e.l.f. Beauty, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Q3 Results: Delivered 31% net sales growth, $69 million in adjusted EBITDA, and increased US market share by 220 basis points. It's the 24th consecutive quarter of net sales growth and market share gains, one of only six public consumer companies with 24 straight quarters of growth.
• Fiscal 2025 YTD: 40% net sales growth. Q4 consumption trends were softer than expected due to category decline in Jan, lapping Glow Reviver Lip Oil launch, and slower new product launches.
• Focus Areas: Digital, color cosmetics, skincare, and international.
  • Digital: 30% YOY growth in Q3, digital channels drove 24% of net sales, Beauty Squad loyalty program has over 5.6M members, mobile app has over 3M downloads.
  • Color cosmetics: Outperformed category, grew 16% in tracked channels, number one unit basis at Target, number two brand at Walmart.
  • Skincare: e.l.f. Skin ~2% share, Naturium acquisition doubled skincare penetration, launch in Ulta performing well.
  • International: 66% net sales growth in Q3, retail presence in 15 countries, achieved top three rankings in new markets.
• Innovation and Marketing: Powerhouse innovation with holy grail products, disruptive marketing including Eyes, Lips, Face Fandom campaign and Halo Glow franchise campaign.

Segment Performance

• Digital: Q3 digital consumption trends were up nearly 30% year-over-year, driving 24% of net sales. The Beauty Squad loyalty program surpassed 5.6 million members, and the mobile app has over 3 million downloads.
• Color cosmetics: Grew 16% in tracked channels, increasing market share by 220 basis points. Nationally, it's the number one brand on a unit basis with ~14% share and number two mass brand on a dollar basis with ~12% share. Grew cosmetics share by 170 basis points at Target and moved from number four to number two at Walmart.
• Skincare: e.l.f. Skin holds ~2% share, and the acquisition of Naturium doubled skincare penetration to 18% of retail sales. Launch of Naturium into Ulta is performing well.
• International: Net sales grew 66% in Q3, driving 20% of net sales. Has a retail presence in 15 countries and achieved top three rankings in new markets launched in over the last year.

Guidance

• Lowered Q4 net sales outlook to -1% to +2%.
• FY 2025 net sales growth now expected to be 27%-28% (previously 28%-30%).
• Second half 2025 net sales growth expected 14%-16% on top of 77% growth in second half of 2024.
• Gross margin expected up ~40 basis points YOY.
• Adjusted EBITDA for FY 2025 now $289M-$293M (previously $304M-$308M) due to FX loss and lowered top-line outlook.

Risks

• Consumer trends softer than expected in calendar 2025, including category decline in Jan, lower social conversation around beauty, and slower new product launches.
• Potential impact of tariffs on goods imported from China, though the company has levers to address this with supplier diversification and international sales growth.

Q: Bill Chappell with Credit Suisse asked about the duration of the softer trends in January and international trends.

A: Tarang Amin responded that the softness in January was due to category decline, lapping the Glow Reviver Lip Oil launch, and lower social conversation. He expects improvement as social conversations normalize and spring resets roll out. On international, net sales grew 66% in Q3, and the company is seeing strong momentum with retail presence in 15 countries and top three rankings in new markets.

Q: Andrea Teixeira with JPMorgan asked about US consumption and newness of the category.

A: Tarang Amin said Q3 consumption was still double digits, but January saw a slowdown. He noted that newness of spring items is still early, with marketing activations and spring resets to help. Mandy Fields added they are seeing strength across channels and have a good value proposition.

Q: Dara Mohsenian with Morgan Stanley asked about adjustments to strategies in response to the new environment.

A: Tarang Amin mentioned continuing to balance core franchises and new items, using marketing activations and visual merchandising to bring new items to life. They feel confident in their approach even in a challenged category.

Q: Ashley Helgans with Jefferies asked about the mass cosmetics consumer and category cycles.

A: Tarang Amin said the mass category has been soft due to consumer uncertainty and worries about inflation, but he remains bullish long term as the category has rebounded in previous cycles. Their strategy is working and they are delivering 24 consecutive quarters of growth.

Q: Olivia Tong with Raymond James asked about Q4 performance and capitalizing on consumer trade down.

A: Tarang Amin said Q4 is part of the second half outlook, and they still have strong digital and international business. Mandy Fields added they are continuing to build share, even in weak months, and highlighting value messaging.

Q: Patty Cannato with Goldman Sachs asked about Amazon and digital momentum.

A: Tarang Amin said digital business is strong, with Amazon growth higher than overall digital. Amazon helps with discovery and reaching new consumers, and there is no significant cannibalization risk as it's additive to their portfolio.

Q: Korinne Wolfmeyer with Piper Sandler asked about pipeline fill in Q3 and international trends in Q4.

A: Mandy Fields said Q3 had more pipeline than Q3 2024, and international continues to have momentum with strong growth in existing markets despite a cadence change. On gross margin, they are pleased with Naturium's performance and expansion.

Q: Peter Grom with UBS asked about growth run rate and market share.

A: Tarang Amin said the run rate will be better than Q4, with significant white space and confidence in continuing to build market share. Mandy Fields added SG&A leverage in Q4 is from marketing and digital investment.

Q: Linda Bolton Weiser with Canaccord Genuity asked about innovation and conquest categories.

A: Tarang Amin said they never copy products, but have a unique e.l.f. twist. Mandy Fields added progress in conquest categories like lip, where share has grown significantly, and opportunities in mascara, foundation, etc.

Q: Susan Anderson with Canaccord Genuity asked about Naturium performance and competitive landscape.

A: Mandy Fields said Naturium is performing well in Ulta and Boots, with strong growth. Tarang Amin added their unique strategy is hard to copy, with strong market share growth and unique marketing and innovation.

Q: Anna Lizzul with Bank of America asked about category breakdowns and skincare trends.

A: Tarang Amin said Q3 had broad strength, with lip being strong in Jan, and skincare continuing to grow. Overall, they see opportunities to grow share across segments.

Q: Mark Altschwager with Baird asked about retailer destocking and cost structure flexibility.

A: Mandy Fields said they haven't heard from retailers about destocking, and they have flexibility to reduce costs but focus on investing in growth areas.