Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- e.l.f. Beauty Inc (ELF, Financial) achieved a major milestone with over $1 billion in net sales for fiscal '24.
- Net sales grew by 77% year-over-year, with a significant increase in gross margin.
- International sales grew by 115% in Q4, with strong performance in Canada and the U.K.
- The company continues to innovate, with successful product launches like the Power Grip franchise and bronzing drops.
- e.l.f. Beauty Inc (ELF) has a strong digital presence, with digital channels driving 22% of Q4 consumption and a highly engaged loyalty program.
Negative Points
- The company faces macroeconomic uncertainties that could impact future growth.
- Higher transportation costs due to the Red Sea disruption are expected to affect gross margins in the first half of fiscal '25.
- Inventory levels have increased significantly, which could pose a risk if consumer demand fluctuates.
- The guidance for fiscal '25 indicates a slowdown in growth compared to the exceptional performance in fiscal '24.
- There is potential geopolitical risk related to social media platforms like TikTok, which could impact marketing strategies.
Q & A Highlights
Q: So I wanted to just decompose a bit the guide, and I appreciate that you always have been very conservative. You just delivered 3x the growth that you were expecting with amazing campaigns and engagement by consumers as you highlighted. So I was trying to see how much the 21% at the midpoint would represent?
A: Thank you so much, Andrea. So in terms of our guidance on the net sales side, we are guiding 20% to 22% net sales growth, and we feel incredible about that. That is building strength on strength on top of the 77% net sales growth year we just delivered in fiscal '24. So we actually feel great about our guidance. And how that breaks down, I would say that this guidance implies that our growth is going to continue to be unit led. We talked about being the #1 unit share growth -- or #1 unit share brand in Nielsen data. Our Nielsen data continues to go very strong. We've outlooked that Nielsen should continue to perform in the 20s range as we've seen. And additionally, for Q1, we've also indicated that we expect to be above that 20% to 22% net sales guidance range. And so feel really great about what we're seeing in the near term. And as you mentioned on the guidance strategy, we have been very consistent in our guidance strategy. And that approach has worked very well for us. So we like to take it a quarter at a time. And I can tell you, what we're seeing for Q1, we really are pleased with. And again, we'll take it one quarter at a time. And to answer your question on Naturium. Naturium will be incremental for the first half of the year as they were not in our base period. And so when you take the Nielsen data plus Naturium and what we have outside of untracked, that's where we get to a rate that is above that 20% to 22% as we look at Q1.
Q: [With respect to] kind of the international markets [has been] very impressive. Maybe you can talk a little bit about the brand awareness you're seeing in international markets that you currently don't [sell] product in. how much of your social contact is consumed outside your core markets and then remind us of the pacing of international expansion that we should kind of expect in the medium term.
A: Ashley, this is Tarang. We're extremely pleased with the progress we're making in international. I think for the quarter, we grew international 115%, primarily off of our first 2 countries, Canada and the U.K., where we continue to increase rank. One of the things we found as we started expanding the brand is there's a tremendous amount of pent-up demand for the brand. And it really comes from much of our social feed and social strength in the U.S. is consumed outside of the U.S. So a few months ago, when we launched Douglas Italy, not only were lines down the block for when we opened, but we quickly rose to the #1 brand in Italy, not only in mass, but across prestige. We recently found the same thing when we went into Etos in the Netherlands, we're not even complete with our rollout there. I think the rollout gets completed in July, but we're already the #1 brand in cosmetics. So what we're finding is consumers internationally are waiting for e.l.f. when we enter the market, you see this tremendous excitement. And so -- and then in terms of cadence, I feel like each quarter, you're going to hear about us talk about another country. We're very pleased to talk about us partnering with Sephora to enter Sephora Mexico. It's our first entry in Lat Am, and we're really excited of what that can open up for us in other [Sephora] markets around the world, and we continue to have really great conversations with other retailers as we map up that strategy. So I think you can expect the same disciplined sequential rollout strategy, as you saw within the U.S., as you see us approach with Canada and U.K., where we start with a leading retailer and then go deeper in the market.
Q: So just wanted to get a bit more detail on the top line guidance for fiscal '25. You mentioned you're still optimistic on category growth and the momentum in Q1, but assume a slowdown in the balance of the year post Q1 on macros. So can you just give us a bit more detail on what you're seeing near term in the category so far in fiscal Q1, given the [Ulta] comments and some of the worries out there. And then the balance of your slowdown, is that just macros? And how do you think about that relative to what you're seeing so far in Q1?
A: Dara, this is Tarang. I'll take the first part -- or I'll take the category view and then let Mandy talk about the cadence on the guidance. Overall, on the category, I would tell you that remain bullish on the color cosmetics category. I know there's been conversation recently on mass color slowing down. But even if you look at the -- our Q4, mass color was down 3%. But what people don't recognize is that a year ago period was up 18%. So the category actually on a 2-year stack basis is doing quite well. Even in the quarter we're currently in, the 2-year stack is plus 5% on mass color. So the category itself, we still feel really great about. And then in terms of some of -- and then within the category, we are particularly well positioned. If you take a look at our history over the last 21 quarters, regardless of the pandemic, container balances, wherever the category was, we've proven the ability to grow our net sales and market share quarter after quarter, even with some of the commentary recently by some of the retailers. I know some of the Ulta commentary, I can't talk about their overall commentary. What I can tell you is in fiscal '24, we grew our Ulta business 80%, well above the overall growth rates were. Even Target, which Target did call out today, beauty being a bright spot. Our target business was up 70% last year. So we feel really great in terms of where we're positioned and the strength we're seeing across every one of our channels, including digital.
Q: And congrats on the growth (inaudible) this year, pretty phenomenal. You mentioned a number of upcoming shelf-space expansion, the launch of Naturium in Ulta and then Sephora in Mexico for e.l.f. Can you give us a sense of the shelf space that you'll get for that? And then whether -- it sounds like the launches and shelf space gains in existing retailers isn't embedded in the outlook beyond Q1. So if you could just give a little bit of color behind that, a couple (inaudible) of times, obviously, that you'll take them one quarter at a time. So does that also not assume in that 20% to 22% growth, the additions of the retail shelf space that you'll be getting.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
