Q3 2024 Earnings Summary
- e.l.f. Beauty has consistently grown its market share in color cosmetics from 4.5% to 10% nationally over the past few years, with ambitions to double it again, indicating strong potential for continued growth. At Target, they are the #1 brand with nearly a 19% share.
- Significant growth opportunities exist in e.l.f. Beauty's skin care segment, with e.l.f. SKIN growing 89% but holding only a 1.4% market share compared to the leader at 14%. The acquisition of Naturium, which has grown at an 80% CAGR over the last two years, positions them well to expand in this high-potential category.
- e.l.f. Beauty's innovative marketing strategies yield high ROI; as they increase marketing spend—now at 24% of net sales—they see even better returns. Upcoming high-profile campaigns, such as a national Super Bowl ad that will triple their reach, support sustained brand strength and growth.
- Potential Supply Chain Disruptions and Rising Costs: e.l.f. Beauty's international expansion relies on shipping products from China to Europe, exposing the company to potential supply chain disruptions and rising shipping costs. While the company notes minimal impact so far, they acknowledge that shipping rates have temporarily gone up and are monitoring the situation.
- Increasing Competition May Pressure Growth and Marketing ROI: Competitors are attempting to emulate e.l.f. Beauty's successful marketing strategies, which could pressure the company's growth and return on marketing investment. The company recognizes that competition is "trying to catch up", which may impact their ability to maintain high growth rates and marketing effectiveness.
- Tougher Comparable Periods Could Lead to Growth Deceleration: e.l.f. Beauty is facing tougher comparable periods ahead, having previously reported exceptional growth rates. For instance, Q4 last year was up close to 80%, and while they still feel good about the implied 53% growth in the upcoming Q4, sustaining such high growth rates may become more challenging. ,
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Volume vs Price Mix
Q: How will volume and price mix drive growth ahead?
A: Management expects volume to continue being the main driver of growth, with mix also contributing due to innovation at higher price points. They have not taken pricing this year but see potential impacts from future innovation mix on gross margins. -
Shelf Space Expansion
Q: What is the impact of new shelf space at retailers?
A: e.l.f. Beauty is gaining more shelf space at Walmart and CVS, which will allow for a larger assortment including holy grails and new items. The Walmart expansion will significantly impact fiscal '25, enhancing growth opportunities. -
Marketing Spend and ROI
Q: How are you managing marketing spend and ROI amid competition?
A: Despite increasing marketing spend to over 24% of sales, e.l.f. Beauty continues to see strong ROIs. They plan to air a national Super Bowl ad to triple reach and remain ahead of competitors. -
Long-term Market Share Growth
Q: How do you view long-term market share opportunities?
A: Management anticipates continued market share gains, aiming for clear market leadership. They have grown from 4.5% to 10% share in color cosmetics and see significant upside in skin care and international markets. -
Naturium Performance and Expansion
Q: How is Naturium performing and what's the expansion plan?
A: Naturium is performing well and contributing an expected $48 million for the year. They are expanding into Shoppers Drug Mart in Canada and leveraging their distribution capabilities. -
Gross Margin Outlook
Q: What's the outlook for gross margins, especially in Q4?
A: Gross margins are expected to be around 69% in Q4, with full-year expansion of about 280 basis points. Factors include continued benefits from mix and cost savings, with seasonal considerations in Q4. -
Impact of Tariffs
Q: How are you addressing potential tariff impacts?
A: Since 2019, they've dealt with 25% tariffs on products from China and could adjust pricing if new tariffs arise. They are also diversifying suppliers and expanding manufacturing outside China. -
e.l.f. SKIN and Naturium Synergy
Q: What are the learnings from Naturium for e.l.f. SKIN?
A: The integration with Naturium highlighted the value of dedicated teams, leading to plans to enhance resources for e.l.f. SKIN to realize its growth potential. -
Supply Chain and Freight Costs
Q: Any concerns with supply chain or freight costs to Europe?
A: Shipping from China to Europe continues via sea and rail with minimal current impact from freight rate fluctuations, though they are monitoring the situation. -
User Growth Dynamics
Q: Are you seeing growth from existing or new users?
A: Initially, growth came from existing users expanding baskets, but now they're attracting many new users who also increase purchasing over time, enhancing lifetime value.