025. On capital allocation, Hekking reiterated priorities are organic investment, M&A, and then buybacks. Regarding China, Neidig and Hekking noted that current government stimulus is not yet directly impacting consumer spending but is a positive long-term signal for consumer sentiment.

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CFO Brian Grass stated that the new distribution gains secured for the second half of fiscal 2025 are expected to be larger than the carryover gains from fiscal 2024 that benefited the first half, though he did not provide a specific quantification. CEO Noel Geoffroy commented that having brands like Curlsmith and Drybar in Ulta at Target is a positive for brand visibility and accessibility due to high foot traffic, viewing it as a benefit even if its direct impact isn't broken out separately from overall Ulta sales.

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